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Questions
over billion rupee deal
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By
Frederica Jansz
A
1.2 billion rupee project to equip a children's hospital at Peradeniya
has been approved by the cabinet of ministers despite a cabinet
appointed committee of inquiry having in a 10 page report pointed out
massive discrepancies and malpractices involved in the allocation of
this tender to an Austrian consortium.
Amazingly
the cabinet Sub Committee on Budgets and Tenders chaired by Finance
Minister K.N. Choksy, had chosen to ignore the
findings of this cabinet approved committee of officials and instead go
by a previous report submitted on the issue by an Austrian consultant
group.
In
effect, Choksy has decided to take into account a four page report
issued by an Austrian consultant group rather than a 10 page report
compiled by four highly respected public officials including an officer
from Choksy's own Ministry who were all appointed by cabinet to
reevalute the Austrian offer.
Choksy
admitted to us when questioned that the Sub Committee on Budgets and
Tenders discussed the officials' committee report on November 18, 2002,
but decided to instead approve the Austrian proposal on the basis of the
Austrian consultant's report submitted to the Finance Ministry on August
21, 2002. Choksy said this report was submitted via the Austrian embassy
in Colombo on "behalf of the Austrian authorities involved."
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Exactly
24 hours before the Austrian government report was received, on
August 20, both Choksy and Health Minister P. Dayaratne submitted
two separate notes to cabinet seeking the appointment of a special
committee of inquiry to reevaluate the Austrian offer and its
pricing of medical equipment for the Sirimavo Bandaranaike
Specialised Children's hospital at Peradeniya.
Exorbitant
prices
Choksy
said that he sought approval for a cabinet appointed committee to
reevalute the Austrian offer following a request made in this
regard by Dayaratne who had stated that various representations
had been made to him regarding the exorbitant price of the medical
equipment for the children's hospital at Peradeniya to be
purchased from an Austrian company. |
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A
committee comprising of Professor, Electronics and Telecommunication
Engineering, University of Moratuwa, Professor J.A.K.S. Jayasinghe,
Advisor, Environment and Natural Resources Ministry, Rohan Pethiyagoda,
Director, Public Enterprise Department, E. Arumugam and Consultant,
Health, Nutrition and Welfare Ministry, S.M.S. Jayasiri were thus
appointed.
This
committee on October 14, 2002, finalised its findings and submitted a 10
page scathing report, asserting that due to the "shoddy work"
done by the Technical Evaluation Committee (TEC), the country stands to
lose millions of rupees if this project is approved. Also that 265 items
of medical equipment to be purchased from the Austrian conglomerate was
exorbitantly priced with little or no descriptions of the product.
Yet,
Choksy and the sub committee on budgets and tenders chose to ignore
these findings and instead go by a report submitted by an Austrian
consultant group who according to Choksy was nominated by the Austrian
government.
The
question that begs answer then is why Austria was allowed to nominate a
consultant when it is the Sri Lankan government that is purchasing over
a billion rupees worth of medical equipment from Austria. Should it not
have been the prerogative of the Sri Lankan government to nominate a
consultant or consultants to evaluate the Austrian offer?
Why
did Choksy and the Sub Committee on Budgets and Tenders choose to ignore
the damaging findings of the four member committee, all of whom had been
appointed by the cabinet of ministers?
This
committee of inquiry in fact has charged the government and in
particular the Health Ministry of serious malpractices asserting the
state should consider a fresh proposal and a new technical evaluation
committee comprising of adequate technical personnel capable of
evaluating such offers.
The
Austrian deal has been put together by a group of private businessmen,
completely against the tender procedure of government. It is also a
single unsolicited offer that involved no other competitive bidding
process.
Dayaratne
too appears to have misled the cabinet of ministers, alluding that this
deal is between the Health Ministry and the Austrian government, when in
fact the Austrian government has had nothing whatsoever to do with this
offer made independently by an Austrian business consortium.
Choksy
also insisted to us that this entire proposal was supported by the
Austrian government.
Untrue
Our
investigation found that this is completely untrue. A letter from former
Director General, External Resources Department, Faiz Mohideen dated
October 11, 2002, states that the Austrian government is not in any way
involved in this transaction. Dayaratne's cabinet paper on July 18,
2002, says otherwise.
Choksy
when quizzed on this aspect said, "I cannot understand why Faiz
Mohideen would have written such a letter."
He
asserted the Austrian government has indeed been involved all the way.
He referred to a credit facility of Rs. 1 billion (Euro 17, 348,240)
negotiated with two Austrian banks which he says is officially supported
by the Austrian government. The point is that the Austrian government
can well support a credit facility to the Sri Lankan government but that
does not in any way mean the Austrian government nominated the company
proposal.
In
fact, the committee of inquiry pointed out that the only document the
Sri Lankan government got from Austria referred to an "independent
consultant" appointed for this purpose, Messrs Fritsch, Chiari
& Partner ZT-GmbH of Austria, who had also reported on the technical
and financial merits of the offer.
Assuming
that the information made available to them by the supplier was the same
as that included in the offer, the committee report states that it
cannot understand how this company was able to state "all costs are
appropriate."
They
could not possibly have arrived at this judgement given the fact that
there were no detailed pro forma invoices detailing the accessories,
options, consumables, etc., that were included in this offer. What they
appear to have done is compare the average cost of hospitals in Austria
and Sri Lanka based on floor area.
The
committee maintains that it is difficult to avoid the conclusion that
the Austrian consultants merely rubber stamped the supplier's offer
without seriously examining its technical merits.
And
it is this report, dated August 21, 2002, that Choksy and the sub
committee on budgets and tenders on November 18, 2002, decided to take
as gospel truth against the damning report submitted by the Sri Lankan
investigating team of officers which by this time was also on the table.
It
is indeed shocking that Choksy bound himself by the advice of a Austrian
consultant that he nor his Ministry had any relationship with rather
than the cabinet appointed investigating committee. If that is not
shoddy work, we would like the government to clarify what is.
Astounding
What
is equally astounding is that Choksy chose to accept the Austrian
consultants report which was delivered 24 hours after cabinet appointed
a special committee to reevaluate this proposal but did not at any stage
submit this report to the cabinet appointed committee for perusal and
observations.
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Furthermore,
if Choksy and the sub committee on budgets and tenders had decided
to
accept the Austrian consultant's report, then what was the purpose
of allowing the committee of inquiry to sit for two months
thereafter and finalise a report?
Both
Choksy and Dayaratne could well have cancelled the terms and
conditions of this committee on the |
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basis the government was fully satisfied with the Austrian consultant's
report.
"I
am also surprised that given the findings of the committee of inquiry
that the Finance Ministry approved this proposal," Dayaratne said.
The Health Minister confirmed that despite the adverse committee report,
the Austrian proposal has received the green light from cabinet once
more on March 19 and that medical equipment worth over Rs. 1 billion
will soon arrive in Sri Lanka.
Choksy
responded to Dayaratne's statement by saying Dayaratne was present at
all the cabinet meetings where decisions alluding to this proposal were
taken and could well have voiced his objections if he had any.
Dayaratne
maintains the final decision rested with Choksy and the Sub Committee on
Budgets and Tenders.
"Lot
of irregularities"
Dayaratne
also said that the Austrian government has a system "which I
personally don't like" where the Austrian government offers the aid
"but gets hold of some supplier who appoints a consortium to deal
with us." Dayaratne maintained that as a result "there can be
a lot of irregularities."
In
his cabinet paper the Health Minister sought approval to purchase
medical equipment to the value of Rs. 495 million from a conglomerate
known as the International Medical Cluster to which the government will
also pay Rs. 285 million for the provision of a large quantity of
utility equipment such as lifts, wiring, medical gas piping, etc., and
another Rs. 433 million for both mechanical and electrical equipment for
the 200 bed children's hospital.
Plans
were mooted in 1998 by President Chandrika Kumaratunga to build a second
children's hospital to be named after her mother at Peradeniya. It is in
this context that the cabinet of ministers decided on September 16,
1998, to develop the Sirimavo Bandaranaike Specialised Children's
Hospital at Peradeniya, based on a provisional budget of Rs. 600
million, in addition to a donation of Rs. 25.4 million, which sum was to
be allocated from the consolidated fund.
The
former People's Alliance cabinet of ministers in November 2001 approved
the Austrian proposal to supply 265 items of medical and other equipment
for this hospital. However, when the government changed in December that
year, the UNF decided to once more evaluate all tenders that had
received approval during the time when parliament was dissolved.
It
is in this context that this proposal was once more placed before the
UNF cabinet of ministers.
Six
years after construction began at this hospital, even the sewerage and
water lines are yet to be connected sources revealed, asserting that
despite this fact, cabinet has approved the purchase of equipment worth
Rs. 1.2 billion, much of which has been sanctioned without adequate
description or clinical images of the equipment.
Equipment
on the way
Minister
Dayaratne confirmed that the equipment "is on its way and should
arrive in Sri Lanka within the next one month." He added that
"President Chandrika Kumaratunga also wants this project finished
soon and has been constantly asking me when the equipment is
arriving." He claimed the hospital is near completion, "so we
must have the equipment installed as soon as possible."
A
list of 265 items of medical equipment costing millions of rupees has
the name of the product only with no descriptions given. For example, a
Philips MRI scanner (1.5 Tesla) has been priced at Rs. 98 million with
absolutely no description of the equipment attached. A spiral CT scanner
priced at Rs. 35 million also has no description. Paed ventilators and
infant ventilators, priced at Rs. 11 million each also have no
description of their performing capabilities.
The
committee of inquiry in its report has said that the product data and
literature submitted by the supplier is insufficient for an informed
judgement to be made on the technical merits of the offer. Surprisingly,
even for large items of equipment such as the CT and MRI scanners, no
printed original product literature (brochures, catalogues, product data
sheets) had been made available. Even for the MRI scanner, which costs
Rs. 98 million, no clinical images have been supplied. How TEC evaluated
these items in the absence of clinical images is strange to say the
least.
Dayaratne
however disputed this fact saying, "I have personally seen some
brochures giving details of technical data in relation to some if this
equipment so I don't think that is correct," he said with reference
to the statement made by the committee of inquiry.
Meantime,
not a single guarantee has been secured from any local agent to ensure
after sales service for any one of this equipment.
The
TEC has in fact failed to negotiate appropriate safeguards with regard
to the terms and conditions of the warranty and post-warranty
maintenance, which is essential to a project such as this, which
includes highly sophisticated equipment.
The
impression obtained from this is that the offer has been hastily put
together by a trading company without any real ownership by the
manufacturers themselves.
The
fact that no local agents have as yet been appointed underlines the fact
that the equipment manufacturers have not identified themselves with the
offer, despite its large size. This brings into question the
manufacturers' commitment to providing technical support (e.g. spare
parts, service, engineering backup, etc) necessary to make the project
viable in the long-term.
Although
the TEC report implies that a two-year warranty has been offered on the
equipment, this is nowhere reflected in the documentation submitted by
the supplier. Neither are details provided on what is included in the
warranty (e.g. free replacement of defective items) and as to how the
warranty will be implemented during these two years.
Therefore,
the committee of inquiry asserts that the statement made by the TEC,
that "all the equipment conforms to technical specifications
normally stipulated for such equipment," is completely false.
Unqualified
This
TEC, amazingly for a tender to purchase 265 different categories of
sophisticated medical and laboratory equipment, included only one
doctor, A.B. Wijekoon, a paediatrician from Peradeniya Teaching
Hospital.
The
other six members of the committee were Ranjith de Silva (Sri Lanka
Administrative Service), S.M.H. Fernando (accountant), D. Abesuriya
(accountant), A.C. Yapa (civil engineer), V.K. Jayasiri (general
manager, CEB) and R.D. Liyanage (technician).
The
committee has voiced serious concern asserting that the TEC included
only a single member in the area of biomedical engineering, R.D.
Liyanage, who is acting director of the Biomedical Engineering Services
(BES) Division at the Health Ministry.
"As
such, it would have been Mr. Liyanage's responsibility to ensure the
accuracy of the crucial sweeping statement made in the TEC report, that
'all the equipment conforms to technical specifications normally
stipulated for such equipment by the BES and adequately meets the
clinical needs of the end user.' We are satisfied of the complete
falsity of this statement. Indeed, based on the offer made available by
the supplier, no such conclusion could reasonably have been arrived
at," the committee asserts.
Yet,
it is on the totally false assurance given by the TEC, that 'all the
equipment conforms to technical specifications normally stipulated for
such equipment by the BES and adequately meets the clinical needs of the
end user,' that the CATB's recommendation, and indeed the Minister's
cabinet paper recommending purchase, was based.
"As
the key officer in charge of medical equipment procurement for the
Ministry, it was clearly in Mr. R.D. Liyanage's power to insist on
transparency and work towards a contract beneficial to the government;
his failure to perform this duty should be viewed seriously and warrants
investigation," the committee has noted.
The
TEC on this occasion comprised of nine persons, of which only Liyanage
had a technical (engineering) background and was therefore in a position
to judge the offer on its technical merits. The TEC report therefore
depended entirely on the skill and integrity of this single officer,
with the other members playing only a supporting role.
Credentials
at stake
Liyanage's
credentials are already seriously at stake for having accepted a fully
paid trip to the United States from the Philips agent in Colombo while
chairing another TEC into recommending the award of a tender of almost
Rs. 500 million to a consortium led by Philips.
A
large part of the medical equipment to be purchased for the Sirimavo
Bandaranaike children's hospital is to also be from Philips and Liyanage
accepted a fully paid trip to the United States together with an
allowance of US$ 1,000 from Emso Limited who are the agents in Sri Lanka
for Philips medical products.
Minister
Dayaratne said that Emso has played no role in this present proposal and
so Liyanage cannot be faulted in this context. "Emso has nothing to
do with us," he said. However a complaint has been made to the
Commission to Investigate Allegations of Bribery and Corruption against
Liyanage having accepted this offer from Emso.
Dayaratne
meanwhile in his cabinet paper has in addition to having secured
approval to purchase over Rs. 1 billion worth of equipment from this
Austrian consortium also got approval to pay an amount of 9.2% of the
total value of the project towards "project management."
This
means that over Rs. 110 million is to be paid as a commission fee to
certain individuals.
The
supplier had in fact requested payment of a "project management
fee" of 11.2%. This was subsequently reduced to 9.2% after
negotiations were held between the External Resources Department and
representatives from the International Medical Cluster.
However,
this sum was not taken into account by the TEC in its financial
evaluation schedule, in which the supplier's prices were compared with
prices in similar recent tenders of the Ministry. Given that this
contract is purely for the supply of equipment, not including any
project management activity beyond this, there is no justification for a
project management fee.
Project
management fee
In
fact, the committee of inquiry subsequently noted that it is not aware
of any precedent where a supplier has been paid a project management fee
for purely equipment-supply and delivery such as this. This fee is
especially noteworthy given that it is as high as 9.2% of the total
project cost. It totals more than Rs. 110 million.
This
is also in addition to one of the conditions of this deal with the
Austrian consortium that 75% of the value of the goods and services of
the total package must be of Austrian origin. The equipment on offer is
from brands such as Philips, Agilent, Ameda, Kretz, Shiller, Drager and
Olympus.
In
fact the TEC did find that prices of certain equipment such as a high
pressure steriliser, instrument steriliser, blood gas analysers,
electrolyte analysers, diathermy machines and OT tables were found to be
excessive in comparison with local prices.
Incredibly,
the TEC however found this difference in prices in excess of about 20%
to be justifiable. They based their approval on the fact that two
Austrian banks namely, Bank Austria Creditanstalt AG and Bank fur Arbeit
und Wirtschaft Aktiengesellschaft had agreed to lend Sri Lanka an amount
of approximately Rs. 1 billion (Euro 17,348,239) at an interest rate of
2% per annum for a period of 15 years.
The
government has agreed to even purchase medical equipment to the value of
Rs. 433 million for the laboratory and research wing of this hospital,
which is to be the second part of this project. This is despite the
hospital still being under construction while even staff are yet to be
recruited and vacancies advertised.
The
bottom line is that this entire project has been vetoed by the committee
appointed by cabinet to inquire into the supply of medical equipment to
the Sirimavo Bandaranaike Specialised Children's Hospital.
Procedures
not followed
The
committee report further notes that TEC has not exercised the principle
of due diligence and taken reasonable care to ensure that the procedures
normally followed for technical evaluation of an unsolicited bid should
have been adhered to also in this case.
In
addition to the preparation of basic technical specifications, this
includes seeking clarifications from the supplier that the equipment to
be supplied includes all the necessary features, accessories,
consumables etc. None of this according to the committee of inquiry has
been done.
In
addition, the committee states that its members were surprised that of
the four folders comprising the offer, one was not made available to
them for perusal. According to R.D. Liyanage, this was because the
folder in question contained the offer document, which had been revised
several times: the contents of the folder had been distributed in
several other files (which were also not available for perusal).
Given
the value of this project, this demonstrates a high degree of negligence
on the part of TEC. It is not clear why the usual process of receiving
offers in duplicate, with one copy being kept aside as a 'master' in
case of tampering, was not followed in this case.
Credibility
questioned
The
committee has also questioned the credibility of International Medical
Cluster and have drawn serious inferences in its report about the poor
quality of the offer made by the supplier in this project. These impinge
not only on the commitment of the supplier, but also professionalism.
Whether
such an entity can reasonably be expected to perform on a Rs. 1.2
billion project of a highly technical nature, the committee asserts, is
indeed questionable. (See box for excerpts from report)
Despite
all these damning findings, the Finance Minister and the Sub Committee
on Budgets and Tenders chose to ignore the ramifications of the Austrian
proposal to the Sri Lankan government and instead rubber stamp an
Austrian consultant's report, the latter of whom was not even nominated
by the Sri Lankan government in whose interest it would obviously have
been prudent to do so.
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Inquiry
committee report excerpts
Excerpts
from the committee of inquiry report which was finalised on
October 14, 2002:
Observations
2.1
Technical Evaluation
Considering
the size of this project (Rs. 1.5 billion), we find that the
quality of the technical offer made by the supplier is extremely
poor. While the supplier has offered equipment from reputed
manufacturers, the offer is deficient in several important
aspects, including the following:
a)
There is no proper offer document, with detailed pro forma
invoices listing the equipment offered together with the included
options, accessories, consumables and spares. There is only a
schedule of model numbers and prices, which is wholly inadequate
for a meaningful evaluation to be made.
For
example, even for complex and expensive equipment such as the MRI
scanner, no details are given with regard to whether essential
equipment such as coils, helium replacement, cold-head warranty,
and essential nonferrous ancillary equipment such as anaesthetic
machine, patient trolley and a physiological monitoring system,
are included. Likewise, it is not specified as to what options
(e.g. for software) are included.
Similarly,
for the ultrasound scanners, there is no mention of which probes
are offered, whether a colour printer is included, etc.
In
reply to a question posed by us of Mr. R.D. Liyanage, he informed
the committee that for the cardiac catheterisation laboratory
offered for Lady Ridgeway Hospital quoted at Rs. 52,252,880.00, no
physiological monitoring system and no contrast injector had been
offered. Without these two items, which would cost Rs. 5-10
million more, the catheterisation laboratory would not be able to
function.
b)
The product data and literature submitted by the supplier is
insufficient for an informed judgement to be made on the technical
merits of the offer. We were surprised that even for large items
of equipment such as the CT and MRI scanners, no printed, original
product literature (brochures, catalogues, product data sheets)
had been made available: only photocopies and e-mailed electronic
documents. Even for the MRI scanner, which costs Rs. 98 million,
no clinical images have been supplied; we cannot understand how
these items could have been evaluated in the absence of clinical
images.
The
impression obtained from this is that the offer has been hastily
put together by a trading company, without any real ownership by
the manufacturers themselves. The fact that no local agents have
as yet been appointed underlines the fact that the equipment
manufacturers have not identified themselves with the offer,
despite its large size. This brings into question the
manufacturer's commitment to providing the technical support (e.g.
spare parts, service, engineering backup etc) necessary to make
the project viable in the long-term.
c)
Although the TEC report implies that a two year warranty has been
offered on the equipment, this is nowhere reflected in the
documentation submitted by the supplier. Neither are details
provided on what is included in the warranty (e.g. free
replacement of defective items) and as to how the warranty will be
implemented during these two years.
d)
The TEC report states, "All the equipment conforms to
technical specifications normally stipulated for such equipment by
the BES." We therefore called upon the TEC to make available
to us the technical specifications referred to, and specifications
were made available for only six of the c. 265 categories of
equipment included in the offer.
Nevertheless,
even for these, it was impossible to see how the TEC could
possibly have made an evaluation, given the absence of a
comprehensive offer and necessary product data sheets from the
supplier. We conclude therefore that the statement made by the
TEC, that "All the equipment conforms to technical
specifications normally stipulated for such equipment by the BES"
is false.
Given
the above-mentioned deficiencies in the offer, we are unable to
evaluate the same and give an opinion on its technical
acceptability or otherwise.
In
order to confirm our views, we interviewed Mr. K.V.P.R. de Silva (SAS,
M/HN&W, Chairman, TEC) and Mr. R.D. Liyanage (Actg. Director,
Biomedical Engineering Services, M/HN&W, Member, TEC) and put
the following questions to them:
a)
"Is there an offer document detailing for each item of
equipment the model number, details of accessories, options,
spares and consumables, together with details of warranty,
etc.?" and
b)
"Did you evaluate each item against the established technical
specifications of the Division of Biomedical Engineering Services
and/or Health, Nutrition and Welfare Ministry
noting any deviations there may have been?"
The
answers of both Mr. K.V.P.R. de Silva and Mr. R.D. Liyanage to
both of the above questions was, "No." This response
directly contradicts the assurance given in their TEC report dated
May 28, 2002, that the equipment recommended by them for purchase
"conforms to technical specifications normally stipulated for
such equipment."
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Events
that led to government approval
Chronology
of events which led to the government approving this offer are as
follows:
The
unsolicited offer from Messrs Philips Medizin Systeme, Austria,
representing a consortium comprising Philips Medical Systems
(Hamburg, Germany), Stetzler (Pforzeim, Germany) and AME (Vienna,
Austria) was initially received on June 3, 1999. This Austrian
consortium offered to provide a soft loan from banks in Austria or
the sum of US$ 13.6 million in respect of the supply and
installation of equipment and other related services for the
children's hospital at Peradeniya.
Another
unsolicited offer in this regard was received on February 22,
2000, from China National Automotive Industry Guizhou Import and
Export Corporation of China, for the supply of machinery and
equipment for this hospital, using a loan from the China Import
and Export Bank. The quantum of funds was not indicated.
The
Chinese offer was forwarded to Director, National Planning by the
Health Ministry Secretary on March 2, 2000, for "perusal and
necessary action."
The
Austrian offer from Philips was forwarded to Faiz Mohideen on June
21, 2000 for "consideration." This included the cost of
both buildings and equipment.
On
June 28, 2000, Mohideen wrote to the Health Secretary to take
action to reduce as far as possible the scope and cost of the
project, so that donor funding could be sought.
On
December 22, 2000, the Director, National Planning, wrote to
Health Ministry Secretary requesting him to obtain fresh cabinet
approval to implement the project using foreign aid offered by
Philips (Germany) "covering the cost of equipment,
construction, maintenance and training on turnkey basis."
On
February 28, 2001, DG/NP wrote to the Heath Secretary indicating
that this project had been offered by Philips Medical as follows:
Consolidated
Fund US$ 4.1025 million (15%)
Austrian
soft loan US$ 13.6750 million (50%)
German
commercial loan US$ 9.5725 million (35%)
Total
US$ 27.3500 million
DG/NP
recommended that the commercial loan component should be excluded
from the aid package.
1.9
On March 8, 2001, the then Health Minister submitted a cabinet
memorandum seeking approval to initiate negotiations to obtain the
soft loan of US$ 13.6 million above, and to obtain an
"independent report on the technical feasibility and
international competitiveness of the prices offered from Austrian
authorities" and set up a CATB to finalise negotiations on
prices.
1.10
March 22, 2001, cabinet gave approval for the above.
1.11
Accordingly a CATB and a TEC was appointed on April 11, 2001.
1.12
On October 30, 2001, the TEC issued its report (vide annexure 3),
which noted, "the prices submitted by Philips for most of the
items are generally on the high side" and recommended that
the prices be negotiated. They also noted the absence of a local
agent, the need for post-warranty maintenance and registration
with the Public Contracts Registrar and recommended that these
issues be addressed in the contract.
Based
on the product data supplied by Philips, the TEC noted that the
equipment were technically acceptable (without stating the grounds
for making this conclusion).
1.13
The CATB met on November 6, 2001, and decided to invite the
supplier, Philips Medical Systems, for price negotiations.
1.14
The CATB met again on November 13, 2001, together with the
representative of Philips Medical Systems and recommended as
follows:
a)
Acceptance of the medical equipment offered at a total cost of Rs.
495 million with a variation of 10% (plus or minus);
b)
That the Health Ministry expand the TEC to negotiate the prices
for mechanical and electrical equipment; and
c)
That the supplier should appoint local agents for all equipment
supplied.
1.15
On November 14, 2001, the then Health Minister sought the approval
of cabinet to:
a)
Purchase the medical equipment to the value of Rs. 500 million;
b)
Obtain a report from the TEC for the mechanical and electrical
equipment, which the supplier had offered to provide at a cost of
Rs. 453 million;
c)
Make payment to the supplier of 11.2% of the total amount in
respect of the cost of project management; and
d)
Allocate Rs. 293 million from this loan for the construction of
Stage II of the project.
1.16
The cabinet, at its meeting on November 15, 2001, approved the
above.
However,
before the relevant orders could be placed, the new government
took office.
1.17
Following the new government's decision to review CATB decisions
taken at the latter stages of the previous government, a new CATB
and an expanded TEC were appointed in March 11, 2002.
1.18
On March 18, 2002, the expanded TEC met in connection with the
procurement of mechanical and electrical equipment and recommended
the acceptance of the Austrian offer at a cost of Rs 433,452,052.
This was approved by the CATB, which met on April 1, 2002,
provided that the management fee be reduced from 11.2% to 5% of
the total cost of the project. D/ER subsequently negotiated with
the supplier (IMC) and arrived at a management fee of 9.2% of the
total project cost.
1.19
At the CATB meeting on May 13, 2002, the report of the TEC dated
April 18, 2002, was considered, and the CATB decided to request
the TEC to submit a fresh report with firm recommendations. In
their subsequent (i.e. final) report on medical equipment dated
May 28, 2002 (annexure 4), the TEC noted, inter alia as follows:
"All the equipment conforms to technical specifications
normally stipulated for such equipment by the BES and adequately
meets the clinical needs of the end user." The TEC
recommended purchase at Rs. 495,033,995.
1.20
In view of a saving of approximately Rs. 300 million having arisen
as a result of the Austrian government indicating that it did not
wish to fund the construction of buildings, the supplier made a
second unsolicited offer in respect of this balance amount. This
offer was evaluated by the TEC and its report dated June 5, 2002,
recommended that the additional equipment be purchased at a total
cost of Rs. 285,541,520.
The
manner in which this second unsolicited offer came to be made is
not clear. It appears that there was no written request from the
Lady Ridgeway Hospital or from the Director General, Health
Services.
This
raises the questions about how the supplier was made aware that
this equipment was necessary, and what procedure was followed in
drafting the list of equipment to be purchased. It suggests that
there have been close informal links between the supplier and
individuals in the Ministry, which is unacceptable given the
levels of transparency called for in government transactions of
this magnitude.
1.21
At its meeting on June 12, 2002, the CATB endorsed the TEC's
recommendations for additional equipment as at 1.20 above.
1.22
Accordingly, the Health, Nutrition and Welfare Minister
recommended in a cabinet paper dated June 26, 2002, that
procurement be made from IMC "the supplier nominated by the
government of Austria," as follows:
Medical
equipment: Rs. 495,033,995.00
Additional
medical equipment from savings on buildings allocation: Rs.
285,541,520.00
Mechanical
and electrical equipment: Rs. 433,452,052.61
A
project management fee of 9.2% of the total project cost was also
approved.
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Finance
Minister K. N. Choksy responds
The
former cabinet on November 15, 2001, approved the Austrian offer.
The new cabinet decided to review all awards of tenders made
during the period when parliament stood dissolved prior to the
last general election.
Accordingly,
a new CATB and TEC were appointed. On June 26, 2002, Mr. Dayaratne
presented a cabinet memorandum recommending to proceed with the
purchase as decided by the previous cabinet. The cabinet approved
his recommendations. Thereafter Minister Dayaratne brought it to
my attention that certain aspects of the tender required to be
reconsidered by a committee of officials.
Accordingly,
both him and myself presented cabinet memoranda on August 20,
2002, recommending the appointment of a committee of officials.
This was done. The committee issued its report on October 14,
2002. The committee's report was discussed at a meeting of the
Cabinet Sub Committee on Tenders on November 18, 2002, presided
over by myself and at which Ministers Tilak Marapone, Bandula
Gunewardena and Rukman Senanayake were present.
Mr.
Dayaratne himself was invited to attend with his Ministry
officials. The committee's report was discussed together with a
report forwarded to the committee on August 21, 2002, received
from the Austrian government. Both reports were discussed. The
cabinet sub committee decided to recommend to the cabinet to
confirm its earlier decision having discussed the report of the
officials committee.
The
cabinet sub committee's report was taken up for discussion by
cabinet on November 27, 2002. Minister Dayaratne was present at
the meeting. The entire matter was re-discussed by cabinet. The
cabinet decided to confirm its earlier decision. Thereafter, prior
to entering into the agreement with the Austrian government, I
submitted a further cabinet memorandum dated March 10, reiterating
the terms of the agreement. The interest payable was 2.1% per
annum. Separately, 1.6% per annum was required to be paid for
export credit insurance guarantee. The Central Bank has expressed
a view that although the credit is granted under commercial terms,
nevertheless the monetary implications are not adverse for the
reason set out by the Central Bank.
The
cabinet thereupon decided on March 19, to approve the signing of
the agreement. Minister Dayaratne was present at this meeting
also. The entire process has therefore been considered and
reconsidered and a recommendation made to the cabinet by the
cabinet sub committee was a considered recommendation in which the
Health Minister was consulted at every point and was present at
every meeting of cabinet at which a decision was taken.
Minister
Dayaratne was invited to be present at the tender committee
meetings and he was present in cabinet on every occasion when the
cabinet decisions were made. And so, he had every opportunity of
presenting his view point. |
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