CYPRUS: Auditing the use of non-competitive procedures in IT procurement

The national legislation in Cyprus provides Contracting Authorities (CAs) with a selection of procedures for the procurement of goods and services. One of these procedures is the negotiated procedure without prior publication. The selection of this procedure is restricted to exceptional cases, including where, for technical reasons, competition is absent. The Cyprus Audit Office (CAO) is responsible for auditing CAs’ procurement activities on a continuous basis. As part of this task, CAO noticed that an increasing number of subsequent IT contracts were being awarded to the system’s initial provider using the negotiated procedure without prior publication. Due to their high dependency on the provider, the CAs lacked negotiating power which often resulted in significantly increased costs.

In June 2018, CAO initiated a performance audit to assess the use of non-competitive procedures in IT procurement. The audit also reviewed the initial contracts for adequacy, in relation to the expected design life of the system.

The audit concluded that using the negotiated procedure in subsequent IT contracts is usually not an effective, economic and efficient practice. This was mainly based on the following findings:

• Inadequate requirements definition
• Insufficient market research
• Biased and unrealistic reasoning regarding the absence of competition
• Delays in the negotiation process
• Inaccurate estimations of contract value

Also, as part of the audit, CAO assessed the extent to which the cost and duration of a system’s initial contract reflected the expected design life of the system. CAO also examined the number of subsequent contracts and the frequency of use of the negotiated procedure during the lifetime of a system. CAO’s main findings were:

• The cost of initial contracts amounted to only 34% of the total cost of the systems examined
• The average duration of initial contracts was 4 years, whereas the average lifetime of a system was 14 years to date
• Upon execution of the initial contract, the current provider was awarded 8 subsequent contracts on average

During the audit, CAO also identified a number of shortcomings in the areas of IT strategy, project management, performance metrics, organizational structures and budget execution which were found to affect the IT procurement culture and decision-making process.

CAO’s main recommendations to the CAs were to:

• Revise the duration of IT contracts to better match the system’s expected design life
• Avoid using the negotiated procedure for subsequent contracts as far as possible
• Perform more realistic estimates of contract value. Obtain more accurate pricing information from recent contracts and better market research.
• Implement a uniform approach for upgrading and extending IT systems
• Adopt and apply appropriate standards for the interoperability of IT systems

The CAs adopted the majority of CAO’s recommendations and agreed to take the necessary measures. The full CAO report can be found at www.audit.gov.cy.