Red Flags in Procurement

Robin Kumar Thakur

Procurement specialist
The World Bank
Definitions (Part 1)
• Corrupt Practice is the offering, giving, receiving or soliciting, directly
or indirectly, anything of value to influence improperly the actions of
another party
• Fraudulent Practice is any act or omission, including a
misrepresentation, that knowingly or recklessly misleads, or attempts
to mislead, a party to obtain a financial or other benefit or to avoid an
obligation
• Collusive Practice is an arrangement between two or more parties
designed to achieve an improper purpose, including to influence
improperly the actions of another party
Definitions (Part 2)
• Coercive Practice is impairing or harming, or threatening to impair
or harm, directly or indirectly, any party or the property of the
party to influence improperly the actions of a party
• Obstructive Practice is deliberately destroying, falsifying, altering
or concealing of evidence material to the investigation or making
false statements to investigators in order to materially impede an
investigation; and/or threatening, harassing or intimidating any
party to prevent it from disclosing its knowledge of matters
relevant to the investigation or from pursuing the investigation
Why We Should Care?
• Corruption ranked as biggest impediment to economic development and
growth in many studies.
• Corruption-related costs add to the overall cost of any project and delays the
economic development agenda of any country.
• Corruption is prevalent from Needs Assessment to Contract Management.
• Procurement and contract management are major areas of corruption (apart
from Rent Seeking).
• Corruption thrives away from public view and enriches only those involved.
Corruption in Public Procurement
• Corruption takes many forms. The most visible form could be bribes, kickbacks and
fraudulent practices. Some of the other forms are theft and misuse of public assets and funds,
abuse of official discretion etc.
• Procurement is not a cause of corruption but provides opportunities for corruption which
distorts public finance, affects the delivery of public services and undermines efforts to
reduce poverty.
• Public Procurement is susceptible because of high amounts of money involved and high
degree of discretion over procurement.
• Corruption tend to flourish when institutions lack transparency, have excessive discretionary
power and have weak capacities to prevent, detect and punish corruption through: Checks
and balances, Controls and monitoring and Existence and enforcement of regulations
Common F&C Schemes
• Corruption Schemes: Bribes and kickbacks /Hidden interests by project officials
in contractors and suppliers
• Bid Rigging Schemes: Change order abuse /Collusive bidding /Excluding
qualified bidders /Leaking of bid information /Manipulation of bids/Rigged
specifications /Split purchases /unfair advantage /Unjustified direct contracting-
single source selection 
• Fraud Schemes: Failure to meet contract specifications /False statements and
claims /False, inflated, or duplicate invoices/Fictitious contractor /Product
substitution 
 Red Flags
in
Goods, Works & NCS Procurement
Project Preparation Stage
• Undue interference on project selection
• Overestimation of project components
• Unnecessary items and/or quantities (e.g. unjustifiable number of vehicles
included)
• Tailored Specification
• Unnatural lumping of items into large contracts or breaking of quantity
• Unrealistic timeline for activities
• Fractioning into Multiple contracts below review threshold
 Irregularities at the bidding stage
• Use of less competitive procurement method
• Incomplete or misleading procurement notices (discourage participation).
• Unrealistic bidding period; refusal to extend bidding period despite bidders request
• Complaints from Bidders
• Excessive charges for purchasing bidding documents or excessively high bid securities
• Restrictive specifications
• Seemingly inflated agent fee
• Inside information
• Too tight delivery or completion schedule
• Bidding documents OR Request for proposals are not made available at the same time to all eligible
contractors/ consultants
• Unjustified change of scope, change of key personnel, change in contractual terms, change in specifications to
a lesser quality etc.
Unusual bid pattern (Similarity between competing Bids)

• Bid prices higher from each other by the same percentage

• Unexplained inflated Bid price (Bids much higher than cost estimates)

• Bidders with identical contact details (address, phone number)

• Bids with same spelling/grammatical mistakes

 Red Flags at Bid Evaluation Stage
• Inconsistency between information in the bid evaluation and actual bids.
• Excessive delays in the bid evaluation ( bid validity period expires)
• Not recording or addressing complaints in an effective and timely manner/giving
minimum or no attention to complaints
• On face value the reasons may appear to be strict interpretation of the bidding
documents, when in effect, they are excuses to drop the lowest priced bidder and
award a preferred bidder.
• All lower cost Bids rejected on technical grounds and award goes to higher
Bidders
Red Flags in Supporting Documents
• False registration documents
• Suspicious Bidders: Shadow bidder; Related bidders (bidders having common
owners)
• New or unknown companies appearing as suppliers or sub contractors
• Fabricated documents
• Performance certificates issued by non-users (viz. by intermediaries/
distributors)
• Bid security with sequential numbers
Red Flags: Contract Management stage
• Substandard work and material accepted
• Purchased assets/goods not used
• Results of contract award are not published to the public
• Diversion : Theft and personal use of assets
• Non-Delivery
• Multiple contract change order
• Payment of inflated or false claims
• Falsified Implementation and audit report
 Some More Red Flags
• Discrepancies in accounting records or poor accounting and reporting
• The failure to adequately publicize requests for bids, e.g., using only local publications, or
failing to publicize the request for bids
• A significant number of qualified bidders fail to bid
• Large number of bidding documents sold but only one or a few bidders submitted bids
• High number of competitive or sole source awards to one supplier
• Payments not supported by adequate supporting documents, i.e. invoices, inappropriate
approval, lack of evidence of goods and or services
• Single signatory to the Bank account
• Lack or inadequate recording of assets, stocks
Some Examples of
Red Flags
Example – Correlation between price quoted by bidders
Example – Similar Bids (same format/ same mistake)

Bid Document asked for “Sputum” while bids mention “Sppotum”

 Red Flags
in
Consultancy Services
Red Flags at Preparation Stage
• Overestimation of project components
• Tailored TOR
• Unrealistic timeline and/or sequencing of activities
• Multiple Single source contracts in the procurement plan
• Assignments having no significant contribution towards achievement of
Project objectives planned(to accommodate a specific consultancy firm/
consultant)
• Unrealistic proposal submission OR completion period
• Restrictive TOR
• Use of less competitive procurement method
Red Flags at EOI/RFP Stage
• Incomplete or misleading procurement information (discourages
participation)
• Additional information to selective few
• Failure to adequately publicize REOI
• A significant number of qualified consultants fail to provide EOI or proposal
• Six firms shortlisted but only one or two submit proposals
• High number of competitive or sole source awards to one consultancy
firm/consultant
• Refusal to extend period for submission of proposals despite Consultants’
request
Red Flags at Evaluation stage
 Inconsistency between information in the evaluation report and actual proposal.
 Inconsistency in marking by giving different marks to different firms for similar/same
qualification/experience etc.
 Giving less marks to a firm without any justified weaknesses.
 Excessive delays in the evaluation ( validity period expires)
 Fabricated CVs/ false CVs/ “CV hunting”
 Fabricated experience and/or profile of the firm
 Technical score for one consulting firm unreasonably higher compared with the rest (e.g. one
consulting firm is assigned: 90% whereas the remaining are for example in the low 80% or
lower).
 Vague reasons supporting the technical scores
 Award/Contract Management stage

 Complaints from consultants. Not recording or addressing complaints in an effective and timely
manner/giving minimum or no attention to complaints
 Payments not supported by adequate supporting documents, i.e. invoices, inappropriate
approval
 Lack of evidence of services provided
 Disclosure issues :Results of award not published to the public
 Repeat awards to same consultant
 Major Changes in team, contract terms, TOR and value before or immediately after signing the
contract
 Creation of seemingly unnecessary changes to scope that result in unnecessary contract
extensions
 Indication that government staff have been subcontracted, or are being used, to perform
portions of contracted work
Mitigation Measures
Controlling Corruption
 To control corruption, one needs to understand how public procurement
system operates and identify the opportunities of corruption
 Know your environment – while corruption varies across regions/sectors
corruption schemes (bribes, kickbacks, misrepresentation ) are often
similar in form, shape etc.
 Develop systems which will deter people from wrong doing
 Have checks and barriers
 Develop robust monitoring mechanism so that cases of F&C is detected at
the earliest
 Enlist the aid of civil society
 Have effective prosecution mechanism
Some Good Practices
 Training of procurement staff in detecting indicators of fraud and corruption
 Checking the authenticity of certificates/other documents submitted along with the bids
from the issuers
 Effective complaint handling mechanism
 Maximizing the disclosure of information on website (including the reasons for rejection
of lower bids and details of contract award)
 Involving independent/Subject matter experts in bid evaluation
 Using only written communication with bidders (no personal meetings)
 Carrying out procurement post reviews of a sample at regular intervals
Second Look?
 The signs are only indicative. Flags may point just as equally to unintended
errors or vulnerability that increases the risk of corruption. What can be said
with certainty is that a ‘second look’ is warranted to attempt to get better clarity
to see if issue relates to capacity constraint or to suspected corruption

 The list is only suggestive and not exhaustive. There can be more or different
signals so one needs to be aware, alert and ready for a ‘second look’ - always
Remember before awarding a Contract (done automatically if STEP is u
 To check the list of debarred firms (available on external website of the World Bank).

 To check the list of temporary suspended firms (available on Client Connection website –
password based access)

27
 Thank You

Additional Resources:
http://siteresources.worldbank.org/INTDOII/Resources/Red_flags_reader_friendly.pdf