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Tuesday, August 13, 2013

Transparency is an essential but not adequate factor in mitigating corrupt procurement

Anybody writing a blog for a "Sunlight Foundation" must know a thing or two about, and have a predilection for, transparency. So when they conclude that transparency is not a total cure for corrupt procurement practices, you have to pay attention. Why not?

Case Study: Public Procurement in the Slovak Republic
Transparency and open data policies and initiatives have reached a state of maturity where it is crucial for us to evaluate them to learn what works, what doesn’t and why. Transparency is not likely to be a cure-all, but we think it is a cure-some; so, we need to figure out where and how it should be best applied. As part of that process, we have been conducting a series of in-depth case studies on the impact of technology enabled transparency policies around the world. Our initial case studies look at transparency in public procurement and we have chosen four countries to study. This analysis discusses our findings about public procurement disclosure by the Slovakian government.

Corruption in public procurement in Slovakia has been a long-standing problem. By 2010, immediately prior to the reforms studied here, businesspeople and entrepreneurs listed corruption as the number one barrier to doing business in Slovakia according to a survey conducted by the Slovakian Business Alliance.

However, according to Juraj Nemec, a Czech economist at Masaryk University who studies public procurement in Slovakia, the actual decision making process followed by procurement authorities has never been the primary locus of corruption. Manipulation of public procurement has tended to occur either before or after the awarding of the bid, rather than during the decision process itself, which is heavily regulated.

Prior to the submission of bids, procuring authorities can limit competition and manipulate the results of the tender process by custom tailoring a contract or setting unreasonable conditions on who can submit a bid in the first place. Concern over manipulating procurement outcomes by setting conditions prior to tendering was widely shared amongst our interview subjects. Gabriel Sipos, the Director of Transparency International Slovakia, expanded on this point.

In Slovakia there is a big problem that some participants are excluded from tenders because the conditions of participating in the tender are illogical or irrational. For example they need to submit documents proving their experience in fields which are not directly connected to the award itself. One example would be when the state in Slovakia once wanted to create a website. One of the requirements on the tender participants was that the company needed to have experience in taking photographs from a plane.
[One Guam bid recently raised eyebrows when it required that a manufacturer of a firetruck have at least 2 manufacturing facilities in the US. The Slovaks did not invent that little charade.]

Our interview subjects also highlighted the problem of public procurement manipulation during the contract management phase. This form of manipulation occurs through not fully enforcing contracts, or through various addendum, amendments and changes to the contract. Prior to reforms, it was possible for this to result in the final contract differing significantly from the bid accepted during tendering.

There have been three major changes to public procurement since 2010 in Slovakia: 1) the introduction of e-procurement, in which dissemination of tenders, tender documents, the submission of bids and the publication of notification of awards is done publicly through a single portal; 2) the introduction of reverse auction mechanisms for procuring goods and services; and 3) the mandatory publication of all public contracts on a centralized online government contract repository.

There was wide agreement amongst all interviewees that the central contract repository is immensely useful. Peter Kunder, data analyst at Fair Play Alliance, summarized the general view: “the central repository of contracts is a big help to us.” In particular, the central contract repository has made post tender procurement manipulation more observable, and enabled much greater public participation in uncovering suspect procurements.

Gabriel Sipos noted that all of the newly available data enables a different kind of oversight from that made possible by FOI. The data makes it possible “to compare who is a better contractor, and what kind of supplier is giving the government the best deal.“ Not only are these high level comparisons now possible, “there are other kinds of data that are not necessarily related to procurement that you can connect with [the procurement data]. The company register gives you information about the owners so you can tie the tender results to the owners so you can see if some cities or government institutions are buying from only some companies and you can try to track if it is donor related or these guys are friends or maybe somebody worked in that company before and now he is a purchaser. You can look at those links…You can connect it to other data.”

The widespread publication of procurement data online has fundamentally reshaped the civil sector and media oversight ecosystem. The value of the change from reactive publication of information in response to FOI requests to default publication of all materials should not be underestimated.

The availability of the data online in an easily digestible form, through the Open Public Procurement Portal, has also changed the character of who brings suspect tenders to the attention of journalists and researchers. Before the reforms, leakers or whistleblowers had to alert journalists or watchdogs of suspicious proceedings. Once alerted a reporter or researcher would then file FOI requests. In these circumstances corruption could only be exposed from within: “someone would have to know that something wrong was going on and try to get that information from the public body.” ) According to Adam ValĨek, “Previously, only a few people have read the contract, because contracts were unavailable.” As a result, “Most of the tips came from the interior of authorities.” Now, it is possible for journalists and CSOs to proactively monitor procurement and highlight suspicious cases.

These lower barriers have also made a difference for participants in the business community. Robert Kicina noted that the only way to discover tender restriction manipulation is through public control and access to tenders. According to him, it is now easy for competitors to “look this up and send it to the media. This is the only mechanism that works in Slovakia…It is used by entrepreneurs to protect themselves from unfair competition and unfair procurement.“
This is a variant on what I call the outsourcing of policing of the procurement system. My reference point for that claim is a robust review system, in which competitors are allowed if not encouraged to blow the whistle on questionable procurement practices through a protest system that responds to the protest without favor and has teeth to sanction or change the wayward behavior. In the Slovak system, it seems, the public is empowered to perform that role. In contrast, the protest system of the ABA Model Procurement Code and the Federal contracting regime prevents the public from direct policing; it requires that protestors must be "aggrieved" or have some kind of "economic interest". Public interest, taxpayer concerns, do not pass standing muster.

For the public protest system to work effectively, there must be a particularly robust independent news reporting regime and an enforceable right of free speech. And a people with backbone to stand up and be counted upon to demand accountability from their government. That is not found in a people who continually elect the same old faces. Transparency is lost on people who have long ago ceased to be surprised -- and outraged to action.

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