A study released by the European Parliament on Monday 21st March finds that the cost of corruption to GDP in Europe is up to €990 billion (6.3 percent of overall GDP) – eight times higher than estimated by the European Commission in 2014. The Commission’s numbers were based, however, on ‘direct’ effects of corruption, whereas this study measures the wider ‘indirect’ effects, like companies being put off from investing in the first place (Carl Dolan, director of Transparency International says: “If companies see the public procurement process is rigged then they are not going to take part in that bid and therefore the public loses out because these aren’t competitive tenders.”
The study found that corruption related to public procurement was estimated to cost nearly €5 billion per year. The type of corrupt practice this might include is deliberately removing companies from the bidding process, leaving only one candidate possibility, or limiting the time given for a company to respond to a tender for a new contract.
RAND Europe – the research institute that helps improve policy and decision-making through research and analysis – which carried out the research for the European Parliament, says “Measuring corruption is challenging, but our study provides one of the most realistic and current estimations of its true cost to Europe as a whole. Our recommendations highlight achievable targets for the EU and member states to help stop corruption from taking place and limit the amount of money lost each year.”
It makes some recommendations to address the problem:
- “The EU should apply the updated Cooperation and Verification Mechanism, which was used on Bulgaria and Romania before they joined the EU, to other member states, as over half have higher than average corruption levels. This could reduce corruption costs by €70 billion (£54.4 billion) annually.
- The EU should establish a European Public Prosecutors’ Office, which would assist the European Commission Anti-Fraud Office in investigating corruption. This could reduce corruption costs by €0.2 billion (£0.16 billion) annually.
- The EU should implement a full EU-wide procurement system, potentially reducing corruption costs by €920 million (£714.8 million) annually.”
You can visit its website for more detail and to view the full report here.
There is also a good report in Politico, which highlights in chart format the EU funding risk by country – it gives the average value of yearly EU contracts against the corruption risk index (taken from the full report which you can view here.)
There’s a whole (long and detailed) section devoted to public procurement in the report (starting on page 48). “Public procurement has been chosen as a case study to assess the costs of corruption for a sub-sector of the EU economy, which has a significant size and has been identified in previous research as one of the sectors with relatively high levels of corruption risk,” it says.
Especially in the EU, “public procurement has a strong economic significance, with around 20 per cent of EU GDP annually spent by government, public sector and utility service providers for goods, services and public works (PricewaterhouseCoopers and Ecorys 2013). The World Bank defines corruption in public procurement as an action to steer a contract to the favoured bidder without detection. This can be handled through different channels, including (a) avoiding competition through unjustified sole sourcing or direct contracting of awards; (b) favouring a certain bidder by tailoring specifications or (c) sharing inside information (World Bank 2009b).”
The study goes on to address ‘Existing measures of corruption in public procurement and their corresponding costs’ and ‘How to investigate the costs of corruption in public procurement.’ It delves into the subsets of Member State CRI and even dissects them into the procurement sub-sectors with the highest levels of corruption risk across Europe. Then it goes on to investigate associations between corruption risk and contract values in EU public procurement. It’s a bit of a tome, but if you can take the time to plough through it, it makes for some interesting and serious reading. Of course, you can always just tune into Public Spend Matters Europe to get the highlights.