Public procurement is an area that is highly exposed to corruption risks. Corruption risks proliferate in this area due to the huge amounts allocated by the Government for the procurement of goods, services and works. At international level, countries allocate between 15% and 30% of the GDP for public procurement, while in Moldova this share is slightly lower – about 10-12%. Another major factor that encourages corruption in public procurement is the complex and non-transparent procedures, which are conventionally divided into three stages – from procurement planning to contract enforcement. Also, an important role in the corruption equation from public procurement plays the quality and integrity of the civil servants in charge of this area and of the private companies that compete for public contracts. Thus, the corruption risks in public procurement depend on a broad range of factors that need a systemic approach.
Usually, corruption in public procurement is reduced by improving the regulatory framework, with an emphasis on strengthening transparency. Adjusting the public procurement regulatory framework to international best practice is a necessary, but not sufficient measure to reduce the risks of corruption in this area. This requires much broader efforts by the Government, which also involves coordination among several public institutions responsible not only for public procurement, but also for competition and combating corruption. In order for the anti-corruption policy to bring results in public procurement, it is necessary to take a systemic approach to this issue, which would cover both corruption factors that are intrinsic to the public procurement system and the external ones that are typical for other sectors, too. Policies that are strictly targeted at diminishing corruption in procurement must meet at least the following conditions:
- Public procurement regulatory framework adjusted to international best practices. Actually, the public procurement legislation with simple, clear and transparent provisions is the core of anti-corruption policies in this area. The rules of the game must be simple, clear and transparent both for the civil cervants of the contracting authorities and for the business entities participating in the procurement procedures. Any facilitation granted to one party of the procurement will only foster the risks of corruption. For example, if procurement procedures are too cumbersome to fulfill, then officials will have a greater influence on companies to demand bribes in exchange for facilitating the compliance with the mentioned procedures;
- Professional training and integrity of civil servants in charge of procurement. Every improvement of the regulatory framework loses its value and usefulness if implemented by poorly trained, incompetent and dishonest staff. The poor training of the civil servants responsible for procurement might be caused by multiple factors, such as promotion based on political criteria and not on merits, lack of capacity building courses in this area, fragmented procurement system etc. Whatever the cause of this issue, the effect is the significant decrease in public procurement efficiency and increased corruption. However, the risks of corruption rises predominantly when the recruitment and promotion of officials is based on any criteria other than professionalism;
- Fair competition in the private environment. Competition is a crucial factor for an efficient and corruption-free public procurement system. If the market is dominated by a small number of companies, the likelihood of non-competitive behavior in public procurement increases as a result of the market division and influence on the contracting authorities, including through various forms of corruption. The lack of competition can be explained not only by the technological advantages of the companies, but also by the political linkages of some business entities. In the latter case, the risks of corruption in procurement are higher, because these companies do not have any other comparative advantage than the close linkages with political circles, and their only survival option is unscrupulous and non-ethical behavior in relation to their competitors.
Anti-corruption measures only in public procurement will fail if other critical areas are not covered as well. The situation in the justice sector is the most important factor outside the public procurement, but which is extremely important for diminishing corruption in this area. Without a professional, upright and transparent judicial and anti-corruption system, only partial results will be obtained at the sector level, including in procurement.
What factors should the Republic of Moldova pay attention to?
Corruption in public procurement is influenced by a multitude of factors, but not all of them have the same ‘weight’ in fostering or combating this phenomenon. The public authorities’ efforts to combat corruption in procurement should take account of the importance of each factor and the recent developments in the field. Such an approach is critical in order to calculate the necessary efforts and to identify policy priorities in this area. Prioritising the factors that impact corruption in procurement is important in order to estimate the critical areas of intervention, because Government authorities have limited human and financial resources to cover all factors equally. That is why, it is appropriate to periodically analyze the primary aspects of intervention aimed at diminishing corruption in public procurement.
The quality of the regulatory framework on public procurement has improved in the Republic of Moldova, but it seems that this do not play an important role in decreasing corruption in this area. According to the recent World Bank ranking of public procurement legislation, its quality in the Republic of Moldova is quite high. In 2016, the year for which the assessment was made, the Republic of Moldova obtained an average score of 64.2 out of 100 possible points, which is above the global average.This fairly good performance is due to the entry into force of the new Public Procurement Law in 2016, adjusted to many EU provisions in this area. In the coming years, the quality of national legislation on public procurement will continue to improve as a result of adjusting it to the latest EU provisions, as stipulated in the Association Agreement. At the same time, the international comparison of the quality of legislation and the level of perceived corruption in procurement shows that there is no correlation between them(Figure 1). This could be explained by the fact that not all components of the legislation are critical to discouraging corruption in procurement, some of them such as proper enforcement of legislation and transparency considerations could be more important. As regards transparency in public procurement, the Republic of Moldova remains behind its neighbors, like Ukraine and Georgia. A significant step in increasing transparency will be the successful implementation of the MTender Electronic Procurement System, but the process will take at least one year due to delays from the initial schedule.
Unlike the legislation, the professionalism and integrity of procurement officials play an important role in diminishing corruption in this area, but the Republic of Moldova is lagging behind in this regard. If comparing countries by the ability of their governments to implement public policies and the level of perceived corruption in procurement, a positive and strong relationship between the two is revealed. Hence, countries with professional and upright officials tend to have a lower level of corruption in public procurement (Figure 2). Thus, this relationship underlines that without a pool of professional and upright officials an efficient legal framework does not help discourage corruption in procurement. The Republic of Moldova has lower performances in this area than countries with the same level of public officials’ ‘professionalism’. To advance in this area, it is critical that the Republic of Moldova expedites the capacity building of public procurement officials and takes measures to ensure their integrity, as stated in the Development Strategy for this sector. Depoliticizing public institutions is another important factor for enhancing professionalism and ensuring integrity. It should be stated that without depoliticizing the positions responsible for the management of the largest public funds, only capacity building of the public officials will yield insignificant benefits in the public finance system.
Quality of the competitive environment is another crucial factor in discouraging corruption in procurement, and the Republic of Moldova is lagging behind in this area as well. In order to diminish corruption in procurement, it is not the competition per se among business entities that counts (the total number of business entities), but rather the quality of this competition. The competition quality can be measured by business entities’ perception of the extent to which the market is dominated by certain economic stakeholders. If some companies have some comparative technological or rather political advantages, compared to others, they tend to monopolize the market, including public procurement. Dominating the market and undermining competition also increase significantly the risks of corruption in public procurement (Figure 3). Again, in terms of market dominance by certain business entities, the Republic of Moldova is in a laggard situation, which should make the Competition Council concerned with this topic.
The competitive environment also impacts visibly the corporate ethics, which is an extremely important factor in combating corruption in public procurement. As mentioned already, companies that build their competitive advantage on the basis of political linkages tend to undermine other players by ‘dirty’ methods and convey messages that ethical and moral behavior by the rest of the companies will not be compensated. In order to fight such a behavior, it is necessary to encourage maximum transparency of shareholders, adopt international standards of corporate governance, and implement integrity programs within companies. Adoption of such integrity programs should be compulsory for companies wishing to participate in public procurement above a certain monetary threshold.As international data show, without developing integrity mechanisms and fostering ethical behavior in the private sector, it will be difficult to achieve significant progress in fighting corruption in public procurement (Figure 4). Of course, corporate ethics is not only influenced by the quality of competition in the private sector, but also by other important factors such as the quality of public institutions and of the policies approved by them.
Corruption in public procurement is stimulated by a multitude of factors, and a systemic approach is needed to combat this phenomenon. The systemic approach to policies for addressing corruption in procurement must envisage not only identifying all key factors, but also setting up intervention priorities. The list of priorities, in turn, should contain an analysis of the extent to which some factors can diminish corruption in this area, as well as the effort to be made by authorities. A quick analysis of these factors highlights that the Republic of Moldova needs to pay more attention not only to improving the legal framework on public procurement, but also to enhancing the professionalism and ensuring the integrity of public officials in charge of this area, as well as to improving the competitive environment in the country. It is also critical that efforts to amend competition also include policies aimed at enhancing corporate governance. At the same time, all efforts focusing on combating corruption only in public procurement will yield insignificant results, unless measures are taken simultaneously in other critical areas, such as the justice one.