Restricted and single source procurement: The HDM Labs Case

Over the last two weeks or so, the print media have been carrying reports of another apparent irregularity in the procurement of drugs and medical supplies at the Ministry of Public Health. This time, the procurement relates to the supply of pharmaceuticals, including, 27,040 bottles of metformin 500mg tablets, 63,804 of 2% lidocaine injections, 49,303 diclofenac 1% 30g gel, 28,232 propofol 10mg/ml injections, 16,951 bottles of acetylsalicylic acid X1 tablets, and 12,392 bottles of 75mg diclofenac tablets. The supplier, HDM Labs Inc. of Island Park, New York, was chosen using the restricted method of procurement, and the contract was awarded in the amount of US$1.790 million, equivalent to G$366.9 million.

Readers will recall that in February 2017 a similar controversy erupted in the emergency procurement from ANSA McAL of $605 million in drugs and medical supplies for the Georgetown Public Hospital Corporation (GPHC). Apart from a breach of the Procurement Act, there were a number of concerns about the prices of certain items supplied, compared with those charged by other pharmaceutical suppliers. In the midst of public criticisms, the GPHC’s board investigated the matter and concluded that the Chief Executive Officer acted “recklessly” in initiating the procurement but no evidence was found that the Minister of Public Health gave any instructions for the procurement procedures to be bypassed. The Public Procurement Commission (PPC) carried out its own investigation and also exonerated the Minister.

Background information about HDM Labs Inc.

A Google search indicated that HDM Labs Inc. was established in 1993 to provide various purified human proteins, including a wide range of cancer antigens, human hormones and polyclonal antibodies for the research and diagnostic industry. According to one of its websites (http://www.hdmlabsinc.com/about-us/), the company states that: (i) it is one of the biggest innovators providing secondary antibodies and cell culture products worldwide; (ii) it has contracts with FDA approved therapeutic plasma facilities for distribution of their plasma products; and (iii) it supplies a wide range of disease state plasmas for control manufacturing.

Another website, (http://www.hdmlabsinc.com/), indicates that the company: (i) is a global specialty distributor working to meet the needs of customers at high quality and great value; (ii) has the capability to provide products across a wide range of areas, from human proteins and antiseras to high quality grade plasma with globally accepted safety standards; and (iii) provides various generic pharmaceutical products for various markets. HDM Labs Inc. is classified under surgical & medical instruments & apparatus manufacturing, and with an annual income of $10 to 50 million, company employs 10 to 19 associates. HDM Labs Inc is a public business and is considered small.

(http://profile.infofree.com/biz/NY/Island%20Park/HDM%20Labs%20Inc/11132543758902)

It is evident that HDM Labs Inc. is not a manufacturer of pharmaceuticals but perhaps an intermediate supplier of such products. However, the company’s websites did not indicate any experience in the latter and what products were supplied in the past.

Events leading to the award of the contract

In April 2017, the Ministry invited six suppliers to participate in a restricted tender to supply pharmaceutical supplies for Regional and Clinic Services, including HDM Labs Inc. At the tender opening on 23 May 2017, three suppliers – International Pharmaceutical Agency, Caribbean Medical Supplies Inc., and ANSA McAL Trading Ltd. – submitted bids. However, based on the evaluation report, these suppliers did not satisfy all the criteria specified in the bid documents. 

On 16 June 2017, the Permanent Secretary (PS) wrote to HDM Labs requesting that it submit quotations for the supply and delivery of specified emergency pharmaceutical supplies. Three days later, the PS wrote to the NPTAB requesting approval for the company to be awarded the contract using the single source method on the grounds that HDM Labs: (i) has “great capacity” in delivering supplies to the Ministry within a two-week timeframe; (ii) is a recognized and efficient supplier countrywide; (iii) has its pharmaceutical supplies registered with the Food & Drugs Department in Guyana and is also registered with the Food & Drugs Authority located in the United States; (iv) has its broker to clear consignments; and (v) has supplied pharmaceuticals to the GPHC using all standard operating procedures.

On the following day i.e. 20 June 2017, the PS wrote to HDM Labs notifying it of the award of the contract. Three days later, the NPTAB wrote to the PS advising her that the restricted tender had been annulled and that there should be a retender. It would appear that the PS did not await the NPTAB’s approval and proceeded to notify the supplier of the contract award. What became of the notification is unclear. However, on 12 July 2017, all six suppliers were invited via email to re-submit bids. At the tender opening of 18 July 2017, there was only one bidder – HDM Labs. The evaluation report of 16 August 2017 recommended that the contract be awarded to the sole bidder.

The question one may legitimately ask is: If the three suppliers that submitted bids did not meet all the evaluation criteria, why were they asked to re-submit bids, unless they were told of the criteria they did not meet? It is no wonder that they did not respond. It is also not clear whether HDM Labs met all the evaluation criteria.

Minister’s Response

In response to media reports on the matter, the Minister stated that in April 2017, six companies responded to the request for the supply of emergency pharmaceutical supplies. Upon evaluation, the NPTAB recommended that no award be made as the bidders did not satisfy all the evaluation criteria. The Ministry then sought the NPTAB’s approval for the use of restricted tendering, which approval was granted. All six companies were then asked to resubmit bids. However, only one company, HDM Labs Inc., responded. The NPTAB then recommended that the contract be awarded, having completed its evaluation report on the sole bidder. A memorandum was submitted to Cabinet which offered its no objection. The contract was awarded on 31 August 2017.  The Minister later corrected her statement and indicated that only three suppliers in fact had submitted bids. Her statement, however, stayed clear of the PS’s notification letter of 20 July 2017 to HDM Labs that it was awarded the contract.

Restricted Tendering and Single Source Procurement

The Procurement Act distinguishes between restricted tendering and sole source procurement. Section 26 permits restricted tendering where the goods/services or construction, by virtue of 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. However, the estimated cost of the contract must be below the threshold set in the regulations.

Schedule II of the Procurement Regulations of 2004 has set the threshold for restricted tendering at $1 million for materials and services. Considering the amount involved, i.e. $366.9 million, the Ministry has clearly breached the Procurement Regulations, and by extension the Procurement Act, in initiating procurement proceedings based on restricted tendering. The NPTAB ought to have been aware of this breach and should have advised the Ministry not to proceed with this route.

As provided for under Section 28, single source procurement occurs where: (i) 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 (ii) 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.

Was the procurement of drugs and medical supplies as a result of the application of the single source method?  Based on the Minister’s explanation of the events leading to the award, the answer is no. The restricted tender approach was used which produced a sole bidder. However, in so doing, the Procurement Regulations were breached. On the other hand, the PS’s letter of 19 June 2017 indicates an intention to adopt the single source method based on an emergency. However, the PS would have had to justify that a catastrophic event had occurred and that, given the urgent needs for the pharmaceutical supplies, it was not possible to engage in other forms of procurement. Unlike restricted tendering, there is no limit for emergency procurement.

Involvement of the NPTAB

The NPTAB’s role in the procurement process is outlined in Section 16 of the 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 for the NPTAB to approve of a particular method of procurement, whether by way of open tendering, restricted tendering, single source procurement or emergency procurement. Therefore, any request for the NPTAB to do so was inappropriate. The decision as to which method of procurement to adopt is entirely a matter for the head of budget agency. The NPTAB should therefore avoid getting involved in deciding which form of procurement a Ministry or Department should engage in.

Conclusion

The procurement of drugs and medical supplies from HDM Labs Inc. in the sum of G$366.9 million was in clear breach of the Schedule II of the Procurement Regulations which set a limit of $1 million for restricted tendering.

While acknowledging the need to ensure adequate supplies of pharmaceuticals for the GPHC and the Ministry of Public Health at all times, the solution does not reside in emergency procurement when inventory levels reach a critical point or when supplies run out. It calls for detailed procurement planning well in advance of fiscal year in question which should include: consideration of the pattern of usage; the maintenance of maximum and minimum inventory levels and re-order points; comprehensive lists of items that will be needed and when; and consideration of procurement lead times, among others. Both the GPHC and the Ministry should also initiate annual prequalification of suppliers to obviate the need to engage in open tendering whenever supplies are needed.

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