Home » The curse of sole-source contracting, by P.Neerohoo Auditor | Tax Specialist

The curse of sole-source contracting, by P.Neerohoo Auditor | Tax Specialist

Medpoint | Red Eagle | Sun Trust

P.Neerohoo, Auditor | Tax specialist : After the ruling of the Judicial Committee of the Privy Council (JCPC) in favour of Betamax, there is a debate on who did wrong and who is responsible for the debacle. However, most people are missing out on the essential, which is the absurd policy of sole-source contracting.

Sole-source contracting is an abnormal procurement practice that has proved to be costly to Mauritian taxpayers, as we shall see. First, it lacks transparency as the government awards a contract to a single private party without calling for tenders from potential bidders. Secondly, once the contract is awarded, there is no accountability for why and how the decision was made. Thirdly, there are no criteria set for the value-for-money performance of the contract.

In terms of public procurement policy, sole-source contracting has been a disaster to the Treasury. Three examples testify to this fact.

First, when the Labour government of 1995-2000 cancelled the contract that a previous MSM government awarded to Sun Trust for the renting of office space to the ministry of Education, the Supreme Court ruled against the government and awarded damages of Rs 45 million to Sun Trust. Taxpayers were on the hook.

Sun Trust Building | @Defi

Second, another Labour-led government in 2010 decided to purchase the Medpoint clinic at an overvalued price (Rs 144 million). When the affair broke out, the ICAC prosecuted the minister of Finance who signed the cheque to the seller and got a sentence against him in the Intermediate Court that was subsequently reversed by the Supreme Court (SC). The JCPC upheld the SC’s ruling but the Treasury took a hit due to overvalued prices.

Third, the same Labour government awarded a sole-source contract to Betamax for 15 years for the transportation of petroleum products. The contract was exempted from the rules of the Public Procurement Act, but the MSM government of 2015 cancelled it on public interest grounds. The JCPC’s ruling in favour of Betamax means that the government had to pay out Rs 4.7 billion in damages with accrued interest at the rate of 3% per year from June 5, 2017. Another big hit of Rs 5.7 billion in total was inflicted to the Treasury.

Comité judiciaire du Conseil privé hébergé dans l’hôtel de ville Middlesex à Londres | @ChrisVTG Photography

In all three cases, we see that political decisions were made to award or cancel contracts without consideration of taxpayers’ interests. While some private parties get richer from the award of damages, taxpayers lose money unnecessarily. These taxpayers are required to pay income taxes and VAT to the Treasury to pay for the government’s ill-advised decisions. 

In all three cases, the Courts have upheld the rights of private parties against the State. In law, a contract is valid and binding so long as it meets the requirements of contract law, including legality of object and legal relationship between contracting parties. Considerations of public interest or morality do not win over legality in Court. Therefore, governments of all stripes should abandon the practice of sole-source contracting and apply public procurement rules, including open tendering, when awarding contracts for the supply of goods or services. That is a basic standard of good governance.

Auditor | Tax Specialist