public procurement and corruption: what have we learned thus far? public financial management...
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Public Procurement and Public Procurement and Corruption: Corruption:
What Have We LearnedWhat Have We Learned Thus Far?Thus Far?
Public Financial Management Training Course
May 2, 2006J. Edgardo Campos, PRMPS
Potential Leakage from Corruption:The Case of the Philippines
Government procurement and tax Government procurement and tax collection are perceived to be the collection are perceived to be the major sources of corruption:major sources of corruption:
4 of the top 5 most corrupt agencies (based on national surveys) featured prominently in government contracting
Approximately 20% of government contracts go to kickbacks/commissions (based on surveys of businessmen)
Equivalent to P21 B in 2001 just for the national government
Aid, Governance, andDevelopment Outcomes
Donor Financed Rural SchoolDonor Financed Rural School
Actual School 500 Feet AwayActual School 500 Feet Away
What is actually in the school buildingWhat is actually in the school building
• Bribes and kickbacks
• Front companies
• Bid rigging or collusive agreements
• Use of “loan brokers”/”commissioners”
• Conflicts of interest
• Theft from local accounts and abuse of project assets
• Fraud/Forgery/Misrepresentation
Anatomy of Corruption in ProcurementAnatomy of Corruption in Procurement
Government Funding Source
Government Funding Source
Contractor Inc.
Contractor Inc.
A.K.A. “local rep”
$ $$
$
$““Broker”/Broker”/
””commissioner”commissioner”
Legitimate RelationshipIllicit Relationship
Kickback SchemeKickback Scheme
Subcontractors
A Government Funding Source
$ $$
$
““Broker” asBroker” asProject AdvisorProject Advisor Contractor Inc.
$
Legitimate Relationship
Illicit Relationship
Kickback SchemeKickback Scheme
PIU CONTRACTOR INC.
Owners
Owners
Owners
Hidden owner-Government official
Hidden owner-Government official
Corporate Shield
-Company appears with no history-Company appears with no history-Company providing diverse disconnected -Company providing diverse disconnected servicesservices-Few records exist on ownership-Few records exist on ownership-Extreme interest shown by PIU official in -Extreme interest shown by PIU official in companycompany-Subcontractor who is hired as local agent-Subcontractor who is hired as local agent
Front CompanyFront Company
• Drafting tailored specifications to exclude “unfavored” bidders
• Tipping off the favored bidder that certain components in bid will not actually be called for
• Telling bidders to bid low and recover profit later through contract modification
• Short notice periods for bidding - “emergencies”
• Bidders agree who will win contract
• Component of larger corruption scheme
Bid RiggingBid Rigging
Stages of the Procurement Process
Contract Implementation
Procurement Planning
Preparation
Pre-qualification
Bid Evaluation
Award of Contract
Advertisement
Procurement of goods and civil works
• Lack of PlansLack of Plans
Mis-governancePossible Distortion
Problem Area
• Purposeful Purposeful delay of delay of procurement to procurement to feign “urgency” feign “urgency” and go to direct and go to direct negotiationnegotiation
Lack of Lack of competitiocompetitionn
Procurement Planning
• Unclear Unclear Criteria for Criteria for Project Project SelectionSelection
• misallocation of resources
Lack of Lack of TransparenTransparencycy
Procurement of goods and civil works
Mis-governancePossible Distortion
Problem Area• PMO given sole PMO given sole
responsibility responsibility over the over the determination of determination of contract contract packages and packages and preparation of preparation of specifications specifications (for civil works)(for civil works)
• Contract Contract splitting to allow splitting to allow unqualified unqualified bidders to bidders to participate or to participate or to revert to revert to “simplified” “simplified” biddingbidding
• tailor fitting to tailor fitting to favor a preferred favor a preferred bidderbidder
• BAC BAC members members designated designated solely by Head solely by Head of agency of agency
• BAC members BAC members chosen to stack chosen to stack deck in favor of deck in favor of Head’s choice of Head’s choice of contractorcontractor
Lack of Lack of competitioncompetition
Lack of Lack of TransparencyTransparency
Preparation
Procurement of goods and civil works
Mis-governancePossible Distortion
Problem Area
• Advertising Advertising limited to certain limited to certain types of print types of print media, e.g. media, e.g. regional papers regional papers
• collusion collusion between between newspapers and newspapers and cartel of cartel of contractors – contractors – “early edition” “early edition” phenomenonphenomenon
• publication in publication in the paper with the paper with smallest smallest circulation but circulation but still meets still meets minimum minimum requirementsrequirements
Lack of Lack of TransparencTransparencyy
Lack of Lack of CompetitioCompetitionn
Advertising
Procurement of goods and civil works
Mis-governancePossible Distortion
Problem Area
• Prospective bidders undergo detailed, tedious, and potentially subjective pre-qualification
• Requirements Requirements set to favor a set to favor a particular particular contractor or contractor or group of group of contractorscontractors
• Lengthy Lengthy process that process that creates creates opportunities for opportunities for bribe solicitationbribe solicitation
Lack of Lack of TransparencTransparencyy
Lack of Lack of ContestabilitContestabilityy
Prequalification
Procurement of goods and civil works
Mis-governancePossible Distortion
Problem Area
• Wide Wide discretion of BACdiscretion of BAC
• Quality (technical) and Price (financial) aspects “traded off” in bid evaluation
Lack of Lack of ContestabilitContestabilityy
Lack of Lack of TransparenTransparencycy
• Litigious Litigious tendenciestendencies
• imposition of court restraining orders
Dysfunctional Judiciary
Bid Evaluation
Procurement of goods and civil works
Mis-governancePossible Distortion
Problem Area
• unclear rulesunclear rules • Refusal of Refusal of lowest evaluated lowest evaluated bidder to accept bidder to accept award of award of contract; contract; government no government no recourse but to recourse but to go to second go to second evaluated bidderevaluated bidder
• Head of agency Head of agency delays signing of delays signing of contractcontract
Lack of Lack of TransparencyTransparency
Lack of Lack of AccountabilityAccountability
Contract Award
Procurement of goods and civil works
Mis-governancePossible Distortion
Problem Area
• substitution of substitution of materials of materials of inferior qualityinferior quality
• ghost deliveriesghost deliveries
Lack of Lack of AccountabiliAccountabilityty
Contract Implementation
• weak penalties weak penalties for contract for contract violations -- violations -- purely purely administrative, administrative, e.g. blacklistinge.g. blacklisting
• poor poor monitoringmonitoring
Deficiencies…
lack of transparency
lack of competition/ contestability
weak accountability weak capacity
IMPLICATIONS OF BAD GOVERNANCE
• Graft & CorruptionGraft & Corruption• InefficiencyInefficiency
• Graft & CorruptionGraft & Corruption• InefficiencyInefficiency
• Poor QualityPoor Quality• High CostHigh Cost
• Poor QualityPoor Quality• High CostHigh Cost
POOR SERVICE POOR SERVICE DELIVERYDELIVERY
POOR SERVICE POOR SERVICE DELIVERYDELIVERY
Public Procurement: Increasing Transparency and Competition
Using ICT: Using ICT: ChileChile
All supplier companies register, indicating areas of business (e.g., IT, construction, furniture)
Public agencies submit tenders through internet
Automatic e-mail to all companies in selected area
Online information on name, position of official in-charge
Online information on results: who participated, proposals made, scores received, who won bid, historical record of agency’s purchases and contracts
Engaging CSOs: Engaging CSOs: PhilippinesPhilippines
Legal foundation a mess with over 100 laws and regulations
New omnibus law needed for clarity and predictability in the process
New law in 2003 with determined efforts of reform minded public officials allied with strong and unified advocacy efforts of CSOs to offset entrenched vested interests
For credible enforcement: requirement that all bids and awards committees must have at least one observer from a certified CSO
Extensive training of CSOs now under way
Legal foundation a mess with over 100 laws and regulations
New omnibus law needed for clarity and predictability in the process
New law in 2003 with determined efforts of reform minded public officials allied with strong and unified advocacy efforts of CSOs to offset entrenched vested interests
For credible enforcement: requirement that all bids and awards committees must have at least one observer from a certified CSO
Extensive training of CSOs now under way
““Early Warning” Indicator System: RoadsEarly Warning” Indicator System: Roads
Project Phase Possible Indicators
Pre-Procurement
Project Selection > Ratio of selected projects that meet technical locational criteria
Project design/budget estimation > Design specifications posted in website including name(s) of individuals responsible for the design (yes/no) % of estimated unit prices exceeding 10% of benchmarks
> Difference in days b/w bid opening date and date of issuance of the bid documents
Procurement
Invitation to bid/Advertising > Ratio of no. of days to complete to the maximum allowable under bank rules# of firms submitting Letter of Intent (LOI)
Pre-qualification > # of firms found eligible or pre-qualified relative to total no. of submissions
Bid Evaluation # of days to complete bid evaluation and determination of the “winning” bidder # of eligible or pre-qualified bidders submitting proposals
> # of eligible or pre- bidders withdrawing proposals
> standard deviation of bid prices
Post-qualification Ratio of actual # of days to complete post-qualification to maximum allowable under Bank rules
> Ratio of the winning bid to the budget estimate for the project
Award of Contract Ratio of actual # days to issue award of contract to maximum allowable under Bank rules (after post-qualification)Ratio of actual # days to complete the bid to maximum allowable under Bank rules (after post-qualification)
> Ratio of final contract value (which could be other than the “winning” bid if post disqualification occurs) to budget estimate for the project.
““Early Warning” Indicator System: Roads . . . Early Warning” Indicator System: Roads . . . Cont’d . . .Cont’d . . .
Project Phase Possible Indicators
Contract Implementation
Project completion Ratio of #of actual days needed to complete the project to the maximum specified in the contract Ratio of actual cost of project upon completion to the contract value
> Presence of variation orders and the extent of variation (in terms of value),
> Quality of final product as percent of expected quality (as specified in the contract), .e.g value of defects relative to total value of contract
Disbursements > # of days it takes for agency to pay contractor after submission of all requirements
Integrating External Monitoring
> University seniors(civil engineering, economics, other social science)
X31, x32, . . . .Post Award/
Implementation
> TI Indonesia cum
> Religious organization, e.g. Muhamadhiya, CPCP
X21, x22, . . . .Procurement
> University seniors
(civil engineering)
> Contractors association
X11, x12, . . . .Pre-procurement
External monitoring group
IndicatorsPhase
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