Public procurement at the local level 2018-07-18T15:14:23+00:00

PUBLIC PROCUREMENT AT THE LOCAL LEVEL

Public procurement is widely considered to be one of the areas that is most vulnerable to corruption. The factors that affect the vulnerability are not limited to the volume of transactions and the serious financial incentives at stake. They stem from a combination of system weaknesses (complexity of the processes, regulatory incoherence, multitude of stakeholders, close interaction between public officials and businesses), as well as, implementation deficiencies (lack of transparency and ineffective information systems, poor professional capacities, weak oversight and controls).

Inherent integrity risks seem exacerbated in a local government context. The closeness of local government to the community makes it more likely to create CoI, whereas the complexity of relationship often prevents reporting. Additionally, in local markets there is weak competition and fewer suppliers, so particular favoured choices may be more easily justified. Shortages of staff and limited legal expertise, as well as weak capacities to manage complex procurement procedures, may increase integrity risk levels. Direct interaction with potential suppliers is more difficult to avoid at the local level, because of the close community.

Procurements, even the low-value ones, are more easily seen. In the absence of adequate transparency, the likelihood that citizens and businesses shall comment negatively about perceived corruption is higher. Given the above, strong operational controls in local procurement processes are indispensable to effective management.

INTEGRITY RISKS

Integrity risks occur in every stage of the procurement process, from the procurement needs assessment over the tendering phase to the contract execution and payment. Various types of abusive behaviour may exploit these vulnerabilities, such as conflict of interest, undue influence, embezzlement, bribery, or various kinds of fraud risks. An integrity risk assessment of the local public procurement phase may identify some or all of the following integrity risk factors (the list is not limited):

  • Procurement needs are not assessed adequately. Officials request goods and supplies that are not actually needed or volumes that are not needed. Procurement budgets are not realistic or not aligned with the existing budget. Procurement is not aligned with the overall investment process, including with capital investments and projects (ongoing and planned).

  • The procurement planning process is not participatory (with limited or no participation of relevant stakeholders). External actors exercise undue influence on decisions to launch a procurement procedure to favour particular interests.

  • Use of non-competitive procedures not justified. Unjustified referral to exemptions to avoid competitive procedures: contract splitting, abuse of extreme urgency, non-supported modifications.

  • Technical specifications have low quality due to inadequate competence of the procurement staff (in particular, in areas that require high-level technical expertise such as capital projects, construction, etc.). Price estimates prove inadequate due to poor knowledge of the market.

  • Technical specifications are tailored to meet particular needs, capacities and offers.

  • Selection criteria are either vague, or too general.

  • Important procurement information is not disclosed and not made public (i.e. evaluation and award criteria.) There is no public notice or no wide announcement of the public notice. Public notice has been announced late or during holiday time.

  • Lack of competition or cases of collusive bidding (cover bidding, bid suppression, bid rotation, market allocation). Suppliers collude with each other to increase their quotes and plan who is awarded the contract, knowing all alternative options to source the good or service.

  • Officials do not declare conflicts of interests with potential suppliers.

  • Officials substitute part or all the whole of the technical proposal and the price proposal after the tender documentation had been open in the evaluation phase.

  • Officials award the contract dispecting the criteria announced in the technical specification; and/or without following all procedures; and/or by giving more points to favoured bidders without justification.

  • Poorly written contracts disadvantage local governments (i.e. due to inadequate contracting knowledge). Officials amend the contract without justification to allow more time and/or higher prices for the contractor.

  • Poor contract management, including inadequate performance monitoring. Supervision from public officials is ineffective (i.e. compromise on quality and timing; fewer field officers to supervise contractors; quality assurance is left entirely to the contractors). Officials collude with contractors to deviate from the quality standards agreed and approve product substitution (i.e. second hand equipment or cheaper alternatives) or sub-standard work or service not meeting contract specifications.

  • Financial management of procurement contracts is weak. False accounting and cost misallocation or cost migration between contracts. Officials approve false or duplicate invoicing for goods/ services that were not supplied, and/or process final payment before accepting all contract deliverables.

RISK MANAGEMENT STRATEGIES

Following the risk assessment, the local government may consider the following risk management strategies as development points:

  • Develop and maintain clear and comprehensive procedures to govern local public procurement, aligned with the applicable regulations and internal acts. Support its implementation with further guidance materials, tools and templates.

  • Institute appropriate operational controls in the procurement procedures. Define clearly the authority for approval, considering appropriate segregation of duties, as well as the obligations for internal reporting. Promote separation of responsibilities for particular functions as far as possible (i.e. separate planning from implementation and monitoring, contracting from contract management, certification of receipts of goods and services from payment verification, etc). Where feasible, practice staff rotation. For key decision-making steps, make appropriate use of committees, and other formats of collective decision-making.

  • Where feasible, consider modern techniques, such as e-procurement, centralized purchasing and framework agreements to reduce risks and optimise efficiency.

  •  For particular critical projects, or specific procurement phase, if determined necessary, conduct a separate risk assessment, to determine red flags and potential risk-treatment measures.

  • Pro-actively provide for optimal transparency of public procurement. Within the legal limits, ensure maximal public availability of a relevant, easy to access and user-friendly procurement information (i.e. through web portal, notice boards, public hearings). Implement a Minimal Transparency Threshold in Local Public Procurement and monitor its consistent implementation (i.e. information on procurement budgets and plans, tender opportunities and technical specifications, eligibility and selection criteria, award decision, the contract and any amendments; implementation, deliverables, evaluation, oversight, dispute settlement mechanisms and procedures.)

  • Monitor the straightforward application of the CoI regulations in the public procurement process.

  • Provide incentives to attract and retain well-qualified procurement staff, including training and further opportunities for career enhancement. Ensure that procurement practitioners meet high and up-to-date professional knowledge and skills, through provision of lifelong learning (i.e. review, training, workshops, mentoring)

  • Put effective mechanisms in place to ensure that local public procurement needs are adequately estimated. Ensure a participatory, documented planning process, by fully informing relevant stakeholders and consulting them on key aspects. Retain public comments on needs assessments and budget plans through written submissions or public hearings.

  • Increase respective capacities of the heads of units who participate in procurement planning. Build and strengthen capacities of staff to prepare tender specifications and tender documentation. Compensate existing capacity gaps through involvement of internal staff (i.e. from other units in the relevant subject areas), as well as external experts (i.e. from the relevant industry and sectors, NGOs, etc.).

  • Ensure the choice of a procurement method is based on clear rules, with maximal transparency achieved.

  • Use, where relevant, standardized bidding documents across local government.

  • Ensure that bidders have sufficient time for preparation of the technical documentation by leaving a reasonable amount of time between publication of the notice and the application deadline.

  • Ensure no bidder is given privileged information and any further clarifications are shared with all bidders. Assign contact focal points for communication with bidders (small number of officers to be authorized for direct dealings).

  • Allow for public scrutiny over local public procurement, i.e. through disclosing public information on the headlines of major contracts, including NGOs representatives as observers to the work of the selection committees.

  • Implement post procurement award audits on tenders above a specified threshold to evaluate adherence to specified procedural standards. For large or high-value procurement, require independent validation. Conduct random reviews or audits of non-competitive procedures.

  • Ensure contracts between the procuring local government and its contractors, require the parties to adhere to a strict integrity policy. Consider including Integrity Pacts in the tender documentation.

  • Closely monitor contract amendments. Set a cumulative threshold beyond which change orders that alter the price or description of work should be approved at a high level.

  • Through due diligence verify technical and financial capacity of bidders.

  • Further to the applicable legal requirements, ensure adequate appeals processes are in place for aggrieved bidders, which are capable of suspending the procurement until a judgement is made.

  • Develop appropriate procurement performance indicators to monitor procurement performance (i.e. number of appeals, time between bid opening and award, number of contract amendments, price increase, etc.).

  •  Strengthen accountability and control mechanisms (e.g. internal control and audits, external audits and review systems), depending on the value, complexity and sensitivity of the public procurement. Ensure effective quality controls. Assess both financial data and the actual performance of the contract. Ensure effective sanctions mechanisms and make information about sanctions that have already been imposed publicly available.

  • Engage NGOs to scrutinize public procurement (i.e. through participation in oversight committees).

GUIDE TO CORRUPTION-FREE LOCAL GOVERNMENT