Tag Archives: public procurement

New Podcast Episode, Featuring Mihaly Fazekas

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A new episode of KickBack: The Global Anticorruption Podcast is now available. In the new episode, my ICRN colleagues Nils Kobis and Christopher Starke interview Mihaly Fazekas, Assistant Professor of Public Policy at the Central European University. Professor Fazekas explains how he became interested in the study of corruption and describes some of his lines of research, including his work on measurement of corruption, particularly in the context of public procurement, and the challenges of scaling up the best corruption measures. The interview also covers additional topics such as the role of investigative journalism in fighting corruption, and the anticorruption potential impact of new technologies, including big data analysis and artificial intelligence.

You can also find both this episode and an archive of prior episodes at the following locations:

A quick note: We will be going on summer break, so we will not be releasing any new episodes over the next six weeks, but KickBack will return with new episodes in September. KickBack is a collaborative effort between GAB and the Interdisciplinary Corruption Research Network (ICRN). If you like it, please subscribe/follow, and tell all your friends! And if you have suggestions for voices you’d like to hear on the podcast, just send me a message and let me know.

Public Procurement in Peru: Three Urgent Reforms to Curb Corruption

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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.

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Why Italy Should Not Prioritize Anticorruption in Spending Covid Recovery Funds

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The Covid-19 pandemic has been an economic disaster as well as a public health disaster, and massive public spending will be needed to promote recovery. In Europe, the EU is projected to spend up to €1.8 trillion on pandemic recovery. One of the biggest recipients of these EU funds will be Italy, the EU’s hardest-hit member state. Currently, Italy is poised to receive €123 billion in loans and €69 billion in grants between now and 2026. Provision of these funds has already started; the first tranche of €25 billion arrived this past June. This funding will support Italy’s Covid recovery plan, known as the Piano Nazionale di Ripresa e Resilienza (PNRR), which—in the name of territorial cohesion—will allocate 40% of the funds to the Italian south.

If history is any guide, a massive amount of that money will be misallocated, misspent, or outright stolen by corrupt public officials colluding with organized crime groups. The mafias have a long history of bribing Italian officials for lucrative public contracts. Between 2014 and 2020, Italy received €77 billion from the EU for use in structural and investment funds; 60% of those funds were “fraudulently requested or obtained,” often by organized crime, with the 85% of that fraud occurring in the South. Much of the fraud occurs when illegitimate companies request funds in the form of loans and grants; the companies either don’t exist or are liquidated upon receipt of the funds.  

But we needn’t look only to history: Italy’s three most powerful crime syndicates—Cosa Nostra in Sicily, the Camorra in Campania, and the ‘Ndrangheta in Calabria—are already bribing Covid response officials, winning fraudulent contracts, and plundering businesses in receipt of PNRR funds. As the EU money pours in, we can expect that these mafia groups will use their corrupt networks to siphon off a staggering percentage of the EU Covid relief funding.

What should European policymakers do in response? It’s tempting to insist—as anticorruption activists have in this and other contexts—that the EU and Prime Minister Mario Draghi’s government adopt enhanced oversight and transparency measures, to better ensure that funds are spent appropriately. But that would be a mistake. Right now, the priority must be on promoting a swift economic recovery. Attaching burdensome anticorruption requirements to the public spending needed to support that recovery will slow the process down too much. This is, I realize, a bitter pill to swallow. Many readers will instinctively resist the idea that the EU and the Italian government might bankroll Italy’s most powerful mafias (to the tune of up to €200 billion). But if Italy is to recover from the economic effects of the Covid-19 pandemic, the priority must be the swift delivery of recovery funds, even if this means that much of the money will be intercepted by the mafia.

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Guest Post: Ensuring Integrity in U.S. Infrastructure Spending

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Today’s guest post is from Shruti Shah, the President and CEO of the Coalition for Integrity (C4I), and Taylor Cerwinski, a consultant for C4I on various anticorruption and ethics issues.

The biggest item on the U.S. Congress’s legislative agenda right now is infrastructure. Last month, the Senate voted to pass a $1 trillion infrastructure bill focused on surface infrastructure and broadband projects, including $550 billion in funding for new projects. That bill is set for a House vote on Thursday, though the politics are complicated by the debates within the Democratic Party over the proposed $3.5 trillion federal budget bill that includes investment in “human infrastructure” via support of child care, education, healthcare, and other projects. While all eyes on Washington are focused on whether the Democrats will be able to hold together their progressive and centrist wings to pass both of these bills, there’s another important concern regarding the proposed infrastructure investment that ought to receive attention: the need for more effective oversight of how the money is spent.

While strong infrastructure is vital to ensure a healthy economy and thriving communities, the scope, complexity, and cost of the proposed infrastructure projects make it vital to ensure that there is clear and robust oversight, so that these projects are carried out in a fiscally responsible manner. Without such oversight, there is a substantial risk that infrastructure projects at the federal and state level will fall victim to waste, fraud and other abuses. Internationally, estimates of losses to bribery in construction are as high as 10 to 30 percent of construction costs. And the United States is not impervious to mismanagement and corruption in infrastructure projects. A review of prior high-profile projects such as the California High Speed train, the Central Artery Project in Boston (The Big Dig), and the awarding of contracts related to disaster relief and clean-up efforts in the aftermath of Katrina reveals cost overruns, fraud, and incidents of bribery and other forms of public corruption.

The infrastructure bill now pending before the House incorporates several measures to combat potential corruption. These include requirements that federal agencies award grants on a competitive basis, regularly publish reports on the implementation of grant programs, and fund oversight functions. While a good start, these measures do not go far enough. Assuming the infrastructure bill passes, agencies must—through implementing regulations and actual practice—go further to ensure transparency, accountability, and integrity in infrastructure spending. As a new Coalition for Integrity’s report on Oversight of Infrastructure Spending, there are a number of useful measures that would be helpful, including the following: Continue reading →

Guest Post: How Not To Balance Efficiency and Integrity in Public Procurement–The Case of Italy

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Today’s guest post is from Roberta De Paolis, a Ph.D. researcher in criminal Law at the Sant’Anna School of Advanced Studies.

In designing an effective public procurement system, a key challenge is striking the proper balance between ensuring efficiency and promoting integrity. But emergency situations make it hard to maintain an appropriate balance, as the response to the global Covid-19 pandemic has again demonstrated. When confronted with an urgent situation, governments often allow the need for speed to trump the interest in transparency and oversight, and thus grant public procurement authorities exemptions from the ordinary rules and monitoring procedures.

If one wants to find a good example of how not to address the challenge of striking the right balance between these competing interests, one need look no further than Italy. Rather than design a system that can ensure an appropriate degree of integrity without stifling efficiency, while at the same time building in adequate flexibility to handle urgent situations appropriately, the Italian public procurement system is characterized by a set of overly rigid, stifling baseline rules, from which the government has created a set of overly broad discretionary exceptions to address situations in which the application of the usual rules is untenable.

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Guest Post: An Anticorruption Agenda for the Biden Administration

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Today’s guest post is from Lucinda A. Low and Shruti Shah, respectively Acting Chair and President of the Coalition for Integrity, a U.S. based non-governmental organization focused on fighting corruption. The opinions expressed here are those of the authors, and should not be attributed to the organization..  

The United States has a long history, across administrations of both parties, of showing leadership internationally in the fight against corruption. The passage and enforcement of the Foreign Corrupt Practices Act (FCPA) has served as an example for other countries to adopt their own transnational anti-bribery laws. Additionally, the United States has championed international anti-bribery efforts in multilateral organizations and worked to build coalitions to root out all types of corruption. For the last several years, however, U.S. has faltered. In order to reestablish the U.S. as a global leader against corruption, and to get its own house in order, the Biden Administration and the new Congress should embrace an ambitious agenda that includes the following elements: Continue reading →

How the EBRD Can Help Fight Structural Corruption in the Western Balkans

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The European Bank for Reconstruction and Development (EBRD), created in 1991 to help former Eastern bloc countries undergoing economic transitions, is a multilateral bank that uses investment as a way to build market economies and integrate them into regional and global systems. The EBRD started out primarily investing in private enterprises with commercial partners, but its focus has since expanded to the public sector, which now accounts for over 50% of its portfolio in about a third of its countries of operation. The EBRD, like other international financial institutions, recognizes the risks that corruption and other forms of misconduct pose to the effectiveness of its projects and to its own credibility, and has taken extensive precautions to prevent misconduct by project clients and the EBRD’s own staff.

While the EBRD has worked hard to guard against corruption in the bank’s investment projects, the EBRD can and should do more to explicitly promote anticorruption reform—particularly in regions like the Western Balkans, where corruption is widespread and reforms have stalled. The EBRD, by virtue of being one of the region’s biggest lenders, and one with a good reputation, has considerable leverage and legitimacy. Of course, sustainable reform ultimately needs to come from domestic agents, and EBRD officials are understandably cautious about what they can realistically accomplish (a point that Sergei Guriev, the EBRD’s former chief economist, noted in a KickBack podcast last fall). All that said, the EBRD can and should do more to shape domestic anticorruption agendas in the countries it assists, beyond simply insisting on integrity and regulatory compliance for EBRD grants and loans.

To its credit, the EBRD has explicitly recognized and emphasized the importance of good governance to economic development, and has started to look at ways to promote lasting governance-related reforms and structural change. In pursuing this agenda in the Western Balkans, the EBRD should apply lessons learned from its more aggressive anticorruption efforts in Ukraine, and in particular should push for reforms in three main areas: Continue reading →

Finding Politically Feasible Anticorruption Reforms in Bosnia and Herzegovina: The Case for Indirect Approaches

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Bosnia and Herzegovina (BiH), like many of its neighbors in the Western Balkans, is beset by endemic, seemingly unsolvable corruption. Understandably, many Bosnian citizens would like to see the prosecution and conviction of high-level officials engaged in corrupt practices. Local activists and the international community have pressed for improvements to BiH’s judicial sector and law enforcement capacities, at least in part to make such high-level prosecutions more likely, and more likely to succeed. Yet while convictions of corrupt senior officials should indeed be one important goal, in the short term it will be very difficult to achieve, for the simple and familiar reason that political leaders will vigorously resist any changes that could put themselves at risk of criminal prosecution. Ending the culture of elite impunity in BiH, while necessary, will remain a long-term project.

That doesn’t mean, though, that there’s nothing that can be done about corruption in BiH in the short-to-medium term. Indeed, there are a number of measures, besides direct criminal prosecutions, that could reduce corruption in ways that are more indirect, and therefore less threatening to those currently in power. That feature, coupled with the fact that many of these reforms would also produce substantial economic benefits even independent of their corruption-reducing effect, makes these kinds of reforms more politically feasible. Reforms in the two following economic areas are examples of how BiH could cut opportunities for corruption and make everyday life better for Bosnians, and do so in a way that might be acceptable or even attractive to incumbent politicians. Continue reading →

Corruption Risks in Infrastructure Projects Using Design-Build Contracts

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For over a decade, state and local governments in the United States have been moving to streamline the procurement of roads, bridges, and other public works.  Traditionally, they contracted with one firm to design the project, and then, though competitive bidding, let a contract to a second firm to build it. For many projects, public authorities are now replacing this design-bid-build method of contracting with the design-build method of contracting.  One contract is awarded, competitively, to a single firm both to design and to build the facility.

Design-build contracts offer several advantages over a design-bid-build contract.  Three are most important for public procurements. One, accountability is centralized. If a problem arises during construction of a design-bid-build project, the builder can claim the fault lies not with it but with the firm that designed the project.  Two, design-build contracts are usually fixed-price, meaning the price is set before work begins.  With a design-bid-build contract, the cost varies with the amount of materials used and often as a result of problems arising during construction.  Finally, design-build projects take less time to complete.  With design-bid-build, no work begins until after the design is finished.  With design-build, preliminary construction work – clearing the site, levelling the terrain – can begin while the project is being designed.

These advantages have not been lost on less developed nations and donor organizations.  The number and size of public infrastructure projects the World Bank, the Asian Development Bank, and the other development banks are financing that use design-build are on the rise.  According to its 2018 Annual Review of Procurement Activities, the largest contract the European Bank for Reconstruction and Development funded in 2017 was a € 274 million design-build contract for an ore enrichment project in Kazakhstan.

But donors and developing countries should not ignore the major disadvantage of design-build contracts compared to design-bid-build contracts: corruption.  Blame for what many consider the most egregious public corruption scandal in American history has been attributed to the abuses that arose from a design-build contract, and indeed, corruption concerns spurred the United States to replace design-build contracts for public works with the more transparent contracting method today known as design-bid-build. Continue reading →

Guest Post: Measures To Counter Corruption in the Coronavirus Pandemic Response

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Today’s guest post is from Sarah Steingrüber, an independent global health expert and Global Health Lead for CurbingCorruption.

The coronavirus pandemic is a global health challenge the likes of which has not been seen in over a century. The outbreak demands swift and bold action not only in the direct response to the pandemic, but also in ensuring that monies are correctly spent, that companies do not profit unfairly from misfortune, and that power is not abused by our leaders.

Two weeks ago, I published a commentary on this blog that identified some of the critical corruption risks associated with the response to the coronavirus pandemic. In today’s post, I turn from a diagnosis of the risks to some possible solutions. In particular, I want to highlight four types of measures that will help to mitigate some of the corruption risks that were identified in my previous post. Continue reading →