You are here: HomeBusiness2016 11 22Article 489056

Business News of Tuesday, 22 November 2016


Ghana loses $2bn in sole-sourced contracts – Danquah Institute

Seth Terkper, Finance Minister Seth Terkper, Finance Minister

The Danquah Institute, a public policy research centre, has said at least $1.93 billion is being lost through non-competitive tendering.

The pro-opposition outfit said it has been investigating “public procurement contracts awarded on either sole sourcing or restrictive tender basis since 2010, involving over GH¢12 billion (US$2.96 billion in nominal terms).”

“Our findings suggest that an estimated 65% savings could have been made if those deals were subjected to competitive tendering. That translates into GH¢7.8 billion savings in public funds, equivalent to US$1.93 billion, nominally,” DI said in its report.

Below is the full Report from DI

The Danquah Institute, a public policy research centre, has painstakingly undertaken due diligence on a number of public procurement contracts awarded on either sole sourcing or restrictive tender basis since 2010, involving over GH¢12 billion (US$2.96 billion in nominal terms).

Our findings suggest that an estimated 65% savings could have been made if those deals were subjected to competitive tendering. That translates into GH¢7.8 billion savings in public funds, equivalent to US$1.93 billion, nominally. Essentially, public procurement contracts appear to be motivated more by corruption than development. The actual cost of the current situation is that we are throwing too much money at far fewer projects and the nation could have developed far more faster if only government would adhere to the letter of and principles behind the public procurement law.

In a series of publications, DI will share the findings of its research with the country as part of the necessary national debate to make value for money assessment a critical component of public expenditure.

It is always prudent to shop around when choosing a supplier or distributor for the provision of any service for the obvious reason of cost reduction. It is indeed imperative for a government to ensure that due process is followed with respect to awarding state contracts especially when there is no urgency for the execution of the relevant contract to warrant a no-bid or sole sourcing contract.

It is even more vital for a country like Ghana, where basic infrastructural difficulties are widespread and poverty rife to have value for money being the deciding factor for the award of state contracts. Save in response to national disasters or the prevention of the same, urgency does not necessarily come to play especially where citizens have survived without very basic amenities since independence. The prerogative of the government and if this were put to the masses for a vote would indicate that value for money should drive all decisions of the award of state contracts.

Even in the more developed world where corruption is not as rife; money not as scarce a resource; and debt not at the level that it currently is in Ghana, extra precaution is taken to avoid awarding single or sole sourcing contracts unless it is absolutely necessary to do so, due to the lack of options or alternatives. Governments in the more developed world have always taken great care to ensure that no charge of corruption can be levied against either party to a state contract. It is indeed for this very reason that many governments insist on competitive tendering and the removal of any monopolistic tendencies.

Contracts awarded under the NDC government indicates a blatant and total disregard to the plight of Ghanaians and the state of our economy and the insensitivity of the government by its failure to recognise the importance of value for money, the need to protect the public purse and the integrity of the tax system. Majority of the contracts awarded and approved by the Board of Public Procurement Authority in 2016 alone were done on a sole sourcing basis, with the rest being awarded on a restricted tendering basis and the justification for the government’s decision is not apparent. The contention is that the choice of awarding contracts on a sole sourcing basis cannot be justified.

The value of the contracts awarded for various projects during the past 8 years by the NDC government have been excessive to put it mildly without much tangible evidence of what these funds were used for. The question that immediately comes to mind when one sees the figures is why? Why this figure? Why this company? Why couldn’t any other company do the job?

A case in point is the authorisation of the contract for the supply of 3,000 cartons of A.T. pesticide for GH?15,480,000.00 (fifteen million four hundred and eighty thousand Ghana Cedis) to ABP Ltd by Quality Control Company Limited (Cocobod). This was awarded on a sole sourcing basis. One might ask, were there no other agrochemical and pesticides companies in Ghana that could execute this contract? Why did this not go through a more competitive tendering process to ensure that Ghanaians were getting value for money? Our checks show that this could have been competitively done at GH¢150.00 a carton instead of the GH¢516.00 ABP is being paid through sole sourcing. This means that our farmers could have received three and a half times more pesticides if the procurement was subjected to competitive tender.
Again in April 2016 a contract was awarded by Ghana Cocoa Board to the value of GH?134,000,000 (One Hundred and Thirty Four Million Ghana Cedis), equivalent to US$33 million, for the procurement of 64,000 bales of jute bags. Needless to say, this contract was awarded on a sole sourcing basis. This breaks down into GH¢2,093.75 per bale. On the market, this could have been competitively purchased at GH¢500.00 per bale and the nation could have received four times more in terms of value for money. There is absolutely no justification for this especially where the procurement of jute bags does not require any specialist skill or knowledge once the relevant specifications have been provided.

Another example is the award of five separate contracts totalling GH?222,305,115.00 (Two Hundred and Twenty Two Million Three Hundred and Five Thousand One Hundred and Fifteen Thousand Ghana Cedis) in March 2016 alone by the Ministry of Power for the supply of LED street lights in Accra and Kumasi, (light emitting diode lamps) , and other lightning accessories. Do we need to bother stating what type of contract this was? You guessed right, sole sourcing! GH?222,305,115.00 (Two Hundred and Twenty Two Million Three Hundred and Five Thousand One Hundred and Fifteen Thousand Ghana Cedis) on street lights, lambs and other related lighting accessories and we continue to drive and walk in darkness? A look into the details of that contract also shows that others were prepared to supply at a third of the price above.

Indeed at a meeting on the 22nd of June 2016, the Board of Public Procurement Authority noted with concern the use of the single or sole source method for the provision of certain services or supply of certain goods including the LED lights, conductors and accessories for street lightning. Yet, sole sourcing continues to be the order of the day.

The NDC government’s attitude towards procurement only seeks to encourage collusive arrangements and excludes citizen participation and participation by private entities from the procurement process.

Again, in May 2013, the Ministry of Water Resource, Works & Housing awarded a contract to Amandi Holdings Limited and approved by the Board of Public Procurement Authority, worth $39,900,000.00 (Thirty Nine Point Nine Million U.S Dollars) under the Sakumono Sea Defence project. The contract was awarded by virtue of section 40(1)(b) of the Public Procurement Act, 2003 (Act 663), which provides that “a procurement entity may engage in single-source procurement under section 41 with the approval of the Board, where there is an urgent need for the goods, works or services and engaging in tender proceedings or any other method of procurement is impractical due to unforeseeable circumstances giving rise to the urgency which is not the result of dilatory conduct on the part of the procurement entity.

Sea erosion does not occur suddenly. It is a gradual process which takes place over a long period of time. When it became necessary for a sea defence to be constructed, the state could comfortably have undertaken a competitive bidding to select a potential contractor for the project. It is absurd for the Public Procurement Authority to approve a construction of this magnitude under a certificate of urgency. There is no information to indicate or confirm that value for money assessments were undertaken before awarding the contract. This is recklessness on the part of the government and the people deserve an explanation.

Unfortunately, there are countless instances within the past eight years of NDC’s government that demonstrate a total disregard for procurement guidelines under the Public Procurement Act, 2003 (Act 663) leading to the creation of unfair system of awarding contracts.

Accountability and transparency are the central pillars of public procurement systems. Without accountability and transparency the vast resources channelled through public procurement systems are likely to be misused and the system then lends itself to abuse and corruption. Unfortunately, this has been the case in our country and it is a situation that threatens to burden the country with debts borne out of waste and corruption.

For the next three years, the Ministry of Finance estimates that it will need GH¢60 billion to service the national debt. Our findings suggest that if proper value for money assessment were applied to the contracts for which much of the GH¢112 billion national debt was incurred, the country could have been looking at probably having to service not more than 50% of the current debt stock.

The most effective and desirable means of awarding contracts is to subject them to the basic rules of free market. In the current situation where competitive bids are rather the exception rather ends up arresting our nation’s development. It creates the impression that investments in public infrastructure is driven more by the pull of corruption than the push for development.

Ghanaians need to stand up and demand accountability. The NDC must be made to explain the high volume of sole sourcing contracts. The NDC must also account for the values placed on the various projects as they are unconscionably excessive.

The government must also show Ghanaians exactly for what the allocated funds have been used. Our current governance system has been riddled with weak mechanisms of control, the absence of a proper interpretation and application of the rules governing the procurement process and crude and blatant corrupt practices.

We need to establish a solid culture in our governance system where the opportunity for entities and private individuals to participate in the procurement process becomes the standard. There should also be transparency and accountability to the people of Ghana, making the system more efficient and effective for the benefit of all interested parties and ensure that Ghanaians are being provided with value for money.

Nana Attobrah Quaicoe,
Executive Director, Danquah Institute