The 9th International Anti-Corruption Conference
Workshop #2 of Tuesday, October 12, 1999
Strengthening the Integrity of Public Procurement through Greater Transparency
Public procurement is big business. Governments annually procure goods
and services estimated to value of over US$ 1 trillion, or up to 15%
of global GDP. It is consequently a major playground for corruption.
The workshop reviewed recent developments to strengthen public
procurement at both the international and local levels.
At the international level, the World Trade Organisation (WTO) is
completing preparation of a new international convention on
transparency in procurement. The Workshop participants urged its early
negotiation and adoption. International financial institutions (IFIs)
like the World Bank have recently strengthened their procurement
rules, especially sanctions against fraud and corruption. The
Integrity Pact (IP) concept developed by Transparency International
(TI) is being tested. And the private sector is seeking to establish
industry-wide codes of conduct in several industrial countries.
At the local level, where corruption is often pervasive, the Workshop
participants urged action to
- strengthen capacity of government
agencies and non-governmental organisations (NGOs) to manage and
- simplify procurement rules and regulations;
- use the power of information technology to enhance transparency of
public procurement; and
- promote transparency throughout the
procurement and implementation process, from feasibility study through
A summary of the major recommendations of the Workshop is attached as
an Annex to these Proceedings.
- In opening Workshop #2 of October 12, 1999, the co-chair Michael
Wiehen of TI stressed the importance of enhancing transparency and
integrity in public procurement. He noted that government procurement
was a multi-billion dollar business, in excess of US$ 1 trillion per
year, or up to 15% of global GDP. Little wonder that it was a major
source of corruption and fraud.
- Improving the integrity of public procurement required, above all,
open competition and transparency in implementation. It also
required: (i) a good appeals process within government, (ii) the
active involvement of the civil society in monitoring, (iii) scrutiny
of the process throughout the procurement cycle, from the initial
design of the feasibility study of a project through its
implementation, where major abuse occurs.
- He hoped that the Workshop would come up with pragmatic proposals
to feed to groups such as the WTO, World Bank and other IFIs working
on improvements in the transparency of public procurement.
- His co-chair, Bernard Faranoff, Chief Executive of Safety and
Security of South Africa, stressed the importance of improving
transparency in national and local procurement, where corruption was
often pervasive. The key issue was how to translate pragmatically the
principal of greater transparency into day-to-day procurement work.
He cited the South African experience where procurement rules were
designed to cover every possibility and loop hole. Consequently, the
process was too complex, too time consuming, channelled through a
central body unable to cope with the demand and too reliant on
"experts" who varied in quality and integrity. He hoped the Workshop
would focus also on how to build local capacity, simplify processes
and enhance transparency in very practical ways.
- With this agenda, the Workshop focused on two principal
challenges: (a) how to further strengthen the transparency of
procurement through international action, and (b) how to improve the
integrity and transparency of procurement at the national and local
I. Developments at the International Level
- The Workshop heard from several speakers representing international
organisations and multi-national private sector firms engaged in
efforts to enhance transparency in procurement.
(a) WTO: Vesile Kulacoglu of the WTO reported on efforts to conclude
a new international convention on transparency in procurement. Since
1996 a WTO working group had been engaged in studying ways to improve
national procurement and harmonise rules and procedures among
countries. The effort was designed to lead shortly to the
negotiations and signature of a new international convention on
transparency in procurement. She noted that most governments have
similar provisions governing access to information on procurement, but
there was still reticence to enter into a legally-binding
international agreement which might limit a country's discretion and
flexibility. Other issues under discussion included coverage (sub-
national procurement?), openness ( what to do about limited
tendering?) and due process (super-national procedures for dispute
The Workshop participants expressed the hope that the WTO would now
move forward from study and discussion to negotiation and conclusion
of the new international agreement, and use the forthcoming WTO
Ministerial Conference in Seattle to initiate this process.
(b) The World Bank and other IFIs: Michael Stevens of the World Bank
described recent changes in procurement rules for the IFIs to
strengthen transparency and sanctions against fraud and corruption,
including (a) stronger penalties for corruption such as debarment of
contractors, (b) publication of disqualified firms on the Internet,
(c) suspension and/or cancellation of loan components or entire loans
for government malfeasance, and (d) the right of the lenders to audit
the accounts of suppliers and contractors.
( c) The Multi-national Private Sector. Dr. Busso Pues, Member of the
Executive Board of Hochtief AG, Germany stressed the importance
serious contractors such as his organisation placed on open and honest
procurement. Bidders who wanted to compete on quality and experience
and honest prices were often disadvantaged by unscrupulous bidders who
deliberately underbid and subsequently increased their costs during
implementation, or those who provided bribes to officials to
manipulate the bidding, evaluation or contract award process. He
outlined his company's efforts to strengthen internal controls against
corruption: a code of conduct, compliance program, monitoring and a
confidential hotline. He also described efforts by the major
contractors in Germany to draft a uniform code of conduct for the
(d) NGOs and Transparency International. Charles Morse, procurement
advisor to TI, outlined the concept of an Integrity Pact (IP), a
procurement mechanism developed by TI and now being tested out in
several countries including Argentina, Colombia and elsewhere. (The
Workshop heard subsequently from Christian Gruenberg of TI-Argentina
on its efforts to promote public review of the new subway line for
Buenos Aires). The IP concept is centred on an agreement between
bidders and owners not to ask for or offer bribes during the
procurement and implementation processes. The civil society is
actively involved in the review of tender processes, bidding
documents, evaluation decisions and major changes during
implementation. Sanctions are clear, heavy and implementable.
(e) Other Developments at the International Level. Other speakers
reported on recent conferences and research dealing with transparency
in procurement. Wayne Wittig of the International Trade Centre (ITC)
reported on the recent Abidjan Conference on procurement attended by
representatives of 30 African countries aimed at harmonising rules
among African states. Ariane Lambert-Mogiliansky of the Ecole
Nationale des Ponts et Chaussees reported on her research on
procurement experience that general rules and regulations are no
safeguard against corruption when exceptions are routinely granted to
open competition or where specifications are so general that it leaves
room for significant discretion in evaluation.
- The general discussion of this topic focussed on three questions:
(i) the practice of granting "exceptions" to the general rule of open
competition and transparent processes, (ii) the appropriate rules for
procurement by para-statal organisations, and (iii) the treatment of
"facilitation payments" in procurement arrangements such as the IP.
(i) Exceptions to open competition are often made by governments on
the grounds of emergency, urgency, sensitivity, national security or
other reasons. While acknowledging that there are times when
exceptions are appropriate, they should be very limited rather than
normal practice and the reasons for the exception should be explained
(ii) Para-statals account for a significant share of public
procurement. While they are expected to behave like commercial
organisations, they also use public funds for their procurement of
goods and services. Their procurement procedures should follow the
transparency rules of public procurement.
(iii) "Facilitation payments" are illegal payments made to officials
to speed up processes but not to influence contract decisions. They
are not covered by the sanctions under the US Foreign Corrupt
Practices Act, the OECD Convention or the Integrity Pact concept.
While they do constitute corrupt practice, they are not included for
practical and pragmatic reasons. They are too hard to detect, too
numerous and would not warrant the very severe penalties specified in
these conventions for corrupt actions to gain or retain contracts not
II. Local Procurement
- The second major focus of the Workshop was on strengthening
transparency in local procurement.
(a) South Africa's approach to transparency in procurement was
described by Mr. Mlamla, Office of the Director General of State
Expenditure. He indicated that transparency in public procurement in
South Africa was a constitutional obligation. He described the
processes which govern public procurement, including arrangements for
including social objectives as well as efficiency considerations in
procurement decisions. His review was supplemented by Dean Letchmiah,
procurement consultant to the South African government, who indicated
that social objectives such as promotion of small and medium
enterprises are included in procurement provided the overall process
meets the standards of fairness and competition, sound and defensible
decision-making and clarity. In any event, social factors are no more
than 10% of the weight in procurement criteria.
(b) The power of the Internet in procurement transparency was
demonstrated by Mr. Garcia from the Secretariat of Comptrollership and
Administrative Development of Mexico. He presented Mexico's public
information system called "Compranet" which provides public
information through the Internet on the status of public procurement
by the Federal Government. Citizens can check on pending procurement,
contract awards, implementation changes. They can download standard
bidding documents. They can submit bids electronically. It has
proven very popular, with over 2.5 million "hits' in the past year.
The transparency reduces opportunities for corruption and enhances
citizen oversight. Mr. Wiehen also referred to the OPEN on-line
processing system in the city of Seoul, Korea which tracks 27 major
activities of the city administration. The system allows citizens
easy real-time access to check the status of administrative action. It
has received 1500 "hits" per day in its first six months of operation.
(The OPEN system was presented outside the workshop in a special booth
by the Mayor of Seoul).
- Several Workshop participants offered suggestions and posed
questions for enhancing the transparency and integrity of local
procurement. They included commentators from Tanzania, Kenya, Zambia,
the UK, Mali and elsewhere. The discussion centred on four issues:
(i) capacity building, (ii) protection against "bait-and-switch
practices" where bidders deliberately underbid and then change prices
and quantities during implementation, (iii) simplification of rules,
and (iv) broadening the transparency to cover all aspects of the
(i) Capacity of governments and the civil society to manage the
procurement process was recognised to be very limited. Rules were too
complex, processes dragged on and governments were increasingly
dependent on experts who may or may not be professional. Training by
WTO, the IFIs and others was felt to be a very high priority for
enhancing the quality, efficiency and integrity of local procurement.
(ii) Governments were very vulnerable to unscrupulous bidders who
deliberately underbid projects and then resorted to devices to
increase contract prices during implementation. Participants
suggested that capacity building efforts should also include training
in contract management to protect the public against such practices.
(iii) Simplification of procedures was also cited by participants as
an essential means to root out corruption and speed decisions.
Complexity breeds corruption. A recent UK report indicated that
public procurement can take up to 50% longer than procurement of
similar goods and services in the private sector. Suggestions were
made for making procurement more output-oriented and performance
driven rather than input-oriented.
(iv) Broadening the scope of transparency was also cited as a
priority. The outcome of a procurement process can often be determined
at the earliest stage of a project development process through
discriminatory specifications for the feasibility study, criteria for
selection of design consultants and other processes which proceed the
drafting of tender documents. These processes should not only be
totally non-discriminatory, but also no less transparent than the
bidding, evaluation and award processes. Similarly during project
implementation, major changes in contract prices should be subject to
Recommendations for Enhancing Integrity in Public Procurement through
At the International Level
- International Convention. The World Trade Organisation was urged
to move forward with its efforts to negotiate and conclude a new
international convention on public procurement, and to use the
forthcoming WTO Ministerial Conference in Seattle at the end of
November 1999 to initiate the process.
- Strengthening Procurement Rules. International financial
institutions (IFIs) such as the World Bank and the Regional
Development Banks were encouraged to continue to strengthen their
procurement regulations, especially on sanctions against corrupt
practices and independent examination of financial records of
suppliers and contractors.
- The Integrity Pact concept developed by Transparency International
which provides for anti-corruption agreements between bidders and
owners, monitoring by the civil society and appropriate sanctions for
non-compliance, should be tested out in a variety of environments.
- Capacity Building. The WTO, IFIs and other organisations should
undertake as a matter of priority the training of local government
officials and non-governmental organisation representatives in
procurement procedures and processes.
At the National Level
- Simplification of Procurement Rules. National governments should
review current procurement rules and regulations with an objective of
simplifying procedures while maintaining clarity and transparency. Too
many rules invite corruption.
- Use the Power of Technology to Strengthen Transparency. Local
governments were encouraged to follow the examples of Mexico and the
city of Seoul, Korea in using the Internet to promote openness in
public procurement. The Federal Government in Mexico has developed
"Compranet" and Seoul the "OPEN" system which provide public
information through the Web on the status of public procurement and on
applications for permits or approvals respectively.
- Broadening the Scope for Transparency. In reviewing its
procurement regulations, governments were encouraged to ensure
transparency and competition were incorporated at every stage of a
procurement process or project development, from the design of a
feasibility study through project implementation, and not only at the
time of contract award.