Ethics in Public Procurement Tünde Tátrai Associate professor

1. Ethicsin Public Procurement Tünde Tátrai Associate professor

2. „The peoplewhocanbestdescribecorruptionarethosethemselvesengagedincorruption.” Hillman A.. L. (2004): Corruption and publicfinance: an IMF European Journal of PoliticalEconomy.

3. Notonlymethodology • Butpracticalsolutions, worst – bestpractices • Comparabledata, culturaldifferences, role of regulation • Adaptation, implementation Purpose

4. Sustainabilityand accountability Doingthingsbetter…

5. The strategic and transparentintegrationandachievement of a publicsectororganizations’ssocial, environmental and economicgoalsinthesystematiccoordination of keyinterorganizationalcommercialprocessesforimprovingthelong-term performance of theorganizaton and theterritorialbaseforwhichit is democraticallyaccountablefor, in line withoverarchingpublic policy priorities (Preuss 2009) SPPDoes an onlydefinitionexist?

6. „Is isalltooeasytofocusonrules, regulations and legaltechnicalities; whileobviouslyessential, theyneedto be part of a biggerpictureaboutsustainabledevelopmenttoenablegovernmenttoachievebetterthingsthroughsustainablepublicprocurement.” (Fisher, 2013) SPPAnotheraspect of Fisher

7. „How to improve SPP, reduce corruption and use SPP as an instrument of economic growth, and how to apply new research results to do so. „ • http://www.hse.ru/en/news/research/96293755.html SPPSustainable PP WorkshopMoscow 2013

8. SPP Extention of thedefinition Environmental Economic Social Culture Strategy Accountability Risk management Transparency

9. Whygovernmentsneedtousetheirpurchasingpowerwhentheybuygoods, servicesorinfrastructureas a tooltopromotesustainabledevelopment? • SPP – whengovernmentsbegintointegrateenvironmentprotection and socialcohesionintheirpurchasingdecisions • Thatmeanstolookatvalueformoneyacrossprocurementlifecycle and a product, services and infrastructurelifecycle. • Notjustinthepurchasingprice, becausethecheapest is notalwaysthe most sustainable. • And the most sustainable – wherethevalue is. • The buyer is nottypicallytheuser. - Entity 1 buyer, Entity 2 user, Entity 3 manager • „ Ideallyweneedtofind multi frameworkbudgeting and accounting flexibilityforgovernmentstoreallymakesustainableprocurementwork. „ http://www.youtube.com/watch?v=Eoe5_zg0JOI Society for International Development – OshaniPerera

10. Needfordata

11. EuRelatedstatisticsEcorisstudyhttp://ec.europa.eu/internal_market/publicprocurement/docs/modernising_rules/cost-effectiveness_en.pdfEuRelatedstatisticsEcorisstudyhttp://ec.europa.eu/internal_market/publicprocurement/docs/modernising_rules/cost-effectiveness_en.pdf 1 in 5 tendersreceive 1 bid

12. Costs of PPEcorysstudyhttp://ec.europa.eu/internal_market/publicprocurement/docs/modernising_rules/cost-effectiveness_en.pdf

13. Corruption Perception Index of Transparency International (2013) Source: http://cpi.transparency.org/cpi2013/results/

14. CPI2013 Score and rank

15. Measuringthecosts of corruption • “Development of an EU Evaluation Mechanism in the area of Anti-Corruption with a particular focus on identifying and reducing the costs of corruption in Public Procurement involving EU Funds”. • TED 2011/S 186-303435 • http://ec.europa.eu/anti_fraud/documents/anti-fraud-policy/research-and-studies/identifying_reducing_corruption_in_public_procurement_en.pdf Corruption OLAF project

16. The fight against corruption is however not only carried out by formal public institutions, but increasingly so by informal networks, such as NGOs, press and citizens. Such a change in attitude has at least three major consequences. • Firstly, decision-makers are under increasing pressure to ensure transparency and reinforce, update and coordinate the national and international anti-corruption agendas. • Secondly, private and civil actors are increasingly detecting corruption and denouncing corrupt behaviour to the competent authorities. This trend is supported by the creation of whistle-blower systems and protection programmes, which represent a real incentive to share and denounce illegal behaviour, both in private companies and in public institutions. It is also supported by political will, free and properly resourced press, and active social media networks. • Thirdly, these societal trends and in particular the rise of social media networks provides new opportunities for formal investigators as well, who see an increase in the amount of leads and data to be pursued. Olaf Conclusions

17. Definitions Ethical PP, Corruption, Self-cleaning

18. Connivance of contracting authorities with tenderers in their mutual interest • Common preparation of the public procurement procedure. • Unlawful actions during the public procurement procedure. • Providing uneven access to information during the public procurement procedure. • Overlooking secondary obligations in the performance phase, loose control. • Tenderers collaborating in their mutual interest • Submitting coordinated tenders. • Tendering or not tendering for money • Dividing the market between each other. • Abusing (market) position, abusing rights. • Blocking the flow of a given procurement procedure. • Limiting the range of tendering. • Evading the entire public procurement procedure. Forms of unethicalconduct

19. Unethicalbehaviour = corruption • Transparency = publishingallthe tender documents • Probity = symbol Terms

20. 1. Sourcing and delivering goods and services,focused on getting what is required by users in the right quantityat the right time at the right place. • 2. Compliance with legislation/regulation becomes the mainissue to prevent fraud and corruption. • 3. Efficient use of public funds, the focus shiftstowards not spending more than required or getting the most fora fixed amount of money. • 4.Accountability, the public procurementfunction’s main issue shifts towards being able to explain (to thelegislature, the general public, the press, etc.) that it is doing itsjob well: required items are acquired at the best value formoney, and there was no fraud in the process. • 5. Value for money: the scope is broader thanbefore. It is not only costs (or costs vs. quality) that is importantin public procurement, but also the value the items and servicesprocured contribute to the organization. • 6. As a policy tool toachieve broader government objectives, the public procurementfunction is contributing to the goals of the public sectororganization. As such it starts to have an external role as well. Itis seen as a supporter of change/reform; it is aiding policydelivery. Common issues are job creation and employment,strengthening the industry, SME / regional development,diversity, innovation, and sustainability. • 7. Delivery of broader government objectives: public procurement is in the lead for economic/socialchange, and has the full responsibility for delivering the policyobjectives . 7 stages of developmentofthe pp function

21. 7 SPP The seven stages of development and national priorities of public procurement – focusing on ethics, transparency, accountability 6 5 4 3 2 1 Basedon IRSPP 7-stages model (Harland et al. 2007)

23. “Conflict of Interest • Public Procurement professionals shall: • Avoid any private or professional activity that would create a conflict of interest or the appearance of impropriety; • Avoid engaging in personal business with any supplier representative or similar person; • Avoid lending money to or borrowing money from any supplier; • Avoid any and all potential for nepotism; • Avoid any overlap of duties in the procurement process; • Safeguard the procurement process from political or outside influence. • Conduct with Suppliers • Business dealings with suppliers must be fair and transparent. Procurement shall: • Refrain from showing favouritism or being influenced by suppliers through the acceptance of gifts, gratuities, loans or favours; • Safeguard supplier confidentiality; • Refrain from requiring suppliers to pay to be included on an approved or preferred supplier list; • Refrain from requesting donations of goods or services to the public entity; • Select suppliers on the basis of meeting appropriate and fair criteria; • Discourage the arbitrary or unfair use of purchasing leverage or influence when dealing with suppliers; • Avoid the exertion of undue influence or abuses of power; • Treat all suppliers fair and equal. • Corruption • Public procurement professionals who become aware of any corrupt activity have a duty to the profession and to their employing organizations to alert their management and/or elected officials. Public procurement shall not tolerate bribery or corruption in any form.” • The NIGP definitions and content were simplified and shortened. Ethical PPNIGP

24. Clarification of the relevant facts and circumstances: the company has to assist in order to clarify the facts and the responsibility of all persons involved in a comprehensive manner. • Reparation of the damage caused: it is required to repair the financial damage caused. • Personnel measures: the company has to ensure that all persons who have been strongly involved in the wrongdoing are dismissed. • Structural and organizational measures: the company has to verify organisational preventive measures, reviews, guidelines and take care of the future. • Arrowsmith et al. (2009) • „the firm that might be excluded from public procurement procedure because of some kind of wrongdoing should be admitted to the self-cleaning process, on the basis that it has taken measures to ensure that the wrongdoing of the past will not occur again in the future” Self-cleaning

25. Role of regulation

26. PP is not an extraordinaryadaptabletoolwhich has oftenbeenusedtomeetregulatoryneedwhenothermethods of regulationarenotconsideredacceptable, availableoreffective. • Developing CSR – fair trade, reducingtheuse of childlabour…. • „Integration of social and environmentalconcernsin business operations…” CSR and PP (McCrudden, 2006) 1

27. The publicsector is responsibleforproviding a range of servicesmanyofwhichhavedirectimplicationsforsustainability, suchaseconomicdevelopment, wastedisposal…(Wilson and Game, 2006) • PP coulduseonitspurchasingpowertodevelopmarketsfor more sustainableproductsthatotherwisemightnotemerge… (Erdmenger, 2003) Whythepublicsector? (basedonPreuss)

28. Kattel, Lember: Public Procurement ad an Industrial Policy Tool: an optionfordevelopingcountries (JOPP, 2010) Nextstep?

29. Whatsustainabledevelopmentgoalsdoes a publicauthorityintendtocontributeto and howwillthesegoals be achieved? • Howwillsustainableprocurement be balancedwithotherobjectivesthat enter intoprocurementdecisions, includingrationalesunderpinningdemandforlowestprice and thosethatensuretheintegrity of marketsthroughopencompetition? • Is itpossibletobringtogethereconomic, social and environmentalgoalswithoutgeneratingcontradictions? Why and how? - basedonFisher’squestionnes,2013.

30. Efficient spending of public money Supporting SMEs Supporting social considerations Fighting courruption Supporting environmental protection Easing up the fiscal crisis by slowing down public procurements Decreasing go-round debt Increasingemployment Transparency Tátrai T., Nyikos Gy. (2012): Uses and Abuses of Public Procurementin. Albano et al. pp. 34.

31. 2004/08/EC 2014/24/EC Transparency and publication; Conflict of interest; General consideration in the awarding phase of the procedure; Communication between participants of the procedure; Statistical obligations and monitoring; Illicitconduct. The role of regulation in fighting against corruption • Transparency and publication; • General consideration in the awarding phase of the procedure; • Communication between participants of the procedure; • Statistical obligations and monitoring.

32. „problemscurrentlyslowing down theadoption of publicprocurementofinnovationpracticesareexclusivelyoflegalnature.” • Lack of procurementcompetence • Lack of legalcompetence • Lack of reasources • Lack of politicalsupport • Lack of understandingforstakeholders” needs • Lack of supplierunderstandingofprocurementprocess • Riskaverseness • Lawyers’ inadequateinterpretation of thepossibilitiesgivenbytheregulation Rolfstam (2012) about EU PP

33. „The rulesforpublicprocurement must strike a balancebetweenmaintainingtransparency and competitioninordertosavetax-payersmoney, preventfraudononehand, andallowforinteraction, negotiationanduncertainty, which is criticalforinnovationtotakeplace, ontheotherhand.” (Rolfstam M. (2012)) BalanceRolfstam (2012)

34. Worst and bestpractices

35. „countriesthatadopt more „transparentprocurement”, ascalculatedbytheshare of tender advertisedpublicly, arealsotheoneswherecorruption is considered more pervasive”. • Coppier R., Piga G. (2007): Whydotransparentpublicprocurement and corruption go handinhand? inPiga G., Khi. V.T. (2007): The economics of publicprocurement.. http://www.knowledge4innovation.eu/events/SitePages/Dinner_Debate_Procurement.aspx Transparency and Corruption

36. The procurementprocess is examinedinrelationtothreestages of procedure: • preparation of specifications, • selection of tenderers, and • execution of contracts, • withineach of whichsomespecificrisks (redflags) areidentified. • Dorn N. et al. (2008) "Do European procurementrulesgenerateorpreventcrime?", Journal of Financial Crime, pp.243 - 260 Red flegs

37. The keyprinciplesbyGreenwood-Klots (2009) forbestanti-corruptionpracticesinpublicprocurementare • transparency • good management and theprevention of misconduct • monitoring compliance, accountability and enforcement • Greenwood M., Klotz J. M. (2009): The FightAgainstCorruptionin Public Procurement: an introductiontobestpracticesin. García R. H. (2009) edt. International Public Procurement. Best Anti-Corruption practices

38. Picci proposes a governance model of public works that relies on an internet-based „reputation system”. • „Itallows for the routine production of statistics that are useful for monitoring purposes and it provides a coherent framework to limit rent-seeking and corruption.” ReputationsystemPicci L. (2007)

39. They computed the equilibrium level of corruption, and they studied the impact on corruption of the competitiveness of the environment, and in particular of: • an increase in the number of potential suppliers of the goods or services to be procured, • competitive (rather than collusive) behaviour of procurement agents, and • an increase of competition in the market for procurement agents. • They identified the effects that “influence the equilibrium level of corruption and showed that, contrary to conventional wisdom, corruption may well be increasing in competition” Celentani M. et al (2000)

40. „existence of a clearlycorrupt and anonymousbureaucracy is commonlyknown, bidderswillengageinactivebribing…” (Büchner et al. (2006): Bribery and Public Procurement) Probity as the main principle of public procurement regulation

41. “purchasing professionals in the public sector continue to have to balance the inherent tensions between maintaining control of the purchasing function and loosening the bonds of bureaucracy.” McCue (2007)

42. “The heavy focus on compliance with criminal and civil prohibitions tends to obscure the fact that non-criminal or non-civil ethics violations have the ability to severely damage public trust in the integrity of the procurement process.” MandatoryCode of EthicsRobert (2010)

43. TQM, agreement • Integrity Pacts are a tool for preventing corruption in public contracting. They are essentially an agreement between the government agency offering a contract and the companies bidding for it that they will abstain from bribery, collusion and other corrupt practices for the extent of the contract.  To ensure accountability, Integrity Pacts also include a monitoring system typically led by civil society groups (often our chapters). IntegritypactTransparency Internationalhttp://www.transparency.org/whatwedo/tools/integrity_pacts/3/

44. “the use of probity audits has flourished in the public sector in recent years.” • “These guidelines tend to focus on competitive procurement processes and ignore broader factors applying to other processes in which probity audits are also used. Further, as there are no professional standards governing a probity audit, it is important that agencies have a clear understanding of their benefits and limitations and of the skills and experience required of a probity auditor before they commission one.” Howtokeepbureaucrates honest? Shead (2008)

45. Probityplanning Procurementprocess Review probity at the end of the bid preparation process □ Set up a process for receiving, recording and acknowledging submissions □ Set up a procedure for opening the bid box □ Document any changes that occur, and notify all potential suppliers □ Ensure evaluation of submissions is fair, consistent and competitive □ Review probity at the end of the evaluation process □ Notify the successful bidder as soon as possible □ Notify the unsuccessful bidders as soon as possible □ Debrief unsuccessful bidders □ Ensure all actions are documented, and the documents are stored appropriately □ Review probity at the end of the process □ ProbityplanningBeth (2006) • Determine whether a probity auditor and/or adviser is needed □ • Obtain conflict of interest declarations from team members □ • Obtain confidentiality agreements from external participants □ • Finalise the probity plan, if one is being used □ • Consider confidentiality requirements □ • Set up physical security procedures, such as the document register or data room □ • Ensure team members are familiar with all relevant policies and documents □ • Set up procedures so all potential suppliers have access to the same information □

46. There is a need to develop an independent monitoring system capable of collecting and comparing data with a unified methodology and logic, and of giving a real picture of the size of the public procurement market. • Real transparency serves prevention. It is not enough to make electronic public procurement obligatory when monitoring systems are not capable of providing all the documents of a procedure to controlling bodies automatically, and of tracking the main data of concluded contracts in a comparable and controllable way from year to year. The aimless supplying or uploading of data on to different websites is virtual transparency only, and does not serve the interest of public procurement. • Knowing best practices and incorporating them into regulations are not only playing with words. “Probity” as a principle of public procurement applies to the preparation phase, communication between parties, the evaluation process, the performance control and the amendment of contracts. The purpose is not to hinder corruption by administrative obstacles but to prevent it. Beside traditional regulatory content (mandatory exclusion of economic operators), it is necessary to make “probity auditing” be part of the regulatory background. Recommendations

47. Additionaltopics

48. 81/2009/EC DefenceDirective • Real transparency? • „(70) To ensure compliance with the principle of equal treat­ ment in the award of contracts, it is appropriate to lay down an obligation, which has been established by case- law, to ensure the necessary transparency to enable all ten­ derers to be reasonably informed of the criteria and arrangements which will be applied to identify the most economically advantageous tender. „ • „(73) However, review procedures should take into account the protection of defence and security interests as regards the procedures of review bodies, the choice of interim mea­ sures or penalties for infringements of obligations relating to transparency and competition.” Transparency and thedefencesector

49. Escaperoute • Example 25/2014/EC: • „This Directive shall not apply: • (a) to contracts for the purchase of water if awarded by contracting entities engaged in one or both of the activities relating to drinking water referred to in Article 10(1); „ Public Procurement and theutilities

50. (24) Contracting entities that operate in the drinking water sector may also deal with other activities relating to water, such as projects in the field of hydraulic engineering, irrigation, land drainage or the disposal and treatment of sewage. In such case, contracting entities should be able to apply the procurement procedures provided for in this Directive in respect of all their activities relating to water, whichever part of the water cycle is concerned. However, procurement rules of the type proposed for supplies of products are inappropriate for purchases of water, given the need to procure water from sources near the area in which it will be used. Role of regulationWhere is thewater? (7) It should be recalled that nothing in this Directive obliges Member States to contract out or externalise the provision of services that they wish to provide themselves or to organise by means other than procurement within the meaning of this Directive. The provision of services based on laws, regulations or employment contracts, should not be covered. In some Member States, this might for example be the case for the provision of certain services to the community, such as the supply of drinking water.