This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its February 2020 report entitled Special Report of Investigation Conducted into Allegations of Conflict of Interest, Irregularity and/or Impropriety with Respect to the Termination of Paymaster Jamaica Limited’s Contract, by Postal Corporation of Jamaica (PCJ) and the Award of Same to Bill Express Limited, Jamaica’s Integrity Commission – Office of the Contractor-General (OCG) determined that the Ministry of Science, Energy and Technology (MSET) acted on valid grounds when it terminated a concession contract due to performance issues, but then acted improperly when it directly awarded a new contract to another service provider.
The dispute dealt with a Postal Corporation of Jamaica (PostCorp) contract for the provision of bill payment services provided by Paymaster Jamaica Limited (Paymaster). Since the services were paid for directly by the public instead of government funds, the contract was considered a concession contract rather than a procurement contract. PostCorp terminated the contract due to performance issues, which included diminishing overall revenues and delays in remitting PostCorp’s revenue share based on the agreed upon payment schedule. The OCG was called on to investigate the contract termination as well as the subsequent direct award to the new service provider, Bill Express Limited.
While the OCG ultimately found that the termination decision was based on valid non-performance grounds, it found that PostCorp should have retendered rather than directly awarding the replacement contract. Additionally, OCG found that it lacked jurisdiction to review those decisions since, according to recent case law, concession contracts fall outside the scope of Jamaica’s procurement statute and outside of the OCG’s procurement oversight powers. As the OCG report noted, the Jamaican courts recently confirmed this jurisdictional issue when they rejected, both in the first instance and then on appeal, Paymaster’s attempt to challenge the termination of the contract by judicial review:
Judgement
The Application for Leave to Apply for Judicial Review with respect to Paymaster Jamaica Limited v Postal Corporation of Jamaica was heard on November 12, 13, and 14, 2013 and an oral Judgment was delivered by Justice David Batts on November 14, 2013. In the instant matter, Paymaster was refused Leave to Apply for Judicial Review of POSTCORP’s decision to enter into discussion and the award of contract to Bill Express for the provision of bill payment services in post offices and postal agencies islandwide. In the foregoing regard, Justice Batts posited, inter alia, as follows:
The Oxford English dictionary defines “procure” as to “obtain”, acquire, get or secure”. I think it is the right place to start although that definition was not relied on by either party. The Regulations do not define the word “procure”. They do however define “procuring entity”. In this regard there is no dispute that the Respondent clearly fits that bill. Where the parties differ is whether the contract under consideration can arguably be considered to be one involving “public sector procurement”. That phrase is defined in the Regulations as “the acquisition of goods, works and services, by any method, using public funds by or on behalf of procuring entities for their use; and includes procurement by Government-approved authorities acting on behalf of the procuring entity.
Manifestly, a procurement contract must involve acquisition by use of public funds by or on behalf of the procuring entity. In the contract under consideration the public sector entity is paid to act as the agent for the private sector entity when providing services. The services are provided to the members of the public. The public pays for those services out of which the public sector entity receives a fee or a commission. No doubt the public sector entity receives a benefit, that is, it is paid by the private sector entity and I suppose gets the benefit of persons who are attracted to use the facilities by reason of convenience. However, the public sector entity is not paying the private sector entity for that benefit.
Mr. Leys, QC argued for a broad interpretation of procurement. However I believe it would do far too much damage to the word if this court were to construe a situation in which services are provided and paid for, as amounting to procurement by the provider of the services who is being paid. I hold therefore that the Public Sector Procurement Regulations are not applicable to the contract under consideration.
As the OCG’s report also confirmed, Paymaster appealed this ruling but that appeal was subsequently dismissed by Jamaica’s Court of Appeal in 2017. The OCG accepted that it lacked the jurisdiction to review the contracting decisions relating to the concession contract; however, the OCG raised concerns over this oversight gap and recommended that the government amend its procurement legislation to also regulate and provide oversight over concession contracts so that public institutions had guidelines on how to treat concession agreements. In the interim, the OCG also recommended that even if Jamaica’s procurement statute did not apply to concession contracts, the award of those contracts should still be made pursuant to open tendering procedures as a general matter of transparency, value-for-money, and good governance:
The engagement of Bill Express by POSTCORP, to provide bill payment services in Post Offices and Postal Agencies islandwide, does not constitute a procurement activity. In this regard, POSTCORP was not mandated to utilize a competitive tendering process for the referenced engagement, in keeping with the GPPH (2012). Although the GoJ procurement framework was deemed inapplicable to the engagement of Bill Express by Postcorp in 2013, the Director of Investigation is of the considered view that the utilization of a competitive tendering process could have invariably afforded other suitably qualified entities within the bill payment industry, the opportunity to participate in the process, if they so desired. Extending consideration to other entities would also provide POSTCORP with the opportunity to examine and evaluate the best supplier for the entity’s needs in a transparent and objective manner.
Whilst the Director of Investigation is cognizant of the fact that the Government of Jamaica (GoJ) Procurement framework does not regulate Concession Agreements, such as the arrangements undertaken by POSTCORP and the bill payment entities referenced herein. The Director of Investigation recommends and highly encourages GoJ Entities that undertake such activities to employ the use of competitive tendering processes, in a bid to enable the selection of the most economically viable entity.
As this case study illustrates, depending on the specific rules that apply within different jurisdictions, concession contracts may fall outside of the scope of procurement regulations. While in some jurisdictions those contracts may be governed by other specific regulations, in others they may fall through the regulatory gaps and create significant potential governance issues. Public institutions that operate within jurisdictions that have failed to clearly regulate concession contracts should establish their own internal governance procedures for tendering those contracts to better ensure that they are awarded and administered in a transparent and defensible manner.
