Thousands of public contracts fail to comply with the law to avoid competitive tendering

In summer 2018, it was time to renovate the kitchens at the Zaragoza Air Base. A total of €49,000 was allocated to goods. Due to the sum of money involved, the Public Procurement Law (LCSP in Spanish) mandates a public tender be opened for companies to present their bids. However, those in charge decided to take a short-cut : they chopped up their requirements into smaller contracts, small enough for each to be awarded directly, without due regard to procedure. On the 16th of August, 2 contracts were awarded: one for 2 ovens and another for the refrigerator. Less than 2 months later , on the 10th of October, the other 4 contracts were awarded: one for the cupboards, another for the dishwasher, another to buy the kitchen table, and one more for the water heater. Each of these was less than €15,000—minor contracts—meaning they could be awarded without competitive tendering and almost no announcements or controls. Suspicions wouldn't have been aroused if they had procured the items from companies specialised in each of the appliances. But each of the minor contracts, all 6, was awarded to the same company: Zasel SL.

The law has always been clear: it is illegal to split large contracts up into minor ones to thus award them directly—without due regards to procedure—to the winning company. Badaboom. Avoiding all that competitive tendering implies (transparency in the process, all companies in the sector can submit a bid, clear rules for choosing the winner…). After the most recent reform, the text is much more explicit: it is forbidden to sign more than one contract with the same company if, added up, these exceed the stipulated limits of minor contracts. In other words: once this threshold has been reached (€15,000 for goods and services, and €40,000 for works, not including VAT, as with all amounts quoted in this article), the same company cannot be awarded another contract.

Less than €15,000 in goods and services, and €40,000 in works.

118.3. The file must justify that the object of the contract has not been altered to evade the application of general procurement laws, and that the contractor has not entered into other minor contracts that alone or together exceed the sum set out in the first paragraph of this article. The procurement body shall verify compliance with said rules. Exempt from this are the cases referred to in Article 168a).2.

When contracts can only be awarded to a single contractor for artistic or technical reasons or due to the protection of intellectual and industrial property rights.

Less than €15,000 in goods and services, and €40,000 in works.

118.3. The file must justify that the object of the contract has not been altered to evade the application of general procurement laws, and that the contractor has not entered into other minor contracts that alone or together exceed the sum set out in the first paragraph of this article. The procurement body shall verify compliance with said rules. Exempt from this are the cases referred to in Article 168a).2.

When contracts can only be awarded to a single contractor for artistic or technical reasons or due to the protection of intellectual and industrial property rights.

Interpretation of Article 118 of the Public Procurement Law greatly depends on who is reading it, and how lax they are when it comes to applying the rules, but subdividing a major contract into several minor contracts was illegal before and continues to be illegal now. This is a classic form of corruption.

For the Procurement Advisory Boards of Euskadi, Aragón and Madrid, for example, there is no doubt: the same company cannot be re-awarded in the same year in each of the three categories (services, supplies and works) if the limit of the minor contracts has reached. In total, from January to July 2019, in other words, in just seven months, over 6,500 minor contracts (more than 5%) of those published on the Public Sector Procurement Platform (for state, autonomous and local authorities) fail to comply with the article of law. These include 1,879 contracts for goods, 3.793 service contracts and 856 works contracts (methodology). And they amount to over €53 million.

Are they all illegal? A priori, if we follow the letter of the law, then yes. But the more lax interpretations of the contentious article might save some of them from the fire. For example, justifying that this is not a subdivision, but rather contracts for completely different objects and that awarding them separately does not imply that a major contract has been split up to evade the law. In any case, said justification must be included in the file, which is almost never published. Many others are clearly illegal subdivisions, no matter how you look at it, how it has been disguised or concealed.

13 minor contracts awarded to the same company in a single day

Let's turn to the most blatant cases, beginning with various minor contracts awarded by a single authority to the same company and, unbelievably, on the same day, which also happen to exceed the limits. The joyous day in the relationship between the Albacete Air Base and the company Suministros de Albacete SA was the 3^rd of December, when 13 supply contracts were signed amounting to a total of €83,000, well above the threshold of €15,000 for this category. The next day, two more were handed out, and one week later, another five.

In total, between August and December 2018, the Albacete Air Base awarded this company 37 contracts to procure goods, amounting to a total of €270,000. Not one, not two. 37. And all handed out in batches, on the same days.

More examples, this time from the Ames Town Council (A Coruña). They paid a contractor, Javier Polo Durán, €16,500 to put on a show in the village. How did they manage to do so, when the limit for directly awarding this contract was €15,000? They awarded him 2 minor contracts on the same day: one for the performance itself (€13,223.14) and another to hire the technicians (€3,305.79) And that was that.

There are, however, other local festivities that have been carved up to evade the law, such as the 2018 bullfights in Armedo (La Rioja). When an event such as this is put on, the contractor puts on the headline bullfighters and, as per the norms, reserve bullfighters, the 'spares'. On the 28th of September, the town council awarded Azaba Gestión two contracts: one for the headline bullfighters, just within the limits of a minor contract (€14,798), and another for the 2 reserves (another €3,800). This is not the only time the contract had been subdivided into two to be awarded on the same day and to the same contractor. Two days later they did the same again, but this time awarding the split contract to José Escobar Gil (headliners on one side and reserves on the other). And once again, with both together exceeding the threshold of a minor.

In total, according to the data published on the Public Procurement Portal, between August 2018 and July 2019 (why are we using these dates?) some 2,900 contracts were signed (covering works, services and goods) that not only exceed the limits of minor contracts with a single company but were also signed, in one go, on the same day.

Ourense County Council, top of the leader board

For work contracts, the public body with more potential illegal divisions is the Diputación de Ourense; for supplies, the State Entity of Prison Work and Employment Training; and in services, four councils of Castile and Leon are on the lead.

All of these examples are for goods or services, with the threshold set at €15,000. For works, however, where the limit is €40,000, there are also many salient cases. In the first seven months of 2019 alone, Spanish authorities that publish on the Public Procurement Platform signed off on 7,240 minor contracts for works. Almost 12%, a total of 856, fail to comply with the law: they exceed the €40,000 limit when added to others awarded to the same company. They amount to €21 million.

Almost 2 million of this bears the same reference: the Ourense County Council , the public authority with the highest number to its credit, some 55 contracts. And a large part of these contracts were openly awarded on the very same day.

15 of those contracts went to Construcciones y Almacenes Manuel Viso. In total, over a 7-month period, this company received more than 595,000 from the County Council for roads and track repairs. To defend the legality of such, one could argue that they had different objects: one for each stretch of track or road. But other authorities contract such repairs in bulk via an open tender —sometimes in bundles per zone— while more importantly, in this case, they were all awarded to the same company.

And there are further reasons to be suspicious. Five of them, for example, were awarded on the same day, the 2nd of April 2019. Although each covered a different stretch of track or road, all were awarded for sums ranging between €39,500 and €39,973, right on the limit. We can either look at it positively: the works cost almost exactly the same because such resounding coincidences do exist; or negatively: this is an obvious subdivision (because they could have been tendered together) or, at the very least, that the price was adjusted to under the threshold to create 5 minor contracts that could be directly awarded to the same company on the same day.

Another 15 contracts went to Camiños de Ourense. Seven of those on the same day, its lucky day—the 1st of February 2019. Both companies, Manuel Viso and Camiños de Ourense, are cited in complaints to the President of the County Council, José Manuel Baltar, for illegal financing.

This public authority also appears to have a favourite number. Of the 55 contracts in 2019 handed out on the same day that fail to comply with the law, 31 were awarded for €39,669.42, and not a single penny more or less.

Give me €14,999.99 worth of flour

The Management of the State Entity for Public – Law Prison Work and Training for Employment (Trabajo Penitenciario y Formación para el Empleo) is the public entity responsible for managing the cafeterias and commissaries in Spanish prisons, as well as for training and workshops. It is, moreover, a specialist in awarding minor contracts—like someone who takes a £5 note to the supermarket and stretches it as far as they can… Or someone who doesn't think twice about spending €50 on petrol. But they do this for many other items and these always just happen to be below the threshold, allowing them to be awarded directly.

On the 4th of September 2018 they bought bread flour from Campotrigal for the Valencia Prison for a sum of no less than €14,999, right on the limit. We don't know how many kilos of flour they received in return, but we do know that less than one month later, on the 8th of October, they once again bought bread flour from the same company for the same sum of money. And then again, three days later on the 11th.

The Independent Office for Regulation and Supervision of Contracts (OIRESCON), in its instruction concerning subdivisions, states that "no recurring services may be subject to a minor contract, so that, year after year, they address the same need for the contracting entity, so that its procurement can be planned and carried out in accordance with standard procedures". It would seem that needing bread flour doesn't fit into this veto because it isn't a one-off expense that took them by surprise.

The case of the flour is by no means unique. The same organisation signed off two contracts with the same company (IES Maritimo) for €14,999 each to procure ice cream for the inmates at the Valencia Prison: one for prisoners on remand and another for those already serving their sentences, because they seemingly eat different types of ice cream that do, however, cost exactly the same. And they did this openly, on the same day. On other occasions, the trick with the goods lies in splitting purchases for a single purpose into different products. By way of example: the Segovia Prison required ingredients for its bakery workshop. Instead of buying everything they needed in one go and opening this to tender, four individual contracts were given on one single day to Carballes Distribuciones for the sum of €14,999 each, in little chunks: one for yeast and salt, another for eggs and sugar…

And it's not just for desserts. Similar tactics are employed to purchase potatoes, fruit, sausages… And this public body doesn't only stick out in the field of goods. Between December 2018 and July 2019, in just 7 months, they awarded seven contracts to Informática El Corte Inglés for the same things: urgent repairs to the sales system of the commissaries in various prisons. And yes, five of them are for €14,999.

All of these examples fall just under the threshold. In fact, of the 370 minor contracts signed by Trabajo Penitenciario y Formación para el Empleo in a year, 249 were for €14,999 and 20, flying even closer to the edge, were for €14,999.99 (browse all of the contracts here). And all this when, in fact, they do know how to do things properly: here in an open tender, in batches, to procure supplies of bread for various prisons. It would seem that it can be done after all.