State Audit Office submits proposals to the Prime Minister after the inspections of COVID-19 related procurements

09.09.2020.

With the audits of the purchase of personal protective equipment and disinfectants required to overcome the COVID-19 crisis in the healthcare, defence, and home affairs sectors concluded, a letter signed by Auditor General Elita Krūmiņa has been sent to Prime Minister Krišjānis Kariņš providing proposals for improvement of the actions if similar situations would occur in the future. The State Audit Office recommends to the Head of Government to involve the Inter-Institutional Coordination Group established on 10 July 2020 in preventive measures, whose main task includes assessing the readiness of Latvian institutions in the event of a repeated wave of COVID-19 spread. The letter from the State Audit Office describes the lessons that should be taken into account when planning the adequacy of resources to prevent the damage caused by the epidemic, testing the conformity and quality of purchased goods, as well as risks faced by state institutions without applying the Public Procurement Law in an emergency.

Clarity must exist about the resources required to prevent the damage caused by the epidemic

Audits carried out by the State Audit Office highlighted the weaknesses of the civil protection system. First, there has been no valid National Civil Protection Plan in Latvia since 2017. Secondly, there is also no valid classification of state material reserves since 1 April 2020. In its turn, funding for the replenishment of the state material reserves of the healthcare sector was last granted in 2018. In a letter to the Prime Minister, the Auditor General emphasised, “Due to the long-term neglect of planning and financing of the state material reserves, the healthcare sector did not have an “airbag” to rely on in the event of an emergency. Unfortunately, there was no more clarity about the amount of resources required until the end of the emergency either.”

The audit by the State Audit Office in the defence sector revealed that it was not evident during the emergency what quantities of material reserves should be purchased for the needs of priority institutions. The information submitted to the Ministry of Defence had been changing until the end of the emergency that generally complicated the planning and implementation of procurement. The State Audit Office is not convinced that the list of priority institutions and needs currently includes the actual needs of all institutions to avoid a shortage of resources as the epidemiological situation deteriorates.

The letter of the State Audit Office to the Prime Minister stressed that the Inter-institutional Coordination Group should have clarified the principles of planning the reserves of protective equipment, that is, for which morbidity scenarios in case of recurrence of COVID-19 the state would be prepared and what protective measures for specific conditions and in what amounts were needed for a particular population. Once this is clarified, the State Audit Office calls for measures to assess the adequacy of the material resources included in the list of needs.

Latvia needs solutions for testing personal protective equipment

During the emergency, one should perform quality conformity tests of the protective equipment purchased as a matter of urgency with the same urgency, but there were no accredited laboratories for testing protective face masks and respirators in Latvia. One found the solution outside Latvia, but laboratories were not immediately available there either. Although one sought and found alternative possibilities to test the air permeability of materials in Latvia, such tests cannot replace certified laboratories.

Therefore, the State Audit Office welcomes the decision made by the Cabinet of Ministers, which instructed the Ministry of Economics to assess the possibility of establishing an accredited testing laboratory for medical devices and personal protective equipment in Latvia. At present, the State Audit Office does not have information on the results of the performed assessment. The Inter-Institutional Coordination Group should take steps to assess the risk that a lack of testing facilities in Latvia may pose in the event of a recurrence of COVID-19 and what immediate measures should be taken to reduce the impact of the risk. 

Risks posed by the non-application of the Public Procurement Law

Latvia faced an unprecedented situation in emergency procurement, as certain institutions were allowed not to apply the Public Procurement Law to facilitate and speed up the process of purchasing personal protective equipment from 3 March 2020. In its turn, the Ministry of Finance and the Procurement Monitoring Bureau published the guidelines for procurement during the emergency almost two months later, that is, on 29 April 2020. Thus, in the initial stage of the emergency, each sector purchased personal protective equipment following its personal understanding and approach.

For example, the healthcare sector based purchases on verbal instructions did not apply the “four-eye principle” in decision-making on specific suppliers and decided unilaterally. In the Ministry of the Interior, an order of the Minister of the Interior established a “four-eye principle” by stipulating that any purchases made without the application of the Public Procurement Law could only take place with the written permission of the Minister of the Interior. At the same time, the order did not specify the criteria according to which the Minister of the Interior would assess whether to authorise the planned procurement. In both cases, both ministries indicated to the State Audit Office that procurements had to be made in conditions of extreme urgency and limited supply of goods, and ensuring the purchase of the necessary goods was the most important rather than documenting each activity to be performed.

The defence sector chose a different procedure, which allowed the State Audit Office to trace the decision-making process. Nevertheless, the State Audit Office considers that the procurement procedures set by the Ministry of Defence in an emergency were challenging to administer and could create a perception of deliberate delay and dishonesty among economic operators intending to offer their goods, as the Public Procurement Law was not applied to accelerate the procurement. In the opinion of the State Audit Office, the deviation from the most economically advantageous offer could have taken place when the supply of personal protective equipment and disinfectants on the market was very limited, and the security of supply was the primary issue. However, it could no longer be ignored that the range of potential suppliers had expanded significantly as the situation stabilised.

The letter of the State Audit Office to the Prime Minister states, “The State Audit Office wishes to emphasise that the non-application of the Public Procurement Law does not release and abolish the scope of rights and obligations of the public sector for handling state budget funds and property. Officials must still comply with all applicable laws and regulations regarding the compliance of their actions with state budget funds with the principles of economy and efficiency.”

The Organization for Economic Co-operation and Development (OECD) has also stated concerning public procurement during the COVID-19 crisis that transparency, the four-eye principle, maintaining competition, and detailed documentation are crucial for preventing the risks of corruption. The same principles are included in the guidelines published by the Latvian Government.

At the same time, the OECD also points out that derogations from public procurement regulation are justified only on the grounds of extreme urgency and only to the extent necessary to respond to unforeseen needs. When needs become foreseeable, returning to procurement solutions that support free competition among suppliers is advisable. The above coincide with the conclusions of the State Audit Office.

Following the audits, the State Audit Office calls on the Prime Minister and the Government to assess the possibility of returning to the Public Procurement Law in the procurement of personal protective equipment and medical devices to controlling the spread of COVID-19 if the market supply exceeds the demand. The State Audit Office finds that the Inter-Institutional Coordination Group could assess whether there are still circumstances applicable to all categories of procured goods that justify non-application of the Public Procurement Law when coordinating the activities of all involved institutions within the framework of its mandate.