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OECD - Bribery in Public Procurement

OECD - Bribery in Public Procurement

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Published by: The Russia Monitor on Apr 30, 2011
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The existence of public procurement rules or changes related to them are
recent (see Box 1), and a number of countries are either still lacking them or
otherwise must confront unclear regulations and procedures. The absence or
inadequacy of procurement rules provides multiple opportunities for
transgressions. The primary focus of procurement rules is to secure the best
value for money. It is only gradually now becoming obvious that bribery
should be one of the fundamental concerns in ascertaining the effectiveness
of procurement regulations.

The multiplicity of rules may have a negative impact on transparency
and lead to legal uncertainties and high transaction costs, both for the
procurement agencies and the potential suppliers. The correct application
and supervision of laws may be difficult, and awarding agencies could have
problems negotiating their way through the regulatory diversity.

However, procurement agencies may also purposely use and abuse the
regulatory diversity. For instance, they may privilege firms by opting for
tendering procedures which require no controls. They may also formulate
requirements which favour specific firms and constrain market access to
specific suppliers. Various options are outlined in the following section.



Box 1. Movement towards public procurement regulation and reform

Regionalisation and increased internationalisation have had a great impact on the development
of public procurement regulations. Impetus for reform in many European countries was based on
the objective of entering the European Union and seeking consistency with the regional regulatory
framework. Many reforms are initiated by regional or bilateral aid or by aid from the international
development institutions such as the World Bank, which provide financial assistance for reform

Developments around the world have been supported by the adoption of a Model Law on the
procurement of Goods, Construction and Services by the United Nations Commission on
International Trade Law (UNCITRAL).

International perspective

Since many visible trade barriers, such as tariffs and quotas, have been reduced or eliminated
through trade agreements, attention has turned increasingly towards more subtle and sophisticated
protectionist practices, such as discriminatory government procurement.

Regional agreements include regulation on government procurement. They require the parties
to adapt their laws on procurement to comply with the requirements of the agreements and provide
formal national procedures to allow aggrieved firms to challenge procurement decisions.

Domestic and international rules generally emphasise the same key principles of competition,
publicity, use of commercial criteria and transparency.

Competition means that contracts are awarded by comparing offers from a certain number of
contractors in order to establish which one can provide the most favourable terms for delivering
the government’s requirements.

The publicity (or public notice) principle supplements the competition principle since it ensures
that contractors find out about contracts and propose their services or goods. Decisions on which
contractors should be treated as eligible to bid must generally be based on the ability of firms to
undertake the contract. In choosing which bid to accept, authorities are required to consider only
the merits of each submission (price, product quality, etc.).

The concept of transparency refers to the idea that procurement procedures should be
“characterised by clear rules and by means to verify that those rules were followed”. Transparent
procurement regimes share the following characteristics:

1. All participants and potential participants should be aware of the applicable rules of

2. The discretion of procurement officers in achieving the goals of the procurement process
should be structured and subject to formal rules;

3. Compliance with the applicable rules should be verifiable;

4. Mechanisms should exist for scrutinising decisions to ensure compliance with legal




Box 1. Movement towards public procurement regulation and reform (cont.)

The development of formal systems to regulate domestic procurement can make a valuable
contribution towards opening markets to international competition.

International rules only deal with some aspects of procurement activities. Detailed rules on
contract award procedures contained in the WTO Government Procurement Agreement (GPA),
NAFTA and the European Union regimes govern only contracts above certain financial thresholds.

Tendering procedures

Public procurement can take place through different types of tendering. Procuring entities draw
up a detailed description (“specification”) of the product or the service that they require and invite
firms to submit written bids setting out the price and other terms by which they can supply the
product or service. The contract is then awarded to the firm offering the best price or the best
combination of price, quality and other factors. Such formal tendering is generally characterised by
the absence of discussions between the procuring entity and the bidders.

The main types of formal competition for tenders are: 1) open (or unlimited) procurement, 2)
selective procurement (restricted to pre-selected categories of suppliers invited to bid) and
framework agreements, 3) limited (or negotiated) procurement, including individual, sole-source,
single-source or direct tendering. [Terms used correspond to the WTO GPA; although similar in
type, terms may vary significantly between different national regulations].

Countries use both formal as well as “informal” methods such as requests for proposals and
requests for quotations (where procuring entities seek detailed technical and cost proposals, on the
basis of which they hold negotiations with prospective providers). As national administrations are
using information and communication technologies more often, novel methods of procurement,
such as purchase cards or electronic catalogues, have been introduced. It generally appears that
procuring entities tend to use more formal award procedures for goods and works than for services,
which are more reliant on judgment from procurement officers.

Sources: « Public Procurement : Global Revolution » ; editors Sue Arrowsmith and Arwel Davies ;
Kluwer Law International; and OECD Transparency in Government Procurement: The benefits of
efficient governance and orientations for achieving it [TD/TC/WP(2002)31/FINAL]

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