What is the impact of corruption in public procurement? How is it carried out and how can it be reduced? This paper by the Chr. Michelsen Institute explores corruption in public procurement and suggests some anti-corruption measures. It emphasises that political commitment is a necessary condition for successful reform.
Public procurement refers to all kinds of acquisitions of public goods and services, from military aircraft to motor vehicles. Procurement should be carried out according to the principles of International Competitive Bidding (ICB). The procedure under ICB covers several steps from designing the tender to evaluation and contract award. Corruption in procurement occurs when there is clear misuse of public office. First, the act must be intentional. Second, the person must derive some recognisable benefit from the act. Third, the benefit derived must be a direct return from the act of corruption. Corruption in procurement can be political or bureaucratic, but this paper focuses on bureaucratic corruption.
Corruption in procurement can impede economic development, distort market mechanisms and create inefficiencies reducing competitiveness, trade and foreign direct investment. Corruption can occur through violations of procurement rules or through legitimate deviations from the rules. Other findings include:
- The quality of public goods is affected as goods and services are purchased from the best briber.
- Corruption can cause state capture, whereby bribing firms begin to determine the policy process.
- The risk of corruption depends on the amount of money and complexity of technology involved, the urgency to acquire the goods and the level of discretionary authority among public officials.
- Procurement rules can be violated by limiting the call for bids, or designing tenders and providing confidential information to favour the bribing company.
- There are some legitimate reasons for evading the rules, such as the need for speed during emergencies, but these reasons can be misused to obtain bribes.
Important strategies for reducing corruption include changes in the organisation of public procurement, greater transparency and addressing the supply side of corruption. However, political commitment is a necessary condition for each of these strategies to be successful. Moreover:
- The ICB may not be effective unless the necessary institutional conditions are present. Alternatives need to be considered, such as a system of performance rating.
- An independent procurement unit with professional officials should be established.
- Access to information particularly relating to the procurement procedure and criteria for evaluating bids is critical to improve transparency. The rules need to be clear and there should be a well-documented explanation of the contract award. A board of contract appeals should also be appointed.
- Competition does not necessarily reduce corruption. However, applying international prices as benchmarks for procurement negotiations and requesting standardised goods and services does reduce the potential for corruption.
- Only companies that certify that they meet anti-corruption commitments should be eligible for contract awards. In addition, the activities of agents and middlemen should be regulated.
- To limit the opportunities for corruption created by the internet, the use of the internet should be restricted to the pre-qualification stage of bidding.
