We listed our six challenges for public procurement in 2015 at the beginning of the year. Here they are again.
Challenge no.1; Implementation of New Directives
Challenge no.2; Austerity continues
Challenge no.3; Social issues
Challenge no. 4; Value and Innovation
Challenge no.5; The Fight against corruption
Challenge no.6; Capability and competence
Today, let’s look at the fifth of our list of key priorities, the fight against corruption.
Why should we worry about corruption and fraud in public procurement, even in countries where it is not a major problem? It is a question of eternal vigilance. In Europe, we are relatively lucky, compared to many parts of the world. Our countries in the main are seen as having fewer problems than many, but that does not mean we are free of problems.
Where problems are endemic, public procurement is one of the most serious and common areas for corruption and fraud. The sheer amount of money that flows through government procurement – as much as 20% of national GDP in some countries – provides the temptation and opportunity. Add in government employees who may be badly paid themselves, poor processes and systems, and corruption that can go right to the top of the country’s political infrastructure, and it is easy to see why the issues arise.
As we’ve said many times before, the effect of major corruption is dreadful. Firms stop trying to compete on genuine economic terms – why bother, when you win a contract according to who you bribe rather than how good your product is? Money that should be spent on social benefits (health, new roads, education) is siphoned off into the pockets of unscrupulous individuals.
But why have we highlighted this as an issue for European public procurement in 2015? Because we think there are some increasing dangers of fraud and corruption as we move into 2015.
– The continuing economic crisis in Europe, with high unemployment and potential currency crises, may create additional temptation for individuals to behave corruptly. The risk/reward balance for individuals changes with their current situation.
– Europe is already far from corruption and fraud free. We covered here the recent scandal in Rome connected to award of contracts for various services – and Italy is not the only country where this is a problem.
– However, our current concern is around the new procurement directives. There are a number of new processes and rules which, although they have been introduced with good intentions, could have other consequences.
– For instance, a greater focus on negotiation could allow a buyer and a seller to collaborate illegally to make sure the “negotiation” ends up with the decision to award that seller the contract. Equally, greater opportunity to exclude bidders could help corruption; as could the reduced need to check accreditations prior to the procurement process.
– Of course, these changes do not in themselves make fraud and corruption inevitable! But they do mean that procurement professionals need to be vigilant over the coming months.
Actions for Procurement
1. Procurement practitioners should ensure they have a good and thorough understanding of the new directives and national regulations as they are introduced. Education of stakeholders such as budget holders is also important; the EU treaty principles still provide a good basis for understanding what is and is not allowable and act as a protection against corruption – such as the need for transparency and equal treatment.
2. Ensure that all suppliers the organisation deals with are checked out properly to ensure they are genuine, have the correct registrations etc. A track record is not always vital for every contract, but firms without such a record need careful checking.
3. Review procurement processes and polices; much of the fraud and corruption that has been discovered was only possible because basic processes are not roust enough. that includes both those around awarding contracts and the transactional processes once contracts are in place e.g. sign-offs for orders and call-offs, checks on invoices.
4. Increasingly, organisations are putting formal “whistle blowing” procedures in place, the support anyone who highlights problems such as suspected fraud or corruption. Consider this option if your organisation does not already have such a policy in place.