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Institutions and public enterprises exploit Annex II to secretly procure services and products of unlimited value
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An invoice for service provided can be considered a contract, which opens up numerous opportunities for abuses
BANJALUKA, SARAJEVO – Provision of services worth more than BAM 428 million was sought through Annex II of the BiH Public Procurement Law in just one month of the last year, and the most money is spent on the health care. The rest was used for the procurement of catering and administrative services and the organization of seminars, concerts or for various media productions, and practice has shown that these millions are, at best, spent with weak supervision by the authorities.
The figures from that month are just an example or rather an illustration of the situation in which large sums of public funds circulate, mostly without clear explanations about how much of that money was spent and in whose hands these sums ended up.
Public procurements BiH have chronic problems with legality and transparency, and the time to come will reveal the extent to which they are present in Annex II.
Namely, until 2023 the Public Procurement Law allowed this type of procurement to be only published on the website of contracting authority, meaning that numerous procurements and tens of millions of marks were spent far away from the public scrutiny.
Since last year, these procurements must be documented in one place, the public procurement portal, which means that competent institutions, as well as the public, will have the opportunity to find out exactly how much money is spent through the non-transparent Annex II and in what way.
Currently available data show that individual amounts vary from several hundreds or thousands of marks, up to several tens of millions of convertible marks, depending on the service sought.
Those familiar with this issue say that the current regulations have opened up space for non-transparent spending of money and abuses, which so far have remained unnoticed and unsanctioned in most of the cases.
Large amounts are spent on health care services
The value of tenders published by the Health Insurance Institutes from FBiH best show the amount of money in question, more precisely they show that Annex II was generously used for provision of health care.
Annex II of the PPL was used in December of last year to publish public calls for tenders worth around BAM 428 million. Almost the entire sum, around BAM 418 million, went on health care services. Around BAM 193 million from the Health Insurance Institute of Zenica-Doboj Canton, and about 224 million KM from the Health Insurance Institute of Tuzla Canton. The calls were mainly for the procurement of various services ranging from the primary to the tertiary level of health care for the year 2024.
There are similar examples in other months of 2023.
For example, Annex II was used in April of last year to publish public calls for tenders worth around BAM 230 million. Health care service had again taken over the precedence with around BAM 223 million. More precisely, the Health Insurance Institute of Zenica-Doboj Canton with BAM 132 million, which were spent mainly for health care services ranging from the primary level of health care to the tertiary for the year 2023. The FBiH Health Insurance and Reinsurance Institute, which planned BAM 91.135.000 for financing of certain health care services last year, is also included.
Procurements worth BAM 8.181.787 were published in June, whereof around BAM 2.4 million want on the health care services (Health Insurance Institute of Canton Sarajevo BAM 1.755.000, and Institute of Tuzla Canton BAM 660.000).
The sources explain that the non-transparency of public money spending public is reflected in the fact that it is not known into whose hands exactly did the money from Annex II go.
Namely, the realization of Annex II, more precisely, the spending of the sum indicated, only requires publication of a public call. It is not necessary to sign a contract with the supplier, but the service can be obtained from several legal entities, and spending of the money can be justified through issued invoices.
The newsroom of CAPITAL portal contacted several Institutes as to check why they are using this particular procedure to contract medical services. By the time this text was published the only answer came from the Health Insurance Institute of Tuzla Canton.
They stated that the contracting of health care services is done in line with the BiH Public Procurement Law.
They also stated that the Law on Health Insurance stipulates that the requirements, criteria and standards for conclusion of contracts are determined by the Cantonal Government at the proposal of the Cantonal Minister of Health.
“Accordingly, the Government of Tuzla Canton passes each year a decision for the following year based on which the health care contracting procedure is implemented. The Institute has started contracting of health care based on the Public Procurement Law immediately after its adoption, namely based on the interpretation that the health care is not exempt from the public procurement procedure”, read the written answer for CAPITAL with a mention that they include these procurements in their public procurement plans in line with the PPL.
Abuses mostly go unnoticed and unsanctioned
In addition, the sources claim that certain contracting authorities are abusing this type of procedure by conducting procurement of services that are not set out in Annex II.
The example they provide is the procurement of security agencies’ services, which is conducted by the public institution “Cultural and Sports Center” from Vogošća.
The procurement notice was published on January 12, 2024 in the amount of BAM 6.000 excluding VAT, and the term of the contract or the use of the service is 12 months.
This institution published an almost identical procurement notice in 2023. A total of BAM 6.000, without VAT, was planned by the contract for a period of seven months.
Another example of Annex II abuse is the procurement of washing services for the institutional vehicle of the RS Pension and Disability Insurance Fund. At the beginning of this year, they published the procurement notice for this service, worth BAM 5.980 without VAT, through Annex II.
They add that it doesn’t end there, because individual contracting authorities publish similar or the same subject matter of procurement several times in a short period of time.
The City of Banjaluka had also published a procurement notice for provisions of accommodation and catering services for the participants of the “Strengthening the Community's Earthquake Resilience” conference twice last year. The value of these two procurements is BAM 45.000 without VAT..
“It opens up many questions. Why it had to be published twice? For what purpose was so much money spent? How many people were there at that conference, if about BAM 50.000 was needed for the accommodation of those people?“, explained interlocutors of CAPITAL.
Hundreds of millions of marks go through Annex II every year
These are only individual examples indicating that abuses are possible and that, at least for now, they have been lost in the sea of these procurements, the implementation of which was accompanied by little or no insight.
This is especially alarming considering the fact that contracting authorities (institutions, public enterprises at all levels of authority and local communities) have millions of budgets at their disposal, which they also spend through this type of public procurement.
Official information also shows that neither the authorities nor the general public have a clear insight into the spending of money through Annex II.
The statistics of the BiH Public Procurement Agency (PPA) show that the total value of awarded contracts according to Annex II Part B amounted to BAM 367.050 KM without VAT in 2022. This money was disbursed through 25.017 contracts.
The total value of the awarded contracts from Annex II Part B was BAM 225.507 excluding VAT in 2021, and 21.032 contracts were concluded.
“A total of 14 procedures concerning Annex II were monitored in 2022, while this type of procedure was monitored twice in 2021”, said this Agency, but failed to provide the monitoring results.
However, the amounts and contracts from 2021 and 2022 are not true indicators of the situation, because they are procedures registered by the Agency on the basis of the good will of the contracting authorities, given that there was no legal obligation to publish these procurements on public procurement portal before 2023.
Also, there were other legislative changes by which Annex II Part B ceased to exist as such.
Legal and financial services were excluded from the Annex, and are regulated through Article 10 of the Public Procurement Law, which defines exemptions on public procurement. So that left Annex II with a wide range of services and goods that can be obtained.
This area is regulated by the Rulebook on the procedure for awarding contracts from Annex II, the application of which began at the beginning of 2023, and according to which procurements from Annex II are published on the public procurement portal, and not on the websites of the contracting authorities.
“This will make monitoring these types of procurements easier”, said this Agency for CAPITAL.
This information from the Public Procurement Agency suggests that the year 2023 should provide a clearer picture when it comes to this area, but for now there are no official statistics on how much money was spent through Annex II.
Namely, the Public Procurement Agency told CAPITAL that the data on procurement from Annex II for 2023 will be processed in the upcoming period and that they are therefore unable to provide official data.
In the absence of official statistics, is only possible to look at the announcements on the website of the public procurement portal and see what amount of public money is circulating, and the only certain thing is that the sum is definitely not small.
A total of 2.330 procurements related to Annex II were published in 2023, but it is not possible to see what their total value is. There are only individual amounts of each procurement, which must be added up to get the final figure.
In order to show how much public money circulates through this type of procurement, and thus the extent of the problem, we have added up the values of announced procurements for four months of last year.
A total of 250 procurements, worth BAM 230.303.625, were announced in April (out of this sum, about 223 million went on the health care services of the above-mentioned Institute of Zenica-Doboj Canton).
A total of 107 procurements, worth BAM 8.181.787, were announced in June (whereof around BAM 2.4 million was spent on health care services). A total of 114 procurements, worth BAM 3.633.570, were announced in September (there was no allocation by the Federation institutes, but individual procurement notices of public companies and institutions for provision of periodic health checks of workers in amounts of several tens of thousands of marks were announced).
A total of 190 procedures were published in the last month of 2023, the value of which was as much as BAM 428.911.812 KM, whereof a total of BAM 418.003.432 was spent on the health care services of the afore-mentioned Health insurance institutes.
Regulations are not helping
It is these amounts that represent a potential bait for various abuses, and the current legal solutions that regulate this area also help. Namely, the amount for Annex II is not limited, and the contracting authority can procure services from several suppliers through one call and in the period for which the notice was published.
The period of use of the service cannot be longer than three years, counting from the date of procurement notice publication or until all available funds are used.
An additional problem is that it is not mandatory to conclude a contract in this case, and the invoice for the service provided can be considered a contract, which is widely used by public institutions. The question arises as to how the regulators fight against it. Official information is not encouraging.
How justified is the spending of public money?
Experts in this field say that the idea of Annex II is not bad because it allows contracting authorities to provide certain unforeseen services during the year, but as usual the problem is posed by the legal opportunities that are misused.
Namely, this type of public procurement does not have to be in the public procurement plan that contracting authorities adopt at the beginning of the year.
“These procurements are done beyond the plan at the discretion of the contracting authorities and are usually subsequently included in the plans through their revision at the end of the year”, explained CAPITAL’s interlocutors adding that the question arises about justifiability of spending the money in that way.
The Public Procurement Agency says that only five employees had reviewed around 25.000 different sources of monitoring in 2022, but they did not say what the situation was in this regard last year. Since the same number of employees worked on public procurement monitoring in 2021, it is unlikely that anything has changed.
When it comes to monitoring, the Public Procurement Agency stated that they monitored the procedures from Annex II concerning the procurement of protection and insurance services, legal services and the publication of the annual report on the awarded contracts for services from Annex II.
“The contracting authority was also fined in one case for the irregularities in the implementation of this type of procedure”, said the Agency.
Prosecution of abuses should be the priority of the authorities
The prosecution of those responsible for abuses should be the priority of the authorities, say those who deal with public procurement.
“This will lead to an increase in the integrity and responsibility of participants in public procurement procedures, and thus this type of procedure will no longer be problematic either”, said the editor of Pratimo tendere portal, Slobodan Golubović.
He explains that over 400 different social and other services can be subsumed under this type of procurement, ranging from various health care services, administrative services and educational seminars, all the way to the production, television and other services.
Although there is no concrete official data yet, Golubović says that it is noticeable that the contracting authorities use this less transparent procurement procedure to a large extent.
“The key problem with Annex II services is the lack of transparency and their wide application. The lack of transparency is first of all reflected in the fact that the public opening of bids is not prescribed as for an open procedure, and the wide application of this type of procurement is problematic because it involves a large number of services and thus it is possible to spend more public money non-transparently”, said Golubović.
When commenting on the latest legal changes related to this area, Golubović says that the aim of the legislator was alignment with the EU regulations.
“However, one should be aware that not all European values are absolutely applicable in our society and system because the level of corruption here and in the EU simply cannot be compared. This would require achievement of significant progress in the fight against corruption, which can only then be followed by application of these regulations”, concluded Golubović.
Ankes II a shorter way to spend public money
When it comes to the Institute's practice of procuring health care services through this procedure, Golubović says that these institutions use it because it is a faster procedure.
“Annex II represents the so-called “special procurement regime”, which is accelerated and significantly less transparent compared to an open procedure or a competitive bid, and this is probably regulated like this for the sake of simpler realization of these services. However, everything that is simple, fast and non-transparent is subject to abuse, including the mentioned procurement of health care services, especially bearing in mind that it involves the consumption of a really large amount of public money”, said Golubović, adding that more transparent procurement procedures can also be applied for these services according to the Rulebook on the Procedure for Awarding Contracts from Annex II.
“The public procurement portal only has tentative reports on how much money was spent for the aforementioned services through Annex II, however, we cannot know to whom this money was paid, which speaks of the lack of transparency of these procurements. Although the Public Procurement Law, as well as the Rulebook on the Procedure for Awarding Contracts from Annex II, insist on respecting the basic principles of public procurement, practice shows that the principle of transparency is completely violated through the application of the procurement of services from Annex II, as there is no publicly available information on who are the providers of these service”, specified Golubović.
Lack of transparency increases the chances for corrupt actions
Transparency International (TI) BiH told CAPITAL that the amendments to the Public Procurement Law have also amended Annex II, but that the downside is that part of the services from this Annex are now subject to exemptions from the law, while earlier these were the contracts whose award was covered by a special regime in line with the law.
“Any reduction in the obligation to announce public calls or procurement notices is a further step towards non-transparency, and the chances for corrupt actions increases where there is lack of transparency”, said Transparency International.
On the other hand, they say that the good side is that the transparency of this Annex has increased.
Transparency, they add, has been increased in such a way that now public calls for the procurement of services from Annex II are published on the public procurement portal in a special section, and it is easier to monitor them both from the point of view of interested bidders and from the point of view of monitoring.
“Also, since the public procurement portal was developed in accordance with the law and regulations, any difficulty or even impossibility of publishing a notice, correcting a notice or even submitting a report through the aforementioned system may indicate the fact that the procedure was not done in accordance with the provisions of the Public Procurement Law and accompanying regulations”, said TI BiH.
CAPITAL: Vesna Popović
