The Competition Council (CC) of Latvia has concluded a sector inquiry to analyse co-operation forms of construction merchants within public procurements. The competition authority concludes that information included in tenders is rather formal, while control over performers of construction work by commissioning authorities – insufficient.
The current regulatory framework of public procurements provides that tenderers are not obligated to indicate all sub-contractors in case the volume of work to be transferred for implementation is less than 20 per cent from the total value of the procurement contract. Data analysis allows the CC to conclude that such regulation reduces transparency of procurements and further control of construction process, as well as creates a fertile environment for competition law infringements.
Assessing almost 50 procurements of construction services and more than 200 tenders, the CC observed a number of significant characteristics of the industry. I.e. in their original offers majority – 70 per cent of tenderers and 78 per cent of winners – announced a plan to attract sub-contractors, in most cases, for specific jobs such as installation of internal and external communications or electricity works. At the same time, the actual situation differed from the planned – after recognition majority or 78 per cent of winners changed a number or composition of sub-contractors.
The CC also found that during the performance of work, usually the number of sub-contractors is higher than it was indicated within the tender. The CC observed a similar trend in the context of the amount of work to be transferred – in 40 per cent of all cases the winner changed the amount, mostly increasing it.
The CC explains such changes with several reasons. Some of them the CC recognises as justified, for example, winner’s workload at other objects or insufficiency of resources. At the same time, in many cases the CC observed a formal approach in tender making, tenderers being aware of possibility to freely change sub-contractors after commencement of order execution and often choosing work performers of lowest price and lower quality.
The CC also concludes – in most cases, commissioning authorities cannot be secure that the winning tender will be executed in accordance of the plan announced. Furthermore, passively used options of commissioning authorities to request information regarding changes of sub-contractors during the performance of work promote risks of prohibited agreements.
The sector inquiry also reveals risks in vertical chains of sub-contractors where each sub-contractor attracts and agrees with cooperation partners of their choice, thus, reducing transparency of work performance and control to both commissioning authority and general contractor. Additionally to possible violations of competition law, a suitable environment for infringements of other industries such as payment of taxes or salaries is created. To ensure effective control, the CC believes that it is reasonable to require the general contractor to carry out organization of work regarding attraction of sub-contractors in accordance of its scope of responsibility.
To make execution of construction work more transparent, as well as to reduce risks of competition law infringements, the CC has proposed amendments to the regulation of public procurements, improving commissioning authorities’ control of attraction or change of sub-contractors.
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