Ministries awarded 62 % of ICT procurement contracts without tendering

Press Release – December 16, 2013

The Supreme Audit Office (SAO) performed an audit of public contracts in the area of information and communication technologies, which were awarded by ministries during the period 2009–2012. Auditors also scrutinized 41 selected public contracts, which were awarded by the Ministry of Defence in the frame of maintenance and development of its five information systems.

The SAO analysed data from the public contract information system as well as other sources. Between 2009 and 2012, ministries awarded public contracts worth CZK 52,000 million. Over 37 % of the public contracts were awarded based on negotiated procedure without publication of a contract notice (NPWOP), i. e. without tendering. The percentage rised with public contracts in the field of ICT: Suppliers were directly awarded in case of 62 % of public contracts worth CZK 11,000 million without open procedure.

At the Ministry of Defence, the percentage of public contracts in the field of ICT that were awarded in the form of NPWOP was approximately 61 %. With public contracts awarded in the form of an exemption from the Act on Public Procurement, the percentage went up to 72 %.

In connection with the review of specific information systems, the SAO discovered that in the case of five such systems, the Ministry concluded agreements on technical improvements worth CZK 709 million. Almost half of the amount comprised of forced investments called for by amendments to various pieces of legislation and other legal regulations.

The SAO identified elements of the vendor lock-in effect, i. e. the factual dependence on one contractor. The Ministry concluded contractual relationships lasting up to 20 years and extended them by using NPWOP, making reference to the protection of exclusive rights held by the contractors in justification.

Auditors revealed that final prices of the contracts corresponded in 99 % of the time with the anticipated prices that were indirectly dictated by the suppliers. The Ministry never performed a comparison of the prices of the supplied application software with fair prices. As the Ministry failed to secure copyrights to the software licences, up-dates must be ordered from the current suppliers. The Ministry did not revise any agreements related to the long-term used systems.

The Ministry of Defence violated the Public Procurement Act when in two individual contracts purchased new commercial software for CZK 88 million using NPWOP instead of open procedure. But the same software could be purchased from other suppliers and the final price could be positively influenced during a competition.

The influence of open procedure on reducing the contracts’ prices is also documented by studies conducted by the European Commission , according to which such procedure doubled the number of bidders and reduced the value of a contract by about 9 %. The Ministry of Defence confirmed this fact during 2013 when a tender for a new information system was held. In the open procedure, the winning bid only amounted to 37 % of the anticipated price.

For further details about auditing operation No. 13/09 (in Czech only), see the following link:

Communication Department
Supreme Audit Office

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