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Transparency in public procurement – moving away from the abstract

27 March 2015
by Guest author

TI_logo_normalToday’s post is by Cobus de Swardt, Managing Director of Transparency International

Public procurement processes are one of the best examples of how citizens, governments and businesses can work together for mutual gain – or work at cross-purposes or the exclusion of one another for huge loss. It is big business. Around US$9.5 trillion of public money is spent each year by governments procuring goods and services for citizens.

Businesses, governments and citizens all stand to win from smart, efficient investments in infrastructure and public services. Projects that do not strip out mismanagement, fraud and corruption end up costly, wasteful, unsuitable, defective or even deadly as we saw in the collapse of the Rana Plaza complex in Bangladesh in 2013, a tragedy that led to hundreds of deaths of a largely female workforce.

When the products that citizens ultimately pay for are dangerous, inappropriate or costly there will be an inevitable loss of public confidence and trust in governments. Corrupted bidding processes also make a mockery of the level playing field for businesses, especially for younger, innovative companies eager to compete in a fair manner who may not have the backdoor contacts to buy contracts.

It happens far too much. The OECD estimates corruption drains off between 20 and 25 per cent of national procurement budgets. Few government activities create greater temptations or offer more opportunities for corruption than public sector procurement. Indeed, 57 per cent of foreign bribery cases prosecuted under the OECD Anti Bribery Convention involved bribes to obtain public contracts.

So how to ensure clean and efficient investments?

Fundamentally, transparent and accountable procurement cycles mean the companies that win the bids are those with the best product, at the best price targeted at achieving the best outcome. This is not a new concept, but we can no longer afford to talk in the abstract.

Information needs to be proactively disclosed from the earliest decisions to the final audits.

Needs assessments, budgets, award criteria, winning bids (justified against the criteria) and contracts (including crucially any contract amendments) all need to be publicly disclosed.

Access to project information is crucial to enable decision-makers to make informed judgements about the cost, quality and socio-economic and environmental impact of the projects concerned. When there is a lack of disclosure of information around government decision-making, it is easier to hide manipulation of decisions. Citizens –those who stand to win or lose the most – need to be part of those decision-making and monitoring processes, not only to act as independent monitors but also to reduce information asymmetries that can lead to trust deficiencies.

However there is a bonus for businesses too. Access to previous contracts allows businesses to make more focused and appropriate bids. More transparency leads to more competition too. Transparency International Slovakia found that transparency reforms in procurement that included contract publication led to an increase in bids from an average of 2.3 per public tender in 2009 to 3.6 in 2013.

In Georgia all information – including amended contracts – is made public. To incentivise good corporate performance and make sure mistakes are not repeated, lists of whitelisted and blacklisted companies are published.

Governments should also collect and disclose the identity and beneficial ownership of all bidders.

Time and time again, Transparency International sees how competitive bids lose out on public contracts because corrupt officials award themselves, family, friends or associates the contract. One way that this can be done is by disguising their identity or that of their family members or associates behind a front or shell company. Governments need to be collecting and at the time of the award, publishing the beneficial ownership information of all bidders.

On the back of a number of procurement scandals in the health sector, Slovakia has committed to adopt a law that would prevent companies who cannot disclose their beneficial ownership from being able to bid for public contracts.

It’s time to make better use of technology and data. E-procurement systems make processes much more efficient and reduce opportunities for corruption by limiting dependence on public officials. South Korea’s e-procurement system KONEPS was found to have saved the public sector US$1.4 billion in costs and the private sector US$6.6 billion compared to the previous paper-based system. The time it took to process the bids dropped from an average of 30 hours to just 2.

All disclosed project information should be made available online in open-data format. This means the information needs to be comparable, freely released and shared, and usable. The Open Contracting Data Standard provides a ready template to make this information accessible and useful. Making better use of open data has benefits for all parties.

With the adoption of concrete specific transparency measures in public procurement as outlined above and in Transparency International’s guide to curbing corruption in public procurement, the private sector benefits from a level playing field, predictable business environments and a reduction in risk. For governments, there is greater efficiency in public spending, better quality of public services and enhanced trust. Citizens meanwhile benefit from better and more appropriate services, and more effective checks and balances.

There is progress on this issue internationally. Through the Open Government Partnership, forty countries now have commitments on making government contracting more open. Several countries including Canada, Colombia, Mexico and Romania are implementing the Open Contracting Global Principles and/or its data standard. As the world looks beyond 2015 and towards new global development and climate goals that must be delivered, ensuring clean and transparent procurement processes, a critical component of how development monies are spent – will be critical for fighting poverty and climate change. Finally, the G20 is developing High Level Procurement Principles for adoption later this year. By incorporating these simple win-win-win components into those Principles, and by encouraging wider adoption of more precise definitions on what we mean by transparency in public procurement, we could generate a real sea-change and start to lower those OECD estimates of corruption in procurement.

Useful links

OECD Integrity Week: Curbing Corruption – Investing in Growth:

OECD Public Procurement Toolbox

OECD Work  on Public Procurement

Tools from Transparency International:

OECD Forum 2015. Investing in the Future: People, Planet, Prosperity

26 March 2015

OECD Forum home pageForum 2015, Investing in the Future: People, Planet, Prosperity will take place in Paris on 2-3 June. It will be organised around five themes: Investment; Inclusive growth; Innovation; the New Climate Economy; and Sustainable Development Goals

People

45 million people are unemployed in the OECD, which increases the risk of poverty, ill health, and the levels of inequality within our societies.
This legacy of the crisis is undermining the confidence and trust of citizens in everything from governments to markets, businesses and institutions at large.

The Forum will discuss how to promote access to more and better quality jobs, but also how governments, universities, business and civil society can address growing inequality by expanding access to education.

What skills will be needed to make people more resilient and entrepreneurial? And how to promote the exchange of knowledge between people, universities and business that leads both to innovation and more inclusive growth models.

The Forum will also reflect on actions aimed at reducing the gender gap and enhancing the role of women in economies and societies at large, in the context of the celebration of the 20th anniversary of the Beijing Declaration and the G20 commitment to reduce the gender gap in workforce participation by 25 % by 2025.

Read more on inclusive growth

Planet 

New technologies and business models are essential to help achieve a NEW CLIMATE ECONOMY, which combines strong economic growth while minimising impacts on the environment.

This will be an important issue in the run up to the COP 21 negotiations in Paris and discussion will be informed by the joint OECD, International Energy Agency (IEA), Nuclear Energy Agency (NEA) and International Transport Forum (ITF) work on aligning policies for the transition to a low carbon economy.

The Forum will be an opportunity to reflect on the importance of a coordinated approach to: mobilise infrastructure investment; rethink taxation and urban development; address resource scarcity and the food-water-energy nexus.

Cities will play a key role in this new economy. Cities already generate around 80% of global economic output, and use around 70% of global energy. 54 % of the world’s population lives in cities today, and this figure is expected to increase to 70% by 2050

Prosperity

The Forum will explore the importance of INVESTMENT in placing economies on sustainable growth paths; addressing inequalities; fostering innovation; helping the transition towards low-carbon economies; and financing the Sustainable Development Goals (SDGs).

Investment is still lagging compared to pre-crisis levels, dampening demand and constraining potential growth. Breaking this vicious cycle is a priority to restore dynamism to our economies and create jobs.
Read more on investment
Ongoing innovation in ICT, renewable energy, nanotech, telemedicine, biotechnology, Big Data and the “Internet of Everything” is offering promising solutions in areas such as health, ageing, climate change, food security and represents an increasingly significant source of future economic growth.

The update of the OECD Innovation Strategy will feed into Forum debates with particular emphasis on governments’ ability to meet social and environmental challenges by creating an enabling environment fostering innovation.

Read more on innovation

Better Life Index

‌‌‌‌The OECD will present the 2015 Better Life Index update, incorporating new data and communicating what has been learned from almost 90 000 user responses received since 2011. The Index will be available in seven languages: English, French, Spanish, German, Italian, Portuguese, and Russian.

A complimentary site, highlighting Italian well-being priorities will be launched in conjunction with Expo Milan 2015 in English and Italian.

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