Violations of public procurement surface by accident

At the University of Tartu clinic, state procurement procedures were violated last year for purchases with a total amount of nearly five million euros. Photo: Sille Annuk

• Hospitals have been mishandling procurement for years.
• The Tartu University Hospital cannot resolve its problems this year either.
• Financial support for construction can also result in violation.

It was only recently when the purchase of rapid corona tests resulted in a criminal case against the former minister of education and research. Questionable procurements which have taken place in health care now and then give the impression that part of the missing resource is due to lack of quality management, although the long waiting lines for treatment are being alleviated by selling to the public the need to raise taxes so as to pump more money into the sector. 

The Health Insurance Fund spends more than half of all treatment money on specialist care, amounting to 850 million euros last year. The large number of hospitals procurement transactions inhibits the compiling of reviews of purchases, seconded by a reluctance to publish detailed results. Transparent use of funds would help prevent abuses, but the public hears about procurement violations mostly by accident. Recently, however, a letter from the University of Tartu Hospital to the Ministry of Social Affairs reached all interested parties.

While investigating last year's economic transactions, the auditing firm LK Konsultatsioonid found a total of five million euros worth of violations of public procurements in the clinic's purchases. However, these deficiencies cannot be found in the nearly one-hundred-page report of the clinic for the financial year 2021, because their publication is not required directly.

Besides the management and supervisory boards of the hospitals, the Auditor General’s office can also study the reports of the auditors, which were omitted from the hospitals' annual reports. «According to the law, we cannot comment on them before the results of the audit of the consolidated annual financial report of the state,» explained Priit Simson, the communication manager of the institution. The Auditor General's assessment of the consolidated report will be made public at the end of August.

There are more hospitals which have sinned

«However, this is not the first time that we have received information about deficiencies in the organization of public procurement in hospitals,» admitted Simson, who said that the same issue had been raised in previous years as well. The Auditor General’s Office informed the Ministry of Social Affairs and the Ministry of Finance about this year's violations in a separate memo.

«The secretary general is on vacation,» public relations adviser Eva Lehtla explained why she could not answer the daily's questions about what the Ministry of Social Affairs has undertaken to process the University Hospital's violation of the Public Procurement Act and how many more such hospitals are there.

The newly appointed Minister of Public Administration, Riina Solman (Isamaa), whose area of ​​responsibility includes, among other things, the supervision and consulting of carrying out public procurements, considers it important that all institutions without exception comply with the law. «We shall certainly take this information into account when planning further inspections, but public resources must be used sparingly, and therefore we will not inspect the same institutions at the same time as the Auditor General’s Office,» she announced.

The Ministry of Finance has investigated the University Hospital's procurements for the past three years, after which Estonia's largest hospital has declared three of them invalid.

Regarding last year's violations, the hospital's management board informed the Ministry of Social Affairs at the end of July that it was aware of them, but cannot promise that things will be sorted out with state procurement before the new IT solution has been completed – this should happen only at the end of the year. However, this is a preliminary deadline, which, in the opinion of the management board, can understandably be postponed further.

The arguments do not convince the Auditor General’s Office

What did the hospital procure last year by violating the procedure? «It is presently not about specific procurements, the acquisition of goods or services,» Kristjan Vassil, the chairman of the supervisory board, evaded the question. «The reasons why the procurement procedure was not carried out in some cases are related to the absence of overview of the acquisitions.»

«The absence of overview of the acquisitions is clearly not the reason for failing to organize the procurement procedure as required by the law. The institutions must create an internal supervisory system in order to have an adequate overview of the acquisitions,» Simson said.

According to Vassil, the University Hospital's supervisory board will discuss the public procurement matters in August: «It is clear that we have to solve the problem as soon as possible, but we need time for that.»

Although the old obstacles to public procurement have not yet been overcome, new ones are already emerging. To offset the shocks caused by high energy prices, the war in Ukraine and the corona crisis, hospitals need additional funds to continue with existing procurement.

In the last decade of July, the construction of the new hospital in Viljandi, initially planned to cost 58 million euros, was stopped. Arguments with the main contractors are currently in progress over the cost of the project – the construction is likely to become more expensive by 20 million euros, and the right time for using the EU funds has been let to pass. «We have been promised additional financing but due to the change of the European Union funding, it is not known when it will arrive,» said Mihkel Mäger, the State Real Estate Company (RKAS) development director, who represents the hospital.

«The final decision regarding the amount will be made during the debate of the state budget in September,» said Marilin Sterhof, head of external resources at the Ministry of Social Affairs smart development support department, who said that the new hospital as a whole is expected to be financed from the European Union's recovery and resilience facility instead. The mandate for negotiations with the European Commission has been received from the government in order to replace the Tallinn hospital in the facility with the one to be built in Viljandi.

However, according to Sterhof it is not intended to meet the increase of cost of all hospital construction projects from the EU funding. In addition to the Viljandi hospital, 12.1 million euros have been allocated to hospitals for the completion of construction, to which another 7.27 million are planned to be added.

Additional expenses must be proved

According to Minister Solman, when construction works become more expensive, it must be kept in mind that the concluded procurement contract may be changed only in cases permitted by the law. «For example, if a contract is changed due to an unforeseen event, the change can only be made to the extent resulting from this event,» she explained.

But how to ensure that the builders do not get too greedy, in case that there is no need to hold a new tender?

«This is not a purely legal issue,» said Simson. The procurer must be able to justify the calculations on which the new amount is based.

«We have pretty good information about which product groups have become more expensive and by how much,» Mäger announced. RKAS builds about 20 projects at the same time, which helps to make sure that asking a higher price is justified.

According to Sterhof, as analysis to be completed by the end of August should provide an answer as to whether the law allows the volume of the Viljandi procurement contract to be increased; or whether a new procurement must be carried out and the old contract terminated; and what would be the consequences of the termination.

According to Simson, there is no universal solution for all construction projects: «Each contract and specific circumstances must be viewed separately – problems will probably emerge in different ways regarding all projects, while there are definitely other procurement contracts which pose no problems.»

After the article was completed, Nele Labi, Deputy Secretary General for innovation and Acting Secretary General of the Ministry of Social Affairs, also sent a comment, recusing herself from the responsibility and obligation of supervision, although she represented one of the owners and a member of the supervisory board, whose task is to appoint the management board, to supervise it and to allocate funding to the institution by approving the budget, as well as to supervise its use..

«The tenders for the University of Tartu Hospital are carried out by the hospital itself, and the ministry cannot directly interfere with it. The Republic of Estonia, through the Ministry of Social Affairs, is one of the founders of the hospital, along with the city of Tartu and the University of Tartu. As the founder, the Republic of Estonia is represented in the supervisory board through three members, but the board's competence does not directly include the organization of procurements or their supervision, although it dies supervise the hospital's operations more generally. The competence of the supervisory board includes supervising the activities of the management board, which in turn must ensure control of appropriate use of the hospital's resources. Therefore, the Ministry of Social Affairs can intervene in the activities of the hospital through the supervisory board and the board intends to do so since the objections in the audit of the Auditor General’s Office are definitely the ones which the University of Tartu Hospital must take into account in its future activities and consider the recommendations made in it.»

The violations of the University Hospital

• A sworn auditor established violations of the Public Procurement Act in the hospital's 2021 procurements in the amount of 5,051 million euros:
• 2,798,000 euros with companies outside the consolidation group;
• 595,000 euros with the hospital's subsidiaries;
• 595,000 euros with companies outside the consolidation group in a situation where the concluded procurement or framework agreement had ended;
• 1,063,000 euros with other health care service providers.

Supervisory Board of the Tartu University Hospital

The supervisory board has eight members

• Kristjan Vassil, vice-rector for research at the University of Tartu (chairman)
• Urmas Klaas, Mayor of Tartu (Reform Party)
• Jaan Toots, Tartu City Council member (Center Party)
• Helju Pikhof, member of the Riigikogu (SDE)
• Maarjo Mändmaa, Secretary General of the Ministry of Social Affairs
• Merike Saks, Secretary General r of the Ministry of Finance
• Eero Vasar, Professor of the University of Tartu
• Ahti Varblane, Lieutenant Colonel