Peru is in the midst of yet another major corruption scandal, this one involving a cartel of companies called the Construction Club. The Club allegedly operated as a bid-rigging cartel for major public construction works, in which the members of the Club would decide which one of them would win any given public contract and at what price, and the other Club members would deliberately submit higher bids to create the illusion of a competitive process. What started as an antitrust scandal has turned into a corruption scandal, as the Club is also accused of bribing public officials (including former President Vizcarra) to “guarantee the functioning of the cartel”.
The alleged bribery and bid-rigging are shocking but not surprising. This sort of corruption is all too common in the public procurement process in Peru and elsewhere (see here, here, and here). The vulnerability to corruption stems largely from the lack of accountability and transparency in the public procurement process, as well as the lack of professionalism in the public service. Can anything be done to address these longstanding problems? While there is no simple or overnight solution, there are in fact a number of measures that Peru can and should adopt to address the corruption vulnerabilities in its public procurement process and reduce the likelihood of another incident like the Club scandal recurring in the future.
- First, Peruvian authorities should enact a legal reform that obligates procurement officials to conduct an in-depth investigation of the fair market value of the goods or services to be provided in a public contract, using either outside expert consultation or a review of historical prices within Peru’s e-procurement platform, Sistema Electrónico de Contrataciones del Estado (SEACE). If these sources cannot provide a reliable market price estimate, then the law ought to require procurement officials to use the best available proxy and to provide a written explanation and justification as to why no other reference was available. The law should allow interested parties (such as the General Comptroller’s Office, a competing bidder, or civil society watchdog) to file a complaint with Peru’s Supervising Agency of Government Procurement (OSCE) if there are reasons to believe the procurement officer did not fulfill these obligations or approved a bid that greatly exceeded fair market value. A procurement official found to have filed a false or fraudulent justification should be sanctioned first with a suspension and, in case of repeat offenders, should be dismissed and disqualified from future civil service employment. Such rules would make it harder for public officials to sign off on rigged bids without getting caught, and this increased risk would have a deterrent effect.
- Second, OSCE should redesign the SEACE to increase the availability, reliability, and timeliness of the data provided on the platform. For starters, improving the system’s technical capacity and storage will allow public officials and bidders to complete proper documentation, including the justification reports proposed above, through e-forms directly on SEACE, instead of the current system in which forms are filed as paper documents and later uploaded into the system. Shifting to e-forms would reduce the opportunities for public officials to manipulate or enter incomplete information; a fully electronic system would also facilitate the regular update of filings, ensure consistency with current market conditions, and facilitate sharing of information across local, regional, and national public procurement offices. Moreover, an automatic red flag system can and should be embedded within SEACE. For example, if a public official has not completed a justification report for a bid selection in a timely manner, this unusual delay could trigger an alert sent to the General Comptroller’s Office (GCO) for additional review. The system should keep a record of all red flags attributed to each user and alert the GCO when what might otherwise seem like minor incidents suggest a troublesome pattern that warrants further inquiry. After all, in the case of the Club, it appears that it was the same relatively small group of public officials who colluded with the bid riggers. An automated system such as the one proposed here might have flagged these officials’ suspicious behavior earlier.
- Third, enhancing the professionalism of public procurement officials and placing higher caliber leaders at the head of public procurement offices will help prevent corruption, as well as improving overall performance. Peru’s National Civil Service Authority (SERVIR) —working in collaboration with academic and professional partners, and building on its own 2017 framework—should therefore establish higher standards and more rigorous screening requirements for civil servants working in high level and sensitive positions in public procurement offices. In addition, all public servants should be obliged to take a course on integrity. OSCE should collaborate with SERVIR’s National School of Public Administration and the Secretariat of Public Integrity to design (and regularly update) an integrity training program focused specifically on the public procurement process. Improving integrity training is especially important for the 70% of public servants who work at the regional and local levels, where internal controls are weaker, capacity and knowledge gaps are wider, and the risks of corruption are greater.
Reforms along the lines suggested above would substantially improve the integrity of the public contracting process, making it much harder for cartels like the Club to corrupt the procurement system. While many additional reforms would help as well, the three major reforms outlined have the important advantage of being feasible in the short term, in that they do not require major institutional changes, and can be built upon efforts that Peruvian authorities have already begun to implement. These reforms can therefore serve as the core of a reform program that is both practical and likely to have a substantial impact.