New government plans to take on messy business of public works bids

The present system of assigning public works, dubbed the «mathematical formula,» is scheduled to be abolished at the end of the year for projects beginning in 2005. Although the abolition of the mathematical formula was one of the ruling New Democracy party’s main campaign promises and the source of many justified comments regarding corruption in the construction sector, the new leadership of the Environment and Public Works Ministry realizes that over the next few months at least, the old system will have to be retained. Nevertheless, since next year is some time away, the ministry has set in motion an action plan to create the conditions for doing away with the model and to impose stricter control on competitions held in the meantime. According to sources, the minister, Giorgos Souflias, and deputy minister, Themistoklis Xanthopoulos, have agreed to a nine-month plan that includes a new price list for materials and labor. The existing price list is considered to be out of date, and includes the cost of jobs which have not been done for decades because of technical advances. They are also preparing design specifications for projects, to be applicable nationwide, and which provide the basis for tendering every project. These two issues are being worked out by high-level committees within an action plan for managing resources from the Third Community Support Framework. The committees, which include university professors, have been on the job for three years but sources say the deputy minister is putting pressure on them to finish their work before the end of the summer. As an indication of the delay, a letter from the European Commission refers to the availability of software in the market that can be used to establish pricing methods. Ministry officials said that in the meantime, however, the existing model will have to be implemented but with tighter controls. According to sources, supervision will be stepped up and directives given for every price review. Every time the budget is overstepped, there will have to be an inspection and final approval from higher echelons of every relevant authority, which in the case of the Public Works Ministry is the general secretary. Another crucial issue is the stance the ministry is to take regarding contractors’ interests, in cases where rigged competitions have already been brought before the courts. As is usually the case in Greece, the legal framework is particularly strict but rarely implemented. In this case, it provides for the suspension of one’s degree for a considerable period of time, and for companies found guilty of rigging competitions to be banned from the market. It remains to be seen whether adjustment to a system of healthy competition will proceed smoothly. Ministry teams are now dealing with in-house problems. It is believed that considerable responsibility for the prevailing image of corruption is borne by members of services and organizations involved in the allocation of projects, not only because of inefficiency. Although they describe ministry officials and engineers as «worthy,» the teams refer to «a relaxation in the sector of transparency, despite the existence of strict legislation – the crucial issue is to convince everyone that the system can no longer work like this.» At the same time, the ministry is expected to hire another 750 engineers currently under contract to deal with natural disasters. Recruitment will be on the basis of a point system, and these young engineers will be riding the ministry’s new wave of renewal. The combination of all these factors, according to the ministry, will eventually abolish the mathematical formula. «Wherever there has been good design and supervision, firms have not dared offer excessive discounts or ask for extra funds,» say officials, although even Souflias is said to realize the mathematical formula was not a bad way to deal with the problems of the past. However, the previous political leadership should have learnt its lesson from the fate of a similar amendment adopted in 1973, which required justification for discounts of over 25 percent of the original budget. The amendment was an abject failure, as the construction companies grouped together in order to arrive at the desired result, similar to what happened 20 years later. ‘Manipulation’ of the mathematical formula Groups of contractors have spread their tentacles throughout public works, large or small. By making group bids, they manipulate the mathematical formula for tendering projects. Major road and construction works may be announced by the Environment and Public Works Ministry, but the majority of projects concern municipalities, prefectures, and other public organizations, giving contractors a great deal of leeway. The manipulation of the mathematical formula affects all projects, even those with a small budget. A typical example is the renovation of the building that houses the Labor Housing Organization’s Youth Center in Hania, Crete, a small project that nevertheless attracted bids from a total of 57 construction firms and consortia, several of which – according to accusations – «came from Athens en masse.» Of these, 12 participants – using similar files and bids filled out by the same person – offered discounts of between 61.01 percent and 61.84 percent. According to the complex way the mathematical model works, a bid that offers a discount of 61 percent would be rejected, but the 12 bids were grouped together and eventually influenced the result, increasing the permissible discount percentage. According to the same accusations, the group in question submitted a number of other bids (as well as the 12 bids with discounts of over 61 percent) with discounts of around 45 percent, among which the final contract was assigned. Typically, average discounts under the mathematical formula are not usually more than 10 percent, while for the Olympic venues the discounts were on average about 1 percent. For smaller projects, the discounts are rarely more than 30 percent. Such a large discount for the specific bid confirms the way a group of businesses trying to manipulate the result can work, and also highlights the wretched state of affairs among smaller firms (outside the groups), which have virtually been excluded from these projects. In this particular project, at least one consortium has submitted protests, as has the Association of Public Works Contractors in the prefecture of Hania. In the written complaint, there is mention of a «large number of bids submitted by the same individual in similar files and for discount percentages that confirm this was clearly an organized effort to distort the entire proceedings.» The committee in charge of the competition, and then the board of the Labor Housing Organization, rejected the protests, citing the large number of participants (57), although at least half of these functioned as a group. According to market officials, despite the clear references in the institutional framework (Presidential Decree 609/85 and Law 2576/98) stipulating the cancelation of a competition «if there are serious indications that the participants were in collusion,» this rarely occurs. Most services are happy to accept low-priced bids and there have been a number of hints that contractors and public servants have accepted bribes. As for the legal provisions on the declaration of the details of contracting firms accused of collusion in the ministry’s special file and the disciplinary councils, which can even result in the loss of professional degrees, it has probably never been put into practice.