The National Audit office (NAO) this evening issued its report after a request by the government members on the Public Accounts Committee (PAC) to investigate the use of direct contracts for legal services, particularly within the Ministry of Finance in relation to privatisation processes undertaken between March 2008 and March 2013.

Three privatisation processes were carried out during the period under review, namely, the privatisation of Malta Shipyards Limited (MSL), the yacht marinas privatisation processes, and the re-concession for the rights of the National Lotteries.

Various legal firms were engaged by the Privatisation Unit (PU) and the Malta Investment Management Company Limited (MIMCOL) in order to support the privatisation processes.

NAO said it noted a general lack of clarity in the delineation of responsibility between PU and MIMCOL with respect to the privatisations. This was mainly manifested in the payment processes reviewed, which lacked a coordinated system of invoice endorsement, key in ensuring the appropriate disbursement of funds.

NAO said it considered the system of checks employed as weak, with different parties involved assuming that the other party was responsible for specific processes and tasks. Furthermore, there was no clear responsibility with regard to the issuance of the letter of engagement to firms engaged to provide legal services existed.

NAO said that no direct contract approval was required owing to MIMCOL’s Schedule 3 status under the public procurement regulations. such provisions were meant to expedite sensitive processes and imbue MIMCOL with the required flexibility; however, NAO said that the responsibility of appropriately documenting processes was not exempted through such provisions, and instead rendered its need even more pronounced.

Although PU and MIMCOL stated that the terms of engagement relating to the MSL privatisation were discussed with the legal firm engaged to assist in this process, no formal letter of engagement was drawn up.

This point of contention further intensified when considering that this agreement was extended to the Ricasoli Tank Cleaning Facility and the yacht marinas privatisations.

"NAO considers the appropriate documentation of contractual arrangements entered into as a basic aspect of management, more so when one considers that the expense incurred exceeded €390,000. The justification put forward by PU and MIMCOL with respect to the resort to a direct contract for legal services in the case of the MSL privatisation centred on the urgency required in adhering to EU-imposed targets, among others. Recourse to a direct contract in the case of the yacht marinas privatisations was contextualised in terms of the legal services required to address perceived risks posed by a consortium on the rights of other berth holders."

The procurement of legal services in relation to the granting of a re-concession of the lotteries licence essentially constituted a direct contract, with PU contacting five firms of its choice and eventually selecting the cheapest offer submitted. Justifications supporting the decision to proceed with the award of a direct contract mainly centred on the urgency for the required legal service. However, NAO notes that the need for renewal could have been foreseen, thereby allowing for the selection of a legal firm through a more competitive tender process.

NAO noted that, although the Letter of Engagement stipulated that the legal firm engaged in this privatisation process was to obtain approvals from MIMCOL when a certain number of hours were to be exceeded, such approvals were not always sought, or alternatively, the documentation was not retained. Furthermore, the legal firm was to seek PU’s approval for the incurrence of other fees, yet such approvals were not sought, or the documentation was not maintained. The absence of such approvals is not commendable and detracts from the process’s system of financial control.

The Report may be accessed by visiting www.nao.gov.mt