Rolf Alter @raltergov Director, Public Governance and Territorial Development Directorate
It’s hard to imagine government doing its job well without a commitment to basic levels of integrity. Imagine if every administrative process required a bribe to this official or that to accomplish it. Or imagine seeing your tax money wasted on lavish buildings or useless infrastructure because of collusion between public officials and private investors.
And what about the effects you can’t see but end up paying for: the very useful bridge that cost 50% more than it should have due to bribes, skimming and inefficiencies (not to mention potential quality issues); or a screwdriver with a 300% mark-up and other overpriced items buried in a defence contractor’s invoice? These are all examples of waste and abuse of hard-earned citizens’ wages made possible by breaches of integrity. Beyond monetary costs, there is also a steep price to be paid in lost trust and cohesion, both essential to reducing transaction costs and making our societies function.
Without a culture of integrity, democratic processes themselves become endangered. In every society there are individuals, families, organisations and even institutions that try to distort political processes and circumvent commercial rules and regulations. The role of a culture of integrity is, in part, to ensure the integrity of our democratic processes. It means having the controls in place to prevent narrow interests from “gaming” the essential fairness of political and business processes.
The OECD takes a holistic approach that considers all of the risk areas in which corruption takes place, as well as all of the actors, activities and transactions that need to be protected. Through our evidence-based approach, we are able to provide policy support that gives countries tools to help in the fight against corruption. In this role, the OECD partners with the G20, studying the relationship between corruption and economic growth, elaborating whistle blower protection frameworks, public sector integrity frameworks and more.
The risk of corruption is strongest in the case of government-led projects on infrastructure. In 2013, OECD countries spent close to $1.35 trillion in public investment, representing 3.1% of OECD GDP and 15.6% of total investment (public and private). The cost of corruption and mismanagement has been estimated to contribute to 10-30% of large infrastructure budgets. Indeed, the majority of cases brought under the OECD Anti-bribery Convention concern public procurement. The OECD Integrity Framework for Public Investment is a new tool (forthcoming) that can help governments to identify vulnerabilities and the potential points of entry of corruption in infrastructure projects.
There are concrete steps that can be taken in achieving a culture of integrity—and the OECD’s Directorate for Public Governance & Territorial Development (GOV) is accompanying many countries in this process. It requires coherent efforts to update standards and to provide guidance to public and private stakeholders. It also requires countries to anticipate risks and apply tailored countermeasures. These are all areas where governance and good policy make the difference by helping to bring about systemic change, rather than after-the-fact measures that risk overreaction and the undermining of credibility.
But good policies need to have teeth, in other words, monitoring and enforcement. A country may have campaign spending rules and even an oversight committee in place, but little or no enforcement. Underfunding enforcement is one of the ways that policies can be undermined by special interests. Policies must impose clear rules and meaningful penalties to ensure fair and democratic processes.
To achieve this, GOV works with countries to adopt a whole-of-society approach. That means all stakeholders, public, private and civil society, must work together to make it happen. If that sounds ambitious, it is. Fortunately, the OECD has processes that are helping countries take important strides in ensuring basic fairness in their political processes and public investment practices.
Public procurement processes are one of the best examples of how citizens, governments and businesses can work together for mutual gain – or work at cross-purposes or the exclusion of one another for huge loss. It is big business. Around US$9.5 trillion of public money is spent each year by governments procuring goods and services for citizens.
Businesses, governments and citizens all stand to win from smart, efficient investments in infrastructure and public services. Projects that do not strip out mismanagement, fraud and corruption end up costly, wasteful, unsuitable, defective or even deadly as we saw in the collapse of the Rana Plaza complex in Bangladesh in 2013, a tragedy that led to hundreds of deaths of a largely female workforce.
When the products that citizens ultimately pay for are dangerous, inappropriate or costly there will be an inevitable loss of public confidence and trust in governments. Corrupted bidding processes also make a mockery of the level playing field for businesses, especially for younger, innovative companies eager to compete in a fair manner who may not have the backdoor contacts to buy contracts.
It happens far too much. The OECD estimates corruption drains off between 20 and 25 per cent of national procurement budgets. Few government activities create greater temptations or offer more opportunities for corruption than public sector procurement. Indeed, 57 per cent of foreign bribery cases prosecuted under the OECD Anti Bribery Convention involved bribes to obtain public contracts.
So how to ensure clean and efficient investments?
Fundamentally, transparent and accountable procurement cycles mean the companies that win the bids are those with the best product, at the best price targeted at achieving the best outcome. This is not a new concept, but we can no longer afford to talk in the abstract.
Information needs to be proactively disclosed from the earliest decisions to the final audits.
Needs assessments, budgets, award criteria, winning bids (justified against the criteria) and contracts (including crucially any contract amendments) all need to be publicly disclosed.
Access to project information is crucial to enable decision-makers to make informed judgements about the cost, quality and socio-economic and environmental impact of the projects concerned. When there is a lack of disclosure of information around government decision-making, it is easier to hide manipulation of decisions. Citizens –those who stand to win or lose the most – need to be part of those decision-making and monitoring processes, not only to act as independent monitors but also to reduce information asymmetries that can lead to trust deficiencies.
However there is a bonus for businesses too. Access to previous contracts allows businesses to make more focused and appropriate bids. More transparency leads to more competition too. Transparency International Slovakia found that transparency reforms in procurement that included contract publication led to an increase in bids from an average of 2.3 per public tender in 2009 to 3.6 in 2013.
In Georgia all information – including amended contracts – is made public. To incentivise good corporate performance and make sure mistakes are not repeated, lists of whitelisted and blacklisted companies are published.
Governments should also collect and disclose the identity and beneficial ownership of all bidders.
Time and time again, Transparency International sees how competitive bids lose out on public contracts because corrupt officials award themselves, family, friends or associates the contract. One way that this can be done is by disguising their identity or that of their family members or associates behind a front or shell company. Governments need to be collecting and at the time of the award, publishing the beneficial ownership information of all bidders.
On the back of a number of procurement scandals in the health sector, Slovakia has committed to adopt a law that would prevent companies who cannot disclose their beneficial ownership from being able to bid for public contracts.
It’s time to make better use of technology and data. E-procurement systems make processes much more efficient and reduce opportunities for corruption by limiting dependence on public officials. South Korea’s e-procurement system KONEPS was found to have saved the public sector US$1.4 billion in costs and the private sector US$6.6 billion compared to the previous paper-based system. The time it took to process the bids dropped from an average of 30 hours to just 2.
All disclosed project information should be made available online in open-data format. This means the information needs to be comparable, freely released and shared, and usable. The Open Contracting Data Standard provides a ready template to make this information accessible and useful. Making better use of open data has benefits for all parties.
With the adoption of concrete specific transparency measures in public procurement as outlined above and in Transparency International’s guide to curbing corruption in public procurement, the private sector benefits from a level playing field, predictable business environments and a reduction in risk. For governments, there is greater efficiency in public spending, better quality of public services and enhanced trust. Citizens meanwhile benefit from better and more appropriate services, and more effective checks and balances.
There is progress on this issue internationally. Through the Open Government Partnership, forty countries now have commitments on making government contracting more open. Several countries including Canada, Colombia, Mexico and Romania are implementing the Open Contracting Global Principles and/or its data standard. As the world looks beyond 2015 and towards new global development and climate goals that must be delivered, ensuring clean and transparent procurement processes, a critical component of how development monies are spent – will be critical for fighting poverty and climate change. Finally, the G20 is developing High Level Procurement Principles for adoption later this year. By incorporating these simple win-win-win components into those Principles, and by encouraging wider adoption of more precise definitions on what we mean by transparency in public procurement, we could generate a real sea-change and start to lower those OECD estimates of corruption in procurement.
- The Anti-Corruption Network for Eastern Europe and Central Asia
- The Working Party of Senior Public Integrity Officials
- Roundtable on “Drivers of Corruption” within the framework of the Global Forum on Law, Justice and Development
Tools from Transparency International: