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Massive €274m direct order is probably illegal – lawyers

St Vincent de Paul deal appears to violate procurement rules, experts say

An artist’s impression of the new extension at the St Vincent de Paul Residence.

An artist’s impression of the new extension at the St Vincent de Paul Residence.

The record direct order worth €274 million, for the 10-year management of a new facility at St Vincent de Paul Residence for the elderly, appears to be in breach of both local and EU public procurement laws.

The government has kept the contract it awarded to James Caterers and Malta Healthcare Company, a subsidiary of the Seabank db Group, under wraps and has refused calls to publish it. However, prominent commercial lawyers have told The Sunday Times of Malta that from what has been published so far, “there are strong indications that laws have been breached and the deal could be challenged both in local and European courts of law”.

As an EU Member State, Malta is bound to observe public procurement rules. These lay down the parameters within which Public Private Partnership concessions such as this can be awarded, how tenders should be formulated and the leeway the government has in modifying an original concession.

According to the group of reputable commercial lawyers, who spoke to The Sunday Times of Malta on condition of anonymity, there are clear indications that these parameters have not been observed.

“So far we know that a tender issued for the procurement of meals and the building of a kitchen has suddenly turned into a mega extension of the old people’s home facility. This is not on, as the original tender document did not say anything about such an extension,” one of the experts said.

“Also, the fact alone that the original value of the tender has been increased five-fold, from €58 million to €274 million, is ultra vires as the law specifies that such a thing cannot be done.” According to the law regulating this type of contract (see table), if a tender concession such that of SVDP qualified to be modified, the difference in value cannot exceed 50 per cent of the original value of the tender.

In the case of the direct order, revealed last week by The Sunday Times of Malta, the value increased by a staggering 470 per cent, from €58 million to €274 million, which is unprecedented when it comes to such contracts.

According to the lawyers, a legal challenge could be mounted against the government by the losing bidder – CCE Joint Venture owned by the Vassallo Group. However, any other interested formation, including a political party, could challenge the validity of this deal because it entails the expenditure of a quarter of a billion euros of taxpayer’s money.

“Since this tender also concerns EU law and was originally published in the EU Journal, there is also the possibility of the case being referred to the European Court of Justice. Despite this possibility, no one has ever dared to use this legal avenue. This case might be a good opportunity to do so as it appears to be a straightforward case.”

Tender and ‘gift’

The tender originated in 2015, inviting offers for a 10-year Private Public Partnership concession for the provision of meals and the demolition and re-building of the kitchen at the old people’s residential facility, which hosts about 1,000 residents.

In an unorthodox clause, the tender document asked participants to offer “a gift” to the government in the form of “additional investment” which would become public property at the end of the contract period. The “gift”, according to the tender document, was to come at no additional cost to the government over and above the cost of the kitchen and catering services.

No specific details were given on the “additional investment” required. When asked, the Contracts Department said only that it was to do with anything connected to SVDP.

On the basis of this vague clause, the James Caterers and Malta Healthcare consortium beat off the competition from the other bidder by offering to build two new blocks to the hospital housing an additional 252 beds.

The consortium’s bid for kitchen and catering services was of €58 million but it estimated the cost of its “gift” at €29 million, an amount that raised eyebrows as being unreasonably high when compared to the overall value of the contract. The tender document did not say what would happen to the “additional investment” and who would own it during the period of the contract (10 years with a possibility of a five-year extension).

The Sunday Times of Malta also revealed that the €274 million direct order for management of the new facility was approved by the government a week before the signing of the kitchen and catering contract with the JCL-MHC consortium last November.

The government has denied that the management contract is a direct order, despite a notice describing it as precisely that in the Government Gazette of July 20, 2018.

In reaction to this paper’s revelations, the Health Ministry said in a statement that following the award of the tender, the JCL-MHC consortium had made “an improved offer” to the government, doubling the size of its additional investment to create a 504-bed extension at SVDP.

The fact that the original value of the tender has been increased five-fold is already ultra vires

However, contrary to what was stated in the original tender document, this in fact is coming at an extra cost to the government, which has admitted it is now paying €274 million to the consortium for the management of the new facility. This will include ward management, provision of nurses, carers, security personal, laundry, catering, cleaners and many other services associated with the running of a residential home of this scale.

According to the government, it will only be after the end of the contract – still an unspecified number of years – and the payment of €274 million to the consortium that the facility will become government property.

Asked specifically to declare whether the government was ready to place the contract under the scrutiny and investigation of the independent authorities, such as the Public Accounts Committee and the Auditor General, Family Affairs Minister Michael Falzon and his Parliamentary Secretary Anthony Aguis Decelis did not reply.

So far, the reaction from the Opposition has been low key.  It asked for clarity while PN leader Adrian Delia said he was still not satisfied with the government’s explanations. Last Monday, he held a private meeting on the matter with James Barbara, owner of James Caterers, and Silvio Debono, chairman of the Seabank db Group.

When asked about the scope of this meeting, Dr Delia said that he wanted to obtain “first-hand information”.

On the other hand, the Democratic Party has been vociferous on what has been revealed so far. It called for full publication of the contract and said that it was ready to write to the Public Accounts Committee asking for a thorough investigation.

What the law states on Concession Contracts (S.L.174.10)

The law which regulates the award of Public Private Partnerships – used in the case of St Vincent De Paul – establishes parameters in which such concessions are given and tenders can be modified.

Article 85 – Modifications of the Concession Contracts

Concession contracts may be modified without a new concession award procedure in any of the following cases:

Where the modifications, irrespective of their monetary value, have been provided for in the initial concession documents in clear, precise and unequivocal review clauses, which may include value revision clauses, or options.

Such clauses shall state the scope and nature of possible modifications or options as well as the conditions under which they may be used. They shall not provide for modifications or options that would alter the overall nature of the concession.

Article 85 (b) (ii)

Provided that in the case of concessions awarded by the contracting authority or the contracting entity, for the purpose of pursuing an activity other than those referred to in Schedule 4, any increase in value shall not exceed fifty per cent (50%) of the value of the original concession.

Article 85 (5)

A modification of a concession during its term shall be considered to be substantial within the meaning of sub-regulation (1) (e), where it renders the concession materially different in character from the one initially concluded.

In any event, without prejudice to the provisions of sub-regulation (1), (2) and (3) a modification shall be considered to be substantial where one or more of the following conditions is met:

The modification introduces conditions which, had they been part of the initial concession award procedure, would have allowed for the admission of applicants other than those initially selected or for the acceptance of a tender other than that originally accepted or would have attracted additional participants in the concession award procedure;

The modification changes the economic balance of the concession in favour of the concessionaire in a manner which was not provided for the initial concession.

The modification extends the scope of the concession considerably.

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