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Limiting the temptation for corruption in public procurement

Limiting the temptation for corruption in public procurement
Published on: 14/12/2015
Few activities create greater temptation or offer more opportunities for corruption than public procurement, which generates significant financial flows (€2 trillion in the EU annually).

According to the European Commission’s 2014 Anti-Corruption Report, corruption costs EU society around €120 billion per year. With public procurement accounting for 14% of EU GDP, it is frequently perceived as a corruption hotspot from which no EU country is immune. According to a 2013 study, the overall direct costs of corruption in public procurement in only five sectors (road and rail, water and waste, urban/utility construction, training, and research and development) and in only eight EU countries ranged from €1.4 billion to €2.2 billion.

Corruption weakens the rule of law, leads to vulnerable public institutions, inefficient use of resources and suboptimal quality of public services. Most of all, corruption erodes citizens' trust in their leaders and institutions. Tackling corruption has huge potential to foster growth, stimulate competition and investment, and enhance the welfare effects of the EU's internal market.

European public procurement legislation aims at keeping procurement markets open EU-wide to ensure the most efficient use of public funds. The new EU Public Procurement Directives, which entered into force on 18 April 2016, have a deeper focus and provide EU countries with stronger tools and incentives to prevent corruption and create a culture of integrity in public procurement. As transparency is among the most effective ways of fighting corruption and malpractice in public procurement, the new Directives include numerous measures directly enhancing the openness of the procurement process.

Among others, the most prominent changes are the provisions on minimum standards in the definition of conflicts of interests, the obligation of EU countries to take appropriate measures to detect, prevent and tackle conflicts of interests, the extension of exclusion grounds in respect of bidders, and the introduction of mandatory e-procurement by EU countries by 2018.

If applied in their letter and spirit, the Directives have the potential to set the proper framework for fully transparent public procurement procedures by providing clear rules on the prior publication of tenders, the need to have clear and unbiased technical specifications, equal treatment of bidders in all stages of the procurement process, and the objective evaluation of tenders.

The new Public Procurement Directives contain measures directly enhancing transparency and tackling corruption. For instance: 

  1. Fraud and conflict of interests occur when public procurement practitioners can be influenced by a private or personal interest that could lead them to attempt to gain a personal advantage. In response, the new Directives define the notion of "conflicts of interest" at EU level for the first time. The new definition makes it easier to identify and manage fraud and conflict of interest cases. EU countries and contracting authorities have an obligation to take appropriate measures to effectively prevent, identify and remedy such cases.
  2. The widespread practice that public purchasers undertake preliminary market consultations for the preparation of calls for tenders can lead to situations that favour the companies involved. Therefore, public purchasers must ensure that the participation of a previously consulted company does not affect competition within the tender procedure and that any information shared with a company as a result of its prior involvement must be sent to the other participating companies as well.
  3. Under the new directives, companies can be excluded from public procurement procedures if they are convicted for fraud and corruption or if they unduly influenced the decision-making process or made false statements.
  4. As the post-award period is particularly vulnerable to corruption, the rules for modifying contracts during their term have been clarified to remove any doubts.  In particular, a new call for tenders will not be required where the modifications have been provided for in the initial procurement documents in clear, precise and unequivocal review clauses and the changes are not substantive. In other words, they do not change the nature or the economic balance of the contract.
  5. EU countries are required to report violations of the new public procurement laws to national authorities, to make the results of their monitoring activities public, and to submit a report to the Commission every three years on the most common sources of misapplication or legal uncertainty.

Public purchasers must also keep copies of contracts& of higher value for their entire duration and make them available to the public. Moreover, any public procurement award procedure must be covered by a specific report by the public purchaser explaining the main decisions relating to the procedure concerned, reporting any conflict of interests detected and steps taken in this regard, and be forwarded to the Commission/national authorities upon request.

The simplification of procedures and the greater use of electronic tools in public procurement are also important instruments in the fight against fraud and corruption. In particular:

  • e-procurement will be generalised and become mandatory by 2018
  • the setting of a dedicated legal framework for concession contracts enhances transparency
  • a standard form for the self-declaration for bidders, the "European Single Procurement Document" has been introduced, which makes it more difficult to exclude tenders in the selection phase.

What can EU countries do to prevent corruption? 

Preventing corruption is a task for all public institutions, including those of EU countries. They should focus their efforts on:

  • raising awareness of the new public procurement integrity rules among all public procurement actors (including the judiciary), overhauling the organisation of their public sector with the aim that all public procurement officials share a common sense of public utility and public service, striving to deliver optimal results for society, and reconsider in depth the efficiency of their current public procurement and anti-corruption policies.
  • promoting a culture of integrity in the public service and among businesses (via compliance programmes, use of integrity pacts, strengthening the protection of whistle-blowers, strengthening anti-corruption measures).
  • ensuring better collection and analysis of data to improve public procurement governance such as ensuring better collection of data on procurement above and below EU thresholds, establishing contract registries for public procurement contracts, establishing public procurement irregularities databases based on remedies and audits, developing anomalies detection tools, ensuring interconnectedness between public procurement data, the public, business registries and EU funds databases.

The Commission aims to support any upcoming actions in EU countries to enhance the integrity of the public procurement process or to foster the full take-up of e-procurement, e.g. the development of new anti-corruption instruments, legislation and guidance or cooperation networks. The Commission will encourage EU countries to develop efficient anomalies detection tools (both for national and European funded projects), to increase the protection of whistleblowers, to set-up contract registers or leniency programmes in public procurement and, to widely use the knowledge-sharing and exchange of best practice.

Find out more on public procurement reform: Slashing administrative burden, improving access for SMEs, preventing corruption and allowing for social and environmental considerations