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Small village plus big money equals trouble

HORNÉ Plachtince in southern Slovakia may have only 200 inhabitants but it might fairly be called the capital of public procurement in Slovakia. This tiny municipality, in the district of Veľký Krtíš, is the co-owner, along with private firm TenderOnline, of Regional Procurement Agency (ROA), a company which was granted the right by the Interior Ministry to handle procurement on behalf of the ministry and more than 20 other state organisations. Among the tenders it has already completed was one for PR and consultancy services worth up to €130 million. But after ROA made media headlines in late April for that deal, which critics have called potentially fraudulent, Interior Minister Robert Kaliňák, whose ministry is responsible for state procurement, has moved to distance himself from the firm and said his ministry – although it appointed ROA in the first place – would not do business with the winners of the tender it had held.

HORNÉ Plachtince in southern Slovakia may have only 200 inhabitants but it might fairly be called the capital of public procurement in Slovakia. This tiny municipality, in the district of Veľký Krtíš, is the co-owner, along with private firm TenderOnline, of Regional Procurement Agency (ROA), a company which was granted the right by the Interior Ministry to handle procurement on behalf of the ministry and more than 20 other state organisations. Among the tenders it has already completed was one for PR and consultancy services worth up to €130 million. But after ROA made media headlines in late April for that deal, which critics have called potentially fraudulent, Interior Minister Robert Kaliňák, whose ministry is responsible for state procurement, has moved to distance himself from the firm and said his ministry – although it appointed ROA in the first place – would not do business with the winners of the tender it had held.

“We recommend that they [the state institutions affected] perform their own tenders and use the services of the agency only in cases where it is possible [by so doing] to purchase under more advantageous terms,” said Kaliňák’s advisor on public procurement, Tatiana Behrová, as quoted by the Sme daily on April 20.

From the details that have emerged, it seems that Horné Plachtince was brought in as a partner of TenderOnline merely in order for ROA to qualify as a ‘state’ procurer – despite the fact that the municipality has absolutely no experience of large-scale procurement.

The impression that the collaboration with the municipality is merely formal was strengthened by comments by the village’s mayor, Ladislav Nozdrovický, who revealed that while he expected the deal to boost the municipality’s finances, it has very little say in the running of ROA.

Lucia Žitňanská of the opposition Slovak Democratic and Christian Union (SDKÚ) filed an appeal with the Public Procurement Office (ÚVO) to check the state’s business with ROA and called for the cancellation of deals mediated by the firm. Žitňanská called the Horné Plachtince procurement scheme a “classic Slovak scam”. Another opposition party, the Christian Democratic Movement (KDH), wants to initiate an MPs’ audit of the Interior Ministry over ROA’s activities, the SITA newswire reported.

Meanwhile, the head of the administration of ÚVO, Marta Budišová, who also serves as deputy for the governing Smer party in the Košice regional parliament, was sacked in connection with the ROA case. As well as her senior position at ÚVO, Budišová was the co-founder of TenderOnline (although she no longer has an interest in the firm). ÚVO Zita Táborská proposed her dismissal on this basis, Sme reported on April 25. Another co-founder of TenderOnline, according to the etrend.sk news website, was Zdenka Kudláčová, another former public official who is facing charges over alleged misconduct related to the so-called bulletin-board tender, another alleged case of public-sector procurement fraud which occurred during the first Fico government.

ROA was set up in Horné Plachtince in August 2012 and within a month had already announced three tenders on behalf of more than 20 state and public institutions, including the Interior Ministry, which is supposed to serve as a guarantor for central procurement for state institutions. Originally, ROA approached 40 state institutions offering to procure legal services, auditing services and media consultancy for them, according to Sme.

The maximum value of orders procured by ROA is set at €130 million, but the state is not obliged to sign contracts with the winning bidders. ROA in its tender announcements does not say for whom the services are being procured or what is the estimated price for the service: it only states a price range of €130,000 to €130 million. The orders, for four years, are supposed to be covered from European Union funds, according to SITA.

Nozdrovický was first elected as mayor of Horné Plachtince in 2006 as a nominee of the Movement for a Democratic Slovakia (HZDS), and sits on the supervisory board of ROA.

The Ministry of Interior said that it will seek cancellation of the agreement on cooperation with ROA due to doubts about whether there was any real competition among the bidders for the PR contract, Sme reported on April 24. While the ministry had not planned to use PR services under the million contract, Kaliňák’s department has already contracted lawyers and auditors procured through ROA.


The Plachtince business


Last December, ROA concluded two deals on cooperation with the Ministry of Interior, the Ministry of Agriculture, the Slovak University of Technology (STU), the Slovak Academy of Sciences (SAV), the TASR news agency and the National Property Fund (FNM), SITA reported back in February 15. The fees for the central procurer, i.e. ROA, were to be covered not by the state but by commissions paid to the firm by suppliers, according to information released in mid-February.

ROA was supposed to sign so-called framework agreements with selected bidders for services sought by public procurers, meaning the state institutions, which then would sign specific agreements with successful applicants.

“The primary reason for the creation of ROA is the good shared experiences of the parties of the agreement and the ambition of the municipality to improve its economy,” ROA’s authorised representative, Ján Feranc, explained back in February, in comments to SITA, when asked why Horné Plachtince was chosen as the location for the firm. Feranc has since been replaced by Katarína Lutherová.

The share capital of ROA in February stood at €7,500, of which TenderOnline deposited €6,750 and the village €750. Along with an authorised representative, ROA employs two lawyers, an economist, an accountant and a receptionist, plus two external employees, SITA reported.

Peter Kunder of political ethics watchdog Fair-Play Alliance warned in February that partnerships between local and regional governments and firms could run into trouble.

“The creation of companies in which municipalities are owners along with private companies is almost always risky and far too often leads to unfavourable solutions for the public finances, or conflicts of interests,” Kunder told SITA earlier this year.

The most controversial contract, for PR and media consultancy worth up to €130 million, was procured by ROA with four firms: Globe Production, Comm, Promea Communication and Adventure, the Hospodárske Noviny daily reported on April 23. Three of these companies are based at same address, a small residential house in Bratislava’s Old Town district. The daily reported that the people in these firms all know each other, and quoted Kunder of Fair-Play Alliance, saying that the motivation to circumvent the competition can be much greater in such cases.


The doubts


Meanwhile, Žitňanská said that developments around ROA should disqualify Kaliňák from serving as interior minister responsible for public procurement. She argues that based on the information reported, the municipality of Horné Plachtince plays no real part in the running of ROA.

“I assume that ROA perhaps formally-legally meets the conditions set by the law to perform public procurement – but de facto it does not,” Žitňanská said, adding that the village appears to be performing the role of “white horse” – i.e. dupe, or front man – in the procurement process.

Lutherová, ROA’s new authorised representative, claimed that she was nominated by Nozdrovický, but Žitňanská said the mayor did not even know that the authorised representative had changed. Žitňanská, in her complaint to the ÚVO, referred to reports published in the local media, including Sme and Hospodárske Noviny.

Žitňanská also said that all the legal steps that ROA had taken as a public procurer could be qualified as fake legal proceedings.

Meanwhile, Lutherová told the TASR newswire on April 20 that the principle of central procurement is used regularly and in Slovakia various agencies deal with this type of procurement.


The authority


The ÚVO said it would proceed in a normal way in response to any complaints about tenders carried out by ROA.

“The law on public procurement makes procuring possible through a central procurement organisation,” said ÚVO spokesman Ján Mažgút, who added that the procurement authority would be able to comment on tenders only after checking the specific central procurement process.

Mažgút added that the office had previously used its website to urge public procurers to be cautious when assigning procurement activities to entities which identify themselves as public procurers and act on behalf of other procurers, SITA reported.

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