Second revisit of the procurement of drugs and medical supplies

Last Wednesday, the cities of San Francisco and Oakland in California filed separate lawsuits against five oil companies – ExxonMobil, Chevron, ConocoPhillips, BP and Royal Dutch Shell –  seeking compensation to protect them against rising sea levels which they blame on climate change. The two cities are alleging that the companies have “knowingly and recklessly created an ongoing public nuisance that is causing harm now and in the future risks catastrophic harm to human life and property.” They are seeking compensation to finance infrastructure to deal with rising sea levels. Several counties in California have filed similar lawsuits while prosecutors for New York and Massachusetts are investigating Exxon over the possibility that it misled investors in public statements on the risks of climate change.

In the coming weeks, India will roll out nearly 100,000 battery-powered buses and autorickshaws onto its highly polluted city streets, as part of its commitment to having all new vehicles electrically powered by 2030. According to Greenpeace, at least 1.2 million people in India die every year because of pollution. Britain and France have also indicated that they want to end the sale of fossil fuel cars by 2040. Here in Guyana, we can do our part by considering the progressive phasing out the importation of these vehicles and replacing them with electrically powered ones. We could also consider restricting the importation of luxury-type vehicles that consume enormous amounts of fuel compared with the average vehicle. The average vehicle emits 20 pounds of carbon dioxide for every gallon of fuel consumed. In addition, with an annual current expenditure of $2.737 billion and $1.162 billion on fuel and lubricants, and repairs and maintenance respectively on government vehicles, a worthwhile consideration could be a critical review of the list of vehicles under the control of Ministries, Departments and Regions with a view to reducing their numbers as not only a cost-saving measure but also a contribution to combating global warming and climate change.

Now for this week’s article. The Public Procurement Commission (PPC) has submitted its report to the National Assembly on the results of its investigation into the procurement of some $605 million in drugs and medical supplies at the Georgetown Public Hospital Corporation (GPHC). A minority report has also been prepared but the PPC is reported to have hastily approved of confidentiality arrangements that will preclude the report from being made public. This does not augur well for the smooth, efficient and effective functioning of the Commission which appears split on the findings and recommendations after approximately four months of work. The Assembly is currently in recess and will not reconvene until after 10 October.

Background to the investigation

On 16 January 2017, a meeting was held with suppliers to address the shortage of drugs at the GPHC 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. According to ANSA McAL Trading Ltd., four suppliers were asked to submit bids based on a list of items that the GHPC had supplied. On 4 February 2017, ANSA McAL submitted a bid for over 300 items and was awarded a contract in the sum of $605 million for 118 items.

By letter dated 28 February 2017, the Chief Executive Officer (CEO) of the GPHC sought the approval of the Chairman of the National Procurement and Tender Administration Board (NPTAB) for the purchase of emergency medical supplies from ANSA McAL in the above sum 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 Minister of Public Health. Attached to the letter was an invoice from ANSA McAL of the same date. The Ministry, however, did not explain why the approval of the NPTAB was sought after the decision was taken to procure the items from ANSA McAL. In any event, it is not within the authority of the NPTAB to do so since the Procurement Act is clear as to the circumstances under which emergency procurement can take place.

The Ministry of Public Health acknowledged “fast-tracking” the purchase from ANSA McAL. It, however, maintained that there was no breach in the 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.

Rules governing emergency procurement

Section 28 of the Procurement Act allows sole source procurement in the following circumstances:

where the items are available from only one supplier, or the supplier has exclusive rights to the items and no reasonable alternative or substitute exists;

owing to a catastrophic event, there is an urgent need for the items, making it impractical to use other methods of procurement because of the time involved in using those methods;

having procured the items from a supplier, it is determined that additional supplies are required because of the need for compatibility, and taking into account a number of factors such as the size of the procurement compared with the original procurement, prices and the unsuitability of alternatives; and

the procurement involves national defence or national security, and it is determined that because of security concerns single source procurement is the most appropriate method to apply.

There was no catastrophic event that warranted emergency procurement nor was ANSA McAL the only supplier of drugs and medical supplies. In addition, there was no original procurement from ANSA McAL that would have justified additional supplies. Nor was the procurement related to national defence or national security. In the circumstances, the criteria for sole source or emergency procurement were not met. Assuming there was indeed a shortage of drugs and medical supplies, a reasonable quantity could have been procured on an emergency basis to cover the period it would take to obtain new supplies.

Was it a case of restricted tendering?

Section 26 of Act allows procurement by means of restricted tendering where:

the items by reason of their highly complex or specialized nature, are available only from a limited number of suppliers, in which case, all such suppliers or contractors shall be invited to submit tenders; and

if the estimated cost of the contract is below the threshold set forth in the regulations. When the restricted tendering procedure is used, only suppliers or contractors invited by the procuring entity due to their qualifications can submit tenders.

All other steps and requirements applicable to open tendering shall be complied with.

The Procurement Regulations of 2004 has set the threshold for restricted tendering at $1 million for materials and services. Therefore, the purchase of $605 million of pharmaceutical supplies from ANSA McAL was not based on restricted tendering. It is also not clear whether all the suppliers of the items in question were invited to bid and whether there was a formal opening of the tenders and a detailed assessment by an evaluation committee to determine the most competitive bid having regard to the detailed specifications of the items.

Lack of involvement of the Cabinet

By Section 54 of the Act, the Cabinet has a right to review all procurement contracts whose values exceed $15 million based on a streamlined evaluation report prepared by the procuring entity. The Cabinet may object to an award if it determines that the procuring entity failed to comply with the applicable procurement procedures. There was, however, no evidence of the involvement of the Cabinet before the contract was awarded to ANSA McAL.

Concerns about the prices charged

The Stabroek News reported that 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. The Ministry sought to justify the prices charged by ANSA McAL by contending that the supplier is one of only two companies in Guyana that provides appropriate cold storage and that the company not only airfreighted the required drugs but also donated four refrigerators to GPHC to store the emergency supplies. However, the latter statement contradicted that of the CEO that the items were only available at ANSA McAL at the time.

Three separate investigations

Where Stabroek News broke the story, there was a public outcry concerning alleged breaches in the Procurement Act and a call was made for an investigation. It was then that the PPC announced that it would initiate an investigation. At the same time, the Auditor General indicated that he would review the matter. His report is due for presentation to the National Assembly next week. Should the conclusions emanating from these two reviews be at variance with each other, the Assembly would have a difficulty in deciding on the way forward.

The GPHC Board had carried out an earlier investigation into the alleged violations of the Procurement Act. It attributed blame the CEO for exceeding his authority but exonerated the Minister. In a previous column we had stated that this investigation could not be relied upon as an independent and objective review since the members of the Board have been appointed by the Minister and the Chairperson reports to the Minister.

Cabinet’s approval of payments to the supplier

The Cabinet has approved of payment totalling $515.178 million to ANSA MCAL which suggests that an initial amount of $90 million was paid earlier. The Cabinet might have considered that, notwithstanding conclusive evidence of violations of the Procurement Act, there was a legally binding agreement with the supplier. ANSA McAL has delivered on the agreement and is entitled to payment. It cannot be held liable for the failure of the GPHC to adhere to the requirements of the Procurement Act.

GPHC as a public corporation

The GPHC is a public corporation with a board of directors responsible for the oversight of the operations of the Hospital. The Minister’s role is restricted to one of policy of a general nature. It is therefore inappropriate for the Ministry and the Minister to be involved in the decision-making regarding the procurement of drugs and medical supplies for the GPHC. That responsibility vests with the board of the GPHC.

Finally, by Section 24 of the Procurement Act, the GPHC is required to have its own procurement rules ratified by the NPTAB. Since its establishment in 1999, no attempt has been made to have such rules in place.

 

 

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