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Anti-corruption law means scrutiny for tenders

Amendment is a ‘major leap forward’ in fight against graft

Anti-corruption campaigners are lauding an amendment to the law on public procurements that took effect April 1, and though most agree the changes represent an important step in combating graft and the wasting of public funds, some ministers have warned they will pile on extra administrative burdens.

The amendment, which sets out new conditions for competitions for state contracts, has been highly anticipated in a country that historically has suffered a bad reputation for corruption in nontransparent public tenders.

Among the most significant changes in the amendment is a reduction in the minimum financial threshold, or minimum value of a public contract, that would require a tender to be held to 1 million Kč ($53,000/40,000 euros), half the previous threshold. For construction projects, contracts worth 3 million Kč or more would require a tender, also half the previous amount.

From now on, tenders that only attract a single qualified bidder will be canceled. The amendment also introduces the concept of “significant” public tenders – or those worth more than 300 million Kč if the tender is held by a state body, or 50 million Kč if held by a regional or municipal body. These tenders will have to undergo additional supervision and evaluation.

Any company that wins a public tender will now have to release details about subcontractors accounting for more than 10 percent of total costs, or 5 percent for significant tenders, and the act will double potential fines – up to 20 million Kč – for both bidders and authorities who violate the rules.

“It’s a major leap forward, and these are very positive changes,” said David Ondráčka, director of Transparency International Czech Republic. “They will increase the pressure on the public sector to make tenders more open, and the amendment increases the incentive for the private sector to compete in tenders.”

A legal summary of the amendment prepared by law firm CMS Cameron McKenna concluded additional public tenders will open the playing field and allow more companies the opportunity to compete for public contracts.

“The threshold has gone down and there will be more tenders, so more chances for business, and I hope the private sector will welcome this,” Ondráčka said.

While the new rules may create more opportunities for companies to bid, some public officials anticipate a wave of additional paperwork to come with the extra tenders.

“Every year we implement 10,000 public orders, but now it will be 30,000,” said Regional Development Deputy Minister Jan Sixta. “That means three times as many committees, three times as many documents and three times as many administrative costs associated with public tenders.”

The added work anticipated by public officials may well have been the reason behind the slew of public tenders announced in March just before the law took effect.

Nearly 700 public tenders worth around 6 million Kč were issued in March, twice as many as in March 2011, as some public institutions tried to avoid administrative requirements and limits of the new amendment, daily Lidové noviny reported April 2.

The amendment did not include any restrictions on so-called bearer shares, or anonymous ownership structures, in companies competing for public contracts, but Ondráčka said he thinks it is likely the controversial issue of anonymous corporate ownership will be dealt with in subsequent legislation this year.

Recent dubious tenders

Jan. 2012 Education Ministry cancels 99 million Kč tender for legal services after suspicion emerges tender was being drafted in favor of a certain bidder
Oct. 2011 Prime Minister Petr Nečas announces his government will scrap the 56.8 billion Kč eco-tender to clean up environmental damage left from the communist regime after criticism bids and costs were inflated
Oct. 2011 Labor and Social Affairs Ministry forced to halt tender for distributing state benefit recipient welfare cards after Office for the Protection of Competition launches investigation
Aug. 2011 Five employees of Prague City Hall's IT department implicated for awarding what anti-corruption police called vastly overpriced contracts for OpenCard public transport cards

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