Brochure "Public procurement against corruption"

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Brochure "Public procurement against corruption"
IPA 2008 twinning light project “Strengthening capacities to remedy irregularities
in public procurement procedures”
Public Procurement
Against Corruption
IPA 2008 twinning light project “Strengthening capacities to remedy irregularities in public procurement procedures”
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Corruption in public procurement
and how to avoid it
Public procurement is one of the key areas where the public sector and the private sector interact financially. Normally, the volume of public procurement corresponds to some 10-20 % of
the GDP in European countries. In Croatia, the public procurement value was 40,6 billion kuna
in 2009 and 24,8 billion kuna in 2010. This is why public procurement is one of the prime candidates for corrupt activities as well as other undesirable practices like favoritism and bribery.
The procurement process should have as an objective the following:
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Satisfying the needs of the public sector while at the same time obtaining value for
taxpayers money
Opening up public spending to economic operators on equal, transparent and fair basis,
to stimulate growth and create new jobs
Equal treatment, by protecting the rights of participating bidders in an effective and
efficient way
For countries committed to the European Union Directives on Public Procurement, the rules
and institutional setting to ascertain transparency are additionally given in the specific Review
and Remedies Directives, applicable for all different types of public sector procurement; classical public procurement, procurement in the utilities sector, and for defense and national
security procurement. The collective rules on public sector procurement are aiming at fulfilling
the objectives above, but also at preventing corruption and collusion.
However, these objectives cannot generally be met unless contracts are awarded on a truly
competitive basis under a system that has clear guidelines incorporating transparency, scrutiny/appeals, efficiency, economy, accountability and fairness into the public procurement system as a whole. Although EU public procurement legislation is fairly complex and can be implemented differently in various jurisdictions, the three main phases of the public procurement
process are:
1. Procurement planning, budgeting and preparation
2. Notification, information and evaluation of tenders
3. Award and contract performance
Corruption can arise in various forms in each of these separate phases of the procurement
process, as indicated below.
1. Procurement planning, budgeting
and preparation
Different activities are taken before launching a procurement procedure. In the procurement
planning, budgeting and preparation phase, the contracting authority needs to determine what goods, works or service it would like to buy (the requirement) and how much it
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would like to spend (the budget). In both of these cases, there are opportunities for corruption. Preparing budget for the procurement, identification of contracting authority/s needs and
a design of tender documentation are all vulnerable to corruption since some corrupt practices
that will occur later in the procurement process can be planned already at that stage.
For example the budget for the particular procurement can be set artificially high so that
excess allocations could be stolen or diverted. In addition budget could be devised in such a
way that there are overlapping budgetary allocations among separate departments that could
also be applied in a corrupt manner. In determining the contracting authority/s requirements,
reports could be prepared that falsely justify current or future authority/s needs, falsely inflate
actual needs or falsely report damaged equipment in order to create an excess supply that
could be used for corrupt purposes. The procurement requirements could also be written to
favor or disfavor particular suppliers. For instance, hidden mistakes and/or fictitious positions
can be built into the project calculation and design, affecting the technical specification, which
at the selection stage can influence evaluation process and/or at a contract performance stage
leave open space for account for increased costs.
Award criteria and scoring methods in tender documents are particularly sensitive because
they can be drafted to favor a particular supplier or service provider or likewise could be
drafted to emphasize weaknesses of a particular competitor. Last but not the least, simply
selecting a type of procurement process itself may influence the occurrence of corruption. The
procurement process may be more exposed to corruption when procurement procedures such
as negotiated procedure without prior publication, contract awards within framework agreements, or negotiations within the system of competitive dialogue are chosen.
2. Notification, information and
evaluation of tenders
During the tender submission period, the main tasks are making the tender documentation
public, clarifications and communication, receiving bids and conducting evaluation (of selection
and award criteria). Here a risk of corruption comes mainly in form of discriminatory treatment
of (potential) bidders. For example, after the procurement was being made public “favorite”
supplier could get more information than his competitors and/or could be supplied with information which should otherwise be kept secret (this problem can get even worse if only one
person is entitled to communicate with potential bidders). Lack of transparency and control
may also occur in cases where received bids are not publicly opened, since their content may
be subject to manipulation (the absence of objective and strict rules on timeliness and completeness of received bids could result in accepting late and/or incomplete offers or rejecting
legitimate ones).
Later during the evaluation of the bids, the award criteria could be misapplied, further defined and/or amended in favor of the “favorite” bidder (the absence of objective award criteria
and/or vaguely and loosely described evaluation methods can greatly contribute to such an
outcome). In negotiated procedures during this phase it is also possible that advance information are provided to a particular supplier in order to improve his negotiation position. Other
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IPA 2008 twinning light project “Strengthening capacities to remedy irregularities in public procurement procedures”
techniques such as failing to include all the qualified providers (wrongfully restricting a range of
providers), soliciting providers known to be inferior to a favored supplier, simply misaddressing
tender documents etc., are techniques that can be utilized to corrupt the procurement process.
3. Award and contract performance.
Corruption opportunities also abound at the contract award and performance phase of
the procurement process. There are many techniques to hide corruptive practices during the
execution of a contract. As this phase is normally less regulated than the first two phases, alterations between the originally made procurement decisions and their actual implementation
can easily go unnoticed. For example, selected provider could have proposed an unrealistically
low offer in the hopes that after the contract is awarded to him procurement officials will allow
amendments to the contract to increase costs. Likewise, a provider could have offered exceptionally high quality products or excellently qualified personnel to meet a particular requirement in the tender documentation and then upon contract award will substitute it with inferior
products or personnel.
After the evaluation phase is completed and the best bid is selected, it is also possible to award
a contract that materially differs from the original terms of the tender documents in form of
rendering fictitious work, inflating the actual work volume, rescheduling schedules, changing
orders and/or performing contract obligations in an improper way.
Oversight and reporting requirements may also be minimized and in some cases cost overruns
can be corruptly explained away or falsely justified. Certification of the execution of the works
may not correspond with the real supply. Finally, supporting documentation could be intentionally lost or destroyed making detection and prosecution of corruption offenses difficult.
How to prevent corruption and conflict
of interest
Recommendations to contracting authorities
Collusion by tenderers
Tenderers may use different methods to manipulate the bidding process, by various means
of cooperation and/or cartels. They may submit fake bids to give the contract to one of the
tenderers, either aiming at rotating the contract awards in between themselves or apply market allocation. There are different measures that can be taken to prevent or at least minimize
these risks:
Market intelligence
The more knowledge about the market, the lesser the risk of being manipulated. Therefore,
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knowledge on e.g. the number of actors, their respective size and market share, price levels
and development, their competitive advantages, etc., is crucial to avoid becoming mislead and
subject to collusion. Having regular contact with other contracting authorities and/or private
buyers is one way of obtaining some of this information.
Tender design and choice of process
The tender documents should be cleverly designed, and the most suitable process chosen, to
increase open and wide competition. Also, the invitation should comprise a warning that collusion or illegal cooperation between tenderers are subject to sanctions. It is recommended that
the tenderers submit a signed certificate of independence in the bidding process, and that they
are obliged to disclose any contact or communication with their competitors.
Change your behaviour
If possible, change the construction of the procurement and contract, which will complicate
supplier collusion. E.g. it is recommended to vary the size and contract timing. Perhaps cooperation with other contracting authorities is possible, either by joint contracts, from one time
to another, and/or information exchange and strategic timing. Being unpredictable, however,
does not mean that the requirements should not be clearly defined.
Selection and award criteria
Carefully choose and examine (preferably by simulations) the selection and award criteria.
Also, consider future impact on market and competition development, as an effect of the criteria chosen. Make sure that the existing contractor will not have excess information, giving
them an advantage to the market, perhaps even having more information than the contracting
authority, which may rely too much on information provided by the incumbent supplier.
Ascertain competence
When drafting the specifications, make sure that either internal resources or hired consultants
have sufficient knowledge and that they are totally independent. Confidentiality and Conflict of
interest certificates should be signed.
Subcontracting
Be aware that subcontracting may be a way to delude the contracting authorities to avoid e.g.
social security contributions and taxes, for money laundering, etc. Thus, always ascertain that
subcontractors are stipulated in tenders and listed in the contract, and that they may not be
altered without prior approval from the contracting authority.
Awareness
Raise awareness with the people within the contracting authority on the risks of corruption in
the tender procedure. Reward staff reporting suspicious supplier behavior (whistleblowers).
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IPA 2008 twinning light project “Strengthening capacities to remedy irregularities in public procurement procedures”
Recommendations to suppliers
Get to know “your share of public procurement market”.
Examine the positive European and national legislation and jurisprudence (both of the Court of
Justice of the EU and your national review authority) and see what it offers you. Get familiar
with the public authorities future needs – use free access to public information if necessary.
Gather information, ask questions.
Search for opportunities
Follow publication of procurement opportunities in EU and/or national gazettes or data bases.
Obtain a tender documentation and examine it carefully. Pay a special attention on crucial
parts such as qualification and award criteria. Be alert for any vague and ambiguous terms
which at later stages of procurement process could lead to different and/or bias interpretation.
Ask for clarification – if you do not get it or if it is not satisfactory, timely start a review procedure (as you might get precluded after the deadline for submission of tenders).
Contribute to the transparency and fairness of the procedure
Attend the opening of tenders in all cases whenever it is made public. Make notes and compare
it to information you will receive from contracting authority when it notifies you of its choice
(contracting authority is obliged to send you a written award decision together with a statement
of reasons – otherwise you can start a review procedure solely on basis of non being properly
informed). If necessary request a disclosure of procurement files, if not to complain, in order to
achieve information for improved knowledge on how to improve future opportunities.
Be attentive on illegal direct awards
Check national and/or EU gazette for Prior notices of the intention to award a contract in the
negotiated procedure without prior publication and in other cases that allow authorities to
directly award public contracts. If you think that there are reasonable doubts as to the reasons
justifying direct award in a particular case, you can start a review procedure. If it comes to
your attention that particular procurement has not been advertised at all (when it should be)
you may even start a procedure for declaring that contract ineffective. Also, check Contract
Award Notices, which may indicate non justified choice of excepted procedures, upon which a
procedure may lead to contract ineffectiveness.
Be aware of your rights
Even when a procurement process is closed and a public contract is already being executed,
you still have some opportunities to monitor its implementation. Think that contract is being
performed under different terms than originally advertised in procurement documents? Check
it out! Inform the competent supervisory authorities and require that they report their findings.
If necessary ask for disclosure of files under regulations on access to public information. Do not
forget: public procurement is about taxpayer/s money – and you are a taxpayer too!
IPA 2008 twinning light project “Strengthening capacities to remedy irregularities in public procurement procedures”
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IPA 2008 twinning light project “Strengthening capacities to remedy irregularities
in public procurement procedures”
This project is funded by the
EUROPEAN UNION
This publication has been produced with the assistance of the European Union. The contents of this publication are
the sole responsibility of BBG and the Ministry of Economy, Labour and Entrepreneurship and can in no way be taken
to reflect the views of the European Union.

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