Lithuanian Road Administration Construction Works Purchase

„Public auditors have clearly revealed that construction works purchase lacks transparency. If this process were not swimming in murky waters the state could acquire construction works and services cheaper. Systematic public procurement control would help the state to save”, stated Deputy Auditor General Mr Viktoras Švedas when summarising the outcomes of the public audit report which reviewed construction works purchase conducted by the Lithuanian Road Administration. In 2007-2009 the state spent more than 15 billion Litas for purchase of construction and maintenance works. Road Administration is among those institutions that purchase the greatest part of construction works in Lithuania.

It was determined that state and municipality institutions when preparing expenditure estimates for planned construction works estimate their expenditure on the basis of unchecked rates as the Ministry of Environment and Certification Centre of Building Products do not control if those rates are correct. At present one private company provide data for the State Centre of Registers and all the institutions engaged in construction planning use those data.

Public auditors also pointed out that there are no institutions at state level that would conduct systematic oversight of public procurement. Public Procurement Service in most cases only evaluates if procurement documents are in line with legal requirements. As legal acts define only those procurement stages from announcement to contract conclusion the other stages such as estimating construction works prices and evaluating correspondence of works to planned results stay uncontrolled. In the opinion of the National Audit Office it is necessary that the Public Procurement Service would oversee the overall process from the beginning of the purchase till the final results.

At present the purchasing institutions themselves decide on the construction works prices. Auditors think that if the recommended work rates in the register would reflect average retail market prices organizations should purchase construction works at the price that would not exceed those rates. According to auditors Road Administration tender winners proposed prices that were in average 10 per cent higher than the average construction works rates provided in the register.

Auditors determined that project designers are free to change construction works rates in expenditure estimates at their own discretion without justifying why register rates that reflect average market prices were changed. Therefore construction prices calculated by project designers may not correspond to market prices and it would be difficult for institutions to evaluate if the planned construction works prices are justified.

The audit report indicated that institutions prefer to join small projects into a bigger one and that this prevents small and medium size enterprises from taking part in a tender. For instance Lithuanian Road Administration joined road works in sectors between Vilnius and Klaipėda which are in 275 km distance from each other. When conducting purchase complex and technology demanding works were not separated from more simple works that do not require expensive equipment and that could be performed by small and medium sub-contractors. Besides, the Road Administration limited scope of sub-contracting by requiring that the general contractor would perform at least 70-80 per cent of works using their own resources. Therefore only big contractors that are just a few on the market could take part in the tender. Auditors consider such actions as not ensuring sparing and efficient use of public funds.

According to auditors it is not appropriate to include reserve funds for contingent works into the tender documents and the contract as contingent works are not known in the beginning of the project. It was determined that in many cases the Road Administration used reserve funds not for contingent works but for covering price differences when tender winner proposed higher price than the Road Administration was planning initially, as well as for paying for the works that were not foreseen and evaluated by the project implementers and for correction of mistakes. Therefore in auditors opinion those funds were not used as intended.

The National Audit Office provided concrete recommendations to the Government, Ministry of Economy, Ministry of Environment and Public Procurement Service that would help to eliminate construction works purchase shortcomings determined during the audit.