Good Practice
Public Procurement Trade-offs: Commerciality Versus Corruption

We wrote here about the trade-offs that we see in public procurement. Whether it is the balance between “policy through procurement” initiatives and more basic value for money, or the trade-off between flexibility and anti-corruption based processes, many aspects of government buying require consideration of those factors.

For each of the trade-offs, we are looking in more detail at the nature of the potential conflict, then suggest some steps that public procurement professionals can take to minimise the potential for real issues and problems. The nature of these trade-offs means that there are no magic solutions, but there are ways to reduce the risks. Today, a trade-off that can have huge implications for contracting authorities and even entire countries.

Commerciality versus corruption

We want procurement people to be more “commercial”, to drive better deals, to negotiate with suppliers. It’s easy to understand this goal – but the more “flexibility” we give buyers, the easier it is for corruption to creep into the system. Yes, my brother-in-law’s firm was not the winning bidder initially, but after some negotiation, they reduced their price to just below the previous best bid …

Another side of “commerciality” is when we get into the whole area of supporting local (or national) suppliers. This overlaps with another one of our trade-off (policy goals versus value for money) but is certainly relevant here. The more commercial approach often suggested is to favour local firms in or to stimulate employment and economic growth. But the danger is it plays into the hands of the corrupt on both sides of the table.

If a decision maker can explain and validate the award of a contract to a firm that is not the “best” bidder in objective terms by saying “they’re local and have promised to employ many local people” then that provides perfect cover for corruption. The firm might be 20% more expensive and have poor quality – they might even never have supplied this service or these goods before – but I can give them the contract (and take my 10% “commission”).

We’re not just talking about the developing world here. Look at the scandals in terms of firms making donations to political parties or to politicians that have hit the headlines from France to Brazil, from Japan to the UK. As soon as we start suggesting procurement staff and other decision makers can apply “commercial judgement” rather than defined process, we increase the risk of fraud or corruption.

So if the favoured firm is a few percent more expensive, let’s negotiate (because that is the good commercial approach) until they are marginally cheaper. Or simply make the commercial judgement that there are strategic reasons for using this firm. Again, nothing to do with the donation, or the case of fine wine at Christmas, or the invites to the World Cup.

Of course, we want public authorities to act commercially and get the best possible contracts and deals for themselves, citizens and taxpayers. But we must be careful that in the search for these benefits, we don’t open the door to more corruption.

Addressing the risks

Here are our suggestions to help contracting authorities balance these trade-offs between commerciality and (the risk of) corruption.

–  Transparency throughout the process is vital. It is much harder for the corrupt to select a supplier or proposal for the wrong reasons if it is clear which organisations bid; if key details of the evaluation process are public; if the decision making process and the final contract are all public.

–  Combined with that, authorities must respect the principals of equal treatment. So where negotiation is allowed, for instance, it must be applied to all bidders in the same manner. A more commercial approach is fine but if one firm is given the chance to re-state its bid in order to offer some improvement, for example, then all bidders must be given the same option.

–  In order to show that the two points above have been recognised properly, good records and recording processes will be needed.  Auditors or other bidders (in case of challenge) need to see a clear audit trail to prove that bidders are being treated equally and that the whole process is as fair and transparent as possible.

–  Contracting authorities should always put it place strong internal policies to cover conflicts of interest and other ethical issues. Conflict of interest must cover not just procurement staff but all those involved in the process (senior decision makers, budget holders, specifiers, etc.)

–  Perhaps the most fundamental protection against corruption is to have vibrant, active supply markets with many suppliers who want to win business. That actually enables more “commercial ” behaviour and better contracts for the buyer as well, of course. So authorities should always seek to achieve strong competition, and the lack of that is a warning sign for auditors (e.g. single supplier “competitions”, or the same small number of suppliers bidding regularly).