Corruption within the procurement system

Corruption within the procurement system

How and where does corruption occur within the procurement system?

ISO 10845-1:2010 defines procurement as “the process which creates, manages and fulfils contracts relating to the provision of goods, services and engineering and construction works or disposals or any combination thereof”

  • Corruption can occur at any of the phases of procurement. The players involved in the process include the project owner (client), the tenderers and the successful tenderer (contractor), the tender evaluation panel members, those that administer the contract; and even multi/bi-lateral funding agencies, in aid-funded development. Consultants, government officials, subcontractors and suppliers are also frequently involved in various phases of the procurement process
  • Corruption damages companies and public bodies, resulting in uncertainties in tendering, wasted tender expenses, increased project costs, economic damage, reduced project opportunities, criminal prosecutions, fines, blacklisting and risks to reputation

Useful references and links


www.transparency.org
www.anticoruptionforum.org.uk
www.giaccentre.org
www.u4.no
www.unglobalcompact.org

Corruption during project tender and selection stages:
Loser’s fee

All tenderers include a secretly agreed additional sum (the total estimated tender costs of all the competing contractors) in their tender price. Whichever one is awarded the contract then divides this sum between all the unsuccessful contractors, who thereby recover their tender costs. This is not disclosed to the project owner. The project owner is therefore unknowingly paying more than they would have done had the unsuccessful tenderers borne their own tender costs.
Bribes to award a contract:
A tenderer pays a bribe to a government official; in return the official ensures that the bribing tenderer wins the contract. The official ensures that the information regarding what was tendered is kept secret, so that no-one knows that the bribing tenderer was not the most competitive or his offer was made more favourable after the closing of tenders, or the official manipulates the tender evaluation to favour the bribing tenderer.
Bribes to issue a contract:
A client could demand a bribe from a selected consulting firm/individual at contract negotiations to issue a contract.
Inflating payment certificates:
The engineer and contractor agree to inflate the payment certificates, and share the margin.
Intention to withhold payment:
A project owner places a contract. He intends, in order to increase his project profitability, to refuse to pay the contractor the retention sum upon completion of the project, by concocting artificial counterclaims to offset against the retention.

Embrace best procurement practices to combat corruption

The CUTS-CITEE IWOGDA II project identified a range of measures, put in place by government in various countries to deal with corruption in public procurement:

  • The maintenance of an independent judicial system
  • The auditing of supervision/management systems and expenditure by the office of the auditor general
  • An array of laws relating to corruption, reporting on corrupt practices, establishing a body to investigate complaints, promoting access to information, promoting just administration and the protection of those disclosing information relating to corrupt practices

    The IWOGDA II report made the observation that the success or otherwise of all these initiatives is dependent on there being in place comprehensive, well formulated and documented procurement procedures that are free of undue discretion and subjectivity. The success rate for prosecutions is low in the absence of such procedures. (see www.cuts-international.org/pdf/synthesis-report.pdf)

    ISO 10845-1:2010 establishes processes, methods and procedures for the establishment of a procurement system that are fair, equitable, transparent, competitive and cost-effective. This standard provides a framework around which public, private and international organisations may develop their procurement systems to achieve fair competition, to reduce the possibilities for abuse and to improve predictability in procurement outcomes.

FIDIC has developed Guidelines for Integrity Management in the Consulting Industry. This enables consulting firms to put in place an internal system that is designed as an effective tool to prevent corrupt behaviour and to encourage integrity.

Other ways of combating corruption within the procurement system include:

  • Using IT technology to improve transparency and efficiency, e.g. publish tenders and tender awards online

  • The introduction of anti-corruption clauses in procurement documents

  • The adoption of anti-corruption, project transparency and hospitality/gift policies

  • Training and raising awareness of anti-corruption measures

  • Introducing codes of conduct governing those engaged in procurement processes

  • Adoption of standard forms of contracts such as the NEC3 and FIDIC family of contracts

  • Conducting random audits of tender processes and payment certificates

  • Blacklisting companies that engage in corrupt practices

See also: www.constructiontransparency.org