A visible trend toward criminalization of the public procurement process has begun to directly interfere with everyday work of specialists and caused a lot of unnecessary red tape and squandering," sworn lawyers Diana Minumets and Oliver Nääs write.
The Estonian public has recently been shocked by news of how heads of agencies and companies that are subject to the obligation of holding public procurements have been handed suspicions of having violated tender rules either with or without engaging in other type of corrupt conduct.
Because the list of such cases is conspicuously long for a small country like Estonia, it has painted an undeserved picture of the field as being ripe with corruption and officials looking to make a quick buck the shady way.
Just a few weeks ago, we could read of the arrest of executives of the East Tallinn Central Hospital on suspicions of having preferred a particular manufacturer by failing to hold a public procurement and creating favorable conditions for another tender.
Fear and uncertainty
While publicly discussing exclusive tender conditions and "tailored procurements" has been a normal part of business life and healthy competition, such news gradually moving from the business section to the crime section have caused serious problems for people working with tenders. Whereas these concerns are not born out of ignorance of ineptitude – on the contrary, public procurement specialists are usually well-trained and up to speed on developments.
Fear and uncertainty are rather caused by the state increasingly seeing procurement rules that are not fully in line with general conceptions in light of criminal law.
This trend toward the criminalization of the tender process has begun to directly disrupt the everyday work of people involved with procurements and caused a lot of unnecessary red tape and squandering.
For example, procurers often perceive as risky the very explicitly legal option of entering into a direct contract (without holding a public procurement) in a situation where the contract can only be signed with a single entity due to technical or intellectual property reasons.
And so, a public procurement is held just in case, even though it is only open to a single bidder. While this does put on a performance called "public procurement," it ultimately wastes time and money.
We can also see fear to describe qualities of products and services procurers expect and need when using public procurement. It is understood that certain products or services are better than others or more suitable for the contracting entity's needs.
The public procurements rulebook is not and must not function as an obstacle on the road to procuring what the contracting party needs. And yet, procurers fear favoring or catering to bidders through including such conditions.
Several ongoing hospital procurements have been slowed down or become stuck as the procurers fear a punitive reaction from the state.
For example, in a situation where the main parameters of equipment procured include treatment quality, considering differences between patient groups and specific treatments, it needs to be considered that a newborn cannot use the same respiratory aid as an adult.
Or how an analyzer that allows the hospital to carry out various blood tests for adults cannot be used to test newborns because of how much blood is required. And so, it might happen that the wrong device, one that is not of sufficient quality or that the hospital doesn't need, is procured out of fear. Only to demonstrate how no one is being preferred and everyone is treated equally.
The aforementioned developments are certainly not normal, nor do they comply with the aim of public procurement – to ensure the procurer has necessary products and services for performing tasks and meeting goals. We cannot allow proceedings to become a goal in themselves and a priority over the contracting authority's actual needs.
While public procurement rules are needed to ensure fair competition and transparency, a tender is not a priority or a goal in itself. A state official should be busy working, a policeman catching bad guys and doctors treating the sick, and the tender process (buying things) should support these goals instead of getting in the way.
Sufficient guarantees even without punishments
Without analyzing the reasoning (or lack thereof) provided in ongoing criminal cases, the aforementioned tendencies in the world of tenders suggests something is wrong. Especially since the control mechanisms and functioning of public procurement legislation is entirely sufficient to minimize the risks of corruption and "collusion" so diligently hunted by law enforcement.
The principles of public procurement law suggest that the purchaser must always proceed based on what they need when drawing up conditions. Even though the procurer is obligated to act in a transparent manner and treat bidders equally, it does not mean the goal of fostering competition takes precedent over the procurer's needs.
Court practice has confirmed that the procurer must prioritize its needs when it comes to restrictions and conditions, and that the aim of public procurement is not to maximize the number of bidders.
The obligation to act transparently and treat bidders equally simply means that restrictions need to be objectively explained and necessary. The contracting party's desire to buy the best possible product or service is understandable and legitimate.
The more specialized the procurer's field, the more the quality of the product or service matters.
Therefore, as long as the procurer can adequately and objectively demonstrate why certain qualities of certain products are important and objectively necessary or better than another's, restrictions are legitimate and permitted. Including in cases where the procurer's needs can only be met by a single product.
Courts and the public procurements dispute committee have emphasized in numerous rulings that the contracting authority is under no obligation to procure something that does not meet its needs, is incompatible with existing technical solutions or the procuring of which would create unavoidable costs where opting for an alternative solution would not. Therefore, the criterion determining whether specific properties can be required is the objectivity of restrictions.
Control of objectivity of restrictions introduced by the procurer takes place on a day-to-day level and outside criminal investigation. All interested persons who believe the procurer has laid down unreasonable restrictions are free to turn to the public procurements dispute committee and then to court if they have objections.
If the procurer is unable to explain the objectivity and necessity of restrictions, they are obligated to relax or lift them altogether. This way, the permissibility of whichever restrictive conditions is determined before bids are even sought.
The state's own administrative control also functions well. The Ministry of Finance monitors, both randomly and based on applications, compliance with public procurement rules and general principles by procurers. In cases where exceedingly restrictive conditions or other violations are found, the ministry can order them to be removed or the entire procurement canceled.
Effective judicial and state administrative control is also in place to avoid shay dealings regarding so-called direct contracts. All procurement contracts not preceded by a public competition need to be publicly declared, including reasoning for why a public procurement was not held.
That way, every person who believes there were no legal grounds for a direct contract can challenge the contract in the dispute committee inside six months.
Another way procuring entities manage risks associated with suspicions of insufficient legal grounds for direct contracts is releasing a public statement regarding their intent to sign such a contract, listing reasons why the procurer feels such a contract is made possible. This gives interested persons the chance to challenge the statement and prevent a direct contract being signed if there are no valid reasons for it.
This demonstrates principles of equal treatment and transparency in public procurement law and that control mechanisms should be effective at containing the realization of corrupt interests in the tender process.
While disconnecting the field of public procurements from penal law is not possible, perhaps it is fitting to raise the question of the relevance of penal regulation in the field in light of aforementioned developments and mechanisms.
Today, any objective violation of public procurement rules is punishable in criminal procedure if its subjective goal was to create favorable conditions for someone. Whereas punishment does not require the official to benefit or the procurer's interests to be realistically harmed. The burden of criminal proceedings and the possibility of criminal punishment can befall a person quite accidentally, simply due to erring in formalities.
Regulative overreaction is not common only in the field of public procurements but seems to be part of broader penal policy characterized by increasingly vague elements of criminal offense.
For example, the much-criticized violation of procedural restrictions that is hardly anything more than formalism and where an otherwise honest official can be punished for missing a technicality.
An official who makes a decision or performs an act regarding a connected person can be punished even if no one suffers damage, the official gains nothing and no entrepreneur is given an unfair advantage.
Whereas the official and connected persons are defined so vaguely their application cannot be sensibly predicted.
Chancellor of Justice Ülle Madise has described this particular offense as a situation of "give me a person and I'll find you a section." It is a serious problem from the perspective of rule of law.
Purposeful use of public resources needs to be under effective supervision – that much is clear. Those making use of public resources must feel this supervision to minimize their temptation and possibilities for misusing them. However, introducing formal and vague elements of criminal offenses that only sow confusion and fear does not help the state meet these goals.
If the procurer's representative violates procedural rules for personal benefit, that's bribery. When someone uses their influence to affect whether procurement conditions are observed, they can be charged with influence peddling.
Pursuing harmful transactions and embezzlement with the procurer's knowledge is also punishable pursuant to criminal procedure. Looking at the penal system in general, there is no need to provide criminal responsibility for formal violation of public procurement rules or procedural restrictions.
The now too repressive legislative situation could be balanced by decriminalization of public procurement and procedural restrictions violations or at least the concretization of liability.
Oliver Nääs is a partner and sworn layer at law firm LEXTAL. Diana Minumets is a sworn lawyer at LEXTAL. The bureau has provided legal advice to both the Tallinn Doctors Association and the Estonian Medical Association in connection with corruption prevention.
Editor: Marcus Turovski