Republic of Azerbaijan Real Estate Registration Project Redacted Report March 2018 Statement of Use and Limitations This Report was prepared by the World Bank Group (the WBG) Integrity Vice Presidency (INT). It provides the findings of an INT administrative inquiry (the Investigation) into allegations of corrupt, fraudulent, collusive, and/or coercive practices, as defined by the WBG for purposes of its own policies, rules and procedures (the WBG’s Framework regarding Anti-corruption), in relation to the WBG-supported activities. The purpose of the Investigation was to allow the WBG to determine if the WBG’s Framework regarding Anti-corruption has been violated. This Report is being shared to ensure that its recipients are aware of the results of the INT Investigation. However, in view of the specific and limited purpose of the Investigation underlying this Report, this Report should not be used as the sole basis for initiating any administrative, criminal, or civil proceedings. Moreover, this Report should not be cited or otherwise referred to in the course of any investigation, in any investigation reports, or in any administrative, civil, or criminal proceedings. This Report is provided without prejudice to the privileges and immunities conferred on the institutions comprising the WBG and their officers and employees by their respective constituent documents and any other applicable sources of law. The WBG reserves the right to invoke its privileges and immunities, including at any time during the course of an investigation or a subsequent judicial, administrative or other proceeding pursued in connection with this matter. The WBG’s privileges and immunities cannot be waived without the prior express written authorization of the WBG. 1 Background The Real Estate Registration Project (the Project) in Azerbaijan was designed to ensure that there is a reliable, transparent and efficient real estate registration system supporting the real property markets and suitable systems for the management and use of state-owned immovable property in Azerbaijan. The Project was financed by the International Bank for Reconstruction and Development (IBRD),1 the government of Azerbaijan, and a trust fund. The Project became effective in September 2007 and closed in October 2015. In 2010, the Project Implementation Unit (the PIU) sent out Invitations to Quote (ITQ) for a Project contract (the Contract) to three companies: Company A, Company B, and Company C. The three companies submitted their respective bids to the PIU. The PIU awarded the Contract to Company A as the lowest responsive bidder. Allegations The World Bank Group Integrity Vice Presidency (INT) was informed of several potential indicators of collusion in the procurement of the Contract, including the fact that the phone numbers used by both Company A and Company B on their bids were the same. Methodology INT conducted interviews with relevant employees of the three companies, including the current Director of Company B and the owner of both Company A and Company B (the Owner). INT also sent requests for information to the Tax Administration of the Republic of Azerbaijan. In addition, INT reviewed of all of the quotation documents submitted by the three companies. Findings INT’s review of the quotations submitted by Company A, Company B, and Company C indicates numerous similarities in the bids of all three companies, and also indicates that the letterheads of both Company A and Company B listed identical phone numbers. The quotations reflected a consistent pattern of unit pricing. Evidence further indicates that the quotes of all three companies included several instances where the exact same arithmetical errors and punctuation mistakes were made, and there were also common instances of non- compliance and missing bidding documents common to all three companies. 1. Consistent Price Patterns Evidence indicates that Company A, Company B, and Company C submitted quotes that exhibited a consistent unit price pattern for numerous line items. This pattern generally resulted in Company A proposing the lowest unit price for each line, followed by Company C and then Company B as the highest. 1 The IBRD is one of the five institutions comprising the World Bank Group. The IBRD and the International Development Association (IDA) constitute the World Bank. The IBRD and the World Bank are used interchangeably throughout this report. 3 Evidence also indicates that Company B and Company C proposed identical unit prices for 41 out of the 86 line items, while Company C and Company A proposed identical prices for 35 out of 86 line items. Evidence indicates that all three companies proposed identical unit prices for 13 out of 86 line items in their quotations. 2. Arithmetic Errors INT’s review of the quotations indicates that, for line item no. 53 of the ITQ for the Contract, while each company offered a different unit price, all three miscalculated the total amount for line item no. 53 and listed the same total amount. 3. Other Similar Mistakes Line item no. 40 of the ITQ asked bidders to provide 3 units of a certain product, but evidence indicates that all three companies incorrectly listed it as 4. Similarly, line item no. 70 required bidders to provide a unit price and total amount for another product. Evidence indicates that, while all three indicated a total amount in line 70, Company A, Company B, and Company C all failed to include a unit price. 4. Similar Mistakes/Alterations of Bid Documents Evidence indicates that the ITQ sent to all three companies included a Template Form of Quotation which required the bidders to send their final quotations to a certain address. Evidence indicates that Company A, Company B, and Company C made the same mistake in the address line. Evidence further indicates that the quotations of Company A, Company B, and Company C made the same mistake in the name of the Contract. Additionally, while the template Form of Quotation included the phrase, “We propose to complete the Works described in the Contract within a period of 5 (five) months from the Start Date[,]” [emphasis added], evidence indicates that all three companies instead substituted a similar sentence that contained the same word change and punctuation error: “We propose to complete the Works described in the Contract within a period of 5 (five) months from the Date of Signing of the Contract. .” [emphasis added]. 5. None of the Companies Provided the Required Qualification Information The Instruction for Preparing Quotations issued to all three companies provided in Section 1, Paragraph 3 that: [t]o qualify for award of the Contract, a bidder shall meet the following minimum qualifying criteria: (a) Experience as a prime contractor in the construction of at least one work of the nature and complexity equivalent to the works included in this Invitation, over the last three years; (b) Evidence of financial resources to successfully complete the works i.e. letter from a bank, credit institutions or other financial intermediary, supporting the availability of financial resources. 4 Evidence indicates that none of the three companies submitted the required qualification information. 6. Additional Interviews and Investigations Based on an interview with the current Director of Company B, it appears that both Company B and Company A were owned by an individual (the Owner). A subsequent interview with the Owner confirmed that he was the sole owner of both Company A and Company B at the time of the bidding for the Contract. Based on the interview with the Owner, it appears that the offices of both Company A and Company B were located in the same building during the time when the relevant quotations were prepared, and that both companies also shared the same phone number and a few staff. The Owner claimed that s/he was not involved in the bid preparation in question and denied allegations of being engaged in an alleged improper arrangement among the three companies. When INT presented the Owner with evidence documenting the similarities and identical mistakes in the quotations of Company A, Company B, and Company C, the Owner stated that all three quotations may have been initially prepared separately in Azeri, and later translated by the same person who made the same errors in each quote. The Owner claimed that Company A and Company B must have hired an independent translator to do this as no one on the staff of either company spoke English. However, the Owner had previously told INT that an English-speaking secretary prepared the bids for Company A and Company B. Subsequently, when INT presented the Owner with additional evidence documenting the similarities between all three bids, the Owner stated that the quotations of all three companies must have been prepared by a single person. INT sent Show Cause Letters, detailing INT’s findings and requesting a response, to both the Director of Company A and the Director of Company C. The Director of Company A could not be located and the Director of Company C refused to accept the Show Cause Letter on the grounds that Company C had suspended its business two years previously.2 Follow-Up Action by the World Bank The World Bank imposed a sanction of debarment with conditional release on Company A, Company B, and Company C. The periods of ineligibility extend to any legal entity that is directly or indirectly controlled by Company A, Company B, or Company C. 2 INT did not send a Show Cause Letter to Company B because INT had interviewed the Director of Company B during INT’s investigation. 5