PRESS RELEASE BY THE NATIONAL AUDIT OFFICE: Performance Audit: Procuring the State Schools’ Transport Service

The Auditor General today presented to the Speaker of the House of Representatives the National Audit Office (NAO) report entitled ‘Procuring the State Schools’ Transport Service’. The seven-year agreement is outsourced through five service contracts and will run up until the end of the 2017/2018 scholastic year with a total cost of Euros 42.7 million. In view of this service’s social importance and financial materiality, NAO carried out a performance audit to assess if the adopted procurement process in this regard followed the principles of good governance and value for money.

The process through which the current contracts were awarded can be categorised in three distinct phases, that is: Phase 1 being the negotiations leading to a direct order extending the previous contract by one year, during which the Ministry was to re-secure the service through a competitive tender for subsequent years; Phase 2 revolving around the Ministry’s attempt at procuring this service through a competitive tender, which failed due to bids either being technically incompliant or significantly exceeding the budgeted estimate; and Phase 3 dealing with the negotiated procedure leading to the signing of the current contracts with the five previously unsuccessful bidders.

Through its review the NAO primarily found that the suppliers’ generally overbearing conduct and the Ministry’s overall weak approach led to the significant forfeiture of value for money in the acquisition of state school transportation services. The NAO noted that the Ministry’s original intention of not re-securing this service through a competitive tender, as dictated by the principles of good governance, but rather to adopt a faster, less competitive procurement approach after the expiration of the previous agreement, contributed to this result. This Office consequently observed how this original intention led to the procurement process being initiated only around one month before the commencement of a new scholastic year, thereby limiting significantly the time at the Ministry’s disposal to re-secure the service. This consideration put the Ministry in a disadvantageous position from the start, and enabled the suppliers to further extend their adopted hardline approach, particularly through their threats of withdrawing from negotiations and not providing the service if their requests were not met. The NAO also observed that this process was further undermined by instances which hinted at the existence of inter-supplier collusive behaviour. When faced with this conduct, the NAO however noted that the Ministry largely projected an underlying sense of resignation, which further strengthened the suppliers’ bargaining position.

The effect of these considerations culminated during the final negotiated process, when the Ministry compromised on contractual conditions in an attempt to push down the suppliers’ original asking price. It is this Office’s considered opinion that this process resulted in the disproportionate reduction in the expected quality of service (such as waiving the requirements for passenger seatbelts and a performance guarantee, together with the downward revision of contractual service levels) when compared to the collective marginal four per cent negotiated decrease in price.

Source: Government of Malta