Fighting Procurement Corruption: the Essential Role of Bid Challenge Systems

Ensuring firms that loose the competition for a government contract can challenge the result is a critical part of the fight against corruption in public procurement.  A losing bidder will have lost the chance to make a profit and will have invested time and money in preparing its bid.  It thus has not only a strong motive for contesting a decision it believes tainted by corruption but the expertise to do so.  Bid challenge systems complement procurement oversight by civil society.  Indeed, they may even be a more powerful tool.  Whereas civil society monitoring typically relies on public-spirited volunteers unfamiliar with the technical aspects of the procurement, bid challenge systems harness firms’ self-interest and technical knowledge in service of ferreting out procurement corruption.

Transparency International’s 2014 volume on combating procurement corruption and the OECD’s 2016 procurement integrity handbook both note the importance of bid challenge systems but offer little guidance on what makes for an effective system.  Here are five questions anticorruption advocates can ask to assess the effectiveness of their nation’s bid challenge system:

1) Is the challenge decided by a body independent of the procuring entity? Government agencies are loath to admit they made a wrong decision, especially if the reason for the error was corruption.  So if a disappointed bidder’s only avenue of relief is to ask the agency responsible for the procurement decision to reconsider it, there is little if any chance the complaint will be taken seriously.  Fortunately, the trend is towards ensuring a disappointed bidder can take a complaint either to a court, an independent agency, or both. Article XVIII of the WTO Government Procurement Agreement, chapter 15 of the Trans Pacific Partnership Agreement, and the standard EU and U.S. bilateral trade agreements all provide that treaty partners create at least one avenue of relief independent of the procuring entity.  If their nation is party to an agreement requiring the establishment of an independent review mechanism, activists should ask if the government is in compliance.  If their country is not party to such an agreement, they should ask why the government is bucking the international trend towards independent review.

2) Are there reasonable time limits for filing a challenge?  As Dan Gordon explains in the classic article on bid protest systems, there is a tension between ensuring government obtains the necessary goods, services, or public works without delay and taking time to review a procurement decision for error.  How long the review process should last, and whether the contract is put on hold during the review process, will depend upon the circumstances.  Where the size of the contract is large and the urgency of immediate execution low, there is little need to rush the review or implement the contract immediately.  Hence more time and more fact-finding should be permitted.  When the procurement is to speed a first-wave of emergency relief supplies to an area hit by a natural disaster, an abbreviated review is appropriate.

3) Who can complain?  The more firms that have the right to complain, the more likely a procurement decision will be challenged.  But challenges absorb the time and energy of busy, frequently overworked procurement staff, and some countries thus limit who can complain.  In Japan, only firms that have prequalified to bid on a public works project can complain.  Kenya has a more generous requirement, allowing any individual or firm that has requested the tender documents and “claims to have suffered or to risk suffering, loss or damage” due to an error in the procurement process to file a complaint.  The United States goes even further, permitting firms that did not bid because the tender documents were “unduly restrictive” to submit a complaint.  Where a country’s procuring entities have a record of accurate, corruption-free procurement decisions, restricting who can challenge a decision to those who actually bid makes sense.  Where the record is to the contrary, the field of those eligible to complain should be expanded, perhaps even to citizens directly affected by corruption in the procurement.

4) Are their effective remedies if a complainant prevails?  Disappointed bidders will not complain if there is no reward for doing so.  The strongest incentive is a provision allowing the reviewing body to overturn the award and direct the procuring entity to give the contract to the complaining firm.  The reviewing body may decide, however, that the public interest is best served by ordering the procurement re-done.  If this is the case, it should be able to compensate the complainant for the expenses incurred in mounting a challenge.  It should also have the authority to award the complainant the costs incurred in preparing the original bid.  The United Nations recommends that all bid challenge systems provide these remedies: see Article 67 of the 2011 UNCITRAL Model Procurement Law.

5) What type of statistics are available on the system’s operation?  Information on the number of complaints filed and their outcomes should be regularly published.  No procurement system is perfect, and one would expect in any system to see at least some complaints leading to re-procurements or other relief. A path breaking study of complaint mechanisms in Kenya, Tanzania, and Uganda found that anywhere between one-third and 60 percent of complaints in these three resulted in some form of relief or correction to the procurement.  A recent U.S. study of complaint data shows just how much analysis of complaint data can reveal about the procurement system.  If there are few, or no complaints, the system is either near perfect or, more likely, something is amiss:  disappointed bidders realize complaining is futile, or fear retaliation if they complain, or are part of a bid rigging cartel that has agreed in advance on who will get what contracts and at what price.  Whatever the case, the data will point to areas of further inquiry.

In its latest recommendations to member states on what makes for a sound public procurement system, the OECD Council of Ministers advises the creation of a strong, effective bid protest system: handling “complaints in a fair, timely and transparent way” is essential “to correct defects, prevent wrong-doing and build confidence of bidders, including foreign competitors, in the integrity and fairness of the public procurement system.”  It is not only the world’s wealthiest states that should take this advice to heart.  Any nation seeking to combat corruption in public procurement should so as well.

3 thoughts on “Fighting Procurement Corruption: the Essential Role of Bid Challenge Systems

  1. Pingback: Fighting Procurement Corruption: the Essential Role of Bid Challenge Systems | Matthews' Blog

  2. Pingback: Fighting Procurement Corruption: the Essential Role of Bid Challenge Systems – CEGET

  3. Pingback: Fighting Procurement Corruption: the Essential Role of Bid Challenge Systems – CEGET

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