Public procurement: The most fertile corruption breeding ground

Corruption in public procurement can occur at both the national and sub-national levels. On the one hand, decentralisation may narrow the scope for corruption, in line with the assumption that politicians and public officials at sub-national levels are more accountable to the citizens they serve. On the other hand, however, greater opportunities and fewer obstacles to corruption may play out at the sub-national level, due to, in some instances, weaker governance capacity, limited legal expertise or closer community contacts between public officials and business representatives.

According to the Organization for Economic Cooperation and Development (OECD) 2016 manual on Preventing Corruption in Public Procurement, integrity risks occur at every stage of the procurement process, from the needs assessment over the bidding phase to the contract execution and payment. The nature of the integrity risk may differ for each step, and red flags include undue influence, conflict of interest and various kinds of fraud risks.

OECD observes that as integrity risks exist throughout the public procurement process, a holistic approach for risk mitigation and corruption prevention is needed. Focusing integrity measures on one step in the process may increase risks at other stages. Similarly, addressing only one type of risk may give leeway to integrity violations through mother mechanisms. For example, administrative compliance measures in the bidding phase do not root out the risk for political interference in the identification of needs. Likewise, asset declarations for public procurement officials may not sufficiently protect against bid-rigging or petty fraud.

To that end, OECD recommends several mutually supportive principles which may, directly or indirectly, prevent corruption and stimulate good governance and accountability in public procurement. The principles include integrity, transparency, stakeholder participation, accessibility, e-procurement and oversight and control. Integrity refers to upholding ethical standards and moral values of honesty, professionalism and righteousness, and it is a cornerstone for ensuring fairness, non-discrimination and compliance in the public procurement process. Therefore, safeguarding integrity is at the basis of any effort to curb corruption in public procurement.

According to the OECD manual, recognising the importance of integrity for good governance and trust in public institutions, countries apply national integrity standards for all public officials, for example, through civil service regulations or generic code of conduct outlining the standards for the good conduct of civil servants. Often, a dedicated government department is responsible for developing, updating and diffusing the code of conduct, and may provide tailored advice, guidance and practical examples supporting the implementation of the code. The OECD manual also acknowledges that the public procurement cycle involves multiple actors and therefore integrity is not a requirement for public officials alone. Private companies often have their own integrity systems in place, and many countries engage with private sector actors to instil integrity in public procurement. For example, integrity standards applicable to public sector employees may be expanded to private sector stakeholders through integrity pacts.

Integrity pacts are “essentially an agreement between the government agency offering a contract and the companies bidding for it that they will abstain from bribery, collusion and other corrupt practises for the extent of the contract. To ensure accountability, Integrity Pacts also include a monitoring system typically led by civil society groups”.

It is further observed that oversight and control of the procurement cycle are not only essential in supporting accountability and promoting integrity in the public procurement process, these processes also generate valuable evidence on the performance and efficiency of the procurement cycle. 

The basis for an adequate oversight and control system is a risk analysis of the government process and its environment in question. In turn, the observations from oversight and control activities may yield insights on new and emerging risks or red flags, allowing updating and refining the oversight and controlling system. An April 2015 study on “Overview of Government Procurement Procedures in Sub-Saharan Africa” with particular emphasis on Angola, Botswana, Namibia and South Africa concluded that it is evident from the country assessments performed that the countries selected for this study have “fairly robust legislation in most instances. However, the main challenge lies in the ability to execute for a variety of reasons.

“The most common barriers include the lack of effective procurement systems, people, information technology and efficient processes. As a consequence, the opportunities for improvement across the board have been identified to include people and organisational structures, (mainly in terms of capacity building), data and technology, streamlining and centralisation, all of which should automatically improve areas of performance and management.”

The study further notes that there are specific objectives unique to Africa relating to addressing past social and economic imbalances which are dealt with by most of these countries to varying degrees. Other socioeconomic objectives that could be considered include green policy initiatives, quality standards and health and safety considerations. Companies also indicated during the study that “some government tender processes are perceived to be opaque in many countries in Sub-Saharan Africa, with many contracts awarded without due process or with extreme short tender times. This makes it very difficult for the companies to bid for these contracts, and compromises the most effective use of public funds which have to meet the rising needs of rapidly growing populations”.

The study also found that “Botswana has a well-defined regulatory framework in place for public procurement, with transparency and value for money underpinning its procurement practices. Procurement methods, tendering and post tendering processes are documented comprehensively. The regulatory body is a centralised function and independent of the procurement entities that are responsible for direct procurement”. 

The study, however, laments the absence of clear procedures about the implementation of green procurement currently in place. There are no specific health and safety provisions in the PPADB Act or PPAD manual. Notwithstanding, there are specific regulations around the disclosure of information and security for whistle-blowers to protect the identity of such persons who are required to report any suspicions or ethical issues to the appropriate management, PPADB and oversight bodies.

A manual on Transparency in Public Procurement implores unequivocally that “public procurement should to the greatest extent practicable, be transparent in its practices, processes, policies and relationships with all stakeholders, while ensuring the protection of confidential information”.

Transparency has been defined as timely, easily understood access to information. Transparency assists in ensuring that any deviations from fair and equal treatment are detected very early, and makes such deviations less likely to occur. It protects the integrity of the process and the interest of the organisation, stakeholders and the public. The manual also explains that transparency in public procurement is critical. How the government conducts itself in its business transactions immediately affects public opinion and the public’s trust in good government. In addition to encouraging the public’s goodwill and strengthened trust, the more practical business benefits of transparency are increased competition and better value for goods, services and construction.

The standardisation of processes, simplified access to information that is easy to understand and availability of information, all make doing business with the government much more appealing to the supplier community and strengthens the public’s trust.

“With the size and scope of government spending activity, it is critical that all stakeholders have confidence in the public procurement process. A transparent and informative public procurement process encourages this confidence through the free and open exchange of information, enhanced knowledge, improved efficiency, and reduction of the potential for corruption and waste”, explains the manual.

In a 2002 research study titled “corruption in Public Procurement: Causes, Consequences and Cures”, study author, Tina Soreide observes that “corruption in public procurement makes the officials or the politicians in charge purchase goods or services from the best briber, instead of choosing the best price-quality combination. The result may be construction projects several times as costly as necessary, or the acquisition of goods not actually needed”.

In countries where corruption is a common problem, it tends to disturb the market mechanisms and impede economic development. The logic of incentives makes it reasonable that human greed explains most of the bureaucratic corruption. However, in many developing countries, where mostly wages for ordinary officials are less than US$100, the actual need may be an equally prevalent reason.

“The major reason for bribery in public contract assignment, however, is probably because everyone believes that everyone else is involved in such kind of business. Losing a contract because a competitor bribed the officials must be very frustrating. 

This problem of hidden information is reflected in the way that all the companies involved par a bribe even if they would be better off with no corruption (prisoner’s dilemma”. Hence, the companies that bribe public officials seem to forget the negative externality they impose on other firms, as well as the worsening of their economic environment”, argues Soreide.

Another scholar, Vito Tanzi in 1998 posited that very often, the most damaging cost of corruption is not the waste of money spent on bribes but rather “the total economic and social effect of corrupt actions might be very costly and out of proportion to the bribes received by corrupt[t officials in terms of the resources wasted, the opportunity cost of resources misused, and the inefficiencies introduced in the system.

The United Nations in 1997 also warned that “systematic corruption can induce inefficiencies that reduce competitiveness. It may limit the number of bidders, favour those with inside connections rather than the most efficient candidates, limit the information available to participants and introduce added transaction costs”.

It further argued political commitment is a necessary condition for successful procurement reform. New rules alone are not sufficient. In many countries, the regulatory framework is too broad as it is. Tanzi explains that one reason for corruption in developing and transition economies is that the role of the state, to a large extent, is carried out through the use of rules and regulations. The many regulations provide the public officials with a monopoly of authority that may prove useful to demand bribes. To minimise bureaucratic corruption, it will, therefore, be vital to narrow this regulatory framework, as well as executing the anti-corruption laws.

In conclusion, it stated any anti-corruption effort aimed at reforming the public procurement system also hinges on the political will to disclose state budgets, extend the obligation to keep accounts, establish external monitoring systems and improve public access to bureaucratic and political information. The culture of concealment, prevalent in many bureaucracies, needs to be replaced by a “culture of transparency”. Extended freedom to the press is an important element to establishing such a new culture.

Source: https://www.sundaystandard.info/public-procurement-the-most-fertile-corruption-breeding-ground/

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