Updated 4.30pm - Added Education Ministry reply

A €42.7 million contract for the provision of state school transport was not providing good value for money, with service being sacrificed for a four per cent reduction in price, the National Audit Office said today.

In its report, it blamed both the way in which the agreements were negotiated as well as the intransigent attitude of the companies that provide the service.

The seven-year agreement is outsourced through five service contracts and will run up until the end of the 2017/2018 scholastic year. A competitive tender for services after June 2018 should be issued by the end of this year.

This process resulted in the disproportionate reduction in the expected quality of service (such as waiving the requirements for passenger seatbelts and a performance guarantee, together with the downward revision of contractual service levels) when compared to the collective marginal four per cent negotiated decrease in price

A direct order had been issued, extending the previous contract by one year, during which the ministry was to re-secure the service through a competitive tender for subsequent years. However, the competitive tender, failed as the bids were either technically incompliant or significantly exceeded the budgeted estimate. In the end, the contracts were negotiated and the current contracts were signed with the five previously unsuccessful bidders.

The procurement process started around one month before the new scholastic year, putting pressure on the ministry to conclude the agreements, the NAO explained.

“This put the ministry in a disadvantageous position from the start, and enabled the suppliers to further extend their adopted hardline approach, particularly through their threats of withdrawing from negotiations and not providing the service if their requests were not met.

“The NAO also observed that this process was further undermined by instances which hinted at the existence of inter-supplier collusive behaviour.

“When faced with this conduct, the NAO, however, noted that the ministry largely projected an underlying sense of resignation, which further strengthened the suppliers’ bargaining position.”

The NAO said that the ministry compromised on contractual conditions in an attempt to push down the suppliers’ original asking price: “It is this Office’s considered opinion that this process resulted in the disproportionate reduction in the expected quality of service (such as waiving the requirements for passenger seatbelts and a performance guarantee, together with the downward revision of contractual service levels) when compared to the collective marginal four per cent negotiated decrease in price.”

'We will negotiate better' - Ministry

The Education Ministry acknowledged the NAO's comments and said that it had done all it could to minimise unfavourable conditions contained within the six-year old contract. 

"We will ensure that contract negotiations due to take place soon will offer better value for money," the ministry said. 

A working group within the ministry has been tasked with assessing the NAO's conclusions and setting out parameters for upcoming contract negotiations "so that what happened six years ago will not be repeated."

The full report may be accessed through the NAO website: www.nao.gov.mt, as well as on the NAO Facebook page www.facebook.com/NAOMalta.