Latvia’s public procurement system and legal framework should be improved so that the procurement process is simpler and faster and the work invested by procurement specialists is proportionate to the results obtained, according to the conclusions of the State Audit Office of Latvia after the audit.
BRIEFLY
- The State Audit Office of Latvia has concluded a performance audit of the public procurement system and drafted two audit reports, “Problems and Opportunities for the Development of Public Procurement” and “Effectiveness of Public Procurement in the Interior”.
- In Latvia, the total financial value of public procurement reached 5.4 billion euros excluding VAT, which was 14% of GDP in 2023.
- The successful conduct of public procurement is hindered by complicated and inflexible legal framework, the lack of professional procurement specialists and the slow development of procurement centralisation.
- The public procurement system established by the Interior needs to be improved so that it can meet the needs of sectoral institutions in a timely manner and to the required extent.
The effective public procurement process is hindered by: (1) the legal framework of public procurement in Latvia, which could be more flexible in several aspects; (2) hesitation to make bold decisions for the development of public procurement centralisation; (3) the undervalued position of procurement specialists, as evidenced by the uncompetitive remuneration of procurement professionals; and (4) insufficient advisory support and insufficient free-of-charge training.
“Public procurement is a mechanism that ensures the functioning of the state and the effective use of public resources. Safeguarding that the requirements, costs and benefits in this mechanism are proportionate is essential. In Latvia, the total value of public procurement reached 5.4 billion euros excluding VAT, which is 14% of GDP in 2023. Applying the Public Procurement Law, 11,252 procurements were announced in 2023. Such a significant amount of public resources requires maximum transparency, effectiveness and targeted action to obtain the best potential results. Clearer and more flexible regulation would facilitate its understanding and application, as well as reduce the likelihood of errors and improve the procurement process,” indicated Mr Gatis Litvins, Council Member of the State Audit Office of Latvia.
The Latvian public procurement framework is stricter than the European Union requirements. Procurement procedures (e.g., open tender, restricted tender) are applied from significantly lower contract price thresholds than required by the European Union directive. Although the rules for procurement below the European Union thresholds may be relaxed by a EU Member State, the requirements of the Public Procurement Law are not simpler significantly than for procurements to which the aforementioned Directive applies. Over the past 18 years, the nationally determined public procurement contract price threshold for works contracts has been revised in 2006, for service and supply contracts in 2013, and for “small-scale” procurements in 2017. Currently, these thresholds do not correspond to the current economic situation.
The application of the rules on exclusion of suppliers is one of the most important and complicated issues. In several respects, the Directive allows for a more flexible approach, for example, for tax non-compliance. The fact that 90% of all excluded tenderers are excluded for tax non-compliance shows that the regulation is disproportionate.
In general, those involved in a procurement process both contracting authorities and contractors have to familiarize themselves with a voluminous and complicated legal framework and spend significant resources to apply it appropriately. Only 16.5% of the customers of the Procurement Monitoring Bureau assess the application of the laws and regulations in procurement as understandable. The State Audit Office of Latvia recommends that the Ministry of Finance conduct an ex-post evaluation of the Public Procurement Law as soon as possible to make the legal framework on public procurement easier to apply. It could promote competition by reducing the red tape and accelerating the procurement process.
The role of procurement specialists in public administration is not appreciated sufficiently. Given a complicated legal framework and existing public procurement system, the professionalism of procurement specialists plays a decisive role. There are few professional procurement specialists in the public sector, and for many, procurement is only one of several job responsibilities. In addition, the remuneration of specialists lags behind the salaries of equivalent positions in the private sector significantly and the conditions to which they are exposed when performing their daily work duties are not fully taken into account such as the risk of corruption and the restriction of rights after making a decision on specific suppliers.
“A competent procurement specialist is an essential factor in ensuring a successful procurement process. It is necessary to improve both the further education of procurement specialists and ensure competitive remuneration that corresponds to the risks and specifics of the position, as well as the advisory and methodological support available to them. Although free training opportunities have been expanded, there is still room for growth in this regard to increase the competence of procurement specialists and potential suppliers in preparing procurement documentation,” added Mr Litvins.
The optimisation of the public procurement process is delayed. The centralisation of public procurement is an essential tool for reducing administrative costs and increasing effectiveness but its development is hampered by continuous fluctuations in decisions on further progress. The centralisation of public procurement has already been mentioned as one of the areas of public administration from 2010 that, along with other support functions, should be centralised. At the European Union level, the centralisation indicator for Latvia was the second best among the EU Member States, 17%, in 2022. In its turn, the level of centralization of all procurements carried out in the country as a whole is around 10%. To utilize the potential of centralisation in full, a number of procurement institutions must be reduced and qualified specialists must be concentrated in competence centres with clear specialisation. It would promote savings in administrative resources and better process management. Facilitating a broader involvement of local and regional governments in the centralisation of procurement should be made, as currently almost a third of local and regional governments do not carry out centralised procurement.
Challenges of the Interior in organising public procurement
“The Interior has large and crucial services for the internal security of the state, which must be provided with the extensive resources necessary to fulfill their assigned functions. When assessing the effectiveness of public procurement in the Interior during the audit, we concluded that the public procurement system established in the sector should be improved so that it could meet the needs of the sectoral institutions on time and to the required extent. From 2021 to 2023, more than a third or 34% of the announced procurements (and/or parts thereof) were concluded without a result,” explained Mr Gatis Litvins.
The State Audit Office of Latvia has detected during the audit that the most significant obstacle to the successful conduct of procurement is the low capacity of the personnel involved in the performance of the function currently, which is influenced by several factors such as workload, which varies across sectoral institutions significantly, uncompetitive remuneration, as well as insufficient training. Shortcomings in staff capacity also affect the planning and implementation of work to be performed by staff in procurement negatively. Namely, they affect the ability to meet deadlines, prepare high-quality procurement documentation, promote suppliers’ awareness of procurement, as well as apply a more flexible regulation intended for procurement in security.
Recommendations of the State Audit Office of Latvia #PēcRevīzijas
The Ministry of Finance has been provided with five recommendations whose implementation will: (1) make the regulation in public procurement simpler, more understandable and more flexible; (2) increase the level of centralisation of procurement; (3) determine the remuneration of procurement specialists taking into account the risk of corruption and legal restrictions; (4) at least 90% of procurement specialists of centralised procurement institutions working in the public sector will attend a certain extent of training in public procurement, as well as chairs of centralised procurement commissions will attend advanced training; (5) increase customer satisfaction with the methodological support of the Procurement Monitoring Bureau and reduce the time it takes the Procurement Monitoring Bureau to provide a response within the framework of methodological support.
Five recommendations have been provided to the Ministry of the Interior whose implementation will (1) increase the proportion of successfully concluded procurements in the Interior to 80% of the total number of procurements; (2) monitor and measure the effectiveness of public procurement in the sector as a whole; (3) level out the workload of procurement specialists and increase their qualifications; (4) improve the work organization of institutions in planning and conducting procurements; (5) increase understanding of the real applicability of the provisions of the Law on Procurement in Defence and Security.
Additional reading: audit report “Problems and Opportunities for the Development of Public Procurement” and audit report “Effectiveness of Public Procurement in the Interior”.
About the State Audit Office of Latvia
The State Audit Office of the Republic of Latvia is an independent, collegial supreme audit institution. The purpose of its activity is to find out whether the actions with the financial means and property of a public entity are legal, correct, useful and in line with public interests, as well as to provide recommendations for the elimination of discovered irregularities. The State Audit Office conducts audits in accordance with International Standards of Supreme Audit Institutions of the International Organization of Supreme Audit Institutions INTOSAI (ISSAI), whose recognition in Latvia is determined by the Auditor General. Upon discovering deficiencies, the State Audit Office of Latvia provides recommendations for their elimination, but it informs law enforcement authorities about potential infringements of the law.
Additional information
Ms Gunta Krevica
Head of PR and Internal Communication Division
Ph. 23282332 | E-mail: Gunta.Krevica@lrvk.gov.lv