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Contrary to what the headline suggests, this post is not about how to protect procurement agency staff from mosquito bites by installing wire-mesh screens in their office windows. Wikipedia covers that subject nicely. This post is instead about a different … Continue reading
In a previous post, I extolled the virtues of Big Data in the fight against corruption, including in the important realm of government procurement. From the UK to Georgia to the Czech Republic, government procurement agencies have been collaborating with civil society groups to analyze their data, uncovering inefficiencies that range from the mundane to the outright corrupt. Governments are not alone: international development agencies like the World Bank are embarking on similar projects.
But there’s a problem. Big Data needs lots of data to work, entailing a high degree of government transparency and massive disclosures — sometimes called Open Government — that are sometimes at odds with the goals of anticorruption. In the case of government procurement, public data watchers need to know which firms bid for the project, at what price, and who won on what terms before they can play a useful watchdog role. However, as Rick has pointed out on this blog, public disclosure rules in procurement has the perverse effect of enabling private collusion. Cartels of contractors can agree amongst themselves to inflate their prices and select which among them will receive the contract, and are able to enforce their shady agreement because, of course, all offers are public.
Rick’s concerns seem to be directly implicated by the newly-proposed Open Contracting Data Standard, a push to “enhance and promote disclosure and participation in public contracting.” The project essentially asks every procurement agency in the world to upload their contracting documents onto the internet in a standardized manner that would encourage public oversight, including through the use of Big Data tools. So, is the push for open government procurement data doomed to backfire, creating collusion where perhaps it did not even exist before? Fortunately not. The increased risk of collusion is completely outweighed by the potential for the use of Big Data and other civil society monitoring techniques. Continue reading
Bence Tóth and Mihály Fazekas of the Corruption Research Center Budapest (CRCB) contribute the following guest post:
As several earlier posts on this blog have discussed (see, for example, here, here, and here), collusion and corruption in public procurement is a significant problem, one that is extremely difficult to detect and combat. The nature of public procurement markets makes collusion easier to sustain, as pay-offs are higher (demand is often inelastic due to the auction mechanisms used), administrative costs increase entry barriers, and the transparency of procurement contract awards–often intended as an anticorruption device–can actually make it easier for cartel members to monitor one another and punish cheating. Law enforcement agencies have tried various techniques for breaking these cartels, for example by offering leniency to the first company that “defects” on the other cartel members by exposing the collusive arrangement. However, although leniency policies have sometimes proven to be an effective tool to fight coordinated company behavior, the efficacy of this approach is limited given the relative unlikelihood that the government will ever acquire convincing evidence of collusion absent such a defection by an insider. Hence, there is great need for alternative methods to identify collusive rings and guide tradition investigation.
In many markets, using quantitative indicators to detect collusion has not been feasible, as gathering meaningful tender-level data (or even market-level data) is too costly, or simply impossible. However, in the case of public procurement markets, there is a huge amount of publicly available data, which makes the use of “Big Data” techniques to pinpoint collusion-related irregularities more feasible. Indeed, in collaboration with our colleagues at CRCB, we have developed a simple, yet novel approach for detecting collusive behavior. Continue reading
In a piece on this blog last March, Rick highlighted a perverse consequence of requiring transparent bidding in government procurement. Although bid disclosure is intended to prevent public officials from secretly favoring companies that pay bribes, it can facilitate collusion among bidders by making it impossible for cartel members to defect from collusive agreements without getting caught. As a result, the cartel is easily enforced and the public pays an inflated price for the goods or services being supplied, yielding improper profits for the winning firm just as if it had paid a bribe to secure the contract.
Rick’s example reminds us of the importance of considering the collateral consequences of anti-corruption remedies before employing them. Nonetheless, public procurement reform could be an instance in which it is desirable to shift the method of corruption, even if we can’t reduce the total loss to corruption on a dollar-for-dollar basis. Even if the private cartel problem worsens, this could be a cost worth bearing if it leads to less collusion between government procurement officers and favored private firms.
GAB | The Global Anticorruption Blog 