Ministry of Defence awarded contracts for guarding ammunition depots to one particular supplier without tendering

PRESS RELEASE on Audit No. 14/36 – November 16, 2015

The Supreme Audit Office (SAO) scrutinized the Ministry of Defence and its management of service contracts, namely catering, cleaning and running of military housing facilities, and guarding of ammunition depots within the period from 2009 to 2014. In total, the Ministry spent CZK 5,300 million for these services, out of which CZK 4,700 million were scrutinized during the auditing operation. Auditors revealed that project-management of the purchases was not working and together with frequent organisational changes resulted in errors in public services contracts and potentially unfavourable agreements. Auditors concluded that breaches of the budgetary discipline amounted to CZK 2,200 million.

Most serious errors were revealed with public contracts for guarding of ammunition depots, which included purchases of technologies and reconstructions of the depots. The Ministry of Defence awarded the guarding contracts to one particular supplier after a negotiated procedure without prior publication, in spite these contracts should have been awarded in tenders. According to the said contracts, the Ministry is committed to buy the guarding technologies item-by-item from the supplier. The technologies were paid by sequential instalments, in spite it is explicitly prohibited by the Act on Property of the Czech Republic. In total, the Ministry spent CZK 1,600 million, which were not directed to this purpose. The budgetary discipline breach related to purchases of guarding services amounted to CZK 2,100 million.

Consequences of the failing management also appeared during procedures for the award of public service contracts for other audited services as well. For example, the Ministry of Defence agreed on pre-set numbers of meal portions, which the military units were supposed to take on a daily basis. It was also agreed that in case the particular unit takes smaller number of portions than set in the agreements, the final price of one meal portion would increase. The terms were so unfavourable that the Ministry in some cases paid seven times the price, which increased from CZK 39 to CZK 266 (the price of materials not included). In case the real numbers of meal portions were higher, the final price of one portion differed only minimally. Planned numbers of meal portions were significantly over- and underestimated, which increased final costs of catering services. Such unfavourable contracts were used by the Ministry for several years.

The Ministry of Defence failed to set appropriate criteria for evaluation of cost-efficiency of the service contracts. As a result, the Ministry lacked the necessary information whether new competitions should have been called with the services or whether the services should have been ensured with own resources.

Errors were also revealed with audited public contracts awarded by the allowance organisation “Armadni Servisni”, which ensured the services of security and operating of military housing facilities. For example, the Organisation excluded one of four presented bids without giving any reasons in one case and also paid one supplier more than set in the agreement without showing the purpose for which the used funds were utilised.

Auditors identified issues with procurements of catering and cleaning services already in 2008 during the auditing operation No. 08/01. The Ministry was supposed to implement corrective measures, which should have helped to improve the situation. The Ministry did inform the Government about the implementation of corrective measures but in fact, no measures have actually been implemented. In case of catering services, the implemented corrective measures were ineffective. Issues related to these services have increased since the previous auditing operation.

Communication Department
Supreme Audit Office

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