Public contract data available online will facilitate corruption scrutiny

25 April 2018 7:57pm
Magnifying Glass

20 April 2018. By Robert Thomason.

Companies selling goods and services to governments will come under greater scrutiny as public contracting data is published on the Internet, allowing citizens, prosecutors and watchdog groups to analyze it for signs of corruption.

As the technology becomes more widely used, experts say, it could facilitate a broad array of anticorruption efforts, from uncovering bribery to presenting evidence of corruption in court. For example, corruption investigations have begun in Paraguay using online databases of procurement bids and transactions.

Open contracting, as the technology and policy are called, involves making information about bids, contract awards and contract payment readily accessible to the public through information technology. Governments have long computerized their procurement systems, but new programs and best practices, standards and policies are moving that e-procurement data from behind official firewalls onto publically searchable Web sites.

Public contracting

If commitments by national leaders at this month's Summit of the Americas in Peru are fulfilled, more Western Hemisphere countries will develop digital systems that publish increasing amounts of information about public contracts. The leaders at the summit called for governments to transparently monitor specific contracts, including responding to requests from other nations seeking information about the contract or its bidders. They were especially concerned that a regional information platform be established to oversee all phases of infrastructure projects.

A summit communique also said there should be "anti-corruption clauses in all state and public-private-partnership contracts and establishing registers of natural and legal persons involved in acts of corruption and money laundering with a view to ensuring that they are not contracted."

Public procurement is a high-risk area for corruption, say multinational organizations. The G20 said government spending "can be vulnerable to corruption" in its 2017-2018 anticorruption plan, which calls for more open data in public contracting.

The World Bank was blunter. "Public procurement is the government activity most vulnerable to corruption and fraud," the bank said in a study of 77 countries' contracting practices.

In Ukraine, one survey indicated that just the presence of an open contract system called "ProZorro" has had an effect on bribery. "Compared with the traditional system, a much larger percentage of tender participants did not face corruption in procurement via ProZorro,” a 2016 USAID-funded survey of Ukrainian businesses said.

"Whereas only 20 percent did not face corruption with the traditional system, 41 percent did not face corruption with ProZorro," it said. "Prozorro" is the Ukrainian word for "transparent."

Paraguay

Paraguay has also used an e-procurement system to take action against corruption. When citizens saw that a school catering contract was paying six times the grocery store price for drinks, they began a protest campaign against the overcharge, resulting in the contract's cancellation and a dismissal within the education ministry.

A high-level chief of police in Paraguay was similarly dismissed after he and his associates were caught selling government gasoline cards issued to fill the tanks of patrol cars. The investigation of that case, which also included Paraguayan companies selling gasoline, had its origins in the e-procurement system, Lea Gimenez, Paraguay's finance minister, said at Washington DC meeting this week.*

Paraguay, whose e-procurement system was opened to the public in 2012, said it has already seen a change in corporate behavior among bidders for government work. Records from the system show a significant decline in contract amendments, Gimenez said.

"People are being more careful about their initial bids," she said. "If you make a change, everyone will know about it."

Red flags

Because bribes are often paid under the table using offshore bank accounts held in the name of shell companies, open contracting may not show directly how a bribe is paid, experts told MLex. But contract changes, phantom companies or price deviations could raise red flags for bribery, they said.

"Open contracting might help someone looking to see — over the course of a project — something like a low winning bid, coupled with subsequent contract amendments for additional costs," said Alice Chamber, spokesperson for Transparency International. A company could be trying to recoup the loss of an unreasonably low bid through subsequent change orders with the help of some official who has been bribed, she said.

Large price deviations could also be an indication of bribery. Paraguay saw a 90 percent reduction in the variation of the paid price and the "reference" or benchmark price when it opened its e-procurement system to the public, Gimenez said.

Data Standard

A non-governmental agency called the Open Contracting Partnership has established a voluntary standard that governments may use when setting up online portals to disclose public procurement. "It is a list of 300 data points we suggest that a government make public," said Georg Neumann, senior manager.

He said the partnership is working to develop protocols to connect public procurement to other types of databases, especially corporate registries or public official asset declarations. He also said there are two projects in Chile comparing public procurement data to lobbying.

* "Open Contracting and Latin America's Corruption Fight," The Inter-American Dialogue, Washington, DC, April 19, 2018

	Eliot Gao