Developing an anti-corruption policy in Hungary – the case of public procurement

1. Developing an anti-corruptionpolicy in Hungary – the case of public procurement and the role of NGOs’ in trust-building Mária Major Dezsériné Executive Director Foundation for Market Economy The role of think tanks and NGOs in developing an anti-corruption policy Irkutsk, Russia 9-11 July, 2004 Foundation for Market Economy

2. Contents (1) • Objectives and scope of FME research • A. Objectives of the research • B. Scope of the research • C. Growing importance of the public procurement market in Hungary • D. Importance of the NGO/NPO sector in Hungary • II. How do legislation and rule-making support anti-corruption measures? • Hungary’s internationalembodying • Legislation and rule-making 1 • Legislation and rule-making 2 • III. Findings of FME research on public procurement classified into 3 groups • 1.Non-implementation of the Act • 2.Evaluation of ensuring equal opportunities, transparency and clarity • 3.Efficiency of public procurement from the point of corruption and/or savings in public money Foundation for Market Economy

3. Contents (2) • IV. Findings of FME research on developing of NGOs’ anti-corruption practice 1.Tasks of the NGOs in combating corruption (direct, indirect) 2. Possibilities of cooperation (with state, media and other NGOs) 3. How to develop efficiency of NGOs’ trust-building and anti-corruption strategies • V. Main conclusions Foundation for Market Economy

4. I. Objectives and scope of FME research A. Objectives of the research • to review the different facts and opinions in connection of setting a limit to reducing corruption in the public procurement procedure; • to value the chance of developing the anti-corruption practice in it; • to examine how openness, equal opportunities, transparency, clarity and efficiency are enforced both by institutions inviting tenders and bidders, • to survey the the role of think tank and NGOs in developing an anti-corruption policy Foundation for Market Economy

5. I. Objectives and scope of FME research B. Scope of the research In public procurement survey57 institutions and/or companies were interviewed: • Institutions inviting bids: 47%, bidders: 53%; • 30% of the institutions inviting bids represented the central budgetary organs and their respective institutions, whereas 37% and 33% represented local governments as well as public utility and state-owned companies; • Roughly 45% of bidders were SMEs. • Breakdown of the sample was the following: 49%: investment/construction, 17%: products, 34%: services. In course of thesurvey of think tanks and NGOs 23 organisations and some additional experts were interviewed (5 think tanks, 18 interest enforcing organisations and 5 experts + workshop with 15 participants) Foundation for Market Economy

6. I. Objectives and scope of FMEresearch • C. Growing importance of thepublic procurement market • in Hungary (2002): • the value of public procurements has significantly raised from HUF100 • billion in 1996 to 800 billion (3,3 billion €); • about 1/5 of the budget expenditure was realised by public procurement; • nearly 80% of all 4,242 procedures were open bids and only 20% were • contracted through negotiations; • subject of tenders: 60% of them were construction investments, 25% • weremade as product purchase and 15% included services. Foundation for Market Economy

7. I. Objectives and scope of FME research D. Importance of the NGO/NPO sector in Hungary: • The NGO sector is small in CEE countries - excluding religious worship - the share of employment was 1.3% in Hungary in 1995 and 1.0% in Poland in 1997, compared with 7.8% in the United States and almost 5% in France and Germany in 1998. • In Hungary, between 1990 and 1995, as a share of GDP the cash expenditures of the NGO sector more than doubled from 1.2% to 2.8% in five years. It is high for the region but below the 7.5%share of United States, 4%-4% of France and Germany and comparable to Austria’s 3%. • Number of operating NPOswas about 47,000 in Hungary (2003) and that of civil organisations – apart from labour and interest organizations - about 6,000. Foundation for Market Economy

8. II. How do legislation and rule-making support anti-corruption measures? • Hungary’s international embodying • Legislation and rule-making 1 • Legislation and rule-making 2 Foundation for Market Economy

9. Hungary’s international embodying • Participation in UN General Anti-Corruption Program: • Memorandum of Understanding on Anti-corruption Policy, 1999 • Project agreement to prevent, reveal and eliminate corruption, and promote transparency and accountability in the framework of Global Program Against Corruption, 2000 • Membershipin the Group of States Against Corruption (GRECO) • Signing the OECD Convention on Combating Bribery of Foreign Public Officials, 1998 • Signing the Strasbourg Conventionon Investigating Issues Resulting from Crimes and of Money Laundering, 1990 • Signing the Criminal Law Convention on Corruption, 1999 and the Civil Law Convention on Corruption,2003 (Council of Europe) Foundation for Market Economy

10. Legislation and rule-making 1. • In the Accession Partnership signed in 1999 Hungarian government approved a decree concerning the national strategy against corruption in March 2001 • Criminal Code was harmonized with the international agreements and EU requirements • Regulations related to briberies were significantly modified in 2001 • Act Against Money Laundering was passed,2001 • In2002 the new government in power announced a program on transparency in public lifeand the Transparency law (the so called “glass pocket” legal package) was introduced in 2003. Foundation for Market Economy

11. Legislation and rule-making 2. Main elements of modifying the Act on Public Procurement, (passed in December, 2003): • reducing the circle of exemptions to a minimum level; • the option for subsequent legal remedy will be extended for one-year period; • setting forth three public procurement value limits; • each organisation must publish an annual public procurement plan until March of each year; • forcing to screen unrealistic, unsustainable bids; • training activities will be more pronounced and • introducing institutions of certification and conciliation as new elements. Foundation for Market Economy

12. III. Findings of FME research on public procurement classified into 3 main groups • Non-implementation of the Act • Evaluation of ensuring equal opportunities, transparency and clarity • Efficiency of public procurement from the point of corruption and/or savings in public money Foundation for Market Economy

13. 1. Non-implementation of the Act • Preparedness of those applying the law, staff shortages, problems related to interpretation and approach(the Act does not provide a detailed list of the institutions subject to its scope,no organisation is in charge of monitoring the failure to conduct public procurements). • Contradictions with other provisions affecting budget financing; special problems arising with practical solutions (e.g. lack of budgetary funds,mainly in case of local governments and healthcare furthermore contradictions among certain laws). • Successful assertion of group interests in excluding the public and reducing transparency (several organisations were made subject to the scope of the Act on Public Procurements too late, e.g: State Privatisation and Holding Company; the Hungarian Development Bank and the State Motorway Management Company ). Foundation for Market Economy

14. 2.Ensuring equal opportunities, transparency and clarityin public procurement • Problems pertaining to the announcement of public procurement procedures(bids are not announced precisely, some companies receive preliminary information from their partners, change of a subcontractor at a later point in time). • Problems in evaluation process(not reasonable formal requirements orundertaking disproportionate commitments may result in maximum partial points). • Evaluation of audits and controls of the public procurement process (therole of :the State Audit Office and the Public Procurement Arbitration Committee). Foundation for Market Economy

15. 3. Efficiency of public procurementfrom the point of corruption and/or savings in public money • The degree of savings that may be achieved through public procurement is a rather controversial issue (direct and indirect savings). • Dangers of excessive bureaucracy, overburdened by administrative elements (unnecessary records). • The inflexibility of the public procurement procedure for investments whose market is changing rapidly (e.g. IT services). • Efficiency of public procurements conducted by local governments is also challenged (not real competition, price cartel-like co-operations). Foundation for Market Economy

16. IV. Findings of FME research on developing of NGOs’ anti-corruption practice • Tasks of the NGOs in combating corruption (direct, indirect) • Possibilities of cooperation (with state, media and other NGOs) • Efficiency of the NGOs’ trust-building strategy Foundation for Market Economy

17. 1. Tasks of the NGOs in combating corruption (direct, indirect) • NGOs are mainly indirectly involved in anti-corruptive actions and more or less they work on strenghtening transparency, accountability first of all through establishing their Codes and Committees of Ethics. • Some think tanks (mainly foreign) can directly finance research and/or participate in international projects aiming at studying corruptive phenomena of the given country. • NGOs – first of all interest enforcing organizations – are combating corruption in two terms: by giving recommendations to amendements of laws (e.g. of public procurement) and by asking for judgements in concrete cases falling under corruptive suspicion. • Important role of NGOs is developing the market economy (services needed by firms and citizens), the equal chances and the business culture in order to minimizing the risk of corruption. Foundation for Market Economy

18. 2. Possibilities of cooperation (with state, media and other NGOs) • Important common action of NGOs with the state in Hungary - against corruption – was the following : in February 2004 the State Secretariate of Public Money at the Prime Minister Office established an Advisory Board for Public Life without Corruption (30 people inc.the civil sphere) to develop a two-years action programme with concrete tasks and people in charge. • NGOs are cooperating with each other in their actions in two main terms: developing simultaneously actions through their networks in the regions and abroad and/or advising solutions in the rule making process to minimize the chance of corruption. • Possibilities for cooperating with the media depend on the independece of the journalists which is financially not well establised.. The fact-fiding journalism has not been developed yet in Hungary but the role of the strong parliamentary opposition could help in revealing some cases. The main problem is the lack of ability to relize and finalize the corruptive suspicions because of the very slow judicial proceedings. Foundation for Market Economy

19. 3. How to develop efficiency of the NGOs trust-building and anti-corruption strategies • There are different difficulties of NGOs to overcome in course of the development of a market economy because of numerous badly or partly functioning mechanisms strengthening the bureaucracy and corruption: lack of services, deformed wage-price structure, lack of social demand because of party-fightings etc. • The efficiency can be helped by the following: education (with propoer moral content), managing to force relavant controls for businesses in frame of corporate governance (code of ethics), developing transparency and accountability by all possible means (media, electronic networks). • Developing trust-building strategy by strenghtening civil partnership with relevant governmental (state) organisations and helping NGOs cooperative actions aiming at mental education of the younger generation not to have a moral confusion of the transition period. Foundation for Market Economy

20. V. Main conclusions • Moderating corruption risk by relevant amendment of the Act on Public Procurement and elaboration of an interest reconciliation and/or Lobby Act. • Decreasing corruption risk during the creating and decision-making process of tenders and also by control and monitoring. • Developing an anti-corruption culture by the help of forming effective cooperative actions among budgetary organisations, NGOs and businesses. • Creating a trust-building climateby developing civil partnership with NGOs, elements ofcorporate governance and interest enforcing ability of businesses. Foundation for Market Economy

21. Executive Director: Dr Mária Major Dezsériné  Phone: (361) 204 2951  Fax: (361) 204 2953  Address: Dombóvári út 17/19 1117 Budapest, Hungary Internet: www.fme.hu  Thank you for your attention! Foundation for Market Economy A small economic think tank (NGO) from Hungary E-mail:piacgazd@axelero.hu Foundation for Market Economy