What is the Cost and Impact of Corruption in Public Procurement?

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Publishing date: Wednesday, 11 April 2018
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How Corruption Does Manifests Itself in Public Procurement?

Public procurement refers to the acquisition of certain goods, works or services by public authorities. In fact, the state runs a process of public procurements in order to purchase a minimum of products, works and services for its proper functioning, as well as to secure the population with services and public goods. These services and goods include medicine, education, public safety, infrastructure, etc. In order to purchase and deliver them, the state uses money collected from citizens in the form of fees and taxes, so the money spent for public procurements are coming from every single taxpayer. In reality, things doesn’t quite look this way in the eyes of both citizens and public servants responsible for procurements, because the public budget is misinterpreted as being something abstract. As a result, public servants are tempted to use public money for their own purposes, whereas citizens do not quite make any efforts to monitor how their money is being spent. This creates an enabling environment for corruption in public procurement. 

Other important factors that stimulate corruption in public procurement are lack of transparency and complexity of the procurement process. A procurement process goes through several stages, starting with identification of procurement needs by each public institution, which in turn constitutes the basis for budgetary allocations aiming at covering these needs. Once the financial resources are allocated, the actual procurement process begins by publishing the announcement or contracting directly the companies. The applicable procedure is selected depending on the amount of money allocated for procurement. In the case of bigger procurements, it is usually preferred to have a tender or requests for quotation, in order to attract as many companies as possible in the award contest, ensuring thus a greater competition. For small procurement under certain thresholds, the public authority contracts directly a company without resorting to publish any announcement, so these are low-value contracts.1 After the announcements are published, it follows the assessment of participating companies and the public procurement contract is awarded, after which the selected company starts the implementation of the contract. Analysis and monitoring of procurement through all its stages is, however, slowed down due to the lack of public information accessible to all citizens. In particular, procurement plans and the list of awarded companies are not published. In addition, the access to public procurement dossiers is hindered by various reasons. Altogether, these factors stimulate corruption in public procurement and make it difficult to track it down.

Corruption in public procurements can take place at any stage, starting from planning and ending with implementation of awarded contract. Main characteristics of corruption at each procurement stage are the following:

  • At the planning stage, there are, for instance, projects in the list of public procurement that are given priority, whereas they generate just small benefits for potential beneficiaries or are not costefficient. Such kind of project is the construction of the access road to Humulesti village in the suburb of Chisinau Municipality, which was financed from the municipal budget. This road project is valued at MDL 30 million and was designed for a village with only 200 inhabitants, whereas there are many other roads within the municipality with more intensive traffic which could have been repaired with the same amount of money;
  • At the procurement launching stage, public servants responsible for preparation of the technical documentations and criteria for the selection of companies may include some discriminatory provisions. For example, the technical description of some products may contain direct references to certain trademarks, which in turn prevent competing companies from submitting their offers. Also, in order to reduce competition and the transparency of procurement, the public authority can deliberately split up the future procurement into smaller ones, aiming at avoiding the use of such competitive procedure as the tender, but concluding a low-value contract with a known company. Such a case was detected in procurement of food products at the Professional School No 9 from Chisinau Municipality, where a large procurement batch was split up into several low-value contracts; 
  • At the evaluation and contract award stage some companies that submitted their procurement documentation are deliberately eliminated from the competition based on ambiguous reasons, in order to award the contract to a company which made some kind of agreement with officials in charge of the procurement process. For example, in the case of the tender for procuring construction works for building the access road to Humulesti village, the company that gave the lowest price was disqualified because it didn’t have a minimum required portfolio of projects with similar value as the one that was subject to this tender. Awarding the contract the responsible authority, however, has not asked for additional information from this company related to similar profile of the previous contacts. It took into consideration only their values and preferred to disqualify the company and award the contract to a company with a suspicious reputation;
  • At the contract implementation stage there are, also, major corruption risks and they consist in artificial increase of costs for works, or there are cases when companies deliver low-quality works with the direct involvement of public servants. Actually, in many cases the company which is involved in a corruption scheme and coordinates its offer with responsible officials from the public authority, offers the lowest price deliberately, in order to get rid of other competitors. The company usually does so because it knows that subsequently some modifications and increases will be operated to the contract value. 

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