Tag Archives: procurement

Shedding Sunlight on Procurement

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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 →

Announcement: London Conference on Asset Recovery and Procurement Corruption

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As GAB readers are no doubt aware, two of the hottest topics in the anticorruption world — topics we’ve devoted a great deal of attention to on this blog — are stolen asset recovery (see here, here, here, here, and here) and fighting corruption in government procurement (see here, here, here, here, and here).

For those who are interested in these topics, I’ve recently learned that the London Centre of International Law Practice will be holding what looks to be a very interesting conference on both these subjects on June 22-23, in London. It looks like a very interesting set of speakers, with a lot of legal practitioners (but some good representation from TI-UK and other anticorruption NGOs as well). I regret I won’t be able to make it myself, but for those who are interested, you can find out more about the conference here.

Guest Post: Using Big Data to Detect Collusive Bidding in Public Procurement

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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 →

Why Firms Contracting With Developing Nations Should be Required to Disclose Evidence of Corruption

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An earlier post urged developing states to require firms doing business with them to have procedures in place to prevent their employees and agents from bribing government officers, making false claims, or committing other corrupt or fraudulent acts during the execution of a government contract.  Mandating that government contractors institute anticorruption compliance programs is an American innovation that works reasonably well there and is spreading to other nations.  Here I advocate a second American effort to curb corruption in government contracting that has not worked well in the United States but can in developing states.

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Developing States Should Demand that Firms Doing Business with Them Have an Anticorruption Compliance Program

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In December 2008 the U.S. federal government instituted its Contractor Code of Business Ethics and Conduct program.  Since then, any firm awarded a contract of $5 million or more requiring at least 120 days to perform must establish within 90 days of the award an anticorruption compliance program that i) contains a written code of business ethics and conduct, ii) trains employees on ethics and compliance periodically, and iii) has an internal control system able to discover improper conduct.  The rules also require that the program be overseen by someone of “sufficiently high level [with] adequate resources to ensure [its] effectiveness.”  When a review found government agencies were not systematically checking their contractors for compliance, the regulations were amended to require the government employee responsible for contract execution to verify that the contractor had an anticorruption compliance program in place.

No developing state now imposes any similar requirement on those with which it contracts — at least according to interviews with development agency procurement staff and internet searches.  But there is no good reason why developing countries should not mandate such a program and good reasons why they should. Continue reading →

E-Government and Corruption: Evidence from India

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From the Open Government Initiative for data sharing in the United States to the plurilateral Open Government Partnership abroad, online government or “e-government” is an important trend in global public administration.  In addition to improving government efficiency and citizen access, studies suggest that e-government can also facilitate accountability and reduce corruption.  Of course, there is reason to be skeptical as to whether successes of e-government champions such as Estonia and South Korea can translate to developing countries, where resources are more limited and corruption is often most severe.  But a 2009 study that excluded OECD countries found that a significant increase in the services supplied online could account for as much as a 13 percentile improvement in a country’s ranking in the World Bank’s Control of Corruption index, even after controlling for changes in gross domestic product and press freedom.

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Dollar for Dollar, Procurement Collusion Is Still Better Than Outright Bribery

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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.

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What the World Bank Can Do About Bid Rigging

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I took the World Bank to task last week for its failure to tackle bid rigging and other forms of collusion in its new procurement framework.  Despite mounting evidence that prices on many Bank-financed projects are jacked up 25%, 50%, or even more thanks to bidder cartels, the new framework does not even mention the problem let alone recommend steps to combat it.  The omission is all the worse because developing country governments and other donor agencies generally follow the Bank’s lead on procurement policy.  With upwards of $1 trillion likely to be spent on power plants, water works, and other big-ticket items in developing nations over the next decade, if the rest of the development community, like the Bank, remains blind to the risk of collusion, the potential losses could be staggering.

What might the Bank do were it to decide to amend the new framework to confront the risk of collusion in public procurement? Continue reading →

Ignoring Corruption in Procurement: The World Bank’s New Procurement Policy

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In a recent post Matthew spotlighted a handful of academics that are in denial about the extent of corruption in developing countries.  As bad as it is for armchair analysts to ignore the facts about corruption, it is far worse when a leading development policy maker does.  Yet that is what the World Bank is on the verge of doing as it puts the finishing touches on its new procurement policy. Continue reading →

The Quality of Contract Execution Depends on the Process of Contract Selection

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Last week I complained about the dearth of practical, policy-relevant literature available to help governments oversee contracts for the construction of civil works, the development of complex software programs, and other products which take months if not years to complete.  This is but one of many examples where governments must navigate the procurement process without rigorous, empirically grounded work on what procedures to employ when and how.  Absent such guidance, the procurement community falls back on rules of thumbs, old saws, and folk wisdom — the accuracy of which is always suspect.

One of the more suspicious sounding old saws in the procurement practice is the notion that contract execution and contract selection are independent activities — the belief, in other words, is that that how one selects a contractor is of little or no import for how well the contract is performed. But economic theory and recent empirical work both cast doubt on the accuracy of this bit of folk wisdom.
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