Confidential Procurements far From Public’s Control (2): Army Keeps Everything Secret

It seems absurd, but when the Ministry of Defence purchases helicopters for 30 million euros – the public gets at least some basic information about it, while it is much harder to gain an insight into purchase of gym equipment, forklift or air tickets. Common to all these transactions is that procurement regulations and procedures are kept even further from the public. Or there is none.
Due to insufficient harmonization of legislation with the European one, and partly due to poorly regulated procurement in the field of security and defence, Montenegro was assessed with a three in the 2017 report of the international expert organization SIGMA on respecting European principles of public administration.

Even after three months, the Ministry of Defence (MoD) has not provided Institute Alternative data on confidential procurement expenditures in the last five years (2013-2017).

Confidential procurement refers to the procurement of goods, services and works, such as weapons, ammunition and other special equipment used for the protection and security of the state and citizens.

The Ministry of Defence informed the Centre for Investigative Journalism of Montenegro (CIJ-MNE) that they have not conducted confidential procurements since May 2015, when the Decree on External Trade of Special Purpose Means which prescribed and regulated the area ceased to be valid. In the same response, however, they say that they are conducting procurement in the area of security and defence that are prescribed as exemption by the Law on Public Procurement, and that these are protected in accordance with the Law on Data Confidentiality.

“Specifically, the exemptions from its application are prescribed by the aforementioned amendments to the Law, Article 116b (Procurement in the field of defence and security), on the basis of which the Ministry of Defence implements procedures exempted from the application of the Law on Public Procurement,” reads the MoD reply to CIJ MNE.

However, the article referred by the MoD, which provides for exceptions to the application of the Law on Public Procurement, obligation of the contracting authority, in this case of the Ministry, to regulate these procedures by an internal act is also stipulated. Still, the Ministry of Defence has not done so. This was confirmed in the MoD response to the IA request for free access to information.

We received a similar response to the question on whether a credit purchase agreement for three multipurpose helicopters worth 30 million euros, signed by the Defence Minister Predrag Bošković and the Canadian Business Corporation in January, falls under the scope of confidential procurement. With the same exception logic, they replied that the purchase was carried out pursuant to Article 116b, p.1, p.8 of the Law on Public Procurement – which stipulates that procurements by the Montenegrin state bodies with state bodies of the EU Member States or third countries for the purchase of military or security sensitive equipment, shall be conducted on the basis of the exemption from the application of this Law.
“The article referred to by the Ministry of Defence stipulates exemptions from the application of the Law on Public Procurement and a clear obligation of the contracting authority to adopt a special internal act that will prescribe procedures for this type of procurement. We requested this act from the Ministry of Defence and they responded that they do not have it, so neither this nor any similar procurement could have been conducted as they claim. If it was conducted in this way, then it is contrary to the law,” says Ana Đurnić, a Public Policy Researcher at the Institute Alternative.

In the rationale of the decision by which the Ministry rejected the IA request it is stated that “in the procedure conducted pursuant to the request, it was established that this authority is not in factual possession of the requested information”, and that requested act is in the drafting procedure.

In its replies to the Institute Alternative, the Ministry of Defence claims that they did not conduct confidential procurement procedures in 2017 either. However, the MoD informed CIJ /MNE that during the past year they spent 893.972 euros for the purpose of confidential procurement. They explain that this is expenditure for confidential procurement that the Ministry had initiated before May 2015.

The only records on confidential procurement conducted by the Ministry of Defence can be found in the reports of the State Audit Institution (SAI).

In the audit of the MoD financial report for 2007, it is stated that 39 out of 42 planned confidential procurement procedures were implemented that year. “The total value of implemented contracts for confidential procurement in 2007 amounted to 4.799.681 euros,” as stated in the report.
47.82 percent of this money was used for procurement of military equipment (2.295.329 euros), while 52.18 percent (2.504.352 euros) was used for other services – procurement of gym, forklifts, air transport services, consulting services, works on equipping the multimedia room of the Ministry of Defence…

It is obvious that airplanes, gym and forklifts cannot be classified as military equipment, so the SAI concluded in its report that it is necessary to clearly distinguish what can be classified as confidential procurement, and that these items should have been acquired in the procurement procedure pursuant to the provisions of the Law on Public Procurement.

The SAI notes the same problems in its 2013 report. The purchase of air tickets is repeated, and the abuse model is also applied to road traffic. Based on confidential procurement procedures from 2012 with two companies from Podgorica and Igalo, the Ministry concluded a contract lasting until mid-2014, on providing transportation services to the members of the Armed Forces of Montenegro covering local and inter-city transport.

In 2013, the Ministry of Defence planned confidential procurement in the amount of 4.617.630 euros and realized only the amount of 1.773.747 euros. They explained that the contracts were concluded that year, but the implementation of a number of contracts was postponed for the following one.

“All documents on confidential procurement procedures in the MoD are classified as secret”, states the SAI report.

In the last SAI report on the MoD, published mid-last year, it is stated that the Ministry carried out four procurement procedures in 2016, two of which referred to security-sensitive equipment. The auditor points out that he could not verify the procedure:

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“The state auditor could not determine whether and in what manner are procurements to which the Law on Public Procurement (confidential procurement) does not apply planned and  how is the procedure and the reporting on the procurement conducted, as there are no acts regulating this” – as stated in the report.

Montenegro’s membership in NATO, as well as amendments to the Law on Public Procurement from June last year, which regulate security and defence procurement in two articles, have still not contributed to improvements in this area.

As previously published by CIJ MNE, the other two institutions which also conduct confidential procurement procedures in the mentioned period – the Ministry of Internal Affairs (MIA), and the National Security Agency (NSA) spent for this purpose close to 5 and over three million euros respectively.

We received similar answers from the MIA to those from the Ministry of Defence, claiming that this Ministry does not conduct confidential procurement as of May 2015.

However, in the period from 2013 to 2017, as CIJ-MNE published earlier, nearly five million euros were spent on confidential procurement. Thereby, highest value of confidential procurement in the MIA was recorded last year – 2.528.761 euros.

The Ministry of the Internal Affairs has not provided CIJ MNE with the clarification on what acts were used as basis for conducting confidential procurement process in the past two and a half years.
At the last week’s meeting of representatives of the Institute alternatives in the MIA, it was repeated that no confidential procurement has been conducted since May 2015. However, the MIA claims that expenditure for confidential procurement continues to exist, as the funds are being paid on the basis of previously assumed contractual obligations.

The difference between the amount stated in the MIA response to the FAI request and the SAI report referring to the expenditure for confidential procurement in 2014 (according to the SAI report, the amount is EUR 1.596.985,46, while in the FAI response, four times lower expenditure is presented for that year), the MIA justifies by distinguishing expenditure from the value of contracted procurement. In particular, in 2014, the MIA conducted procedures and contracted procurement in the value stated in the SAI report, but it was not all paid immediately. A part of that expenditure was transferred to the following years, and the actual expenditure (payment) amounted to that stated in the responses to FAI request.

The record two and a half million which the MIA spent last year, under the confidential procurement item, are obligations under the contract for confidential procurement that were inherited from the Ministry of Information Society and Telecommunications, which ceased to exist pursuant to the reorganization of the state administration of December 2016, as the MIA representatives informed the Institute Alternative.
It is difficult to believe that the MIA and the MoD pay only others’ instalments  stemming from contracts that were concluded before May 2015 and that during the past two and a half years they have not conducted procurement of goods, services and works, such as weapons, ammunition and other special equipment.

“Confidential procurements are conducted outside or at least on the margins of a poor legal framework,” says Đurnić. She highlights non-transparency that follows this type of procurement: “Almost all data, acts, reports and plans relating to confidential procurement are inaccessible to the public. We have a completely closed system in which every kind of control over this part of public spending is almost impossible. ”

And in such a system, the possibility of establishing responsibility for possible abuses is even more difficult. 

Special Treatment of NSA

The National Security Agency is the only institution that does not deny that it conducts confidential procurement procedures. According to the information it provided, in the period from 2013 to 2016, the NSA spent more than two and a half million euros for this purpose.

The IA request for free access to information by which it asked for the information on the total amount the NSA spent on confidential procurement in 2017 was rejected. The rationale was that the NSA does not possess this information, and that the answer would require new information to be compiled.
Institute Alternative says that this decision is problematic as the financial year is over, so the NSA should already know the amount it spent on this last year, as well as on other items. “Hence, the refusal to provide access to this information under the pretext of having to compile new information suggests that this is an attempt to conceal something. It will be particularly interesting to see expenditure for 2017, because on the basis of the data provided so far, we know it has jumped from almost 400.000 in 2015 to almost two million in 2016”, says Đurnić.

Requests for access to information on confidential procurement plans and reports on conducted confidential procurements have also been rejected. The reason – they are classified as confidential.

The Institute Alternative insisted on gaining access to the Rulebook on the implementation of confidential procurement. The duration of classification “internal” under the Law on data confidentiality is two years meaning that it has expired at the beginning of December 2017 for the Rulebook. The NSA responded that confidentiality of Rulebook was extended in the middle of the past years.

Confidential procurement for the NSA is exempt from the Law on Public Procurement and it is prescribed by the Law on National Security Agency and regulated by the internal act of the Director of the NSA. The Institute Alternative emphasizes that such a solution has no foundation in the European regulations nor in the practices of the EU countries. According to the IA, procurement in the area of security and defence should be equally regulated for all contractors who implement them, without any exception, and they underline that it is not clear why the Agency has a special treatment in Montenegro.


It Was Better Prior to the Latest Amendments

In 2017 SIGMA (the EU and OECD initiative providing expert services in the administration reform of the countries that are in the accession process) Report on European public administration principles, Montenegro was assessed with a score of three for harmonizing its legislation with the European regulation, partly due to poorly regulated procurement in the area of security and defence.

The report also states, among other things, that legislative solutions from 2015 improved the level of compliance with European legislation, particularly in the area of security and defence. However, with the latest amendments to the Law on Public Procurement from June 2017, the level of compliance with EU directives and the Treaty on the Functioning of the European Union has been reduced.

“In particular, defence procurement is no longer regulated by the PPL; instead, the PPL requires the Government to adopt special procedures for defence-related procurement before the end of 2017. Defence-related contracts below EUR 20 000 for goods and services and EUR 40 000 for works are completely exempted from the PPL, without any obligation so far to follow the basic principles set out in the Treaty on the Functioning of the EU,” states the SIGMA report.

“Thus, we have a legal vacuum for nearly three years now, and this does not seem to represent a problem for anyone in our administration. In light of the latest SIGMA assessments on insufficient compliance of our legislation with European in this area, in the process of preparing and adopting new law on public procurement, decision-makers have to pay particular attention to regulating this area,” concluded Đurnić.

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