Uneconomic thinking among civil servants leads to budget challenges

What do budget challenges have to do with the telecommunications sector? For a long time, we have seen that ministries and other state agencies have adopted uneconomic practices in the procurement of mobile communications services, unnecessarily wasting state and citizen funds. In other words, some agencies have been paying too much for mobile communications services for many years due to uneconomic and competitive procurement.

Mobile communication services are a basic need for public institutions to fully and efficiently perform their functions. There are three mobile communication service providers in Latvia, which can provide them with high-quality services according to the Public Service Regulatory Commission’s measurement of the quality of services such as calls, SMS communications and mobile Internet. This is a significant advantage for the public sector, as competition also promotes better prices. In this regard, it is important to emphasize that the purpose of public procurement procedures is to ensure that public authorities choose the most advantageous and best offers in the field of mobile communication services. However, why do public authorities deliberately choose to pay more?

Systemic problems may exist when state agencies procure telecommunication services, which may support and promote favoritism, thereby creating unjustified advantages for specific applicants selected by customers. To ensure that pre-selected applicants win in procurements, the most popular evaluation criteria are the largest number of base stations or customer service centers, or outdated service results, which result in unjustified high scores. Quality measurement conducted by the Public Service Regulatory Commission.

From the results of mobile communication service procurement published by the national competent authorities in recent years, we found that although it is possible to obtain services of equal quality from other service providers at a lower price, specific operators with higher prices are often given priority. This will cause you to pay too much for mobile services, put an additional financial burden on yourself, and waste taxpayers’ money.

If a public institution wants to obtain the best offer, it must promote competition in the procurement process by ensuring that multiple market players submit offers. As soon as multiple bidders have the opportunity to participate in a procurement, a price war will occur, but if the selection or evaluation criteria are set in such a way that only one specific bidder can compete and win, the price of the service will be significantly higher. This directly affects the agency’s “pocket”, which is crucial given the state budget problems that have not been met this year. In addition, the fiscal space for new spending next year is negative, i.e. minus €13 million.

The most vivid example is the centralized procurement of mobile communications by the Ministry of Agriculture, where the multifunctional service company “Tele 2” has publicly stated that its calculations indicate a possible overpayment of about 1 million euros. The Ministry of Agriculture in the procurement required multi-SIM roaming services for Android and Apple smart devices, which is not objectively necessary for the performance of the functions of the state agency. Public information shows that there is only one mobile operator in Latvia that can provide the above services. It can be concluded that the inclusion in the procurement is intended to limit the scope of applicants. In addition, in this procurement, the client intends to use points to evaluate the fulfillment of the criterion on the number of base stations. The maximum number of base stations is set at 45 points, which is contrary to the provisions of the guidelines of the Ministry of Transport – such a criterion can be included only in case of objective need, and the score does not exceed 10 points. In the procurement, one applicant submitted a bid, and he also won with a financial offer of 40 euros.

On the other hand, the State Administration of Land and Resources, an agency directly under the Ministry of Justice, compared the service quality of operators based on the outdated PUK measurement indicator conducted in 2020 in its 2022 mobile service procurement.

Let’s look at another case, which is the procurement of mobile communications services by the Paula Stradins Clinical University Hospital this year, where “Bite Latvija” would have started if there were no qualification requirements that restricted competition, such as the provision of Multi-SIM / e-SIM services and their availability in the network and roaming of the applicant in our country in the European Economic Area, that is, Europe outside the Baltic States, which, in fact, according to public information, was provided by only one mobile operator in Latvia. After the purchase, a contract was signed with the operator, which offered a price of 11.50 euros per connection, but the offer of “Bite Latvija”, for example, would be between 3 and 3.5 euros per connection. This is an example of how qualification requirements restrict competition and lead to higher costs for customers.

Ministries and other public institutions that purchase mobile communication services should focus on formulating procurement requirements, selection and evaluation criteria to ensure efficiency and fair competition. It is necessary to evaluate whether all established basic requirements are objectively reasonable and meet the needs of the institution. In addition, it is necessary to consider how many points to assign to the criterion of providing public information.

It should be emphasized that the Ministry of Transport has developed public procurement guidelines for mobile and fixed communications procurement, explaining the basic principles for determining applicant requirements and evaluating the availability of mobile and fixed communications network services. Admittedly, while there are some positive examples among agencies, there are also some that do not follow these examples, as the guidelines are not mandatory. The Competition Commission has also publicly called for not including the number of base stations, etc. in the selection and evaluation criteria for mobile communications service procurement, saying that this would restrict competition, and stated that procurement should be conducted in such a way as to comply with the principles of fair competition and equal treatment.

For several years we have observed that the way advantages are provided to specific suppliers is changing and evolving, which means that the system must be fundamentally changed rather than fighting individual nonsense.

It is undeniable that solutions must be sought to improve market competition. In this sense, the creation of an electronic catalogue, providing the public sector with the opportunity to choose and purchase standardized mobile communications services such as voice, SMS and mobile data, is one of the reasonable solutions. This will facilitate procurement procedures, ensure simplification and standardization of the purchase of basic services, and increase public trust in the state administration, ensuring optimal use of resources and more effective management of public funds. The mobile communications services procurement system using an electronic catalogue has been successful in other countries, for example in Lithuania, where the most important basic requirements are standardization and harmonization, and the study conducted by KPMG in 2023-2024 showed that it allows customers to more effectively use the opportunity to obtain the most economically advantageous offer.

We see the government’s desire to promote fair competition in the industry and appreciate the willingness of officials in the Ministry of Smart Management and Regional Development, which is responsible for the digital transformation of state administration, to find technological solutions for the creation of a smart management system. However, for the electronic catalog, the industry authorities must first do their homework. After long-term and continuous communication between the two industry players, the Ministry of Transport has begun negotiations with other state agencies on the need to create an electronic catalog. The creation of an electronic catalog for mobile communication services will support the government’s efforts to reduce bureaucratic barriers and promote economic growth and foreign investor activities.

*As with all content posted in the Opinion Articles section, this is the opinion of the article’s author.