The RECORD project aims to reduce corruption risk by analysing local public procurement processes in Hungary, Poland, Romania and Spain. Today Civio releases an investigation on the concentration of public contracts on the €14,900 (goods and services) and €39,900 (works) edge, just below the legal thresholds to be directly awarded, avoiding competitive tendering.
In a single year, from August 2018 to July 2019, public authorities awarded over 35,000 minor contracts for goods and services exceeding €5,000. Almost 10% (a total of 3,261) are like lemmings perched on the edge of the cliff: they amount to between €14,900 and €14,999.99 Does this just so happen to be the most common market range for everything purchased or ordered by public authorities? No. Rather, it's the legal limit to award them directly with almost no controls or transparency. This became obvious when the limit changed in March 2018, dropping from €18,000 to €15,000. Right after this date, the price of many of these goods and services changed too.
Here is a good example: The contracts signed in 2017 and 2018 between firm Opyser and National Heritage to operate the ornamental fountains in La Granja de San Ildefonso, Madrid amounted to €17,999.99. However in April 2019, with the new thresholds in force, the contract for the same service went suspiciously down to €14,900. We spot the same ‘round up’ in Cantabria. In both 2018 and 2019, the regional Government of Cantabria contracted rating agency Fitch. In 2018 the sum was €17,999, just under the €18,000 threshold; in 2019 was for exactly €15,000. This one is actually considered illegal because so-called minor contracts can only be awarded directly for sums of less than €15,000. Following the same practice, the Directorate General of Traffic (DGT) save €3,000 for the preventive maintenance of its heliports in 2019; and the Balearic Islands Health Service paid €3,000 less to a non-profit organisation of hospital clowns in 2019 than in 2018.
The data on the Public Procurement Portal shows that unfortunately the priority in public procurement is to save paperwork or contract a specific company no matter what, adjusting the costs to keep it under the threshold established by law. The consequences are that, firstly, contracts are awarded for prices that don’t reflect reality; secondly, costs are squeezed to avoid competitive tendering, meaning other companies are unable to submit better bids.
Moreover all those contracts rounded-up to exactly €15,000 are illegal. According to the law, this fast-track process can be used below, but not on the thresholds. Thus, all minor contracts for sums of exactly €15,000 for goods and services, or €40,000 for works, are illegal. A total of 1,101 minor contracts for goods and services awarded between August 2018 and July 2019 exceed the set thresholds, more than half (671) are for exactly €15,000. It’s the same for works: of the 172 that exceed the limits, almost half (79) are for exactly €40,000.
Independent anti-fraud and control agencies condemn this concentration of contracts just below the thresholds.The Oficina Antifrau de Catalunya (Catalan Antifraud Agency), commented on this significant concentration of contracts awarded just below the thresholds, that it “jeopardises equal access to public tenders, unfettered competition, and efficiency in public procurement”. In the same vein, the Independent Office for Regulation and Supervision of Contracts (OIReScon in Spanish), ruled in its first instruction that all state public sector entities should solicit three tenders, where possible, to conclude minor contracts.
The data used in this article come from the Public Procurement Platform database, where the majority of local and autonomous public authorities publish their contracts. We have downloaded all minor contracts published from the 1st of January 2018, and the 31st of July 2019. There are some 346,726 in total. We have excluded from the database those entities that are not public authorities because minor contract regulations are not 100% applicable to them.
We created a database that would allow us to perform the consultations necessary to spot just how close these contracts come to the limit, how many identical contracts changed price when the thresholds were amended, and which exceed these and are thus illegal.
To browse the possible red flags, it was vital to cleanse the files we were going to be working with, as we had detected multiple errors in the original data. In all cases where errors were found, these have been resolved. We applied the types of exemptions stipulated by law. All cleansed files used in our analysis can be downloaded from Civio’s open data website.
Almost 10% of minor contracts awarded in Spain for goods and services are for sums of between €14,900 and €14,999.99, the legal limit to award them directly, avoiding public tendering.
In March 2018, the limit for this kind of contracts dropped from €18,000 to €15,000. Right after this date, the price of many of these goods and services changed too. Does that mean that public administrations were overspending before that? Most probably, costs are being squeezed after that date to evade advertising and competitive tendering.
Concentration of contracts just below the thresholds is a well-known redflag in public procurement, condemned by independent anti-fraud and control agencies. According to Oficina Antifrau de Catalunya (Catalan Antifraud Agency), it “jeopardises equal access to public tenders, unfettered competition, and efficiency in public procurement”.