Public Procurement Concerns: Watchdog highlights single-source purchases as possible fraud risk

The public procurement system is a mirror reflection of the economy, say experts, who are convinced that monopolies, the fusion of business and politics, and corruption in the country affect the system.

Varuzhan Hoktanyan, the head of the Transparency International (TI) Anti-Corruption Center, says a study of procurement, carried out in 2015, revealed a series of corruption risks.

“In terms of quality it’s clear that there is a waste. There is no doubt,” he says.

Transparency International has been conducting monitoring of the public procurement system for nine years. The main problem is the high share of single-source procurement, which remains unchanged. According to the nine months’ data of last year, in the procurement volume of 170 billion dram (over $350 million), carried out by the government agencies (excluding urban communities), purchases from a single source in monetary terms amounted to around 45 percent. According to the quantitative data, the volume of single-source purchases made up 69 percent in the total system. Procurements by state management bodies under the framework agreements amounted to about 74 billion drams (about $154 million), which, by monetary volumes, makes up 45 percent of the general purchases.

According to Artak Manukyan, the center’s expert on state procurement policies, for purchasing one alcohol testing device the police paid, from the state budget, 1 million dram (about $2,000), while prices of Russian-made devices are in the range of 4,000-8,000 rubles (about $60-115).

The expert says that, in the center’s site, they have already published a list of suspicious transactions made by state companies. He gives an example of the Service for Mandatory Enforcement of Judicial Acts, which, on the basis of one person, has signed a contract for car repairs with “Catherine Group” LTD.

By the quantitative data of single-source procurement transactions, Armenia is rather close to Belarus and Russia (about 65 percent and 51 percent respectively).

"But there is a noticeable difference here: there is a large state property in Russia and Belarus, a fact which somehow explains why that amount is so large, whereas there is no such thing in Armenia. The situation in Armenia is simply due to market concentration and corruption risks. According to the World Bank data, the number of single-source procurement transactions in the whole volume of purchases should not exceed 10 percent threshold,” said Manukyan.

Representatives of the center say that in the process of public procurement there is a volume of $962 million.

“The intensity of public procurement from one person particularly increases close to the fourth quarter, when the year comes to an end. The point is that the following logic exists in public procurement: When you do not spend the money assigned to you it goes back to the state budget, and the relevant state bodies seek to buy at least something, even if it contains corruption risks,” says Manukyan, adding that a large number of purchases from one person are carried out within just that period.

Experts say that instead of kickbacks officials are now using a new mechanism: they support the creation of companies which have close ties with them and carry out purchases from these companies by state money.

Hoktanyan, assessing the situation, says: “This will, of course, lead to emigration, to further impoverishment. That is, when you have a monopoly, kickbacks may reduce, simply because they will not give kickbacks to themselves. If, for example, a minister or a deputy minister has created his or her own company, indirectly, it will not, naturally, give kickbacks.”