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TI Source Book 2000Chapter 22: Public Procurement: Where the Public and Private Sectors Do BusinessResidents of Nairobi are facing severe water rationing on top of 12-hour electricity blackouts on six days of the week because of drought. Small businesses cannot function. Residents even find they cannot pay their electricity bills because most post offices have no power. "Islands of power" continue, so that the President's residence is unaffected, and when the President spoke on television electricity was supplied for the duration of his speech, but when he sat down it was turned off again. |
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Mention the subject of corruption in government and most people will immediatelythink of bribes paid or received for the award of contracts for goodsor services, or--to use the technical term--procurement.[1]
Few activities create greater temptations or offer more opportunities for corruptionthan public sector procurement. Every level of government and everykind of government organisation purchases goods and services, often inquantities and monetary amounts that defy comprehension. Whether this isreally the most common form of public corruption may be questionable butwithout doubt it is alarmingly widespread and almost certainly the most publicised.Hardly a day goes by without the revelation of another major scandalin public procurement somewhere in the world.
It has been the cause of countless dismissals of senior officials, and even thecollapse of entire governments. It is the source of astronomical waste in publicexpenditure, estimated in some cases to run as high as 30 percent or moreof total procurement costs. Regrettably, however, it is more talked about thanacted upon.
To the non-specialist, the procurement procedures appear complicated, evenmystifying. They are often manipulated in a variety of ways, and withoutgreat risk of detection. Some would-be corrupters, on either side of transactions, often find ready and willing collaborators. Special care is needed, as the people doingthe buying (either those carrying out the procurement process or those approving thedecisions) are not concerned about protecting their own money, but are spending "govern-ment"money.
Such is the importance of public procurement that South Africa accorded it special attentionin its 1994 Constitution. Section 187 provides that:
Corruption in procurement is sometimes thought to be a phenomenon found only in developingcountries with weak governments and poorly paid staffs. The "most developed" countrieshave amply demonstrated in recent years that corrupt procurement practices can become anintegral part of their doing business. Nor is procurement corruption the exclusive domain of thebuyer who controls the purse strings: it can just as easily be initiated by the supplier or contractorwho makes an unsolicited offer. The real issue, of course, is what can be done about it?
Procurement should be economical. It should result in the best quality of goods and servicesfor the price paid, or the lowest price for the acceptable quality of goods and services; not necessarilythe lowest priced goods available; and, not necessarily the absolutely best qualityavailable, but the best combination to meet the particular needs.
"Price" is usually "evaluated price"--meaning that additional factors such as operating costs,availability of spares, servicing facilities are taken into account.
Contract award decisions should be fair and impartial. Public funds should not be used to providefavours; standards and specifications must be non-discriminatory; suppliers and contractorsshould be selected on the basis of their qualifications and the merit of their offers; thereshould be equal treatment of all in terms of deadlines, confidentiality, and so on.
The process should be transparent. Procurement requirements, rules and decision-making criteriashould be readily accessible to all potential suppliers and contractors, and preferablyannounced as part of the invitation to bid. The opening of bids should be public, and all decisionsshould be fully recorded in writing.
The procurement process should be efficient. The procurement rules should reflect the valueand complexity of the items to be procured. Procedures for small value purchases should besimple and fast, but as purchase values and complexity increase, more time and more complex rules will be required to ensure that principles are observed. "Decision making" for largercontracts may require committee and review processes, however bureaucratic interventionsshould be kept to a minimum.
Accountability is essential. Procedures should be systematic and dependable, and recordsexplaining and justifying all decisions and actions, should be kept and maintained.
Competence and integrity in procurement encourages suppliers and contractors to make theirbest offers and this in turn leads to even better procurement performance. Purchasers who failto meet high standards of accountability and fairness are quickly identified as poor partnerswith which to do business.
When a project is funded by an International Financial Institution (IFI), additional requirementsusually apply:
When a project is funded by the UN, the "purchaser" is, in most cases, the UN organisationitself. Although the UN basically applies similar procurement standards as those describedabove, it makes special efforts to procure from countries which are donor countries, but whichin the past have received a disproportionately small share of UN procurement, or from countriesin which the UN is holding large sums of non-convertible funds.
On the one hand there are principles that it make sense for every purchaser to apply; and onthe other hand there are the specific requirements of financial institutions (especially the multilateraldevelopment banks) for procurement financed out of their loans and credits.
Clearly, bribery and corruption need not be a necessary part of doing business. Experienceshows that much can be done to curb corrupt procurement practices if there is a desire and awill to do so. In order to understand how best to deal with corruption in procurement, it helpsto know first how it is practised.[2]
Contracts involve a purchaser and a seller. Each has many ways of corrupting the procurementprocess, and at any stage.
Before contracts are awarded, the purchaser can:
At the same time, suppliers can:
The most direct approach is to contrive to have the contract awarded to the desired partythrough direct negotiations without any competition. Even in procurement systems which arebased on competitive procedures, there are usually exceptions where direct negotiations arepermitted--for example:
Of course, not all single-sourced contracts are corrupt. In some instances, direct contract negotiationsmay well be the most appropriate course of action. However, if justifying circumstancesare claimed that do not really exist, the reason is often to cover up and permit corruption.
Even if there is competition, it is still possible to tilt the outcome in the direction of a favouredsupplier. If only a few know of the bidding opportunity, competition is reduced and the oddsimprove for the favoured party to win. One ploy is to publish the notification of bidding opportunitiesin the smallest, most obscure circulation source that satisfies the advertising requirementsand hope that no one sees it. Cooperative bidders, of course, get firsthand information.
Bidder competition can be further restricted by establishing improper or unnecessary prequalificationrequirements--and then allowing only selected firms to bid. Again, prequalification,if carried out correctly, is a perfectly appropriate procedure for ensuring that bidders have theright experience and capabilities to carry out a contract's requirements. However, if the standardsand criteria for qualification are arbitrary or incorrect, they can become a mechanismfor excluding competent but unwanted bidders.
Persistent but unwanted parties who manage to get past these hurdles can still be effectivelyeliminated by tailoring specifications to fit a particular supplier. Using the brand name andmodel number of the equipment from the preferred supplier is a bit too obvious, but the sameresults can be achieved by including specific dimensions, capacities and trivial design featuresthat only the favoured supplier can meet. The inability and failure of competitors to be ableto meet these features, which usually have no bearing on critical performance needs, are usedas a ploy to reject their bids as being "non-responsive."
Competitive bidding for contracts can only work if the bids are kept confidential up until theprescribed time for determining the results. A simple way to predetermine the outcome is forthe purchaser to breach the confidentiality of the bids, and give the prices to the preferred supplierto submit a lower figure. The mechanics are not difficult, especially if the bidders are notpermitted to be present when the bids are opened.
The final opportunity to distort the outcome of competitive bidding is at the bid evaluationand comparison stage. Performed responsibly, this is an objective analysis of how each bidresponds to the requirements of the bidding documents and a determination of which one isthe best offer. If the intention is to steer the award to a favoured bidder, the evaluation processoffers almost unlimited opportunities: if necessary, and unless prevented from doing so, evaluatorscan invent entirely new criteria for deciding what is "best", and then apply them subjectivelyto get the "right" results. They are often aided in this process by issuing bidding documentsthat are deliberately vague and obscure about what requirements must be met and howselection decisions will be made.
These techniques are only a brief outline of some of the ways in which a purchaser is able tocorrupt the procurement process.
It would be a mistake to think that the buyers are always the guilty parties: just as often, theyare the ones being corrupted by the sellers, although perhaps without undue resistance.
Through bribes and other incentives, sellers can encourage buyers to take any of the actionsdescribed above. In addition, they may collude with other suppliers to decide which party willwin a contract and then fix their prices accordingly--"bid rigging"--with an agreed payofffor the losers. This may be done without any knowledge of the buyer, and, if done cleverly,may never raise suspicions unless it occurs repeatedly. Even then, it may be hard to prove, letalone to punish.
Nor does the story end with the award of the contract, even though that is the stage most thinkof when corruption in procurement is discussed. Indeed, the most serious and costly forms ofcorruption may take place after the contract has been awarded, during the performance phase.It is then that the purchaser of the goods or services may:
For his part, the unscrupulous contractor or supplier may:
If the sellers have paid bribes or have offered unrealistically low bid prices in order to win thecontract, their opportunities to recover these costs arise during contract performance. Onceagain, the initiative may come from either side but, in order for it to succeed, corruptionrequires either active cooperation and complicity or negligence in the performance of dutiesby the other party.
Unscrupulous suppliers may substitute lower quality products than were originally required oroffered in their bid. They may falsify the quantities of goods or services delivered when theysubmit claims for payment, and pay more bribes to contract supervisors to induce them tooverlook discrepancies. In addition to accepting bribes and failing to enforce quality and performancestandards, buyers may divert delivered goods and services for their private use orfor resale.[4]
Bribes can take the form of "gifts" and "gifts" can take many forms--a lunch, a ticket to asports event, a Rolex watch, shares in a company, a holiday abroad, the school fees for a child.Some are acceptable; others are not.[5]
Throughout the developed world, the concept of the "hospitality tent" at major sporting functionshas become big business. In the tents, more often than not, purchasing officers from theprivate and public sectors enjoy hospitality they cannot reciprocate, yet it is offered becauseit seems to make commercial sense to the hosts as a way of keeping on good terms with existingcustomers as well as to attract new business. Is this corrupt?
The answers can vary. Evaluations of such practices may turn on whether or not supervisorsare in a position to monitor the consequences of their purchasing officers' behaviour. Also relevantis whether a particular purchasing officer disqualifies him or herself in future situationswhere the firm in question is involved. Likewise, it will matter whether all the companies,likely to get the business, are acting in similar ways, so that no "obligation" to prefer one bidderover another is created. Furthermore, levels of hospitality which are expected and usual,and do not give rise to a sense of obligation, can vary considerably from one society toanother.[6]
What is clearly unacceptable is where hospitality given is grossly excessive, such as all-expenses-paid holidays for a purchasing officer and spouse.[7]Less obviously unacceptable aresuch things as lunches or festive presents; though even here, the acceptance of seemingly trivialgifts and hospitality can, over time, lead to situations where an official has unwittinglybecome ensnared by the giver.
The dividing line usually rests at the point where the gift places the recipient under some obligationto the gift-giver. This point will differ from one society to another, but it is usuallydefined in terms of cash (or hospitality) which must be reported as being in excess of a givenfigure. Attempts to make distinctions between "private" hospitality and "hospitality in a publiccapacity" generally give rise to controversy, and so are best avoided.[8]
A crucial area of corruption--and one of growing concern--is the practice of corporations offeringpost-official employment to public servants with whom they have had official dealings.[9]
Clearly, regulations governing the post public sector employment of officials are important. Itis neither practical nor sensible to insist that former public officials not engage in commercialactivity after leaving office. However, whole networks of corruption can be constructed byoutside suppliers, not only through cash bribes and expensive overseas holidays, but alsothrough the promise to officials of lucrative employment when they retire.
It is tempting for a public official, blessed with rich work experience but a less than satisfactorypension, to accept employment with former suppliers. Often, there will be nothing wrongwith such an arrangement. Indeed, it may be a constructive and useful way to ensure thatvaluable experience is not altogether lost to the community.
But it is susceptible to abuse. For example, an official who leaves the public service may takewith him detailed knowledge of the government's impending contract bargaining strategy andthe confidential discussions that may have been held with competitors of the official's new,post-retirement employer. In such an instance, neither the public interest nor the private sectoris well served.
The promise of post-retirement employment can be used, too, by unscrupulous businesses asa "sweetener" to gain contracts and is one that will not show in any monitoring of assets orincome. Although it is neither fair nor desirable to place an absolute ban on reemploymentpast retirement, some kinds of employment after leaving office are clearly contrary to the publicinterest.[10]For example, a minister or highly-placed official may leave government servicewhile negotiations for a large public works project are pending. Obviously it would beimproper for such a person to immediately take up employment with one of the companiestendering or actively negotiating with the government.
The most powerful tool is public exposure. The media can play a critical role in creating publicawareness of the problem and generating support for corrective actions. If the public is providedwith the unpleasant and illegal details of corruption--who was involved, how much waspaid, how much it cost them--and if it continues to hear about more and more cases, it is hardto imagine that the people will not come to demand reform.
Government officials around the world are discovering that taxpayers still think of publicfunds as their money and do not like to see it wasted. The public, of course, is particularlyunhappy when it sees its money going into the pockets of others as a reward for corrupt practices.Once support is developed for the reform of procurement practices, the problem can beattacked from all sides. Usually the starting point will be the strengthening of the legal framework,beginning with an anti-corruption law that has real authority and effective sanctions.
One of the greatest anomalies in anti-corruption laws regarding public procurement is thatmost countries clearly prohibit bribery at home, but many are silent when their exporters arebribing abroad, or even reward it through tax write-offs.
At best, this is justified by a misguided notion of what is necessary for successful internationalbusiness; at worst, it reflects a cynical and paternalistic view of what is good for others. Of allthe major powers, only the United States has had a Foreign Corrupt Practices Act--since 1977--that specifically makes it a crime under its domestic laws to bribe foreign officials to gain ormaintain business, even when these events take place abroad. The OECD Convention, directedat outlawing international business corruption involving public officials, in essence aims tointernationalise the US approach.[11]
The next legal requirement is a sound and consistent framework establishing the basic principlesand practices to be observed in public procurement.
This can take many forms, but there is increasing awareness of the advantages of having aunified Procurement Code, setting out clearly the basic principles, and supplementing this withmore detailed rules and regulations within the implementing agencies. A number of countriesare consolidating existing laws, which have often developed haphazardly over many years,into such a code.[12]
In recent years, some of the largest multilateral development agencies have given support to thedevelopment of national procurement codes in the countries to which they are lending, and havefostered organisations to implement them. For years, each of these lending institutions has hadits own procurement guidelines, which borrowers are required to follow when awarding contractsfinanced from their loans. These guidelines have, in fact, had a significant role in shapingwhat are now widely accepted as standards of good international procurement practice.
Unfortunately, the rules applied by the multilateral development agencies do not directly impacton corruption in procurement for projects financed through other sources. However, morerecently, the development banks have recognised that it is in their member countries' best intereststo have national policies and procedures which apply these standards to other forms of procurement.Support from the banks includes both financial and technical assistance to countriesthat are willing to undertake procurement reforms, and associated institutional development.
Beyond the legal framework, the next defence against corruption is a set of open, transparentprocedures and practices for conducting the procurement process itself. No one has yet founda better answer than supplier or contractor selection procedures based on real competition.
The complexity or simplicity of the procedures will depend on the value and nature of thegoods or services being procured, but the elements are similar for all cases:
For small contracts, suppliers can be selected with very simple procedures that follow theseprinciples. However, major contracts should be awarded following a formal competitive biddingprocess involving carefully prepared specifications, instructions to bidders and proposedcontracting conditions, all incorporated in the sets of bidding documents thatare usually sold to interested parties.
Such documents may take months to prepare, and many more months maybe needed for suppliers to prepare their bids and for the purchaser to evaluatethem and choose the winner. These steps commonly take six months ormore from start to finish. Procurement planning must be sure to take thesetime requirements into account, and start early enough to ensure that thegoods and services will be ready when needed. Any pressures for "emergency"decisions should be avoided.
One key to transparency and fairness is for the purchaser to open the bids ata designated time and place in the presence of all bidders or their representatives who wish toattend. A practice of public bid openings, where everyone hears who has submitted bids andwhat their prices are, reduces the risk that confidential bids will be leaked to others, overlooked,changed or manipulated.
Some authorities resist this form of public bid opening, arguing that the same results can beachieved by having bids opened by an official committee of the purchaser without biddersbeing present. Clearly this does not have the same advantages of perceived openness and fairness,especially since it is widely believed, and it is often the case, that a purchaser is a participantin corrupt practices.
Bid evaluation is one of the most difficult steps in the procurement process to carry out correctlyand fairly. At the same time it is one of the easiest steps to manipulate if someone wantsto tilt an award in the direction of a favoured supplier.
Evaluators can reject unwanted bids for trivial procedural matters--an erasure, failure to initiala page--or for deviations from specifications that they decide are significant. After bidsare examined, if no one prevents them, evaluators may discover entirely new considerationsthat should be taken into account in choosing the winner. Or the bid evaluation criteria maybe so subjective and so lacking in objective qualitative measures that the evaluators' scoringcan produce any result they wish.
All of this argues for requiring bid evaluation criteria to be spelled out clearly in bid documentsand for an impartial review authority to check the reasonableness of the evaluators'actions. The former allows bidders to raise objections in advance if they consider that the criteriaare not appropriate, and the latter provides additional assurance that an evaluation hasbeen conducted properly.
The principle of independent checks and audits is widely accepted as a way in which to detectand correct errors or deliberate manipulation, and it has an important place in public procurement.Unfortunately, it has also been used by some to create more opportunities for corruption.In particular, the delegation of authority for contract approvals is an area that warrantssome discussion.
At face value, the rationale for delegation is convincing: low-level authorities can make decisionsabout very small purchases, but higher levels should review and approve these decisionsfor larger contracts. The larger the contract value, the higher should be the approving authority.A desk purchase can be approved by the purchasing agent; a computer must be approvedby a director; a road must be approved by a Minister; and a dam may need to be approved bythe President.
In some countries and organisations, this system works without any problems. In others, wherecontract awards are the main path to riches, it means a graduated payoff can be required at eachstep of the way: the higher the path leads, the larger the percentages demanded. Coincidentally,it also means that the larger the contract, the longer the delays in reaching any decision. All thispoints to a further essential element for reducing corruption: a well-trained, competent andhonest body of civil servants to carry out procurement.
Establishing such a group requires a long-term effort, one that is never completely done.It requires regular training and re-training programmes; security in the knowledge that one'sjob will not be lost if the winning contractor is not the one favoured by the Minister; and atleast a level of pay that does not make it tempting to accept bribes to meet the bare necessitiesof a family. If a competent procurement cadre is developed, and there are a number ofplaces where this has been achieved, the chain of approving authorities, with its accompanyingdelays, and other hazards can be reduced to a minimum.
None of this is to suggest that all independent checks and audits should be eliminated; theyhave an important role. However, there are some countries where so many review and approvalstages have been built into the process that the system is virtually paralysed. In some, it isimpossible to award a major contract in less than two years from the time the bids are received.
The list of actions suggested here is lengthy, but looks at the subject broadly, rather thanexamining such technical details as the standardisation of bidding documents and the establishmentof simplified purchasing procedures for special kinds of procurement.
Public information programmes about procurement must address all parties--the officials whohave responsibilities for procurement, the suppliers and contractors who are interested in competingfor contracts, and the public at large. The messages should be:
Whatever statements are made must then be backed up by appropriate actions.
It should be clear that none of the actions suggested here is sufficient by itself to curb corruptionin procurement; however, a co-ordinated effort on all fronts will have dramatic effects.If anti-corruption laws are strengthened and publicised, if sound and proven procedures andgood-quality documents are adopted, if procurement competence is increased by training andcareer development, and, if everyone knows that the government is seriousabout enforcing honest and fair practices, change will come.
It must be widely understood that corruption in public procurement will notbe tolerated, and that guilty parties will be punished. Experience shows thatalthough this approach may not stop all procurement corruption, it will definitelycurtail the problem. Corrupt procurement is not inevitable. It can becleaned up, and when it is, the public is the great beneficiary.
As George Moody-Stuart has made clear, the greatest single cover for corruption in internationalprocurement is the "commission" paid to a local agent. It is the agent's task to land thecontract. He or she is given sufficient funds to do this without the company in the exportingdeveloped country knowing more than it absolutely has to about the details. This creates acomfortable wall of distance between the company and the act of corruption, and enablesexpressions of surprise, dismay and denial to be feigned should the unsavoury acts come tothe surface. The process also enables local agents to keep for themselves whatever is left of thehandsome commissions after the bribes have been paid. Much of it may have been originallyintended for bribing decision-makers but none of it, of course, is accounted for.[14]This givesrise to practices of kick-backs all along the line, with company sales staff effectively helpingthemselves to their employer's money.
Obviously, if commissions can be rendered transparent it would have a major impact on thissource of corruption.
In 1995, an unsuccessful attempt was made by the Parliament of Nepal to force disclosures ininternational procurement exercises.[15]Much more promising have been the more recent effortsin Malaysia, Korea, Colombia, Argentina, Greece and Italy, where an "islands of integrity"approach has been developed by Transparency International.
Under this gradualist approach, the bidders for specific projects are being brought together andencouraged to enter into an "Anti-Bribery Pact" with the Government, and with each other.Each bidder agrees not to pay bribes and to disclose the commissions paid, and for its part,the Government pledges to take special efforts to ensure that the exercise is not tainted by corruption.In this way, the rules change for everyone and at the same time; and the players are,themselves, a part of that process of change. Once the selected contracts have been offered,the bidders continue to meet to monitor developments and build confidence for future exercisesof a similar nature.
A drawback has been opposition from some international lending institutionsto any ad hoc arrangement for a specific project, the view being that the lawmust be changed across the board. This can present obstacles where a governmenthas difficulty in persuading its Legislature to back serious anti-corruptionefforts, and also where it may be beyond the capacity of the governmentmachine to adequately police new arrangements, at least initially.
However, these problems have been largely overcome by making the Anti-BriberyPact a voluntary one, and it has won encouraging levels of supportfrom the private sector firms involved. Indeed, this may be thebetter approach.
Initial monitoring suggests that the innovation is working and that it is servingto significantly reduce corruption levels in the selected major contracts.[16]
Without doubt, the work of some international lending agencies has achievedmuch over the years, including the persuasion of reluctant governments tocommit to public tender bid openings. Clearly, too, they could contributeeven more significantly to anti-corruption reforms if they were to join in thepush for transparency in commissions.
Although international lending agencies may be constrained, to some degree,by the constitutions which govern their operations, there are further stepswhich they may be able to take (some have already done so) to combatcorruption. Transparency International argues that these measuresshould include:
For generations, New York City suffered from endemic corruption and racketeeringin its construction industry. When state and federal prosecutors,working with the FBI and the New York Police Department, undertook a seriesof very successful criminal prosecutions against the Mafia during the 1980's,virtually every indictment included allegations that the Mafia was profiteeringfrom the City's construction industry through extortion, bribery, bid rigging,labour racketeering, fraud and illegal cartels. Despite the success ofthese prosecutions and the imprisonment of dozens of Mafia bosses, corruptionseemed to continue unabated.
The problem was so severe that the New York State Legislature refused to provide billions ofdollars in funding to the City's Board of Education for capital improvements to the City'scrumbling school infrastructure, the largest in the nation with more than 1100 schools servingmore than one million school children. State officials were convinced that a major portion ofany moneys allocated to the Board of Education would end up in the hands of the Mafia, orbe wasted on bribes and fraud. In order to overcome this impasse, the City agreed to the creationof a new City agency, the School Construction Authority (SCA), with a very active andwell funded office of Inspector General to ward off Mafia influence and to protect this criticalinvestment in the school system. In 1989, the SCA was given $5 billion for new constructionand major repairs; the budget of the Inspector General was just over $2 million annually (i.e.less than 0.05 per cent of the total).
The SCA's Inspector General set about tackling the corruption and racketeering endemic inschool construction. Significantly, this was accomplished without new legislation and withoutspending millions of taxpayer dollars on costly preventive measures. The Inspector Generalused existing state law and the concept of civil contract to accomplish its goals, together withsimple monitoring and oversight measures to insure compliance. This effort succeeded beyondanyone's expectations.
For example, the Inspector General redrafted the standard bidding and contract forms toinclude requirements for:
The SCA's standard contract included a rescission clause making the contract subject to terminationby the SCA on severe terms if the contractor provided false information in its biddingdocuments. In practice, if a contractor was found to have lied in his bidding documents, or tohave engaged in bribery or fraud during the execution of the contract, the contractor faced notonly the termination of his contract, but also a legally enforceable requirement that he forfeitany and all moneys received for work already performed as liquidated damages. In addition, heand his company would be disqualified from receiving any SCA contracts in the future.
The information supplied by each contractor was subject to careful scrutiny by the InspectorGeneral's Office, which also performed extensive background checks. Whenever concernsarose, a bidder or contractor was summoned to the Inspector General's Office to answer questionsunder oath. Any contractor who refused to cooperate was subject to the termination ofhis contracts and disqualification from future work. Any who lied under oath were, of course,liable to prosecution for perjury under the existing criminal law.
Contractors were required to make and maintain records regarding the work performed for theSCA for a period of three years after the completion of any contract. Such records were subjectto audit and inspection by the SCA. If an audit disclosed over-pricing or overcharging ofany nature and this exceeded one half of one-percent of the contract billings, then, in additionrepaying the overcharges, the contractor had also to pay the reasonable costs of the audit.
Within the first five years of the SCA's existence, several hundred contractors were barred frombidding on SCA contracts. Several dozen contracts were terminated, and contractors forfeitedmany millions of dollars as a result. All of this was achieved through the ordinary civil lawprocess with very few court challenges. In addition, more than a dozen contractors were convictedof perjury as a result of false information supplied to the Inspector General.
More importantly, law enforcement officials intercepted conversations among Mafia memberscomplaining that this process was effectively denying them access to SCA contracts. And bestof all, the pool of available construction firms was increased substantially with the additionof law abiding and competent contractors who had formerly declined to bid on school constructionwork because of the prevalence of corruption and racketeering. This increased competitionresulted in further reduced costs and even higher quality work overall.
Finally, in suitable cases, where a contractor was found to be unqualified to bid on SCA workor was liable to have his contracts terminated for reasons of integrity or character, the contractorwas given an option. He could drop out of competition for SCA work, or he could agreeto continue bidding on, and performing SCA work, subject to close monitoring and oversightby an Independent Private Sector Inspector General (IPSIG). The IPSIG, one of a number ofqualified specialist firms with expertise in forensic accounting, law and investigation, wouldbe selected by and report to the SCA's Inspector General. However, all of the IPSIG's fees andcosts would be paid by the contractor.
The advantages in this approach are considerable, and the fact that the reforms have beenshown to be effective is reason enough for others to look very closely at this "contract model"approach, and to consider adapting it to their own circumstances.
The effects of normal anti-corruption legislation can usually be strengthened by adding twoelements: the timing of actions and the involvement of "outsiders."
Timing is crucial. Most public servants cannot say " yes," but they can say "no," "perhaps," ornothing at all. Unreasonable postponement of important decisions is usually the most visibleindicator that a corrupt deal is in the making. Procedures, therefore, should have strict calendars(which although strict, still recognise that procurement is often subject to frequent butlegitimate delays). If the calendar is not respected, procedures should provide for an alternativedecision-making process to make "blackmail by procrastination" unrewarding.
Since the partners to a corrupt deal are not protected by law, such deals can take longer to puttogether than regular business transactions. Dummy companies or money-laundering channelsrequire time to set up. The arrangements must be both invisible and deniable. Delivery of thebribe and counter performance have to be closely linked, because mutual trust is usuallyabsent. In some cases, officials want to build in elements of profits sharing. Sometimes two orthree layers of "mediators" are built in to diminish the risk of exposure of the parties to thedeal. Negotiations are delicate because, at any given moment, one of the parties may bail outand expose the whole scheme. All this takes time--time that an effective regulatory frameworkwill not allow.
The role of "outsiders" is basically to hamper the creation of insider relationships of "trust"during the decision-making and implementation processes. Procedures should focus on keeping"outsiders" as "outsiders", and not allowing them to be drawn into internal processes. Likeexternal auditors, the "outsiders" should provide expertise combined with integrity.
Several measures are worthy of mention here:
None of this is a question of morality. It is directed towards undermining the reliability ofcorrupt deals, and maximising the risk to offenders of corrupt deals falling through orbeing disclosed.
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