Preventing Corruption, Supplier Collusion and the Corrosion of Civic Trust: A Procompetitive Program to Improve the Effectiveness and Legitimacy of Public Procurement

Abstract

Governments around the world face the challenges of preventing corruption and collusion in the public procurement sector.

These concerns carry major implications for public welfare, economic growth and the credibility and efficacy of governments. First, a significant amount of public money is at stake. Governments around the world spend an estimated USD 9.5 trillion for goods and services each year. Second, public procurement has a qualitative significance that transcends its importance as proportion of GDP. Public procurement is an essential input to the delivery of broader public services and functions of government that are vital for growth, development and social welfare. Third, problems in public procurement, when they occur, can have a major impact on the credibility and efficacy of governments more generally. Corruption fuels public discontent. By contrast, increasing the integrity of the procurement system may help a government to build belief in its legitimacy and, more generally, create a civic sense that government institutions are dedicated to improving citizens' lives.

For all these reasons, honest and effective government procurement is widely recognized as being vital to broader efforts to promote development and prosperity in the 21st century.

The paper begins by examining some examples of bid rigging and bribery that have been uncovered in public procurement processes and the factors that facilitate such practices. Quantitative indicators of the harm caused by both sets of practices are noted. It then outlines two sets of tools conventionally used to deal with these problems. The first, focusing on corruption issues, broadly involves measures to increase the transparency of public procurement systems and to strengthen the accountability of responsible public officials for malfeasance. The second, aimed at preventing supplier collusion, focuses on the effective enforcement of national competition (antitrust) laws.

This paper sets out the view that these tools and approaches are necessary but proving to be insufficient on their own to address the related challenges. This paper consequently considers: (i) ways in which the effectiveness of these conventional tools can be strengthened; and additionally (ii) how a more comprehensive approach to address the twin scourges of supplier collusion and corruption in public procurement markets can be developed. Underlying all of the suggestions is the need for a political commitment to the strengthening of procurement, competition and related anti-corruption systems that recognizes their centrality to the welfare of citizens and to the effectiveness and credibility of states.

Keywords: Public Procurement, Corruption, Collusion

JEL Classification: K14, K20, K21, L13, L41