Unpacking the logic behind the magic in the use of AI for anticorruption screening (re Pastor Sanz, 2022)

‘Network of public contracts, contracting bodies, and awarded companies in Spain’ in 2020 and 2021; Pastor Sanz (2022: 7).

[Note: please don’t be put off by talk of complex algorithms. The main point is precisely that we need to look past them in this area of digital governance!].

I have read a new working paper on the use of ‘blackbox algorithms’ as anti-corruption screens for public procurement: I Pastor Sanz, ‘A New Approach to Detecting Irregular Behavior in the Network Structure of Public Contracts’. The paper aims to detect corrupt practices by exploiting network relationships among participants in public contracts. The paper implements complex algorithms to support graphical analysis to cluster public contracts with the aim of identifying those at risk of corruption. The approach in the paper would create ‘risk maps’ to eg prioritise the investigation of suspected corrupt awards. Such an approach could be seen to provide a magical* solution to the very complex issue of corruption monitoring in procurement (or more generally). In this post, I unpack what is behind that magic and critically assess whether it follows a sound logic on the workings of corruption (which it really doesn’t).

The paper is technically very complex and I have to admit to not entirely understanding the specific workings of the graphical analysis algorithms. I think most people with an interest in anti-corruption in procurement would also struggle to understand it and, even data scientists (and even the author of the paper) would be unable to fully understand the reasons why any given contract award is flagged as potentially corrupt by the model, or to provide an adequate explanation. In itself, this lack of explainability would be a major obstacle to the deployment of the solution ‘in the real world’ [for discussion, see A Sanchez-Graells, ‘Procurement Corruption and Artificial Intelligence: Between the Potential of Enabling Data Architectures and the Constraints of Due Process Requirements’]. However, perhaps more interestingly, the difficulty in understanding the model creates a significant additional governance risk in itself: intellectual debt.

Intellectual debt as a fast-growing governance risk

Indeed, this type of very complex algorithmic approach creates a significant risk of intellectual debt. As clearly put by Zittrain,

‘Machine learning at its best gives us answers as succinct and impenetrable as those of a Magic 8-Ball – except they appear to be consistently right. When we accept those answers without independently trying to ascertain the theories that might animate them, we accrue intellectual debt’ (J Zittrain, ‘Intellectual Debt. With Great Power Comes Great Ignorance’, 178).

The point here is that, before relying on AI, we need to understand its workings and, more importantly, the underlying theories. In the case of AI for anti-corruption purposes, we should pay particular attention to the way corruption is conceptualised and embedded in the model.

Feeding the machine a corruption logic

In the paper, the model is developed and trained to translate ‘all the public contracts awarded in Spain in the years 2020 and 2021 into a bi-dimensional map with five different groups. These groups summarize the position of a contract in the network and their interactions with their awarded companies and public contracting bodies’ (at 14). Then, the crucial point from the perspective of a corruption logic comes in:

‘To determine the different profiles of the created groups in terms of corruption risk, news about bad practices or corruption scandals in public procurements in the same period (years 2020 and 2021) has been used as a reference. The news collection process has been manual and the 10 most important general information newspapers in Spain in terms of readership have been analyzed. Collected news about irregularities in public procurements identifies suspicions or ongoing investigations about one public contracting body and an awarded company. In these cases, all the contracts granted by the Public Administration to this company have been identified in the sample and flagged as “doubtful” contracts. The rest of the contracts, which means contracts without apparent irregularities or not uncovered yet, have been flagged as “normal” contracts. A total of 765 contracts are categorized as “doubtful”, representing 0.36% of total contracts … contracts belong to only 25 different companies, where only one company collects 508 granted contracts classified as “doubtful”’ (at 14-15, references omitted and emphasis added).

A sound logic?

This reflects a rather cavalier attitude to the absence of reliable corruption data and to difficulties in labelling datasets for that purpose [for discussion, again, see A Sanchez-Graells, ‘Procurement Corruption and Artificial Intelligence: Between the Potential of Enabling Data Architectures and the Constraints of Due Process Requirements’].

Beyond the data issue, this approach also reflects a questionable understanding of the mechanics of corruption. Even without getting into much detail, or trying to be exhaustive, it seems that this is a rather peculiar approach, perhaps rooted in a rather simplistic intuition of how tenderer-led corruption (such as bribery) could work. It seems to me to have some rather obvious shortcomings.

First, it treats companies as either entirely corrupt or not at all corrupt, whereas it seems plausible that corrupt companies will not necessarily always engage in corruption for every contract. Second, it treats the public buyer as a passive agent that ‘suffers’ the corruption and never seeks, or facilitates it. There does not seem to be any consideration to the idea that a public buyer that has been embroiled in a scandal with a given tenderer may also be suspicious of corruption more generally, and worth looking into. Third, in both cases, it treats institutions as monolithic. This is particularly problematic when it comes to treating the ‘public administration’ as a single entity, specially in an institutional context of multi-level territorial governance such as the Spanish one—with eg potentially very different propensities to corruption in different regions and in relation to different (local/not) players. Fourth, the approach is also monolithic in failing to incorporate the fact that there can be corrupt individuals within organisations and that the participation of different decision-makers in different procedures can be relevant. This can be particularly important in big, diversified companies, where a corrupt branch may have no influence on the behaviour of other branches (or even keep its corruption secret from other branches for rather obvious reasons).

If AI had been used to establish this approach to the identification of potentially corrupt procurement awards, the discussion would need to go on to scrutinise how a model was constructed to generate this hypothesis or insight (or the related dataset). However, in the paper, this approach to ‘conceptualising’ or ‘labelling corruption’ is not supported by machine learning at all, but rather depends on the manual analysis and categorisation of news pieces that are unavoidably unreliable in terms of establishing the existence of corruption, as eg the generation of the ‘scandals’ and the related news reporting is itself affected by a myriad of issues. At best, the approach would be suitable to identify the types of contracts or procurement agents most likely to attract corruption allegations and to have those reported in the media. And perhaps not even that. Of course, the labelling of ‘normal’ for contracts not having attracted such media attention is also problematic.

Final thoughts

All of this shows that we need to scrutinise ‘new approaches’ to the algorithmic detection of corruption (or any other function in procurement governance and more generally) rather carefully. This not only relates to the algorithms and the related assumptions of how socio-technical processes work, but also about the broader institutional and information setting in which they are developed (for related discussion, see here). Of course, this is in part a call for more collaboration between ‘technologists’ (such as data scientist or machine learning engineers) and domain experts. But it is also a call for all scholars and policy-makers to engage in critical assessment of logic or assumptions that can be buried in technical analysis or explanations and, as such, difficult to access. Only robust scrutiny of these issues can avoid incurring massive intellectual debt and, perhaps what could be worse, pinning our hopes of improved digital procurement governance on faulty tools.

_____________

* The reference to magic in the title and the introduction relates to Zittrain’s Magic-8 ball metaphor, but also his reference to the earlier observation by Arthur C. Clarke that any sufficiently advanced technology is indistinguishable from magic.

Flexibility, discretion and corruption in procurement: an unavoidable trade-off undermining digital oversight?

Magic; Stage Illusions and Scientific Diversions, Including Trick Photography (1897), written by Albert Allis Hopkins and Henry Ridgely Evan.

As the dust settles in the process of reform of UK public procurement rules, and while we await for draft legislation to be published (some time this year?), there is now a chance to further reflect on the likely effects of the deregulatory, flexibility- and discretion-based approach to be embedded in the new UK procurement system.

An issue that may not have been sufficiently highlighted, but which should be of concern, is the way in which increased flexibility and discretion will unavoidably carry higher corruption risks and reduce the effectiveness of potential anti-corruption tools, in particular those based on the implementation of digital technologies for procurement oversight [see A Sanchez-Graells, ‘Procurement Corruption and Artificial Intelligence: Between the Potential of Enabling Data Architectures and the Constraints of Due Process Requirements’ in S Williams-Elegbe & J Tillipman (eds), Routledge Handbook of Public Procurement Corruption (Routledge, forthcoming)].

This is an inescapable issue, for there is an unavoidable trade-off between flexibility, discretion and corruption (in procurement, and more generally). And this does not bode well for the future of UK procurement integrity if the experience during the pandemic is a good predictor.

The trade-off between flexibility, discretion and corruption underpins many features of procurement regulation, such as the traditional distrust of procedures involving negotiations or direct awards, which may however stifle procurement innovation and limit value for money [see eg F Decarolis et al, ‘Rules, Discretion, and Corruption in Procurement: Evidence from Italian Government Contracting’ (2021) NBER Working Paper 28209].

The trade-off also underpins many of the anti-corruption tools (eg red flags) that use discretionary elements in procurement practice as a potential proxy for corruption risk [see eg M Fazekas, L Cingolani and B Tóth, ‘Innovations in Objectively Measuring Corruption in Public Procurement’ in H K Anheier, M Haber and M A Kayser (eds) Governance Indicators: Approaches, Progress, Promise (OUP 2018) 154-180; or M Fazekas, S Nishchal and T Søreide, ‘Public procurement under and after emergencies’ in O Bandiera, E Bosio and G Spagnolo (eds), Procurement in Focus – Rules, Discretion, and Emergencies (CEPR Press 2022) 33-42].

Moreover, economists and political scientists have clearly stressed that one way of trying to strike an adequate balance between the exercise of discretion and corruption risks, without disproportionately deterring the exercise of judgement or fostering laziness or incompetence in procurement administration, is to increase oversight and monitoring, especially through auditing mechanisms based on open data (see eg Procurement in a crisis: how to mitigate the risk of corruption, collusion, abuse and incompetence).

The difficulty here is that the trade-off is inescapable and the more dimensions on which there is flexibility and discretion in a procurement system, the more difficult it will be to establish a ‘normalcy benchmark’ or ‘integrity benchmark’ from which deviations can trigger close inspection. Taking into account that there is a clear trend towards seeking to automate integrity checks on the basis of big data and machine learning techniques, this is a particularly crucial issue. In my view, there are two main sources of difficulties and limitations.

First, that discretion is impossible to code for [see S Bratus and A Shubina, Computerization, Discretion, Freedom (2015)]. This both means that discretionary decisions cannot be automated, and that it is impossible to embed compliance mechanisms (eg through the definition of clear pathways based on business process modelling within an e-procurement system, or even in blockchain and smart contract approaches: Neural blockchain technology for a new anticorruption token: towards a novel governance model) where there is the possibility of a ‘discretion override’.

The more points along the procurement process where discretion can be exercised (eg choice of procedure, design of procedure, award criteria including weakening of link to subject matter of the contract and inclusion of non(easily)measurable criteria eg on social value, displacement of advantage analysis beyond sphere of influence of contracting authority, etc) the more this difficulty matters.

Second, the more deviations there are between the new rulebook and the older one, the lower the value of existing (big) data (if any is available or useable) and of any indicators of corruption risk, as the regulatory confines of the exercise of discretion will not only have shifted, but perhaps even lead to a displacement of corruption-related exercise of discretion. For example, focusing on the choice of procedure, data on the extent to which direct awards could be a proxy for corruption may be useless in a new context where that type of corruption can morph into ‘custom-made’ design of a competitive flexible procedure—which will be both much more difficult to spot, analyse and prove.

Moreover, given the inherent fluidity of that procedure (even if there is to be a template, which is however not meant to be uncritically implemented), it will take time to build up enough data to be able to single out specific characteristics of the procedure (eg carrying out negotiations with different bidders in different ways, such as sequentially or in parallel, with or without time limits, the inclusion of any specific award criterion, etc) that can be indicative of corruption risk reliably. And that intelligence may not be forthcoming if, as feared, the level of complexity that comes with the exercise of discretion deters most contracting authorities from exercising it, which would mean that only a small number of complex procedures would be carried out every year, potentially hindering the accumulation of data capable of supporting big data analysis (or even meaningful econometrical treatment).

Overall, then, the issue I would highlight again is that there is an unavoidable trade-off between increasing flexibility and discretion, and corruption risk. And this trade-off will jeopardise automation and data-based approaches to procurement monitoring and oversight. This will be particularly relevant in the context of the design and implementation of the tools at the disposal of the proposed Procurement Review Unit (PRU). The Response to the public consultation on the Transforming Public Procurement green paper emphasised that

‘… the PRU’s main focus will be on addressing systemic or institutional breaches of the procurement regulations (i.e. breaches common across contracting authorities or regularly being made by a particular contracting authority). To deliver this service, it will primarily act on the basis of referrals from other government departments or data available from the new digital platform and will have the power to make formal recommendations aimed at addressing these unlawful breaches’ (para [48]).

Given the issues raised above, and in particular the difficulty or impossibility of automating the analysis of such data, as well as the limited indicative value and/or difficulty of creating reliable red flags in a context of heightened flexibility and discretion, quite how effective this will be is difficult to tell.

Moreover, given the floating uncertainty on what will be identified as suspicious of corruption (or legal infringement), it is also possible that the PRU (initially) operates on the basis of indicators or thresholds arbitrarily determined (much like the European Commission has traditionally arbitrarily set thresholds to consider procurement practices problematic under the Single Market Scorecard; see eg here). This could have a signalling effect that could influence decision-making at contracting authority level (eg to avoid triggering those red flags) in a way that pre-empts, limits or distorts the exercise of discretion—or that further displaces corruption-related exercise of discretion to areas not caught by the arbitrary indicators or thresholds, thus making it more difficult to detect.

Therefore, these issues can be particularly relevant in establishing both whether the balance between discretion and corruption risk is right under the new rulebook’s regulatory architecture and approach, as well as whether there are non-statutory determinants of the (lack of) exercise of discretion, other than the complexity and potential litigation and challenge risk already stressed in earlier analysis and reflections on the green paper.

Another ‘interesting’ area of development of UK procurement law and practice post-Brexit when/if it materialises.

New paper on procurement corruption and AI

I have just uploaded a new paper on SSRN: ‘Procurement corruption and artificial intelligence: between the potential of enabling data architectures and the constraints of due process requirements’, to be published in S. Williams-Elegbe & J. Tillipman (eds), Routledge Handbook of Public Procurement Corruption (forthcoming). In this paper, I reflect on the potential improvements that using AI for anti-corruption purposes can practically have in the current (and foreseeable) context of AI development, (lack of) procurement and other data, and existing due process constraints on the automation or AI-support of corruption-related procurement decision-making (such as eg debarment/exclusion or the imposition of fines). The abstract is as follows:

This contribution argues that the expectations around the deployment of AI as an anti-corruption tool in procurement need to be tamed. It explores how the potential applications of AI replicate anti-corruption interventions by human officials and, as such, can only provide incremental improvements but not a significant transformation of anti-corruption oversight and enforcement architectures. It also stresses the constraints resulting from existing procurement data and the difficulties in creating better, unbiased datasets and algorithms in the future, which would also generate their own corruption risks. The contribution complements this technology-centred analysis with a critical assessment of the legal constraints based on due process rights applicable even when AI supports continued human intervention. This in turn requires a close consideration of the AI-human interaction, as well as a continuation of the controls applicable to human decision-making in corruption-prone activities. The contribution concludes, first, that prioritising improvements in procurement data capture, curation and interconnection is a necessary but insufficient step; and second, that investments in AI-based anti-corruption tools cannot substitute, but only complement, current anti-corruption approaches to procurement.

As always, feedback more than welcome. Not least, because I somehow managed to write this ahead of the submission deadline, so I would have time to adjust things ahead of publication. Thanks in advance: a.sanchez-graells@bristol.ac.uk.

Emerging technologies and anti-corruption efforts -- re Adam and Fazekas (2021)

(c) Sara Alaica/Flickr.

I am working on a paper on digital technologies and corruption in procurement (or rather, trying to work on it in the midst of a challenging start of term). While researching this topic, I have come across this very interesting paper: Isabelle Adam and Mihály Fazekas, ‘Are emerging technologies helping win the fight against corruption? A review of the state of evidence’ (2021) Information Economics and Policy, available on pre-print here.

In their paper, Adam & Fazekas carry out a systematic review ‘of the academic and policy literature on the six most commonly discussed types of ICT-based anti-corruption interventions: (i) Digi- tal public services and e-government, (ii) Crowdsourcing platforms, (iii) Whistleblowing tools, (iv) Transparency portals and big data, (v) DLT and blockchain, and (vi) AI’ (at 2).

The analysis is clear and accessible and offers good insights on the positive and negative impacts that digital technologies can have for anti-corruption efforts, given that technology ‘is not per se a panacea against corruption, and it can also play into the hands of corrupt officials’ (ibid). The paper is well worth reading in full.

One of their insights I found particularly valuable is that ‘ICTs for anti-corruption operate against the background of given societal divides and power relations which are often supported by corruption. They risk further entrenching these unless their design and implementation take into account corruption and associated power imbalances. Hence, it is arguable that the success of ICT interventions against corruption hinges on their suitability for local contexts and needs, cultural backgrounds and technological experience‘ (at 1).

This directly links with Uta Kohl’s view that digital ‘technologies, whether the internet or blockchain, are tightly and on multiple levels interconnected with existing social orders and those interconnections decide upon the configurational latencies of the technological innovation within concrete settings: who uses the technological innovation in what configuration, for what purposes and against whom’ (see here for details).

To my mind, all of this stresses the need to operationalise a gatekeeping function tasked with the analysis of which digital technologies are adopted by the public sector and for what purpose, and this gatekeeping function needs not only consider downstream ethical implications in terms of impacts on citizens and service users, but also upstream implications concerning the way in which technologies will disrupt, support or entrench existing governance dynamics — and in particular those that the adoption of the technology is seeking to remedy.

Bringing this to procurement, these insights show that the public procurement function — to the extent that the adoption of these technologies is subjected to the regulatory framework of innovation procurement — is de facto playing (or failing to play) such gatekeeping function. More than in other settings, the procurement function needs to closely scrutinise the ‘use case’ of the digital technologies it is tasked with procuring. This is arguably a new regulatory function for procurement, and one that is not yet embedded in procurement theory, regulation or practice. But one that is inescapable nonetheless. So one that is worth thinking about.

Interesting proposals for post-Brexit strengthening of UK approach to corruption and collusion in procurement -- re Jones (2021)

Prof Alison Jones has recently published on early view an interesting paper on ‘Combatting Corruption and Collusion in UK Public Procurement: Proposal for Post‐Brexit Reform’ (2021) Modern Law Review, forthcoming.

The paper provides a very good, comprehensive overview of the current rules and enforcement practices in the UK, their more than likely shortcomings, and four groups of proposals to tighten up the rule book and enforcement approach to the prevention and repression of corruption and bid rigging post-Brexit.

Except for some proposals on the transparency of procurement data (at p 32) and Prof Jones’ faith in the potential of the (now abandoned) ‘Screening for Cartels’ tool — both of which deserve a more in-depth discussion (see eg here on procurement transparency, and here on the SfC tool) — the UK legislator would do well to take these proposals seriously as it progresses in its review of procurement and competition laws post-Brexit.

Public procurement digitalisation: A step forward or two steps back? [guest post by Dr Kirsi-Maria Halonen]

In this guest post, Dr Kirsi-Maria Halonen offers some exploratory thoughts on the digitalisation of public procurement, its difficulties and some governance and competition implications. This post is based on the presentation she gave at a Finnish legal research seminar “Oikeustieteen päivät”, Aalto University, on 28-29 September 2019.

Digitalisation of procurement - background and goals

Digitalisation and e-procurement are considered to enhance the efficiency of the procurement process in the EU’s internal market. In line with the European Commission’s 2017 Procurement Strategy, procurement digitalisation can unlock better and faster transparency across the internal market, thus ensuring the possibility for economic operators to become aware of business opportunities, the facilitation of access to public tenders and the dissemination of information on the conditions of the award of public contracts.

Beyond mere transparency gains, procurement digitalisation is also expected to Increase the integrity of the awarding process and the public officials involved, thus fostering corruption prevention and good administrative practices. Finally, digitalisation is also expected to open new, more efficient monitoring possibilities both before and after contract execution, as well as the deployment of advanced big data analytics.

Directive 2014/24/EU and procurement digitalisation

Digitalisation and e-procurement are some of the main goals of Directive 2014/24/EU. Since October 2018, these rules impose the mandatory use of electronic communications throughout the whole public contract award procedure (eCommunication), the submission of tenders in electronic form (eSubmission) and created detailed rules for procedures meant solely for eProcurement, as well as simplified information exchange mechanisms (such as the ESPD) to facilitate electronic processing of procurement information.

Although the digital requirements in the Directive do not yet cover pre-award market consultations or post-award contracts and contract amendments, there are some trends to indicate that these may be the next areas of digitalisation of procurement.

State of the art at Member State level

Many Member States have taken digitalisation and transparency in public procurement even further than the requirements of Directive 2014/24/EU. Many contracting authorities use eProcurement systems for the management of the entire life-cycle of the tendering process. In Finland, there is now consolidated experience with not only an eProcurement system, but also with an open access Government spend database. Similarly, Portugal, Spain, Italy, Slovakia and Poland have also created open access contract registers for all public contracts and contract amendments.

Additionally, many Member States are committed to wider transparency outside the procurement procedures. For example, there is an emerging practice of publication of pre-tendering market consultation documents or audio/video meeting records. It is also increasingly common to provide open access to contract performance documents, such as bills, payments and performance acceptance (eg the UK national action plan on open contracting).

Concerns and opportunities in the digitalisation of procurement

Given the current trends of development of digital procurement, it is necessary to reflect not only on the opportunities that the roll-out of these technologies creates, but also some concerns that arise from increased transparency and the implications of this different mode of procurement governance. Below are some thoughts on four interrelated dimensions: corruption, SME participation, adoption of blockchain-base and algorithmic tools, and competition for public contracts.

Corruption

Public Procurement and other commercial relationships (eg real estate development) between public and private sector are most vulnerable to corruption (as repeatedly stressed by the OECD, Transparency International, Finnish National Bureau of Investigation, etc). In that regard, it seems clear that the digitalisation of procurement and the increased transparency it brings with it can prevent corruption and boost integrity. Companies across the EU become aware of the contract award, so there is less room for national arrangements and protectionism. Digitalisation can make tendering less bureaucratic, thus lessening the need and room for bribes. eProcurement can also prevent (improper) direct communication between the contracting authority and potential tenderers. Finally, the mere existence of electronic documentation makes it easier to track and request documents at a later stage: illegal purchases are not that easy to “hide”.

Yet, even after the roll-out of electronic documentation and contract registers, there will remain issues such as dealing with receipts or fabricating needs for additional purchases, which are recurring problems in many countries. Therefore, while digitalisation can reduce the scope and risk of corruption, it is no substitute for other checks and balances on the proper operation of the procurement function and the underlying expenditure of public funds.

SME participation

One of the goals of Directive 2014/24/EU was to foster procurement digitalisation to facilitate SME participation by making tendering less bureaucratic . However, tendering is still very bureaucratic. Sometimes it is difficult for economic operators to find the “right” contracts, as it requires experience not only in identifying, but also in interpreting contract notices. Moreover, the effects of digitalisation are still local due to language barriers – eg in Finland, tendering documents are mostly in Finnish.

Moreover, the uncertainty of winning and the need to put resources into tendering are the main reasons for not-bidding by SMEs (Jääskeläinen & Tukiainen, 2018); and this is not resolved by digital tools. On the contrary, and in a compounding manner, SMEs can be disadvantaged in eProcurement settings. SMEs rarely can compete in price, but the use of e-procurement systems "favours" the use of a price only criterion (in comparison to price-quality-ratio) as quality assessment requires manual assessment of tenders. The net effect of digitalisation on SME participation is thus less than clear cut.

Blockchain-based and algorithmic tools

The digitalisation of procurement creates new possibilities for the use of algorithms: it opens endless possibilities to implement algorithmic test for choosing “the best tender” and to automate the procurement of basic products and services; it allows for enhanced control of price adjustments in e-catalogues (which currently requires manual labor); and it can facilitate monitoring: eg finding signs for bid rigging, cartels or corruption. In the future, transparent algorithms could also attack corruption by minimizing or removing human participation from the course of the procurement procedure.

Digitalisation also creates possibilities for using blockchain: for example, to manage company records, official statements and documents, which can be made available to all contracting authorities across EU. However, this also creates risks linked to eg EU wide blacklists: a minor infringement in one Member State could lead to the economic operator’s incapability of participating in public tenders throughout the EU.

The implications of the adoption of both algorithmic and blockchain-based tools still requires further thought and analysis, and this is likely to remain a fertile area for practical experimentation and academic debate in the years to come.

Competition

Open public contract registers have become a part of public procurement regime in EU Member States where corruption is high or with a tradition of high levels of public sector transparency. The European Commission is pushing for their creation in all EU jurisdictions as part of its 2017 Procurement Strategy. These contract registers aim to enhance integrity of the procurement system and public official and to allow public scrutiny of public spending by citizens and media.

However, these registers can facilitate collusive agreements. Indeed, easier access to detailed tendering information facilitates monitoring existing cartels by its members: it provides means to make sure ”cartel discipline” is being followed. Moreover, it may facilitate the establishment of new cartels or lead to higher / not market-based pricing without specific collusive agreements.

Instead of creating large PDF-format databases of scanned public contracts, the European Commission indeed encourages Member States to create contract registers with workable datasets (user friendly, open, downloadable and machine-readable information on contracts and especially prices and parties of the contract). This creates huge risks of market failure and tendering with pricing that is not based on the market prices. It thus requires further thought.

Conclusions

Digitalisation has and is transforming public procurement regime and procedures. It is usually considered as a positive change: less bureaucracy, enhanced efficiency, better and faster communication and strengthening integrity of public sector. However, digitalisation keeps challenging the public procurement regime through eg automated processes and production of detailed data - leaving less room for qualitative assessments. One can wonder whether this contributes to the higher-level objectives of increasing SME participation and generating better value for money.

Digitalisation brings new tools for monitoring contracting authorities and to detect competition distortions and integrity failures. However, there is a clear risk in providing “too much” and “too detailed” pricing and contract information to the market operators – hence lowering the threshold of different collusive practices. It is thus necessary to reconsider current regulatory trends and to perhaps develop a more nuanced regulatory framework for the transparency of procurement information in a framework of digitalised governance.

Guest blogger

Dr Kirsi-Maria Halonen is a Doctor of Laws and Adjunct Professor, Senior Lecturer in Commercial Law at University of Lapland. She is also a current Member of the European Commission’s Stakeholders Expert Group on Public Procurement (SEGPP, E02807), the Research Council at Swedish Competition Authority, the Finnish Ministry of Finance national PP strategy working group (previously also national general contract terms for PP (JYSE) working group), the Finnish Public Procurement Association, of which she is a board member and previous chair, and the European Procurement Law Group (EPLG).

In addition to public procurement law, Kirsi-Maria is interested in contract law, tort law, corruption and transparency matters as well as state aid rules. She is the author of several articles (both in English and in Finnish) and a few books (in Finnish). Most recently, she has co-edited Transparency in EU Procurements. Disclosure within Public Procurement and during Contract Execution, vol 9 European Procurement Law Series (Edward Elgar, 2019), together with Prof R Caranta and Prof A Sanchez-Graells.

Interesting Procurement Paper (Li & Xu, 2016): A Blueprint for Variable Remuneration of Public Procurement Officers? A Warning against some types of Centralised Procurement?

I have just read the paper by D Z Li and M Xu, 'Competition in Procurement Auctions with Corruption' (February 2, 2016), which assesses an interesting scenario of competition in public procurement tenders where the person in charge of running the procedure (the procurement officer, or 'bureaucrat', in their terminology) can require bribes from winning bidders, and where those bribes can be proportionate to the final value of the contract awarded.

Their paper is interesting because it fleshes out the incentives that a bureaucrat that expects to obtain a rent at the end of the procedure has, both in terms of affecting the number of bidders (to reduce it), and the level of disclosure of information (to conceal information in order to cover the corrupt practice). My personal intuition is that their insights should be useful to consider non-corrupt scenarios involving buyer rents other than bribes and, in particular, the introduction of bonuses or other variable retribution mechanisms for public buyers, which could well create the same incentives (as discussed below). Moreover, I find the paper thought-provoking because (legitimate) kick-backs are used to finance the activities of central purchasing bodies, which raises issues of their impact on social welfare if they behave like individual bureaucrats would (as also discussed below).

The paper and its model

As they explain in their abstract:

We study the effects of corruption on equilibrium competition and social welfare in a public procurement auction. A bureaucrat runs the auction on behalf of the government. He invites firms into the auction at positive costs, and may request a bribe from the winning firm afterward[s]. We first show that, in the absence of corruption, the bureaucrat invites more firms than social optimum under quite standard assumptions. Secondly, the effects of corruption on competition and social welfare vary across different forms of bribery. In the case of fixed bribe, corruption has no effect on equilibrium competition, yet [it does] induce social welfare loss due to the distortion cost of increased public spending. In the case of proportional bribe, the corrupt bureaucrat will invite less firms into the auction, which may result in Pareto-improving allocation in equilibrium. Finally, we also show that information disclosure may consistently induce more firms to be invited, if compared with the case of no information disclosure, no matter [whether] there is corruption or not.

I find some of the assumptions and insights of their paper particularly thought-provoking. They (implicitly) base their model on the existence of an agency relationship between the bureaucrat and the government, as well as between the government and society at large [for discussion, see here and here and, in Spanish, here]. This makes the model interesting from the perspective of the social externalities that improperly designed public procurement models can create, particularly if they allow public buyers to pursue (self-serving) goals that do not align with promotion of social welfare.

In their paper, Li & Xu explain that 'the government is modelled as a government division ... who cares about its own procurement pay-off rather than the overall social welfare' (p. 2). This can lead to designing the procurement process in a manner that invites too many interested bidders because 'the optimal number of firms that maximizes the government's pay-off is larger than the efficient number of firms that maximizes social welfare' (ibid), and due to the fact that 'the government prefers [a] higher level of competition in the procurement process' than would be socially efficient (p. 3). The undesirability of the excessive number of bidders is mainly derived from the costs they incur in order to participate in the tender, which are wasted for all those that did not stand a real chance of winning the contract (or, indeed, for all except the winning bidder).

The main insight of their paper is that, while the existence of a fixed bribe hurts both the government and society at large due to the higher cost of procurement, the existence of a proportionate bribe may 'increase social welfare [by inducing an efficient number of firms, or just one firm, to be invited], yet it hurts the government, as the government prefers higher level of competition in the procurement process' because that reduces its (private) procurement cost and imposes the externality derived from excessive tendering costs assumed by the disappointed private bidders [for discussion on the absence of consideration of these costs in economic surveys supporting recent public procurement law reforms in the EU, see here].

Their insight is based, among other elements, on the 'standard assumption for procurement auctions that firms' cost distribution is of decreasing reversed hazard rate (DRHR)' (p. 1, for an explanation of the reversed hazard rate and how it operates, see here). As Li & Xu explain, 'The intuition behind this ... is that increasing competition will gradually squeeze out the expected rent of the winning firm. Furthermore, the expected rent converges to zero when the number of firms approaches to infinity'. Or, in very simple words, that the lower the number of bidders, the higher the expected rent by those that participate. That is what would allow bidders to tender less competitive prices when competitive pressure is reduced (ie less bidders are invited), which would also be in the interest of the bureaucrat expecting to receive a proportional bribe (a higher rent for the winning bidder carries a higher rent for the bureaucrat as well).

They also stress in clear terms that 'information disclosure will increase both the efficiency and the optimal number of firms in the procurement auction. The intuition is that, under information disclosure, firms' cost estimates become more heterogen[e]ous, and therefore, for [a] given number of firms, the auction becomes less competitive than before' (p. 13). Furthermore, 'under information disclosure, firms become more heterogen[e]ous in their cost estimates, and the winning rent, which [in their model] is the difference between the lowest and second lowest costs, may also get larger as well'. However, t'when a corrupt bureaucrat can control information release, it would be more difficult to detect corruption. As we know, information disclosure implies more firms to be invited into the auction, and corruption under the proportion[ate] bribe implies less firms to be invited. The combined effects of these two are mixed'. Overall, then, the implications of their findings seems to be that a corrupt bureaucrat will have mixed incentives on whether to reduce the volume of information disclosed in the tender process because more information may increase its own proportionate rent, but it will also trigger both more interest in the tender and more risk of detection of the corruption.

a blueprint for variable remuneration of procurement officers?

As mentioned, my intuition is that these insights can be useful to consider non-corrupt scenarios involving 'bureaucrat' rents other than bribes and, in particular, the introduction of bonuses or other variable retribution mechanisms for public buyers, which could well create the same incentives. My intuition is that, should the bureaucrat have a legal financial incentive to obtain a rent a the end of the tender, and should the existence of this rent not need to be hidden, it would have an incentive to pursue strategies that maximize social value (even if not necessarily government pay-offs) by disclosing information that reduces the number of potentially interested bidders for which the tender is not actually competitive. Moreover, the financial incentive could include an element of reverse proportionality, so that the bonus would be larger when the government pay-off is increased (ie when the total cost of the procurement is reduced as much as possible within the framework of the competition between the efficient number of bidders). If this is true, then, one of the main aspects that Member States should consider going forward would not only be linked to decisions on how to transpose and develop the rules for restricted procedures and for procurement procedures involving negotiations, but also linked to the establishment of appropriate systems of incentives for procurement officers (bureaucrats) to make the right choice of procedure and to conduct the tender in a way that is aligned with social welfare and with (intra)governmental pay-offs.

what implications for kick-back based central purchasing financing?

Central purchasing bodies (CPBs) can be financed in many ways, but a popular model is for them to receive kick-backs (in the form of rappels of fees) from suppliers included in the framework agreements and other contracts that CPBs manage. Those kick-backs are generally proportionate the value of the call-offs that end-user contracting authorities place with each supplier. In that case, the CPB is not in a different economic position than a procurement officer (bureaucrat) expecting to receive a proportionate rent (or bribe) at the end of the procurement process it runs. Therefore, it seems to me that one of the transferable insights of Li & Xu's paper is that CPBs will be structurally in a situation where they might as well aim to achieve the highest rent, which would require for them to reduce the number of bidders and (possibly, but not necessarily) the information disclosed at the outset of the procedure, so as to reduce the number of competitors and increase their expected rents--thus triggering higher kick-backs for the CPB. This would match well with the intuition that CPBs can become self-interested organisations in the way they run their framework agreements, and not pay excessive attention to the real interest of their principal (end-user contracting authorities) or society at large, particularly if the use of their services is mandatory (ie if they do not need to justify net advantages, at least for the end-user contracting authorities, in order to attract volume of orders).

If this intuition holds true, it would be interesting to look at the impact of the financing of CPBs through kick-backs in more detail, in order to assess whether this system of financial incentives and rewards fosters social welfare overall, or is only beneficial for the CPB (and/or, the government) at the expense of broader social interests. This would be particularly relevant if, as anecdotal evidence indicates, access to centralised procurement is difficult for most firms (and, in particular, SMEs), so that CPBs structurally reduce the number of bidders for their (large) contracts, which the model in the paper would suggest increases the rents for both the CPBs and the included suppliers, but imposes both direct costs on government (through higher procurement costs that could be achievable in alternative settings of increased competition within CPB procurement) and indirect social costs via externalities [for discussion of some of these economic issues, see here].

Excellent @E15Initiative Think Piece on Competition, Corruption and Trade dimensions of Public Procurement Regulation (Anderson, Kovacic and Müller: 2016)

The E15Initiative jointly implemented by the International Centre for Trade and Sustainable Development (ICTSD) and the World Economic Forum aims to generate strategic analysis and recommendations for government, business, and civil society geared towards strengthening the global trade and investment system for sustainable development. One of their great initiatives is to publish 'think pieces' to stimulate a more informed debate about how trade policy and institutions can best be adapted to the highly interconnected global economy of the 21st century.

One of these first think pieces is Anderson, Kovacic and Müller, Promoting Competition and Deterring Corruption in Public Procurement Markets: Synergies with Trade Liberalisation (Feb 2016). In this well-thought and persuasive piece, the authors expand on their previous thoughts in this area [“Ensuring integrity and competition in public procurement markets: a dual challenge for good governance,” in Arrowsmith & Anderson (eds), The WTO Regime on Government Procurement: Challenge and Reform (Cambridge University Press, 2011) 681-718] and make a compelling case for the careful integration and balancing of competition, corruption and trade considerations in public procurement regulation. Their abstract is as follows:

Efficient and effective government procurement markets are critical to economic growth, development, and the welfare of citizens. Yet, two very serious challenges bear on the performance of these markets: (i) ensuring integrity in the procurement process (preventing corruption on the part of public officials); and (ii) promoting effective competition among suppliers. Typically, these challenges are viewed as separate and distinct: the former (corruption) is treated primarily as a principal-agent problem in which the official (the “agent”) enriches himself/herself at the expense of the government or the public (the “principal”); while the latter (promoting competition) involves preventing collusive practices among potential suppliers and removing barriers that impede participation in relevant markets. This think-piece demonstrates that these two problems often overlap, for example where public officials are paid to turn a blind eye to collusive tendering schemes or to release information that facilitates collusion. As well, while transparency requirements are often central to efforts to eradicate corruption, such measures can, if not properly tailored, facilitate collusion and thereby undermine efforts to strengthen competition. Thus, careful coordination of measures to deter corruption and to foster competition is needed. Further, the think-piece argues that participation in the WTO Agreement on Government Procurement (GPA), or in similar regional arrangements, can play an important role both in promoting competition and in deterring corruption. The GPA enhances possibilities for healthy competition in relevant markets through participation by foreign-based or affiliated contractors. It helps to prevent corruption by requiring adherence to appropriate (tailored) transparency measures, and by exposing procurement activities to checks and balances including domestic review (“bid protest” or “remedy”) systems and international scrutiny.

Focusing on my pet topic of transparency in public procurement regulation and how this can affect competition in markets where public procurement is an important demand component, I am thrilled to read that Anderson, Kovacic and Müller stress that:

... increasingly, some challenges in the design of appropriate levels of transparency at the different stages of the procurement process have been recognised in both the procurement and competition communities. The OECD (2007) points out that: 

Governments need to find an adequate balance between the objectives of ensuring transparency, providing equal opportunities for bidders, and other concerns, in particular efficiency. The drive for transparency must therefore be tempered by making transparent what sufficiently enables corruption control. 

Indeed ... certain kinds of transparency measures can clearly facilitate collusion and, consequently, are problematic from a competition policy point of view (Marshalland Marx 2012; Sanchez Graells 2015A). While, for example, there may be no way around the need for publication of award criteria and technical specifications in public procurement if responsive tenders are to be solicited, their usefulness as tools for facilitating inter-supplier agreement needs to be recognised. Similarly, the publication of procurement outcomes, while enabling monitoring by the public as the “principal,” can also serve cartel participants in policing anti-competitive agreements and thereby enhancing cartel stability. Sanchez Graells (2015B) discusses specific possible concerns regarding transparency measures that may be associated with centralised procurement registers. 

A further complication is that optimal transparency levels may differ from country to country. “Solutions” that are potentially workable in some contexts may be highly problematic in others. For example, in jurisdictions where outright corruption problems are believed to be minimal, some lessening of transparency measures might be considered, for the sake of preventing collusion. On the other hand, in economies where corruption is rampant, any lessening of transparency measures may be a recipe for disaster. This explains why the very high priority that is given to transparency in public procurement processes in some countries in Eastern Europe may, in fact, be appropriate notwithstanding possible collusion facilitation concerns, at least as an interim measure. In any case, as explained below, both competition law enforcement and competition advocacy are clearly part of the solution (pp.9-10).

Of course, I am really thankful that they picked up on some of my recent research and I hope that their think piece will help disseminate these insights, which I consider extremely important for the proper design of public procurement rules in a way that is socially advantageous [for further discussion, see A Sanchez-Graells, 'The Difficult Balance between Transparency and Competition in Public Procurement: Some Recent Trends in the Case Law of the European Courts and a Look at the New Directives' (November 2013)].

Another interesting paper on corruption and (induced) collusion in public procurement (Gong & Zhou, 2015)

Still on the topic of interaction between corruption and collusion, or how corrupt officials can create or consolidate collusion in procurement markets, I have come across another interesting recent paper: T Gong & N Zhou, "Corruption and marketization: Formal and informal rules in Chinese public procurement" (2014) 9(1) Regulation & Governance 63-76. 

This time, the research focuses on the Chinese experience and shows shockingly (not) similar trends to the Russian case study mentioned yesterday. The paper forcefully argues that 'empirical findings from China indicate that the relationship between market liberalization and corruption is more complex and nuanced than conventional wisdom suggests'. 

Some of the most interesting insights refer to the collusion (in broad terms) of bidders and public officials to avoid the application of formal public procurement rules (72-73) which, once again, will sound very familiar to scholars and practitioners with experience in any jurisdiction.
 

Interesting paper on corruption and (induced) collusion in public procurement (Ostrovnaya & Podkolzina, 2015)

In their recent paper "Antitrust Enforcement in Public Procurement: the Case of Russia" (2015) 11(2) Journal of Competition Law & Economics 331-352, M Ostrovnaya and E Podkolzina of the International Laboratory for Institutional Analysis of Economic Reforms discuss an example of interaction between corruption and (apparent) collusion in public procurement for drugs in Russia. 

I found the paper an interesting read and some of their insights on how corrupt officials can create or consolidate collusion in procurement markets will certainly ring many bells. This was an issue we recently discussed extensively at a knowledge exchange event at the Law School of the University of Sussex, and one that seems to be triggering increased attention in academic and practitioner circles.

Ostrovnaya and Podkolzina's analysis clearly shows that antitrust intervention against the public sector's restrictive procurement practices was resisted by a specific public buyer, which most likely decided to resort to an orchestrated system of bid covers (or passive bidding, as they label it) to avoid further antitrust intervention--thus deviating the attention of the antitrust watchdog towards the behaviour of the (certainly non-innocent) bidders. 

Their case study will be a useful guideline for the development of more effective competition rules applicable to the public sector. Or, at least, a warning against naive assumptions that antitrust intervention can ipso facto exclude issues of (induced) collusion in procurement markets.

New Book: G Racca & C Yukins (eds) "Integrity and Efficiency in Sustainable Public Contracts" (Brussels, Bruylant, 2014).

The new book on "Integrity and Efficiency in Sustainable Public Contracts. Balancing Corruption Concerns in Public Procurement Internationally" edited by Profs. Racca and Yukins is now available.

As the editors indicate

Ensuring efficiency and integrity throughout the public procurement cycle is essential to a sound allocation of taxpayers’ money. Yet public contracts are plagued by corruption, collusion, favoritism and conflicts of interest. This book addresses these problems from sophisticated, academic, institutional and practical perspectives.

The book’s ambition is to shape the public debate in the procurement community by highlighting how corruption implies violations of fundamental rights and undermines the fiduciary relationship between citizens and public institutions. The analysis underlines how corruption may stem from - and yet be resolved - through the exercise of discretion in the public procurement system. Focusing on the effects of public corruption and private collusion on procurement integrity, the book marks the features of misconduct and suggests needed counter-measures. The work also emphasizes that the pursuit of efficiency and integrity in public contracts must be rooted in professional skills, and in ethical regulations and training for public officers.

The research reflected in these pieces comes from sources around the world, and offers an excellent foundation for further development of these topics. Expanding on prior research, this volume builds on a more active transnational academic cooperation and exchanges of ideas on integrity in public contracts for the benefit of citizens.

This book is intended as both a textbook and an edited collection and it is available as an e-book too. The authors of the chapters are all specialists in their respective fields, and their different geographical and professional perspectives represent a valuable contribution to the scientific literature.

I have contributed a chapter on “Prevention and Deterrence of Bid Rigging: A Look from the New EU Directive on Public Procurement”, which SSRN version is available here.

Osei-Afoakwa's Paper on Transparency and Procurement

In a recent paper on transparency and public procurement, Dr Osei-Afoakwa presents a very passionate defence of maximising transparency in procurement for the purposes of combating corruption ["How Relevant is the Principle of Transparency in Public Procurement?" (2014) Developing Country Studies 4(6): 140-146]. 

Given my personal view that transparency in procurement (in the EU) is excessive and potentially self-defeating (see here and here), I read it with some skepticism. 

However, I have been glad to discover a section where the advocation of transparency is subjected to some counter-arguments. In my view, the most interesting ones are summarised as follows:

With reference to transparency as it affects public procurement, the increased knowledge associated with transparency may prove counterproductive. According to Jenny (2005) unmitigated transparency may breed anticompetitive practices, facilitate tacit collusion among the tenderers and thereby foment corruption. Under certain circumstances, the bureaucracy associated with the need to provide more information may indeed assist bribe givers to identify potentially corrupt officials (Bac, 2001). Bac (2001) argues that, this may facilitate corruption by enabling easy identification of people with whom “connection” may be established for the purpose of corrupt practices. In addition, knowledge acquired by potentially corruptible officials through transparency measures will enable them to learn the “ways and means” of perfecting and promoting the art of corruption.

Moreover, transparency for the sake of it is not a final-one-stop cure for the corruption in procurement syndrome. It must be supported by other corruption-reducing imperatives including assurance of effective competition and efficiency in managing public resources (Beth, 2005). Nowadays, as indicated by policy developments and experience in advanced countries spearheaded by the United States, the OECD and WTO, and reflected in “internationally shared norms”, effective competition is being maintained through the international trade liberalisation crusade (Anderson and Kovacic, 2009).In addition, sometimes unmitigated transparency may be at variance with other requirements of good governance. It is therefore important to establish an appropriate balance between transparency and other tenets of good governance by ensuring that information is released with due regard to established rules (Wittig, 2005). Thus absolute, unmitigated transparency may not be always desirable. The degree of transparency and openness should be adapted accordingly to suit the nature, status and value of recipient of information, the stage of the procurement cycle, the sensitivity of information, the size of the contract and the nature of the item to be procured. Therefore it becomes necessary to time the release of information to suit the nature, status and value of recipients (emphasis added).

Overall, the paper is interesting food for thought for anyone interested in the difficult balance between transparency and effective competition in public procurement. 

How #publicprocurement rules seem to be diminishing #competition in #China: A wake up call

The latest edition of the China Competition Bulletin reports on the state of affairs in Chinese public procurement markets, where inadequate rules and procedures seemingly fail to ensure value for money as a result of a lack of transparency and accountability.

According to the report, 

The principles of openness and transparency, fair competition, impartiality, and good faith are required to be observed in government procurement. China’s government procurement system provides general rules on competition, transparency, and fairness. However, the implementation of the rules is less than ideal. Insufficient disclosure of information, conflicts of interest, discriminatory treatment of enterprises, excessive prices, and poor quality purchasing have been frequently reported and raised the public’s concern in recent years. The newly released Blue Book of Rule of Law: Annual Report on China’s Rule of Law No. 11 (2013) provides an empirical report on the current state of government procurement.

Remarkably, other than the difficulties in having access to comparable data (and, generally, to data), the report evidences that

Data and price comparison results revealed that certain government procured goods can be much more expensive than average market prices. An extreme example mentioned in the report was a desktop computer that was procured at a cost of CNY 98,730 when the average market price for a computer with the same specifications was CNY 2,649. [...] In the end, the prices of 19,020 items were compared. These goods covered 29 product categories such as uninterruptible power systems, laptops, dehumidifiers, printers, and fax machines. The results show that the prices of 15,190 items were higher than the average market prices and that taxpayers had paid an extra CNY 20,743,897.50. On the positive side, the price comparison results show that 68,025 items purchased through the centralised procurement of the Central Government had saved taxpayers CNY 5,543,185. The 68,025 items, covering desktops, workstations, and printers, were chosen from 85,963 records collected for the research.

In view of such findings, 

the report notes that transparency is the foundation of fair competition, impartiality, and good faith. Transparency can effectively facilitate fair competition, deter corruption, and prevent China, the world’s largest procurement market, from turning into the world’s largest market for public corruption.

It seems that the Chinese public procurement system would benefit from a revision along the lines suggested by the report itself, which includes recommendations for the revision and improvement of the legal system for government procurement; which should be coupled with those in the OECD July 2012 Recommendation and, more generally, it offers a clear example of the interaction between public procurement and competition, as well as the need to consider  effects of public procurement regulations on competitive markets, as Prof. Yukins and Lt. Col. Cora have just emphasised in their featured comment in Government Contractor, March 6, 2013, Vol. 55, No. 9, ¶ 64.

When analysing the situation in the USA, Yukins and Cora conclude that

a substantial body of literature confirms that procurement rules can have a significant negative impact on competitive commercial markets. Procurement rules can, for example, raise new barriers to entry in the commercial marketplace, facilitate collusion in the commercial space, or artificially buoy commercial prices. Federal procurement regulators have not, as a regular matter, assessed those possible impacts in past rulemaking, but sound practice and legal authority, including an executive order, seem to call for such assessments. Assessing procurement rules’ likely impact on competitive markets would be in accord with best practices in rulemaking, and would help ensure that the federal procurement system integrates efficiently, and not disruptively, into the broader economy.

Their views and recommendations, which I fully share [Sanchez Graells, Public Procurement and the EU Competition Rules (Oxford, Hart Publishing, 2011)], are relevant for procurement reform in all major jurisdictions, such as the USA, the EU and  China. Hopefully, too, such revisions can lead to an exchange of best practices and, to the extent desirable, certain global convergence.

#Decency in #publicprocurement could take us out of the #crisis: or how #corruption is making us bleed out

Stories about corruption in public procurement are so common that they have become part of the daily news (and, sadly, a part that tends to receive less and less attention due to routine and tiredness from repetition). However, when one looks at the aggregate data, an immediate need for reaction becomes evident.

As the EU Commissioner for Home Affairs has just emphasised "The Commission's best estimate is that 120 billion euros are lost each year to corruption in the 27 Member States of the EU. That is the equivalent of the whole EU-budget. In public procurement, studies suggest that up to 20- 25% of the public contracts’ value may be lost to corruption." 

Given that  public procurement represents around 20% of the GDP in the European Union, a loss of 20% of its value due to corrupt practices of all sorts means that corruption in public procurement costs around 4% of the EU GDP. 

If we add the fact that, sometimes, corruption is coupled with collusion (or bid rigging), which can generate an increase in prices of approximately 20% (with instances of around 40%), the numbers may be easily brought up to losses due to illegal and indecent behavior representing 40% to 50% of its value--i.e. around 8-10% of GDP.

The power of these facts seems unbeatable and we should all have it now clear in our minds that only decency can save us from the economic crisis.

However we want to run the numbers or reduce them to be conservative in our claims, even a reduction of 50% of the perceived level of corruption would not only avoid most of the cuts being imposed on the budgets for the provision of public services, but it would also allow for a relaxation of tax pressure on individuals and companies, and to provide effective economic incentives to entrepreneurship and innovation. 

Even in clearer terms: addressing the issue of corruption and collusion in procurement would single-handedly bring the EU from recession/depression into economic growth. In this regard, the initiative of the European Commission to move from rhetoric to results in the fight against corruption (in public procurement) in the EU must be echoed, voiced and supported.

This is something we intend to do at workshops B5 and B6 of the Global Revolution VI Conference next June in Nottingham. Suggestions and active participation is encouraged and definitely more than welcome!