TALLINN, 25 July 2005 - The State Audit Office finds that although the Northern Estonian Regional Hospital has made considerable progress over the recent years and public procurement has become more intense, the efforts should be stepped up because in 2004 the Northern Estonian Regional Hospital still purchased a lot of goods and services without organising public procurement.

When in 2004 the Northern Estonian Regional Hospital organised public procurement 84 times, which resulted in 63 procurement contracts with a total value of 74 million kroons, the State Audit Office has detected that no public procurement was organised for purchases in the amount of 84 million kroons.

The State Audit Office does not claim that public procurement should have been organised in all these instances (because, for example, the accumulation of all prosthetic appliances into one tendering procedure is impossible or inexpedient), but in most instances the public procurement has not been organised. The representatives of the Northern Estonian Regional Hospital have agreed with it. In their explanations to the auditor they mentioned that their procurement service has simply not been physically able to prepare and carry out a tendering procedure with respect to all goods procured.

From the materials submitted to the State Audit Office it appears that there is a clear positive tendency in the last three years upon organisation of public procurement: the number and volume of public procurement has increased by three to four times.

However, there is still room for improvement because although in 2004 the Northern Estonian Regional Hospital established procedures for purchase of goods and services and organisation of public procurement (the procedures, persons performing them and persons responsible have been specified), the procedures have not always been followed.

The State Audit Office found that the tender documents were not always clear and unambiguous. For example, the vague wording of the evaluation criteria in case of certain public procurement proceedings resulted in a situation where tenders were not comparable and the winner was not the one who made the best bid. Although tender documents must be signed by all members of the committee who participated in making them it was not always done so and therefore the State Audit Office is not certain whether the final documents were the same as the ones agreed by the members of the committee.

The Northern Estonian Regional Hospital had not always followed the principles of selection of tenderers either. Although the Northern Estonian Regional Hospital has declared that it wants the suppliers to be reliable companies whose sales to the hospital do not amount to more than a half of their sales, the hospital has nevertheless acquired goods from companies whose sales consist almost entirely of the transactions made with the hospital.

The State Audit Office cannot be certain that upon purchasing goods and services the Northern Estonian Regional Hospital has always followed the principle of sustainable and rational use of the hospital's funds.

Risk of conflicts of interest

In 2004 the Northern Estonian Regional Hospital has purchased prosthetic appliances (of joints) from Elkdata OÜ for 10.4 million kroons. From the explanations given to the auditor it appeared that there is an interim warehouse of these prosthetic appliances in the Orthopaedics Centre of the Northern Estonian Regional Hospital, whereas the warehoused prosthetic appliances belong to Elkdata OÜ. If it is necessary to apply a prosthesis to a patient, the attending physician will take it from the warehouse and later Elkdata OÜ will invoice the Northern Estonian Regional Hospital. If the stocks of a component are running out, the Head of the Orthopaedics Centre of the Northern Estonian Regional Hospital will order them from Elkdata OÜ. The State Audit Office identified that the sole shareholder and board member of Elkdata OÜ is closely related to the Head of the Orthopaedics Centre of the Northern Estonian Regional Hospital, which refers to a possible conflict of interests upon making these transactions.

Restrictive conditions

There were cases in the Northern Estonian Regional Hospital where it was not clear whether the conditions set out in the technical description of the procurement were unreasonably restrictive or not. For instance, upon purchase of the ambulance vehicles of the Northern Estonian Regional Hospital the tender documents were taken out by two service providers, but a tender was made only by one. It turned out that the other tenderer could not submit a tender, because one of the requirements which the vehicle had to comply with was front-wheel drive, but the given tenderer did not have any front-wheel drive vehicles. At the same time, the company has sold rear-wheel drive ambulance vehicles to Finland.

The Northern Estonian Regional Hospital reasoned the front-wheel drive requirement with the need to ensure good driving qualities in bad road conditions (especially in winter, on bad country roads). It cannot be ruled out that because of the front-wheel drive requirement approx. 80% of the new ambulance vehicles supplied to Estonian hospitals through 2001-2003 originate from the same supplier who won the Northern Estonian Regional Hospital's invitation to tender.

In addition, in case of some audited tendering procedures the tenderers have had minimum requirements established for sales of similar objects. For instance, in case of medical gloves one of the conditions for qualification of tenderers is that over the last three years the tenderer must have annually provided Estonian hospitals with over 1.5 million latex examination gloves. In principle, establishing such a condition may exclude any tenders from smaller suppliers.

Order of documents in a file became the decisive factor

An auditor of the State Audit Office discovered an event where a tender was declared unsuitable due to the absence of the required documents despite the fact that the documents were there, although not in the same order as requested in the tender documents. The fact that the documents did actually exist has also been recorded in the decision of declaring the tender unsuitable. The State Audit Office cannot approve of such practice. The Public Procurement Act provides that the aim of organising tendering procedures is that the financial resources of the contracting authority must be used in an economic and rational manner. If a tender, which contains all documents (although not in the order required by the tender documents), is declared unsuitable, it may happen that the aim of the tendering procedure will not be achieved and a tender with a higher price and other conditions being the same as those of the tender which was declared unsuitable will win.

Minister disapproves

In a reply the Ministry of Social Affairs disapproved of the situation where the foundation has breached the Public Procurement Act or the internal procedures of its own in the context of organisation of public procurement. The Minister stated that he will recommend that the Supervisory Board of the Northern Estonian Regional Hospital carry out an internal audit in order to identify the persons related to the mistakes pointed out in the audit report, the operations performed by them upon organisation of public procurement and the conflict of these operations with the effective legislation and procedures.

The Chairman of the Management Board of the Northern Estonian Regional Hospital stated in his reply that the volume of public procurement in the hospital has increased year by year, whereby the procurement services of the hospital have drafted an initial plan for organisation of public procurement through 2003-2005. The Chairman of the Board of the Northern Estonian Regional Hospital did not submit a specific action plan with the respect to the suggestions in his reply to the State Audit Office.

The Northern Estonian Regional Hospital Foundation (SA Põhja-Eesti Regionaalhaigla) was established by an order of the Government of the Republic in 2001 on the basis of the assets of seven healthcare institutions administered by the Ministry of Social Affairs. In 2003 the Keila Hospital was also merged with the Northern Estonian Regional Hospital.

Toomas Mattson
Communication Manager of National Audit Office
Telephone: 6400 777
Mob: 51 34900
E-mail: [email protected]

• Posted: 7/25/2005 12:00 AM
• Last Update: 9/22/2015 8:23 AM
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