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The basics of integrity in procurement A guidebook

Version3,23February2010 KariHeggstad,MonaFrystadandJanIsaksen Chr.MichelsenInstitute CommissionedbyDFID

TABLEOFCONTENTS 1INTRODUCTION 2THEBASICSOFPROCUREMENTANDCORRUPTION DEFINITIONSOFPUBLICPROCUREMENTANDCORRUPTION THEPROCUREMENTCYCLE THEFRAMEWORKFORPROCUREMENT WHYANDHOWDOESCORRUPTIONOCCURINPROCUREMENT? 3RISKSFORCORRUPTIONINPROCUREMENTPROCESSES RISKSFOUNDTHROUGHOUTTHEPROCUREMENTPROCESS TYPICALPRETENDERINGRISKS TYPICALRISKSINTHETENDERINGPROCESS TYPICALRISKSAFTERTHECONTRACTISAWARDED SIGNSOFCORRUPTIONINPROCUREMENT SIGNSOFCORRUPTIONINPROCUREMENT 4MITIGATINGCORRUPTIONINPROCUREMENT MITIGATINGCORRUPTIONTHROUGHOUTTHEPROCUREMENTPROCESS TYPICALPRETENDERINGMITIGATIONSTRATEGIES TYPICALMITIGATONSTRATEGIESINTHETENDERINGPROCESS TYPICALMITIGATIONSTRATEGIESAFTERTHECONTRACTISAWARDED CHECKLISTSUMMARISINGRISKSANDMITIGATIONSTRATEGIES LISTOFWEBRESOURCES REFERENCES 1 3 3 4 6 7 12 12 14 15 15 16 17 18 20 22 24 25 27 33 34

1Introduction
This guide will give an overview of central issues on anticorruption and procurement. Practitionerscanusetheguidetogetabasicunderstandingonhowcorruptionmightoccur inprocurement,whymitigatingcorruptioninprocurementisimportant,wheretherisksare and how to address the risks. Awareness of corruption risks in procurement is important, becausecorruptioncanoccuratanypointintheprocurementcycleandisnotalwayseasy to detect. A large percentage of the total government expenditure passes through governmentprocurementsystems,andtheriskofmismanagementandcorruptionishighif the processes are not structured and managed in a transparent, accountable and professional manner. Extra vigilance is therefore required when assessing the level of corruption risk in procurement. Many country procurement systems are fundamentally sound in terms of their basic organization and procedures. However weaknesses in execution,compliance,monitoring andenforcementarecommonplace.Thisandtheoften high levels of corruption associated with the procurement function contribute to a lack of donor confidence in country procurement systems. Still, development partners are committed to use country systems to the greatest extent possible, through the promises madeintheAccraAgendaforActionin2008andtheParisDeclarationonAidEffectiveness in2005(seeboxbelow).Thiswillpotentiallyexposedonorstoincreasedlevelsoffiduciary riskincludingtheriskfromcorruption.Donoragencystaffneedtoolsandguidancetokeep themalerttothisrisk,helpthemassessthelevelofriskandtobeabletodeviseappropriate safeguardswhichwillallowthemtoworkwithpartnercountrysystemswhileprovidingthe desiredlevelsofprotectionagainstcorruption. This guide aims to give an introduction to the basics of anticorruption thinking in procurement.OrganisationssuchasOECD,TransparencyInternational,theWorldBankand the UN together with researchers and institutions provide anticorruption and integrity advice for procurement officers, and we have gathered the general knowledge and advice fromtheseguidesintooneshortbeginnerguide. Thebasicquestionsansweredintheguideare: Whatisprocurementandcorruption? Whyandhowdoescorruptionoccurinprocurement? Whyisitimportanttopreventcorruptioninprocurement? Whatarethemainrisksatallstagesoftheprocurementprocess? Whatarethemainmitigatingstrategiesatallstagesoftheprocurementprocess? Wherecanyoufindmoreinformation? Chapter2willanswerthetwofirstquestionsraisedaboveprovidingthebasicknowledgeon corruptioninprocurementandwhythisisanimportantissue.Chapter3givesanoverview of the most common risks of fraud and corruption. Chapter 4 follows with examples of strategies for mitigating corruption, and the practitioner is encouraged to be proactive in theirworkagainstcorruption.Therisksandmitigationstrategiesaresummarisedinatable attheendofthereport.

TheParisDeclarationonAidEffectivenessonProcurement Strengthennationalprocurementsystems(2005) Partnercountriesanddonorsjointlycommitto: Use mutually agreed standards and processes to carry out diagnostics, develop sustainable reforms and monitor implementation. Commitsufficientresourcestosupportandsustainmediumand longtermprocurementreformsandcapacitydevelopment. Share feedback at the country level on recommended approachessotheycanbeimprovedovertime. Partner countries commit to take leadership and implement the procurementreformprocess. Donorscommitto: Progressively rely on partner country systems for procurement when the country has implemented mutually agreed standards andprocesses. Adopt harmonised approaches when national systems do not meet mutually agreed levels of performance or donors do not usethem. AccraAgendaforAction(2008) Donors agree to use country systems as the first option for aid programmesinsupportofactivitiesmanagedbythepublicsector. Should donors choose to use another option and rely on aid delivery mechanisms outside country systems (including parallel project implementationunits);theywilltransparentlystatetherationaleforthis andwillreviewtheirpositionsatregularintervals.Whereuseofcountry systems is not feasible, donors will establish additional safeguards and measures in ways that strengthen rather than undermine country systemsandprocedures. Sources: The Paris Declaration on Aid Effectiveness and the Accra AgendaforAction(OECD,2005,2008)

2Thebasicsofprocurementandcorruption
Corruption may arise in any step of the procurement procedure. Corruption can arise throughviolationsofordinaryprocurementrulesorthroughmisuseoflegalauthorizationof discretionary decisions from the rules (Schultz & Sreide, 2006). Many practices have an unclearlegalstatus. Public procurement is particularly vulnerable to corruption due to the high level of funds involved. As an example of how central procurement can be for the national economy Uganda used 70 percent of their total expenditure on procurement in 2006. Globally government expenditure on procurement is estimated to be between 12 and 20 percent (OECD,2006b).Alargepartofhealthandeducationexpenditureisusedforprocurementof goodsandservices;onegeneralestimateisthatbetween20and50percentofgovernment healthexpenditureisspentonprocurementofdrugs(U4,Generaloverview). Public procurement is the main area where the public and the private sector cooperate financially.Furthermore,publicprocurementtendstoinvolverelativelyfew,buthighvalue transactions. Compared to sectors with lowvalue and a high number of transactions the procurementofficersthushavemoretogainoncorruptbehaviour(Wareetal.,2007).

Definitionsofpublicprocurementandcorruption
Publicprocurementreferstoallacquisitionsofgoodsandservicesbypublicinstitutionsina country,andconcernscontractsbetweenthegovernmentandtheprivateinmanydifferent areassuchashealthservices,themilitaryandconstruction.Reliableprocurementpractices willtransformfundsintohospitals,schoolsandroads.Sinceprocurementaccountsforsuch a large part of public resources it is important that the procurement process occurs in an accountable,transparentandwellmanagedmanner. Corruption and inefficient procurement decrease the benefits public resources otherwise could have delivered to citizens, and also lower the level of trust and confidence in governments. Corruption is commonly defined as the (...) abuse of public funds and/or officeforprivateorpoliticalgain.(WorldBank,2009).1Whilethedefinitionofcorruption givenabovereferstointeractionbetweenthepublicandtheprivate,itisimportanttokeep in mind that corruption also occurs among private sector parties. Transparency Internationals definition of corruption the abuse of entrusted power for private gain 2 alsoincludesactionsofprivateactors. Itmaybeusefultodistinguishbetweenadministrativeorbureaucraticcorruption,andhigh levelorpoliticalcorruption. Bureaucratic corruption may be defined as corruption in the public administration. Thistypeofcorruptionisoftenconsideredlowlevel,andcanbeencountereddailyby citizens and firms in contact with public administration, police, customs and so on
Manydifferentdefinitionsofcorruptionexist.ForadiscussionseeThomas&Meagher(2004);Jain(2001); Aidt(2003);Andvigetal.,(2001). 2 TransparencyInternational:http://www.transparency.org/news_room/faq/corruption_faq
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(Andvigetal.,2001).Onemightberequiredtopayafee,afacilitationpayment,in ordertoprocureorspeeduptheprovisionofservices.Onemaybeentitledtothese services,butonemustpayabribeinordertogetholdofthem. Political corruption is considered to be high level, and more serious than petty corruption.Politicalcorruptionoccurswhenpoliticiansatthehighestlevelofpolitical authority are corrupt. They are at liberty to change and implement the laws in the nameofthepeople(Andvigetal.,2001).Politiciansmaybeprovidedillicitfavoursin ordertoforthemtoinfluencetheformulationoflaws,regulationsandpolicies,ina mannerwhichwillgiveadvantagestoaparticulargroup(Thomas&Meagher,2004).

Theprocurementcycle
Theprocurementcycleconsistsofthestepsthataprocurementofficerneedstogothrough in order to fulfil the task of purchase goods or services. The procurement cycle includes several stages. First, one needs to identify what goods or services that are needed by the government.Second,onemustdeterminewhowouldbethebestsupplierofthegoodsor services.Third,onemustensurethatthegoodsorservicesaredeliveredattherighttime, withthepromisedquality,andforthebestprice.Thesethreestagesmustbedoneinafair andopenmanner,competitively,effectivelyandefficiently(WorldBank,2007). Procurementprocessesarecomplexandtheycanbeimplementedindifferentways.Below are twoillustrations. The first figure shows the cycle of procurement where theservice or productcanbeobtainedwithoutatender.Thesecondfigureshowstheprocurementcycle whereseveralsuppliersareaskedtotenderforthecontract. Figure1:Procurementwithoutatenderingprocess

Source:ProcurementGuideforManagers(CPS,2009) The procurement cycle when the purchase is not subject to tender consists of the three main steps described above. This procurement cycle is referred to as noncompetitive as firms do not compete for the contract, but a supplier is rather chosen directly by the procurementofficer.Thistypeofprocurementcycleismostcommonwhenthevalueofthe goods and/or services need is small.3 As an example, Cambodia has a limit of USD 12,500 whencompetitivebiddingbecomesmandatory(ADB/OECD,2006:33),andinothercountries the limit could be lower. In this guide we will however focus on situations when the

Thereareguidelinesforwhennonbidcontractscanbeawarded,seeforinstance: http://www.sru.edu/PAGES/759.asp

purchaseisontender,becausewearguethatwellmanagedcompetitivebiddingisthebest waytocurbcorruptioninprocurement. Figure2:Theprocurementcyclewhenthepurchaseisoutfortender

Source: OECD Principles for Integrity in Public Procurement. Organisation for Economic Co operationandDevelopment(OECD,2009b:52) The procurement cycle when the purchase is on tender consist of three main parts: pre tendering, tendering and postaward. During the pretendering phase the governments needforgoodsand/orservicesisassessed,adecisiononwhattopurchaseismade,anda budget for the planned purchase prepared. Furthermore, the tender documents are prepared with all the necessary requirements defined. During the tender phase a procurement notice is published, the bidding documents are issued and proposals are requested. Then bidders submit a proposal to the procurement officer, which will subsequently be evaluating all the proposals and decide on the award of the contract. Duringthepostawardphasethewinningbiddermustprovidetheprocurementofficerthe agreedgoodsandservicesaccordingtotheconditionsandtimingagreedinthecontract.

Theframeworkforprocurement
Theframeworkforaprocurementprocessisimportantforthelevelofriskforcorruption, and a transparent, accountable and well managed structure will mitigate the risks. The overarchingpictureismadeupoffivemainpoints.First,legislationwhichcoverstheentire procurement cycle and all the involved actors creates the overall framework for how to operate. Second, institutional and administrative infrastructure in the country poses restrictions on how to structure the procurement process. Ideally staff roles should be clearlyseparatedbetweenfinancialandprocurementauthoritiestoensurepropriety.Third, effective review and remedies systems are necessary to detect and correct irregularities. Fourth,independentinternalcontrolsystemsarecrucialtostrengthenintegrityanddetect corruption or fraud. Fifth, external audit and oversight offers the last independent check donebyasupremeauditinstitution.

Figure3:Frameworkforprocurement

Legislation

Institutionalandadministrativeinfrastructure Review andremediessystems

Externalauditand oversight

Independentinternal controlsystems

Source:FigurecreatedbytheauthorsbasedontheOECDToolboxforenhancingintegrityin procurementdraftversion2009 The five elements presented above create the general framework for a procurement process.Inmanycountriestherealsituationisthattheprocurementofficerhastooperate withinaframeworkwhererisksofcorruptionareheightenedbecauseofweaknessesinthe general framework of the country, and/or the sector/organisation the officer is working within.Examplesofweaknessescanbeinadequatelegislationorweakexecutionofexisting lawsandcorruptauditingofficers.

Whyandhowdoescorruptionoccurinprocurement?
Corruptionisanoutcomeareflectionofcountryslegal,economic,culturaland politicalinstitutions Source:Svensson,2005:20 Whatarethecausesandincentivesforengagingincorruption?:4 Causesofcorruptioncanbedividedintotwomaingroups:structuralcausesandindividual causes. Structural causes refer to the political system, history, culture and other systemic factorswhichcaninfluencethelevelofcorruption.Theindividualisticcausesarerelatedto theindividualsdecisiontoengageincorruptactions. Aprocurementofficerschoicetoengageincorruptionwilldependon: Authority: The procurement officer must have authority to deal with rules and regulationsinadiscretionarymanner Capability:Thepowerthatauthorityprovidesmustgivetheprocurementofficerthe capabilitytoextractvalue Incentives: S/he must have incentives to exploit the power that comes with the position.Theincentiveforaprocurementofficertotakepartincorruptiondepends on: o Thevalueofpossiblebenefits o Professional integrity: how a procurement officers attitude and behaviour coincideswiththegoalsoftheinstitutions/herepresents o The actual need of the procurement officer: In developing countries the salariesofordinaryofficialsarelow,andnecessitycanexplainwhycorruption occurs.However,humangreedmayalsoexplainwhycorruptionoccurs o Lackofmonitoring,supervisionandsanctionsislikelytoincreaseengagement incorruptactivities.Iftheinstitutionsinacountryareweak,thechancesof being caught in corruption tend to be low, and even if caught, the procurementofficermaybeabletobribehis/herwayout.Thus,thecostof beingcorruptislowwhentheinstitutionsareweakandthereforecorruption ismorelikelytooccur Thesuppliersofbribes,oftencompanies,incentivestotakepartincorruptionareinfluenced bythecompetitiveenvironmenttheyoperatewithin.Toprepareforatenderisbothtime consuming and costly, and to offer a bribe may be seen as a shortcut to be awarded a contract. A Norwegian business survey studied the different motivations for firms to offer bribes,andshowedthatthemostimportantmotivationwastheriskofhavingcompetitors who offer bribes (Sreide, 2006). The risks of sanctions if caught taking part in corrupt actions,willhaveadampeningeffectonincentivesforcorruption.

Thissectionisbasedonthefollowingpapers:Andvig&Moene(1990);Aidt(2003);Schultz&Sreide(2006: 10);Thomas&Meagher(2004).

Howdoescorruptionoccurinprocurement? Briberyisfrequentlyseenasthemostcommontypeofcorruption,andcanbedefinedasan offer of money, goods or services in order to gain an advantage. Bribes can influence the governments choice of suppliers of goods and services. This can distort the allocation of resources and talents. Bribes can be used to avoid red tape and thereby speed up governments granting of different kinds of permissions. Bribes can influence outcomes of legal and regulatory processes, as well as influence the allocation of benefits such as pensions,subsidiesandtaxes. The choice of offering bribes is closely linked to risk. There is a risk of being detected in bribery, and the punishment can be severe. Since bribing is an illegal agreement, the benefits to be gained are uncertain. The briber is vulnerable to deviations from the agreement because such agreements can generally not be enforced in courts due to their illegality. Further, the offer of one bribe may lead to demand for more bribes, and thus creating uncertainty whether the briber will ever get what s/he wanted in the first place (Sreide, 2009). However, being honest also entails risk and uncertainty. If the business environmentisperceivedashavingwidespreadcorruption,beinghonestmayleadfirmsto fear losing contracts because their competitors are perceived to offer bribes to procure contracts(Sreide,2006). Extortionmayentailtocauseharmortothreatenapersoninordertoobtainsomething. Embezzlementistheillegalappropriationofpropertyormoneyentrustedtosomeone,but ownedbyothers(Andvigetal.,2001). Nepotismistofavourrelativeswhengrantingjobsorbenefits(Andvigetal.,2001). Patronage systems: Patronage takes place when local public office holders grant favours, jobs and contracts in return for political support. Such systems tend to disregard formal rules,andinsteadgiveimportancetopersonalchannels(Andvigetal.,2001). Fraudinvolvessomekindofdeceitandmanipulationordistortionofinformation,byapublic officer,withtheintentionto seekpersonalgain.Fraudis aneconomiccrimewhichcovers morethanbriberyandembezzlement.AsAndvigetal.states:Itisfraudwhenpoliticians andstateagentstakeashareforclosingtheireyesoneconomiccrimes,anditisserious fraud when they have an active role in it. (Andvig et al., 2001:9). In procurement corruption fraud often takes the form of failure to meet contract specifications, or false, inflatedorduplicatedinvoices(U4redflagtool).

Casestudy:NigeriaCrackingdownkillerdrugs Fraudoftheworstkindandthecomplexityofstoppingthecrime One of the major risks with corruption in the health sector is fake drugs, since the consequencesofsuchpracticearefatal.Sickpeoplearegiventhewrongmedicine,drug resistance is developed, and confidence in the healthcare system is eroded. Fake and substandard drugs began to dominate the pharmaceutical market in Nigeria in the 1980s. Up until 2001 most Nigerian consumers were unaware of the danger that counterfeitdrugsrepresent,whileover41percentofdrugswerefakeorcounterfeitat that time. This unawareness made it easy for fake drug dealers to continue their business.TheNationalAgencyforFoodandDrugAdministrationandControl(NAFDAC) becametheforefrontinNigerianeffortstofightkillerdrugswhenDr.DoraAkunyilitook overasdirectorgeneralin2001.In2004NAFDACdocumentedan80percentreduction intheoccurrenceoffakedrugsinthemarket. Learning points from the Nigerian case has been that the most important elements to curbfraudinprocurementofmedicinesarethefollowing: Theremustbepoliticalwillandleadershipinorderforapositivechangetotake place Civil society awareness raising is important because it creates a demand for unethicaldrugsellerstochangetheirbehaviour.NAFDAChadcampaignsaiming at raising public awareness about the dangers counterfeit drugs, and to encouragereportingonsuspiciousdrugs Training of staff and to make them more accountable through transparent procedures is vital to increase the efficiency and effectiveness of work effort aimed at reducing the fraud. NAFDAC staff were trained and offered better working conditions, while some were let go due to allegations concerning the integrityofsuchofficers Increasedmonitoringofmedicinesbroughtintothecountryaswellaschecksof shops selling medicinemade executing the crime more difficult. The number of inspectors was increased, and the controls were more effective. NAFDAC was involvedinraidingwarehouses,shops,manufacturersinordertogetholdoffake drugs Theremustbealegalframeworkinplacesothatthatprosecutingunethicaldrug sellersispossibleandcredible.Thiswillgivedrugsellersanincentivetostayon therightsideofthelaw Protectionofwhistleblowersisavitalnecessity.Twoassassinationattempts weremadeonDr.Akunyili,andshereceivedseveraldeaththreats.Other NAFDACemployeeswerephysicallyabused,whileNAFDACbuildingswere burneddown Sources:(Akunyili2008;Cohenetal.,2007;WHO,2006)

Bidrigging5 Big rigging takes places when companies conspire to fix the price for goods and services, purchased through a bidding process, to an artificially high level. One can distinguish between bid rigging where a public procurement officer take part in the bid rigging and situations where only companies take part in corruption. The additional funds obtained throughtheinflatedcontractedpricetendtobedistributedamongsttheconspirators. Bidriggingcomprisingofficialprocurementofficers 1. Excludingqualifiedbidders Qualifiedbidderscanbeinappropriatelydisqualifiedinordertopromoteafavouredbidder. Thismayentaillimitedpublicationofrequestsforbids,unreasonablylimitedtimeallowedto respond to requests for bids, unreasonably narrow contract specification or intimidating behaviourinordertodiscouragepotentialbiddersfromtakingpartinthebiddingprocess. 2. Manipulationofbids Theprocurementofficercantamperwithbidsaftersubmissioninordertoensurethatapre designatedfirmiswinningthebid.Thiscaninvolvemakingchangestopartsofbidsorbids scores,orlosingbids. 3. Riggedspecifications The procurement officer can modify the criteria in the requests for proposals to fit a particularcompany. 4. Unbalancedbidding The procurement officer provides the favoured firm relevant information which is not shared with other participants in the bidding process. This information gives the favoured firmacompetitiveadvantageintailoringitsbidandthusincreasingitslikelihoodofwinning thecontract. 5. Unjustifiednobidawards Impropernobidcontractsisacommonmeanofavoidingcompetition,andcanbesetupby a) falsifying documentation needed for justification for issuing nobid contracts, or b) by ignoringtherequirementfornobidcontracts,orc)bysplittinguppurchasesinordertostay belowthecompetitivebiddinglimits. Caseexample:ConstructionsectorinGermany BidriggingwasrevealedinatrialinGermanyin2004.Briberywasdisclosedinatender for a contract concerning construction of waste processing facilities. One of the construction firms participating in the tender, LCS Steinmller, bribed a civil servant to get hold of information about the other proposals submitted in the tender. LCS Steinmller won the tender after having used this information to revise its original proposal Source:GlobalCorruptionReport2005(TransparencyInternational,2005a)
Thissectionisbasedonthefollowingdocuments:OECD,(yearnotstated),andtheU4redflagtool: http://www.u4.no/themes/corruptionaid/redflagtool/AAA%20Start.cfm
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Collusivebiddingbycontractors Whencontractorscooperateinordertocoordinatemarkets,pricesandproductionwiththe aimtoincreasetheirownprofitsbyreducingcompetition,thiscanbedefinedacartel. 1. Complementarybidding Complementary bidding, also called cover bidding, occurs when competitors agree in advancewhowillsubmitthewinningbid.Suchbiddinginvolveoneormoreofthefollowing: Aparticipantinthebiddingprocessagreestoputforwardabidthatishigherthan thebidofthedesignatedbidder A participant in the bidding process offer a bid that is known to be too high to be accepted A participant submits a bid that contains special conditions that are known to be undesirabletothepurchaser 2. Bidsuppression Bidsuppressionoccurswhereoneormoreofthecompetitorsagreetorefrainfrombidding sothatoneofthecompetitors,thedesignatedwinner,canwinthecontract. 3. Bidrotation Bidrotationoccurswhencompetitorstaketurnsbeingthesuccessfulbidder. 4. Marketdivision The conspirers may carve up markets in different segments, and agree not to compete in eachotherssegments. Theimportanceofhinderingcorruption Corruption in public procurement is an important obstacle to development. As Sreide (2002:1)states:Corruptioninpublicprocurementmakestheofficialsorthepoliticiansin chargepurchasegoodsorservicesfromthebestbriber,insteadofchoosingthebestprice qualitycombination. For instance, the firm responsible for building a new school may not offer the best price qualitycombination,butisratherthebestbriberofgovernmentofficials.Theoutcomemay beamoreexpensiveschoolwithalowerqualitythatwouldotherwisehavebeenthecase (Tanzi & Davoodi, 1997). The misallocation of resources reduces the funds available for socialservices,andcorruptionisinthiswayaffectingthepoor. Corruptioncanlowertheprofitabilityofdoinglegalbusiness,andthusgiveincentivestogo overtocorruptactivities(Andvig&Moene,1990).Anemphasisisoftenputontheadverse welfare effects of corruption; rather than being oil in the machinery corruption fuels the growth of excessive and discretionary regulations (RoseAckerman, 1999). Corruption can leadtoadisregardoflawsandprocedure,andalowerleveloftrustandconfidenceinthe government. Politicians may be seen as motivated by bribes only, and creating rules only intended to generate rents. Public spending decisions can be seen as influenced by corruptionwhenfundsareallocatedtosectorswheretheopportunitiestogeneratebribes arehigh,suchastheconstructionsector,whileothersectors,suchastheeducationsector, areneglected(Tanzi&Davoodi,1997).

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3Risksforcorruptioninprocurementprocesses
Thischapterwillillustratewhereintheprocurementprocessthevariousrisksofcorruption lie and will point out the different types of risks met pre, during and post award of the contract. Corruption might take place in any stage of the procurement cycle, and it is thereforevitaltobeawareoftherisksfromtheverybeginning.

Risksfoundthroughouttheprocurementprocess
Procurementcorruptioncantakemanyforms,andsomecanbefoundthroughoutthewhole procurement cycle. Risks for corruption are often linked to lack of transparency. Lack of transparencycanleadtoinconsistentdistributionofinformationtobidders,unclearreasons for the choice of procurement procedure, unjustified use of non competitive procedure, and unclear evaluation criteria. Another problem is that procurement officers may not be adequately trained and thus lack necessary professionalism. This can lead to planning, budgeting and risk management below standard. Furthermore, insufficient accountability andcontrolmechanismsmaytranslateintomismanagement.Itmightbeunclearwhatthe procurementofficerisaccountablefor,orthesupervisionoverfirmsperformancesmaybe unsatisfactory(OECD,2007:26). Itisimportanttodistinguishbetweenlackofcapacityorinefficiencyandcorruptpractices. An undesired result may originate from either of the three and it is vital to consider the reasons why a poor result came about. What might be perceived as a corrupt act might actuallybeanhonestmistake,andviceversa(TransparencyInternational,2006).

Whatinfluencestheopportunitiesforcorruption?
Size of the contract: Bribes tend to be calculated as percentages of the total contract amount.Thus,themoremoneyinvolvedthehigherpotentialkickback(Sreide,2002). Complexityoftechnology:Withhighleveltechnologyinvolvedinacontract,ittendstobe moredifficulttoevaluatewhetherthepricepaidforagoodisrealisticornot.Theremaynot be many people who can say whether a particular aircraft should cost $25 million rather than$30million(Sreide,2002;MoodyStuart,1997). Type of sector involved: There are some sectors that are more prone to corruption than othersectors.TransparencyInternationalsBribepayersindex6hasarankingwhichshows thelikelihoodoffirmsindifferentsectorstobribepublicofficials.

http://www.transparency.org/policy_research/surveys_indices/bpi

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ThesearethetensectorsmostvulnerabletocorruptionaccordingtoTI: 1. Publicworks,contracts&construction 2. Realestate&propertydevelopment 3. Oil&gas 4. Heavymanufacturing 5. Mining 6. Pharmaceutical&medicalcare 7. Utilities 8. Civilianaerospace 9. Powergeneration&transmission 10. Forestry (TransparencyInternational,2008) Discretion: The more a procurement officer can influence demand and preferences, the easieritistotakepartincorruption. Lackoffinancialcontrols:Withweaksystemsofoversightandenforcement,thechancesof beingcaughtincorruptactsaresmaller,andmaythereforeleadtoahigherlevelof corruption(UNDP,2004). Restricted access to information: When there is poor transparency concerning executive decisions,andespeciallycombinedwiththelackofpublicdemandforinformation,thiscan haveaboostingeffectonthecorruptionlevel(UNDP,2004). FundingSchemes:Promotionoffundingschemessuchasdirectbudgetsupportandsector wide approaches may increase the opportunities to take part in corruption due to fewer possibilitiesforfinancialcontrol(Plummer&Cross,2007). Immediacy:Themoreurgentitistocompleteacontract,themoreopportunitiesthereare toinflatethepriceofthecontract(Schultz&Sreide,2006). Soft social control: The acceptance for corruptionlike practices differs between countries (Lambsdorff,2001). Conflict of interest: The risk of corruption increases when public duties and the private interest of an involved actor are conflicting, because there is a chance that the public positionmightbeexploitedtotheadvantageoftheprivateinterests(OECD2005a).

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Typicalpretenderingrisks7
Four main steps comprise the pretendering phase: needs assessment, planning and budgeting, definition of requirements and choice of procedure. Below the main risks of corruptionineachstepwillbereflectedupon. Needsassessment Needs assessment is insufficient due to shortage of time or lack of capacity or competenceoftheprocurementofficer. Purchaseisunnecessary,anddemandisonlyinducedsothatacertainfirmcanprofit, butthegoodsorservicespurchasedareoflittlevaluetothepublic Politicalanddiplomaticpressurecaninfluencetheprocurementcycle Planningandbudgeting Needs assessment, planning and budgeting of purchases are insufficient and/or unrealistic Goodsandservicesprocuredarenotinlinewiththeoverallinvestmentplanofthe government Definitionofrequirements Bidding documents or terms of reference are tailored for one company, so that competitioniseithernotpossibleorrestricted Biddingdocumentsortermsofreferenceareunnecessarilycomplexinordertohide corruptactionsandtomakemonitoringcomplicated Unclearselectionandawardcriteriathatarenotobjectivelydefined Selectionandawardcriteriaarenotestablishedinadvance Shortlisting/prequalification:thereisariskthatfirmsisshortlistedduetoanoffer ofbribes,andnotduetoqualificationsandexperience There is a risk that firms provide falsified quality assurance certificates, which can have the consequence that unqualified firms will be allowed to take part in the biddingcompetition Choiceofprocedure Lack of justification/ignorance of requirements for the use of noncompetitive procedures Misuseofnoncompetitiveproceduresbasedonlegalexceptionsthrough: o Splittingofcontractinordernottoexceedthecompetitivebiddinglimit o Exaggeratedemergency o Untestedprolongationofexistingprojects Thetimeframeisnotconsistentlyappliedforallbidders Relevantinformationisnotsharedconsistentlytoallbidders

Thesectionsonrisksinpretendering,tenderingandposttenderingphasesarebasedonthefollowing documents:OECD(2008:2845);OECD(2007:2127);Schultz&Sreide(2006:1519);Sreide(2002:1419); TransparencyInternational(2006:1723)

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Restrictionsintime:thepubliccallforbidsmaybepublishedgivingverylimitedtime toresponse.Thiswillallowonlypreinformedfirmstohavetimetopreparetender documents.

Typicalrisksinthetenderingprocess
Invitationtotender Lackofpublicnoticeforthebidinvitation Thecriteriaforselectingthewinnerarenotmadepublic Lackofcompetitionleadingtoanexcessiveprice Collusive bidding: competitors conspire to fix the price of the purchase to an artificiallyhighlevel Misuse of confidential information: firms may offer bribes in order to gain information about the relative importance of different elements in the tender, or concerningcompetitorsbids Evaluation Decisionmakersarebiasedduetocorruptionintheevaluationprocess Unclear definitions of the selection criteria makes choosing the winning company subjective Misuse of confidential information: a firm may offer bribes in order to gain informationabouttherelativeimportanceofdifferentelementsinthetenderduring theevaluationofbids,orconcerningcompetitorsbids.Thisinformationmaygivethe firmanadvantageintheevaluationprocess Award Decisionmakersarebiasedduetocorruptionintheawardprocess Lackofaccesstotherecordsoftheawardprocedure

Typicalrisksafterthecontractisawarded
ContractManagement The winning contractor may compensate bribes with a poorer quality, higher price and different specifications than what which were stated in the contract. This can occurinseveralways: o The contract conditions may be considerably modified in order to permit moretimeand/orhigherpricesforthecontractor o Theproductsorservicesagreeduponinthecontractmaybesubstitutedwith substandardproductsorservices. o Newassetsmaybestolenbeforedeliveryorbeforebeingrecordedinanasset register Poor supervision from public officials, leading to the substandard of goods and servicenotbeingdetected Collusionbetweencorruptcompanyandcorruptsupervisingofficial,leadingtoprice increases,oftenthroughchangesinspecificationsorcostincreases Subcontractors are not selected in a transparent manner and not kept accountable fortheirwork

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Orderandpayment Claimsforgoodsandservicesnotsuppliedarefiled Corruptsupervisorsarewillingtojustifyfalseclaims Lack of separation of financial duties and supervision increases the possibility for falseaccounting,costmisallocationsandfalseinvoicing. Renegotiation of contract is allowed, and substantial changes to the contract are introduced Caseexample:TheeducationsectorinSierraLeone APublicExpenditureTrackingSurvey(PETS)wasconductedontheeducationsectorin Moyamba district in Sierra Leone in 2005. The PETS revealed that almost half of the schoolfeessubsidiesthatyearwereunaccountedfor.Furthermore,overaquarterof the materials had disappeared. An independent auditing company took over the management of the disbursement, and the delivery of fee subsidies and material improvedsignificantly. Source: Stealing the Future: Corruption in the classroom, (Transparency International, 2005b).

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Signsofcorruptioninprocurement
Belowisatablewithanoverviewoverthemostcommonsigns,orredflagsofcorruption. ThistableisbasedcloselyonU4sredflagtool8. Redflagsofcorruption Relatedcorruptionschemes
Pretenderingredflags Purchaseofunnecessaryorinappropriateitems Manipulationofprocurementthresholdstoavoid priorreview Inadequateevaluationcriteriaorprocedures Unreasonableprequalificationrequirements Ambiguous,incompleteormisleadingcontract specifications Contractspecificationsaretoonarrowortoobroad Tenderingredflags Failuretomakebiddingdocumentsavailable Shortorinadequatenoticetobidders Unusualbiddingpatterns Apparentconnectionsbetweenbidders Biddernotlistedinbusinessortelephonedirectories Multiplecontractawardstothesamecompany Qualifiedcompaniesfailtobid Rotationofwinningbidders Unreasonablyhighbids Unreasonablylowbids Nontransparentbidopeningprocedures Awardtootherthanthelowestqualifiedbidder Disqualificationsthatarepoorlysupported Pressuretoselectacertaincontractorsubcontractor oragent Winningbidisveryclosetobudgetorestimate Longunexplaineddelaysincontractawardor negotiations Postawardredflags Useofquestionableagentsorsubcontractors Complaintsregardingpoorqualitygoods,worksor services Continuedacceptanceofpoorqualitygoods,worksor Deliveryofpoorqualitygoods,worksorservices Questionablecontractamendments(changeorders) Questionableinvoices Paymentofunjustifiedhighprices Absentorquestionabledocumentation
8

Pretenderingcorruptionschemes Corruption Unjustifiednobidawards Manipulation of bids, Excluding qualified bidders,corruption Excludingqualifiedbidders Unbalancedbidding,corruption Rigged specifications, excluding qualified bidders,corruption Tenderingcorruptionschemes Excludingqualifiedbidders,corruption Excludingqualifiedbidders,corruption Collusivebidding Collusivebidding Collusivebidding Corruption Excludingqualifiedbidders,collusivebidding Collusivebidding Collusivebidding Unbalancedbidding,corruption Manipulation of bids, excluding qualified bidders,corruption Manipulationofbids,corruption Excludingqualifiedbidders,corruption Corruption Unbalancedbidding,corruption Manipulationofbids,corruption Postawardschemes Corruption Failuretomeetcontractspecification Corruption Failuretomeetcontractspecification Changes in contract to increase price, corruption False inflated or duplicated invoices, corruption False inflated or duplicated invoices, corruption Falseinflatedorduplicatedinvoices

http://www.u4.no/themes/corruptionaid/redflagtool/AAA%20Start.cfm

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4Mitigatingcorruptioninprocurement
Beproactive.Dontwaituntilyouhaveaproblem Source:PWHC,2009:32 Thefirststepistorecognisethatthereisariskofcorruptioninallprocurementprocesses. How should corruption in procurement be curbed? The answer lays partly in competitive bidding.Thisiswhymostguidebooksandrecommendationsfocusondescriptionsonhowto create a good procurement system that ensure fair competition and fair value for money. Competitive bidding does not in itself stop corruption although some risks are lowered. Mitigation strategies have to be applied at all stages of the procurement process and legislative framework may influence the strength of the procurement officers anti corruptionwork.Thelegislativeframework,toolsformitigatingcorruptioninprocurement andexamplesofmitigationstrategiesthroughouttheprocessisoutlinedinthischapter. AstudyevaluatingtheWorldBankssupporttopublicsectorreformmayshedsomelighton how corruption could be curbed. The study compares the World Bank practice with latest available research and analysis about anticorruption and transparency. The main findings suggest that (...) corruption can best be tackled when political reform and regulatory restructuring are complemented by a systematic effort to inform the citizens about their rightsandentitlementsandincreasetheircapacitytomonitorandchallengeabusesofthe system. (Fjeldstad & Isaksen 2008:xi). Furthermore, it is vital to understand corruption in the context in which it can be found. Countries and cultures differ and efforts to curb corruptionmightworkinonecountrybutnotintheother. Theimportanceofthelegislativeframework Inadditiontocreatingaprofessionalbiddingprocessthegeneralpoliticalenvironmenthas animpactonthelikelihoodforananticorruptionefforttobeefficient.Theleadershipina countrymustbewillingtofightcorruption.Ifgrandcorruptionatthehighestlevelpersists, research has shown that it is almost impossible to end pettier forms of corruption in the bureaucracy (U4, 2009). The legislative framework in a country should ideally cover all aspects of the procurement cycle and all actors involved. In country settings where the governmentisactivelyreformingtheirlegislationtoprovidebettersecurityinprocurement processes legislative recommendations and model provisions developed by international organisationscouldbeagoodstartingpoint.AsanexampleUnitedNationsCommissionon International Trade Law (UNICITRAL) has created a model law for privately financed infrastructureprojects.9

http://www.uncitral.org/uncitral/en/uncitral_texts/procurement_infrastructure/2003Model_PFIP.html (AccessedJanuary2010)

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Caseexample:Bangladesh In2003Bangladeshreformedtheirlegalandinstitutionalframeworkforprocurement. The new regulations were based on the UNICITRAL Model Law on Procurement of Goods, Construction and Services. When the ADB/OECD AntiCorruption Initiative for Asia and the Pacific mapped the progress and challenges for Asia and the Pacific in 2006theypointedoutthatboththemodellawandtheadaptionofthelawdoneby Bangladeshhadsomeimportantgaps.Neitheroftheversionscoverstheinitialphases of the procurement cycle such as the needs assessment and the project implementation. Thus, some of the areas that are most prone to corruption are not protectedbytheoveralllegislativeframework.Asanexample,thelawwillnotgiveany particularsafeguardagainstcommonriskslikethecreationoffalseneedsordeliveryof substandardwork,goodsorservices.Thisexampleshowsthatamodellawcanbea goodstartingpointforreform,butthatitisimportanttoensurethatallpartsofthe procurementareincluded. Source:ADB/OECDAntiCorruptionInitiativeforAsiaandthePacific(2006:31) Maintoolsforpractitionersworkingwithintegrityinprocurement The box to the right shows various tools often used to check for and avoid misconduct and Available tools for mitigating fraud. Checklists and red flag tools are two corruption in procurement: examples. For the tools to be efficient it is Checklists important for the officers to understand the Red flag guides background for how and why corruption in Electronic procurement procurementcanhappenasoutlinedinchapter Guidebooks 2andtherisksinvolvedatthevariousstagesas Local advisors and consultants outlined in chapter 3. Three of the tools are Online interactive tools explained more in detail below and the other Document archive toolslistedintheboxwillbereferredtolaterin Templates thechapter. Training for staff skill development Checklists and red flag guides give the practitioneranoverviewofpotentialrisks,and Source: The model is developed by theoverviewcanbeusefultodetectfraudulent the authors behaviour or corruption. The use of red flag tools should however be done with caution, because the lists often are so extensive that all processes whether corrupt or not could potentiallyraiseafewredflags.Thus,thepractitionerhastocombinethesetoolswithother methodstobeabletogetanadequateoverviewofthelegitimacyoftheprojectactivity.As an example a red flag for corruption would come up if the quality of the work was lower than agreed. Asian Development Bank experienced that substandard material was used underanemergencyfloodrehabilitationprojectinTajikistan.Aftercloserexaminationthe evaluationfoundthattheuseofsubstandardmaterialwasrelatedtostretchingofbudgets andincreasingoutputs,andcorruptionseemedthereforenottohavebeenthecauseofthe

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quality change (ADB, 2007). In short, red flags are a warning of a potential risk and not a certainsignofcorruption. Electronic auctioning can be used to identify the best price possible through an online competition. The method is suited for homogenous products where the award decision is likelytobedecidedonthebasisoftheprice.Transparencycanbeimprovedandtheprocess is more time efficient than paper based systems. However, an initial investment to set up thetechnologicalframeworkandasupportinglegalenvironmentwouldberequired(OECD, 2007:74).

Mitigatingcorruptionthroughouttheprocurementprocess
Themodelbelowshowsfourofthebasicsofasoundprocurementprocess,andtheriskof corruptionislowerediftheyareapplied.

Procurementprocess
Transparency Good management Preventionof misconduct, complianceand monitoring Accountability andcontrol

Source:ThefigureisbasedonOECDsfourpillarsofintegrity OECD has set out four pillars thatcan guide the mitigation measures used throughout the procurement process. These are 1) transparency, 2) good management, 3) prevention of misconduct, compliance and monitoring and 4) accountability and control (OECD, 2009a). Concreteworkbasedonthefourpointscanvarywidelyandthereisnosetrecipeonwhat todowhenandhow.However,organisationssuchasOECD,TransparencyInternational,UN, the World Bank and U4 have gathered knowledge from experience with anticorruption work in procurement processes, and practical advice from their experience of mitigating corruptionriskisincludedinthefollowingpartofthechapter. Transparency Transparency International has created minimum standards for public contracting in a procurementprocess.Theseguidelinescanbeusefulasapointofreference.Acentralrule ofthumbistoensureeasyaccesstoinformationforallinterestedpartiesthroughoutallthe stagesoftheprocess.

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Examplesofthestagesofprocurementwheretransparencyisimportant: a. Activitiescarriedoutpriortoinitiatingthecontractingprocess b. Tenderopportunities c. Selectioncriteria d. Theevaluationprocess e. Theawarddecisionanditsjustification f. Thetermsandconditionsofthecontractsandallitsamendments g. Theimplementationofthecontract h. Theroleofintermediariesandagents i. Disputeandsettlementmechanismsandprocedures Confidentiality should be limited to legally protected information (Transparency International, 2005). At the same time confidential information should be treated respectfullyandaccordingtogivenroutines(U4,2009). TIsminimumstandardsforpublicprocurement 1. Codeofconductdefiningstrictanticorruptionpolicies 2. Consultblacklists 3. Projectintegritypact 4. Open,competitivebidding 5. Easyaccesstoinformation 6. Clearrestrictiononcommunicationbetweenbidderandcontractor 7. Sufficienttimeforbidderstoprepareandcomplain 8. Monitoringfromahighlevelintheorganisation 9. Independentauditingbodies 10. Keyfunctionsareseparate 11. Standardofficesafeguardsareapplied 12. Independentmonitorsparticipate Source:(TransparencyInternational,2005) Codes of conduct, integrity pacts and rules of disqualification make it easier for public officialstorenouncecorruption. Codesofconductareacompulsorypartofanyprocuringinstitution Source:U4,2009 The challenge is not to create the integrity guidelines, but the integration of the written documentintoallformsofactivity. Professionalism Transparencyisanecessarybutnotasufficientconditiontoensureintegritythroughoutthe process.Theprofessionalismoftheprocurementofficersisessentialforgoodmanagement and prevention of misconduct, compliance and monitoring. As an example, technical expertise among the officials is important to enable internal evaluations. Training of staff

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and the recognition of procurement as a profession are two methods of raising the commitment for and knowledge about good practice and integrity in procurement (OECD, 2007:5373).Ageneralrecommendationistocreateanindependentprocurementunitwith professionalofficials. Accountability Independentinternalcontrolsystemsandexternalauditandoversightareideallyapartof theframeworkofprocurement.Thesemechanismsallowtheopennessoftheprocessand thattheinvolvedpartiesareheldaccountablefortheiractionsthroughoutthecycle(OECD, 2007:89120).Recordkeepingthroughouttheprocessisessentialtoallowinspectionofthe rationale behind all decisions, and a document archive is an important tool together with standardised templates and forms. By standardising both archive and reporting accountabilityandtransparencyareenhanced,becauseaccesstoinformationismadeless complicated. Standardisation makes the officer able to compare information from other processeswiththecurrentprocessinareliablemanner,becausetheavailableinformationis ofsamecharacterandstructuredsimilarly.

Typicalpretenderingmitigationstrategies
Needsassessment Thefirstrecommendedtaskbeforetheprocurementprocessbeginsistodoamappingof thecountrysetting,sectorandmarketconditions.Theavailableinformationandhowthe knowledge is handled will have an impact on how well informed choices the officer does from the start. Badly informed decisions might raise the risk for corruption. The data gathering is potentially a time consuming tasks. A method to make the process more efficient is to create a) databases with vendors that have been contracted before; b) databasesidentifyingactorsthatshouldbeexcludedfrompublicprocurementcontractsfor various reasons; c) databases showing past performance of actors that have already been contracted in public procurement; d) electronic procurement system that systematise the data and bids for easy dissemination (OECD, 2007:6768). An example of centralised informationdatabasesistheUnitedStatesAcquisitionCentral.10 A tool to structure the mapping of the national procurement system in the country of operation is the OECD/DAC Procurement Joint Venture guidebook at Methodology for Assessing Procurement Systems (MAPS).11 If you are entering the country and the wider political context is unknown, a mapping of the political context can be recommended to understand more about appropriate methods of mitigating risk of corruption within the specificcountrysetting.OverseasDevelopmentInstitute(ODI)hasmadetheguideMapping PoliticalContext.AToolkitforCivilSocietyOrganisationsthatwillgiveagoodoverviewof wheretostartandhowtoproceed(Nashetal.,2006)12 Regardless of which databases and data storage facilities that are available in a certain setting, some kind of standardised structure of the data for award decisions is recommended. In case of a review of the process, standardised reporting formats ensures
10 11

http://www.acquisition.gov http://www.oecd.org/dataoecd/1/36/37390076.pdf 12 http://www.odi.org.uk/resources/download/152.pdf

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that it is easier to document on what basis the award decision was made. A standardised template for market studies and a standardised checklist for suppliers would make the processmorestreamlinedandeasiertoreviewafterwards. Planningandbudgeting Usethedatafromthemappingexercisetoensurethattheplanningandbudgetingof purchasesaresufficientandrealistic Usethedatafromthemappingofthecountrysettingtoensurethatthegoodsand servicesprocuredareinlinewiththeoverallinvestmentplanofthegovernment Definitionofrequirements Create clear and simple rules to visualise what an honest system is expected to produce Simplify the goods procured as much as possible to avoid grey areas of price and quality that can arise in discussions of custom made or state of the arts products. Benchmarkingmadeonthebasisofprivatemarketpricesandqualityrequirements inspiredbyofftheshelfitemsmakeitpossibletocreateassessablerequirementsfor thetender(U4,2009) Give civil society representatives an overview of the public officials areas of responsibilityanddegreesofdiscretionaryauthority Maintainoradoptablacklisttoguidedebarmentdecisions Ensure thata code of conduct is implemented for the contracting authority and its employees(TransparencyInternational,2006) The procurement procedures should include rules for exceptional cases. Central termssuchasemergency,exceptionalandimmediacyshouldbeclearlydefined. Identification of all persons, including middlemen and agents, involved in a tender shouldbeincludedinthetenderinformation Thecompaniesshouldbeencouragedtocertifythattheycomplywithallantibribery lawsandthereshouldbedirectrequirementsofanticorruptioncommitmentssuchas codesofconduct Conflict of interests should be registered and managed. The OECD guide (2005b) ManagingConflictofInterestinthePublicSectorAToolkitgivesgoodstarthelp forpractitionersneedingmorecomprehensiveguidance Choiceofprocedure A competitive process will reduce the chance of corruption in awards of contracts. Clear rules for the process and mechanisms to ensure professionalism, transparency and accountability are crucial for the procedure to be a method to avoid corruption in procurement. A generally acknowledged description of a competitive bidding process is summarised on the U4 website (www.u4.no/themes/procurement/mitigating strategies.cfm)assitedbelow: Mainelementsinacompetitivebiddingprocess Publicnotificationofbiddingopportunities Documentsthatclearlysetouttheneeds,describethebiddingprocessandcontract termsandconditions,andgivethecriteriaforchoosingthewinner

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Submissionofsecretsealedbidsthatareopenedinthepresenceofthebiddersata specifiedtimeandplace Impartial evaluation and comparison of bids by competent evaluators without influenceorinterferencebybiddersorotherparties Awardofthecontracttothebiddercomplyingwithallrequirementsandofferingthe bestbid,asdefinedbythepublishedselectioncriteria Source:U4Procurementwebpage(U4,2009) Adefinitiononwhatisrequiredforabiddingprocesstobecompetitiveandsuccessfulisalso necessaryinadditiontotheelementsabove.AsanexampleIndonesianregulationdeemthe processasfailediftherearelessthanthreebidders;ifnoresponsivebidissubmitted;orif thelowestbidexceedstheavailablebudget(ADBandOECD,2006). Duringtheplanningphasethedecisionhastobemadeonwhichprocurementsystemthat shall be used. According to the Paris Declaration and the Accra agreement the country systemshouldbethepreferredoption.However,useofparallelsystemstothelocalonesis an option when the local system is not developed well enough to ensure efficiency, accountabilityandtransparency.Thecountrysystemcanthusbecomplementedwithother systemsaslongastheonescreatedbythedevelopmentpartnerharmoniseswiththelocal structures(OECD,2005,2008).Achallengeistodecidewhatlevelofefficiency,transparency and accountability should be deemed as adequate. As a rule of thumb choose open competitivebiddingasthedefaultpractice. Thenumberofdecisionmakingcentresshouldbereduced. Separatingtheevaluationofbidsintoatechnicalandaneconomicalteamshouldbe considered(U4,2009). Makebidevaluationcriteriapublicfromthebeginning

Typicalmitigatonstrategiesinthetenderingprocess
Invitationtotender Allowsufficienttimeforbidpreparationandforcomplaintsafterthecontractis awarded(TransparencyInternational,2006) Timelimitsmustbestrictlyrespected Evaluation Ensurethatacodeofconductisimplementedforthetenderingcompanies Establishclearprotocolsforcommunications Createaclearcontactpointsforbidders,andletonlyasmallnumberofofficers beallowedtodealdirectlywiththebidders(Queenslandpurchasing,2006) Strict anticorruption policies have to comply with all actors involved also subcontractorsandmiddlemen(TransparencyInternational,2006:5456) Backgroundchecksshouldberunonconsultantsthatareinvolved,andthehiring processshouldbetransparent Usedifferentstaffforthebidevaluationandtheawarddecision

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Award Civil society should be involved at the stage of the decision making process. Public hearingsareonemethod Disclosureofinformationabouttheawardshouldbetherule Useagrouptoagreeontheawarddecisioninsteadofoneindividual Practice regular staff rotation to avoid corrupt relationships to establish and strengthen(TransparencyInternational,2006:44,U4,2009) Unsuccessful bidders should be provided with an explanation and relevant informationforwhytheydidnotwinthetender

Caseexample:Thetelecommunicationsector Inthetelecommunicationsectortherearefewcompetitorsevenattheinternational level,andthusthecompetitivebiddingatthenationallevelwillbeinfluencedbythe limited competition. The risk of collusion is regarded as higher under these circumstances than if there are more potential bidders in the market. The risk and costofwhistleblowingisalsolikelytobehigherunderthesecircumstances,andthus theimportanceofhavingotheranticorruptionmeasuresinplaceisevident. Corruptionpreventioneffortsbecomemoredifficultasthecostsandrisksofwhistle blowingincreases Tohaveanintegritypactwheretheactorsinvolvedintheprocurementprocesshave proved to be valuable in several cases that Transparency International has been involvedin.AsanexampletheirinvolvementinColumbiaintheTelecommunication sectorincreasedtheawarenessleveloftherisksinvolved.Further,theprocurement processwascompletedwithoutconflictbetweenthebidders,whichcouldpotentially beassignedtotheopennessoftheprocessandtheavailabilityofinformation. Source: Curbing corruption in public procurement (Transparency International 2005:8486)

Typicalmitigationstrategiesafterthecontractisawarded
Contractmanagement To meet the risk of unauthorised quality or price changes frequent and unannounced controlsandexternalmonitoringshouldbedoneregularlyuntiltheprojectisfinalised.There should be a threshold for how much change in price or quality should be allowed. By crossing the threshold the project will automatically be put under monitoring from the highestlevelofauthorityinvolved.Therulesforcontractchangeordersshouldbeclearand established in the original contract (Transparency International, 2006). Examples of questionsthatshouldbeaddressedinthecontractarewhatkindofadditionalworkhasto gothroughanewprocurementprocedure?Whatisthedefinitionofsupplementarywork? Howshouldthepriceforsupplementaryworkbedecided? 25

Onlinereportingandelectronicsystemscouldbeatooltoenhancetransparencyand oversight Aboardofcontractappealsshouldbeappointed Ageneralruleistocreateasspecificobjectivesfortheprojectaspossiblefromthe start.Inareaswheretherestillisroomforindividualinterpretationonesolutioncan betohaveacommitteerespondingandnotjustoneofficer. Inlargeprojectaperformanceratingofthecontractwinnershouldbeapartofthe procedure. Whistleblowing:Awaytoreportaboutdetectedcorruptionorsuspicionsshouldbe establishedandmadeknown. Whistleblowerprotectionisimportantbothtosheltertheindividualsinvolvedandto increasethelikelihoodforsomeonetoprovideinformationaboutsensitiveissues.A strategyshouldbedevelopedbeforesomeoneisinneedofprotection.

Orderandpayment The contract should include provisions making it possible to hold back payment if briberyisdetected. Middlementhathasbribedortriedtobribepublicofficialsshouldbedebarredfrom futuretenders. Sanctionsshouldbeproportionaltothepriceofthecontract. Conductperformanceauditsinadditiontonormalaudits Hold the guilty accountable by claiming the amount and debar them from future biddingprocesses. Investigatesuspicionsbyusingtheprosecutionauthoritiesorsuitableauthorities.In countrysettingswherethereisaweaklegalframeworkandlackofoversightbodies with capacity or capability to undertake investigations, independent investigation teams can be assembled or called in from elsewhere. As an example capacity can comefromvariousministries,departments,agenciesorevenwiththeuseofexternal procurementorauditagencies.

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Checklistsummarisingrisksandmitigationstrategies
Examplesofcorruption risks
Generalrisks Insufficienttransparency

Examplesofmitigationstrategies
Generalmitigationstrategies Establishminimumsstandardsfor transparencyasathreshold

ExamplesofTools

Insufficient accountability

Lackofprofessionalism

Guidestointegrityin competitive procurement Minimumstandards fortransparency Politicalwill ParisDeclaration,AAA Legislativeframework Modellawsaligned withcountrysystems Internalcontrolandexternalaudit Documentarchive Standardised templatesfor documentation Trainingofstaffontechnicalexpertiseon Trainingandeducation procurementandintegrity Codesofconduct Createcodesofconductandintegrity clausesinthecontracts

1.Pretenderingphase
Needsassessment Needsassessmentis insufficientdueto shortageoftimeorlack ofcapacityor competenceofthe procurementofficer. Purchaseisunnecessary, anddemandisinduced Politicalanddiplomatic pressurecaninfluence theprocurementcycle

Needsassessment Mapthemarketconditionsandthe sector Usetrainedprocurementstaff Leavesufficienttimeforthemapping Mapwhetherthereisactualneedforthe serviceorproduct Maptheriskscreatedbythepolitical climateandinstitutionalframeworkin thecountrysetting

Standardised checklistsandforms Publichearings MAPS:Methodology forassessmentof nationalprocurement systems(OECD2006) MappingPolitical Context:AToolkitfor CivilSociety Organisations(Nashet al2006)

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Examplesofcorruption risks
Planningandbudgeting Needsassessment, planningandbudgeting ofpurchasesare insufficientand/or unrealistic Goods and services procured are not in line with the overall investment plan of the government Definitionofrequirements Complexandunclear: Bidding documents or terms of reference are unnecessarilycomplexin order to hide corrupt actions and to make monitoringcomplicated Unclear selection and award criteria that are notobjectivelydefined Selection and award criteria are not establishedinadvance Conflictofinterest

Examplesofmitigationstrategies
Getmorethanoneofficertoapprovethe datafromthemappingoftheproduct, sectorandcountry. Involveanindependentsupervisory body,suchasthinktanksorcivilsociety organisations Checkalignmentwithgovernment strategieswhiledoingthecountry mapping

ExamplesofTools
Datafromthe mappingexercise Specialadvicefrom independentexperts Datafromthe mappingofthe countrysetting

Simpleandclear: Createclearandsimplerulestovisualise whatanhonestsystemisexpectedto produce. Simplifythegoodsprocuredasmuchas possible Benchmarkpricesonthebasisofprivate marketpricesandqualityrequirements inspiredbyofftheshelfitems Givecivilsocietyrepresentativesan overviewofthepublicofficialsareasof responsibilityanddegreesof discretionaryauthority Definetheevaluationcriteriain measurablefactorsandestablisha committeetoevaluatesubjectiveparts ofthebid Requireinformationofpotentialconflict ofinterest

Rulebookfor procurement MarketanalysisCivil societyinvolvement Managingconflictof InterestinthePublic SectorAToolkit. (OECD,2005b)

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Examplesofcorruption risks
Lowintegrity: Shortlisting/pre qualification due to an offerofbribes Bidding documents or terms of reference are tailored for one company, so that competitioniseithernot possibleorrestricted Thereisariskthatfirms provide falsified quality assurance certificates, which can have the that consequence unqualified firms will be allowed to take part in thebiddingcompetition Choiceofprocedure Lack of justification/ignoranceof requirementsfortheuse of noncompetitive procedures Misuse of non competitive procedures based on legal exceptions Relevantinformationis notsharedconsistently toallbidders

Examplesofmitigationstrategies
Checkintegrity: Ensurethatacodeofconductis implementedforthecontracting authorityanditsemployees Thecompaniesshouldbeencouragedto certifythattheycomplywithallanti briberylawsandthereshouldbedirect requirementsofanticorruption commitmentssuchascodesofconduct. Identificationofallpersons,including middlemenandagents,involvedina tendershouldbeincludedinthetender information Maintainoradoptablacklisttoguide debarmentdecisions Insurancecoverageandpaymentsof depositsshouldberequested Createclearrulesforwhencompetition isrequired Theprocurementproceduresshould includerulesforexceptionalcases. Definecentraltermssuchas emergency,exceptionaland immediacy. Useavailablechannelstoreachall potentialbidders Establishclearprotocolsfor communications

ExamplesofTools
Codeofconductfor biddersand procurementoffice Certificates Blacklists Duediligencechecks

Procurementrule book Eprocurement systems Massmedia

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Examplesofcorruption risks 2.Tenderingphase


Invitationtotender Lackofpublicnoticefor thebidinvitation Thecriteriaforselecting thewinnerarenotmade public Collusivebidding competitorsconspire Misuseofconfidential information

Examplesofmitigationstrategies

ExamplesofTools

Allowsufficienttimeforbidpreparation andforcomplaintsafterthecontractis awarded Timelimitsmustbestrictlyrespected Makebidevaluationcriteriapublicfrom thebeginning Codesofconduct Encouragewhistleblowingbycreating clearlinesforcommunicationand whistleblowingprotection Createaclearcontactpointsforbidders Letonlyasmallnumberofofficersbe allowedtodealdirectlywiththebidder Shareallinformationequallywithall bidders

Etools,massmedia andavailablechannels inyourcountrysetting Channelsforwhistle blowerstoinform management Whistleblowing protection Etoolstoformalise communication

Evaluation Decisionmakersare biasedduetocorruption intheevaluation process Uncleardefinitionsof theselectioncriteria makeschoosingthe winningcompany subjective Misuse of confidential information

Ensure that a code of conduct is Codeofconduct implemented for the tendering companies Duediligenceroutines Strict anti corruption policies has to Structuresof comply to all actors involved also responsibilities subcontractorsandmiddlemen Due diligence should be done on consultants that is involved, and the hiringprocessshouldbetransparent Usedifferentstaffforthebidevaluation andtheawarddecision The number of decision making centres shouldbereduced Separate the evaluation of bids into a technicalandaneconomicalteam

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Examplesofcorruption risks

Examplesofmitigationstrategies

ExamplesofTools
Publichearings Staffrotation Electronicinformation sharing

Award Decisionmakersare biasedduetocorruption intheawardprocess Lack of access to the records of the award procedure

Involvecivilsociety Proactivedisclosureofaward information Useagrouptoagreeontheaward decisioninsteadofoneindividual Practiceregularstaffrotationtoavoid corruptrelationshipstoestablishand strengthen Unsuccessfulbiddersshouldbeprovided withanexplanationandrelevant informationforwhytheydidnotwinthe tender.

3.Afterthecontractisawarded
Contractmanagement Price,qualityor specificationschange aftercontractissigned Poorsupervisionfrom publicofficials Collusionbetween corruptcompanyand corruptsupervising official Subcontractorsarenot selectedinatransparent mannerandnotkept accountablefortheir work Thecontractshouldincludeprovisions makingitpossibletoholdbackpayment ifbriberyisdetected Whistleblowingmadepossible Whistleblowerprotectionstrategyready Foureyesrulealwayshavemorethan oneofficertoinspect,superviseand interpretissuesthatarenotclearly objective Aboardofcontractappealsshouldbe appointed Setathresholdforchangesallowedand aplanforhowtohandlethesituation Frequentandunannouncedcontrols Externalmonitoring Onlinereportingand electronicsystems Independentbodyto receivewhistleblower messages Whistleblower protectionstrategy Supervisory committees

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Examplesofcorruption risks
Orderandpayment Claimsforgoodsand servicesnotsuppliedare filed Corruptsupervisorsare willingtojustifyfalse claims Lackofseparationof financialdutiesand supervisionincreasesthe possibilityforfalse accounting,cost misallocationsandfalse invoicing Renegotiationof contractisallowed,and substantialchangesto thecontractare introduced.This underminesthe relevanceofabidding process

Examplesofmitigationstrategies
Middlementhathasbribedortriedto bribepublicofficialsshouldbedebarred fromfuturetenders Sanctionsshouldbeproportionaltothe priceofthecontract Conductperformanceauditsinaddition tonormalaudits Investigatesuspicionsbyusingthe prosecutionauthoritiesorothersuitable externalauditors Holdtheguiltyaccountablebyclaiming theamountanddebarthemfromfuture biddingprocesses Inlargeprojectsaperformancerating shouldbeapartoftheprocedure

ExamplesofTools
Performancerating Blacklists Investigativeunits Sanctions

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Listofwebresources
Organisation TheADB/OECD AntiCorruption Initiative Whatcanyoufind? SupportingthefightagainstCorruptionin AsiaandthePacificandofferingresources onpolicydialogue,policyanalysis,and capacitybuilding CoSTisaninternationalmultistakeholder initiativedesignedtoincreasetransparency andaccountabilityintheconstructionsector Guidebooks,tools,countrycasesandother resourcesforintegrityinprocurement UnitedNationsProcurementCapacity DevelopmentCentre Handbookfortransparencyinprocurement Webaddress www.oecd.org/corruption/asiapacific

CoST

http://www.constructiontransparency. org/ www.oecd.org http://www.unpcdc.org/home.aspx http://www.transparency.org/publicati ons/publications/other/procurement_h andbook http://www.un.org/Depts/ptd/

OECD UNPCDC Transparency International UnitedNations Procurement Division(UNPD) U4 TheWorldBank

WTOworking Groupon Transparencyin Government Procurement OLAF TheEuropean PublicProcurement Network(PPN)

TheUNsprocurementdivisionwitha missiontoprovideresponsive,effective,and qualityexpertprocurementservicesand businessadvice Research,helpdeskandtrainingonanti corruption Procurementsitewithknowledgeand informationonpublicprocurementsystems, includingCountryProcurementAssessment Reportsandmore. Adviceanddocumentsongovernment procurementandtransparency

www.u4.no http://go.worldbank.org/9KQZWXNOI0

http://www.wto.org/english/tratop_e/g proc_e/gptran_e.htm

IAE(Integrated Acquisition Environment) UNICITRAL

TheEuropeanantifraudoffice Acooperationnetworkofpublic procurementexpertofficials,dedicatedto Europeancompaniestakingpartin procurementproceduresinothercountries ofthenetworkthantheirs. TheAcquisitionCentralprovidesaonestop websiteforallmattersrelatedtoacquisition intheUSsuchasdatabases,regulations, information,trainingandadvice. UnitedNationsCommissiononInternational TradeLawOnlineresourceson procurementandinfrastructure

http://ec.europa.eu/dgs/olaf/ http://www.publicprocurementnetwork .org/

https://www.acquisition.gov/

http://www.uncitral.org/uncitral/en/un citral_texts/procurement_online.html

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