Revisiting the purchases of drugs and medical supplies

Last week, we revisited the purchase of drugs and medical supplies for the Ministry of Health and the Georgetown Hospital in the light of media reports suggesting that the criteria to be used in the prequalification of suppliers are heavily weighted in favour of a local organization. This organisation has become the Government’s main supplier since 2005, delivering over 75 per cent of the Government’s requirements and virtually displacing specialized overseas agencies that had previously supplied over 90 per cent of the Government’s requirements.

 

Analysis of Government’s procurement

 

Between 2005 and 2012, the Government’s expenditure on drugs and medical supplies more than tripled, increasing from $1.357 billion to $4.393 billion. In particular, 2007 and 2011 recorded increases of 50 per cent and 56 per cent respectively. (No figures are available for 2008 because of the fire20131223watch that destroyed the Ministry of Health building in July 2009.) These are extraordinary increases considering that for the corresponding seven years earlier, i.e. from 1998 to 2004, procurement increased from $651 million to $1.165 billion or by 79 per cent. It is not clear what was the rationale for such increases in budgetary allocations and hence expenditure. Correspondingly, procurement from the local organization also tripled, increasing from $973 million to $3.033 billion.

Since 1997, the Ministry undertook the procurement of drugs and medical supplies by selective tendering, as authorised by Cabinet. Such authorisation continued until 2010 through two successive renewals in 2003 and 2008. This is despite the fact that the Procurement Act 2003 restricted Cabinet’s role in the procurement process to one of offering “no objection” to contracts valued at $15 million or over. With the establishment of the Public Procurement Commission, Cabinet’s role was to have been progressively phased out or ceased altogether. Regrettably, the Commission is yet to be established.

Under the selective tendering arrangement, the Ministry would contact the pre-selected suppliers and request them to quote for the items to be supplied. On this basis, contracts were awarded. There was no independent review to ensure that the best prices were obtained for the various items supplied as the relevant tender boards, in particular, the National Procurement and Tender Administration Board (NPTAB), were not involved.

For the period 2011-2013, prequalification proceedings were applied for the identification to suppliers.  The same procedures as those of selective tendering were used, except that Cabinet was not involved.  However, the various tender boards, including the NPTAB, were again not involved in the prequalification exercise nor were they involved in the selection of suppliers based on their quotations.

 

For the period 2014 -2016, the Ministry has advertised for interested suppliers to apply for prequalification. However, the advertisement is not applicable to the specialized overseas agencies as well as the local organization referred to above, as they had already been previously granted prequalification status.

 

Evaluation criteria for prequalification

 

A comparison of the prequalification documents for the period 2011 to 2013 with those of 2014 to 2016 revealed that the former did not include a document outlining the evaluation criteria to be used so that potential suppliers could have ascertained the basis under which they were prequalified. This is notwithstanding that, in reaching a decision regarding the qualifications of each supplier or contractor, the procuring entity is required to apply only the criteria set forth in the prequalification documents. The current advertisement therefore seeks to remedy this apparent deficiency by including in the package of prequalification documents such evaluation criteria.

 

A review of the evaluation criteria to be used, as listed in last week’s article, revealed that manufacturers are to be evaluated on a score of 190 while for distributors the score is 180. At least 80 per cent is required for prequalification in addition to meeting the criteria dealing with financial and infrastructure capacity as well as the ability to supply 75 per cent of GMA certified items. Preference is given to pharmaceutical manufacturers in Guyana as certified by Food and Drugs Department. They automatically qualify and are eligible for 10% price advantage compared to imported items. Companies with appropriate warehousing facilities are also given preference.

 

Manufacturers will therefore have to score at least 152 points. This is very unlikely, considering the above requirements. In addition, they must have facilities for laboratory testing and quality testing, including full-fledged quality control department with qualified, trained and experienced personnel, all of which carry a maximum of 50 points. Assuming that they are able to score 25 points on this criterion, the maximum score they can achieve will be 120 points i.e. 190 minus 70, as detailed below:

 

  Points reduction

Turnover of at least $1 billion, net assets $500 million and

at least 50 employees with minimum of three years                                                            15

30,000 sq. ft of storage etc. plus separate temperature zones                                           15

More than 7 years’ experience supplying the Ministry handling

more than $500 million contracts                                                                                           15

Laboratory testing and quality testing, including full-fledged

quality control department with qualified, trained

and experienced personnel                                                                                                       25

TOTAL                                                                                                                                        70

 

The above analysis does not include the ability to manufacture and supply at least 20 items from the list of requirements as well as the overall ability to supply at least 75 per cent of the items. Distributors are required to score at least 144 points.  However, their ability to do so will also be affected by the same four considerations identified for manufacturers.

One of the evaluation criteria is that the supplier must have a good track record with the Ministry. The Auditor General’s reports over the years, however, revealed a number of unsatisfactory features in respect of the performance of the main supplier of drugs and medical supplies. For example, as at 30 September 2013, medical supplies valued at $58.583 million had not been delivered to the Georgetown Hospital and the related bank guarantee had expired in April 2013. As regards the Ministry of Health, as at 30 September 2013, medical supplies valued at $164.603 million had not been delivered, and there were no bank guarantees in force to cover this amount. There were also outstanding deliveries for 2011 totalling $59.835 million while for 2008 there was no evidence of the delivery of supplies valued at $79.262 million.  Despite these shortcomings, no action was taken against the organisation for non-compliance with its contractual obligations.

As regards the Government’s storage facilities, there was evidence of significant amounts of pilferage, damaged and expired drugs; poor recordkeeping in respect of receipts, issues and balances on hand; and high levels of discrepancies between physical balances and the recorded amounts. Given this situation, and the fact that manufacturers and distributors are required to have 30,000 square feet of storage with three separate temperature zones, would it not be more cost-effective to have an arrangement whereby deliveries are staggered, for example, every quarter, instead of bulk deliveries? If this happens, the requirement for the Government’s warehousing and storage facilities can be significantly reduced.  According to industry experts, the cost savings are likely to be between 16 per cent and 20 per cent. Using the figure of $4.393 billion, representing the purchase of drugs and medical supplies in 2012, these savings could be at least $700 million annually.

In addition, the storage requirement for manufacturers and distributors is likely to result in excess capacity with significant cost implications. What will they do with their storage facilities of the magnitude of 30,000 square feet for the rest of the year once they make bulk deliveries to the Ministry, especially if their main customer is the Government?

 

Conclusion

It is evident that the application of the evaluation criteria in the prequalification exercise for the supply of drugs and medical supplies is likely to result in manufacturers and distributors being unable to achieve prequalification status. They will therefore be excluded from supplying the Ministry with these essential items, or given orders for minimal quantities, with possible adverse effects on their operations. This will leave the local organization in question, which did not have a good track record in meeting its contractual obligations, with a virtual monopoly over such supplies.

It would be advisable for the Ministry of Health to revisit the evaluation criteria set out in the prequalification documents in consultation with all potential suppliers. While previous experience, ability to perform, infrastructure, storage and laboratory facilities are important considerations,  one hopes that the assignment of points to each criterion will be reworked to create as much of a level playing as possible to enable organizations interested in supplying the Ministry with drugs and medical supplies to be able to do so.   It is not in the best public interest to have one supplier having a virtual monopoly in the supply of drugs and medical supplies to the Government.