That $605 million contract for the procurement of drugs and medical supplies

Because of space constraints, there were a few matters which we were unable to cover in last week’s article entitled “We must refrain from distorting the truth and seeking to distort history”. In that article, we referred to the Engineer’s Estimate as the main reference point for tender evaluation and indicated that the preparation of faulty estimates is one of the sources of leakages in our procurement systems. The Opposition Leader challenged our statement and contended that contracts are awarded based on the “lowest prequalification cost” and therefore such estimates do not matter. An Engineer’s Estimate, it must be said, is an independent estimate of the works to be carried out, including bills of quantities, prepared by a competent and experienced person or group of persons to be used as a guide in the evaluation of tenders. It is defined as “the detailed cost estimate for a project, computed by estimating the cost of every activity in a work breakdown structure, summing these estimates, and adding appropriate overheads”.  It is also called “bottom up cost estimate”.

On the other hand, prequalification is application of specific procedures in order to identify, prior to the submission of tenders in procurement proceedings, suppliers and contractors who are qualified to participate in such proceedings. This is done via public advertisement, and only qualified suppliers and contractors are invited to submit such bids/tenders. Prequalification is used to minimize the administrative burden associated with assessing the numerous bids in response to an invitation to tender. At the prequalification stage, there are no cost proposals and therefore there is no such concept as “lowest prequalification cost”. Perhaps the Opposition Leader was referring to the “lowest prequalified cost” which could be interpreted to mean that the most competitive of the prequalified suppliers/contractors in terms of prices, gets the contract. However, this is not so in that, subsequent to prequalification, all the steps relating to open tendering must still be followed. This includes awarding the contract to the lowest evaluated bid, as opposed to the lowest bid.  The lowest evaluated tender is that tender that has been ranked lowest using criteria in addition to price that are quantified in monetary terms.  The Engineer’s Estimate is a key evaluation criterion in determining the lowest evaluated bid.

Today’s article is based on the latest controversy surrounding the procurement of $605 million in drugs and medical supplies for the Georgetown Public Hospital Corporation (GPHC).

Background information

Stabroek News reported that the GPHC sought approval from the National Procurement and Tender Administration Board (NPTAB) for the emergency purchase of $605 million worth of drugs from ANSA McAL Trading Ltd. In response to the article on the matter, ANSA McAL stated that a meeting was held on 16 January 2017 with all suppliers to address the shortage of drugs at the Hospital and the urgent need to procure such items. At that meeting, it was learnt that the invitation to tender in November of 2016 had been compromised, resulting in the need to procure the items on an emergency basis. ANSA McAL indicated that: (a) four suppliers were asked to submit bids based on a list of items that GHPC had supplied; (b) it submitted a bid on 14 February 2017 for over 300 items; and (c) it was awarded a contract in the above sum for 118 items.

Stabroek News indicated that its report was aimed mainly at pointing out that the GPHC’s procurement system appeared to be in significant upheaval to require the procurement of such emergency supplies. Since ANSA McAL was one of four suppliers, the extent of the emergency procurement would be significantly higher than $605 million. However, there was no information as regards the extent of emergency procurement from the other three suppliers. In addition, there was no announcement from GPHC or the Ministry of Public Health that emergency procurement would be initiated.

Stabroek News referred to a letter from the Hospital’s Chief Executive Officer to the Chairman of the NPTAB on February 28, 2017 seeking approval for the purchase of emergency medical supplies on the grounds that: (a) the items requested were only available from ANSA McAL at the time; and (b) the emergency procurement was authorised by the Minister of Public Health. Attached to the letter was an invoice from ANSA McAL of the same date. Considering the sequence of events, it is evident that the approval was sought only after the emergency procurement from ANSA McAL was initiated. The Chairman of NPTAB is reported to have stated that he saw the letter on the same day Stabroek News carried the article and that he was rather surprised at the sequence of events. As a result, he wrote to the Minister expressing his concern.

The Stabroek News article raised a number of concerns as regards the prices of certain items supplied by ANSA McAL, compared to those charged by other pharmaceutical suppliers. For example, an antibiotic 20g clotrimoxazole cream was listed in the invoice at a unit price of $1,750 while the price charged by other suppliers was $95, a more than 18-fold difference. Similarly, a 30g anti-haemorrhoidal ointment, which previously had been sourced from other suppliers at $200, was listed at $2,150, a more that 10-fold difference.

Explanations from the Ministry

The Ministry of Public Health issued a statement in which it acknowledged “fast-tracking” the purchase of $605 million from ANSA McAL. It, however, maintained that there was no breach in public procurement procedures, and blamed the situation on a conspiracy between suppliers and the staff of the Ministry.  As a result, the Minister made the decision to proceed with the emergency procurement. The Ministry, however, did not provide an explanation as to why the approval of the NPTAB was sought after the decision was taken to procure the items from ANSA McAL. The Ministry’s statement further indicated that ANSA McAL is one of only two companies in Guyana that provides appropriate cold storage for drugs and medical supplies and that the company not only airfreighted the required drugs but also donated four refrigerators to GPHC to store the emergency supplies.

 GPHC as a public corporation

The GPHC was established by Order No.1 of 1999 under the Public Corporations Act and is therefore a separate legal entity with a board that provides the necessary oversight of the organization. As in the case of all public corporations and other entities in which the State has controlling interest, the Minister’s role is restricted to giving directions of a general character on policy matters as well as specific directions as regards the disposal of capital assets and the accountability of the proceeds. It is the board of the GPHC that is required to make all major decisions relating to the operations of the Corporation. However, since its incorporation, the GPHC has been functioning as a programme under the Ministry of Public Health. It was not until 2016 that the GPHC was allowed to function as a corporate entity in relation to financial management matters in that it now receives a subvention as opposed to allocations on a line item basis under the Ministry.

Given the above situation, the issue regarding the shortage of drugs and medical supplies is a matter for the Board of the GPHC to consider and decide on the way forward, and not the Minister. The evidence, however, suggests that there was no involvement of the Board. In addition, by Section 24 of the Procurement Act, public corporations and other entities in which controlling interest vests in the State are required to have their own procurement rules and regulations approved by the NPTAB, and to the extent that any provision conflicts with the Procurement Act, the latter takes precedence. The GPHC, however, does not have its own procurement rules and regulations, and therefore reverts to the Procurement Act in relation to its procurement activities.

Restricted tendering versus sole source procurement

The Procurement Act distinguishes between restricted tendering and sole source procurement. Restricted tendering occurs were the goods/services or construction, by their highly complex or specialized nature, are only available from a limited number of suppliers or contractors. In this case, all such suppliers or contractors are invited to submit tenders, and all other procedures relating to open tendering are applicable, including assessment by a technical evaluation committee and the determination of the lowest evaluated tender. From the facts of the case, the Ministry started out with the adoption of the selective tendering approach but did not follow through to ensure adherence to the specified procedures in relation to this form of tendering. There was no evidence that the other three suppliers submitted tenders which would have required technical evaluation to determine the lowest evaluated tender.

Sole source procurement, on the other hand, occurs where: (a) the goods or construction are available only from a particular supplier or contractor, or a particular supplier or contractor has exclusive rights with respect to the goods or construction, and no reasonable alternative or substitute exists; or (b) the services, by reason of their highly complex or specialized nature, are available from only one source. It is also applicable where, owing to a catastrophic event, there is an urgent need for the goods, services or construction, making it impractical to use other methods of procurement because of the time involved in using those methods. It is evident that what started out as the application of the restricted tender approach turned to be sole source procurement. It is debatable whether the situation at the GPHC as regards drugs and medical supplies constitutes an emergency to justify the use of this method of procurement.

Involvement of the NPTAB

The NPTAB’s role in the procurement process is outlined in Section 16 of the Procurement Act. This involves exercising jurisdiction over tenders the value of which exceeds such an amount prescribed by regulations, appointing a pool of evaluators for such period as it may determine, and maintaining efficient record keeping and quality assurances systems. There is no provision in the Act for the NPTAB to approve of a particular method of procurement, whether by way of open tendering, restricted tendering, sole source procurement or emergency procurement. Therefore, any request for the NPTAB to do so is inappropriate.

Cabinet involvement

All forms of procurement whose values exceed $15 million must be referred to Cabinet for its no objection. Cabinet can only withhold its objections if the applicable procurement procedures have not been followed. If this happens, the matter is referred to the concerned procurement entity for reconsideration and resubmission to Cabinet. Given the quantum of the contract with ANSA McAL, it is unclear why Cabinet was not involved. While it is true that Cabinet’s involvement in the procurement process ceases upon the establishment of the Public Procurement Commission, or progressively phased out over time in favour of a decentralized structure, no firm decision has been made in relation to this matter. To this extent, the failure to obtain Cabinet’s no objection is a violation of the Procurement Act.

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