Expert: “Procurement frameworks were challenged by the COVID19 crisis” – corruption could flourish

When COVID19 started to show its ugly face in the spring of 2020, the public purchasers found themselves in an extremely difficult situation, where protective equipment, rubbing alcohol and test equipment in a short time overhauled the purchase of nappies and ordinary cleaning items.

According to the organization Organized Crime and Corruption Reporting Project (OCCRP), in several countries that typically lead the charts on Transparency International’s Corruption Perception Index, the information about the ongoing public purchases of protective equipment, etc., was suddenly kept close. Also in Denmark, which occupies a shared first place on the distinguished list.

Lack of transparency

At the beginning of the pandemic, the OCCRP set up a database of COVID-19 related tenders, and in several cases details of the contracts awarded were missing. Information about prices and companies involved was e.g., left out. The argument for lack of transparency was typically to avoid undermining negotiation situations with potential suppliers.

The lack of transparency naturally does not harmonize very well with the Danish Public Procurement Act’s principles of transparency and equal treatment which, however, have exceptions for particularly urgent cases where tenders with negotiation without prior publication, e.g., can be used. This is i.e. stated in the European Commission’s guide (2020) on using the public procurement framework in the emergency situation related to the COVID-19 crisis.

Home of corruption?

But the question is whether the quickly made purchases in the public sector risk opening the door to corruption in connection with award of contracts? Fortunately, there is yet no indication that the latter has been the case in public tenders in Denmark during the COVID19 pandemic, but several express their concern about the potential.

Examples are also slowly emerging around the world, e.g. in the Philippines, where OCCRP and Rappler have uncovered suspicious links in connection with public procurement of medical goods, flagged by auditors to be overpriced.

In the summary of UN’s ”Guidebook on anti-corruption in public procurement and the management of public finances” (2013), the importance of transparency and competition in public procurement is emphasized, if Article 9 of the UN Convention against Corruption (UNCAC) is to be complied with: ”A procurement system that lacks transparency and competition is the ideal breeding ground for corrupt behaviour and thus most important international codes on anti- corruption and public procurement rest heavily upon these fundamental principles, in order to discourage corruption.”

New analysis emphasizes the need for transparency

At Nohrcon‘s annual international procurement conference “Nordic Public Procurement Forum“, on 8 September 2021, one of the world’s leading procurement law experts, Professor Emerita, Sue Arrowsmith, from the University of Nottingham in UK, explained that public purchasers need space for slightly more discretion when negotiating with potential suppliers regarding urgent purchases, but at the same time much more information transparency is required, both during the award procedure and after the contracts have been awarded.

The conclusion is based on a comprehensive analysis of public procurement during COVID19  where the authors looked at regulatory matters and at what data others had collected on specific cases from Italy, UK, USA, Brazil, Colombia, India, Singapore, South Africa, Nigeria and China – summarized in the upcoming book “Public Procurement Regulation in (a) Crisis? – Global Lessons from the COVID-19 Pandemic”. Different countries with different procurement regimes and responses to the crisis – but the challenges were very similar.

Direct award became the “new normal” for procurement in the health sector

The analysis showed, among other things, how the share of direct award of tender contracts after a negotiated procedure without prior publication was used to a much greater extent as soon as the pandemic hit and demand for specific products increased explosively in a short period of time.

According to the European Commission, direct award without competition is legally valid “to the strictly necessary extent if compelling reasons due to events which the contracting authority has not been able to foresee make it impossible to meet the deadlines for public tenders, restricted tenders or negotiated tenders.” However, it is still being discussed how long it was relevant to use the direct awards – for how long can something be described as unpredictable when the pandemic drags on?

More discretion and more transparency can be combined

According to Sue Arrowsmith, it would be desirable if public procurers were obliged by EU law to justify the reasons for the direct awards more openly and in more detail, and that they are required to include more details in the formal report on each award procedure about the processes used (including why specific suppliers were chosen to negotiate with) without necessarily preventing discretion during the negotiation situation.

In addition, “open contracting”, where all tender information is made freely available online in a systematic and more usable form, can be brought into play to increase transparency. The Open Contracting Data Standard makes it possible to follow a contract process from planning and tendering, to award, contract and implementation through a unique ID and can i.e. help finding patterns in (potentially suspicious) supplier collaborations and thereby prevent / uncover corruption, and ultimately create greater confidence in the handling of public investment – also in crisis situations in the healthcare system, which Paraguay is a good example of.

The South American country’s open approach to crisis procurement during the pandemic resulted not only in increased citizen involvement, but also prices of protective equipment, which became ten times cheaper, and offers received ten times faster than usual. And perhaps most importantly; citizens’ confidence in public procurement could be restored – and it is, after all, their tax payments that are being invested.

A compromise for the benefit of development

But can more discretion still not lead to potential corruption, like the UN previously warned about, even if transparency increases after awards are made? According to Judge Marc Steiner from the Swiss Federal Administrative Court, who also spoke at the Nordic Public Procurement Forum, the potential for corruption depends on the legal framework and the “maturity” of public institutions.

If you e.g., want to achieve innovation and sustainability through public procurement, then the public purchasers need to have some leeway for discretion and market research – because otherwise, development is as good as dead. In Sweden it is obviously not a problem to use a sophisticated mix of award criteria allowing discretion. But of course, it is more difficult to implement sustainability policies and therefore adapted concepts are needed in countries that tend to have a much higher degree of corruption in advance, according to Judge Marc Steiner.

With public procurement worth more than DKK 300 billion a year in Denmark, it is unfortunately not inconceivable that at some point money is put in the wrong pockets. As Marc Steiner and co-author Elisabeth Lang have previously pointed out, even the WTO can practically agree with Transparency International that “… few government activities create greater temptations or offer more opportunities for corruption than public sector procurement” – paraphrasing the UN headline in the introduction to their previous said guidebook; “Public procurement as a major risk area for corruption“. Whether corruption became an increasing trend in public procurement during the COVID19 pandemic will, however, be difficult to measure, but the rotten apples will hopefully be exposed at some point.

Other negative effects

Fast case processing, in connection with public procurement, can also have other negative effects. In some cases, it was not only the contract agreement that was rushed through, but also the termination of the contract. The Danish regions were for instance forced to throw out the winner of a tender of quick tests only a week into the contract period after scandalous examples of breaches of data security rules and unhygienic conditions.

A temporary agreement with another supplier was rushed through – and according to Berlingske, it was diligently discussed whether the winning bid had been unrealistically low when it was 2/3 below the nearest bidding competitor. In any case, Region Midtjylland’s Executive Vice President was not shy to admit that economy had weighed heavily in the tender material – and perhaps also too heavily.

In other instances, there has not been a sufficient focus on costs when public contracts have been awarded. According to Sundhedsmonitor.dk, Professor of Public Procurement at the University of Roskilde, Ole Helby Petersen, is very critical towards the political decision behind the contract process for the optional vaccine program, which was never sent out in public tender, and where the bill is getting close to a quarter billion DKK.

What can public purchasers learn from the COVID19 pandemic?

1) Supply chain is increasingly important

According to SCM.dk, Jens Brøndberg, Head of Group Purchasing in the Capital Region of Denmark, who was given responsibility for purchasing protective equipment for the entire Danish health sector, believes that public procurement, as a consequence of the COVID19 pandemic, has shifted from a focus on the tender process to optimizing the entire supply chain.

The new “Danish Critical Supply Agency” (SFOS) is a good sign of this. The Agency must ensure an efficient and secure supply of critical protective equipment to the health sector, with the Capital Region of Denmark as operationally responsible for procurement, logistics and distribution of protective equipment.

One of the problems during the COVID19 pandemic was, according to the Swedish lawyer Erik Gadman, from Gernandt & Danielsson, who also gave a presentation at the Nordic Public Procurement Forum, that rogue bidders saw an opportunity to make some quick money, without delivering what they promised, or of a lower quality. It may also be one of the reasons why the government in Denmark is focusing more on increased inventory and own production.

2) The procurement framework is not 100% geared for crisis situations

According to Sue Arrowsmith, another important learning point – for the legislators – is that we should distinguish between public procurement during crises (crisis procurement) and regular urgent procurement in the public sector.

The EU Public Procurement Directive from 2014, which is nationally implemented in the member states, in Denmark with the Procurement Act (2016), already has instructions for urgent procurement, but Sue Arrowsmith believes that there is a need for separate additions in relation to crises in procurement legislation in addition to the existing section on (particularly) urgent cases. This can already be found in some other systems, e.g., EU Defence and Security Directive 2009.

The European Commission actually tried to guide the member states in terms of the possibilities and flexibility that already exist within the regulatory framework for public procurement, but by adding a specific crisis provision, there will be fixed standards for future situations, according to Sue Arrowsmith. It will be important for member states invoking the crisis provision to provide precise descriptions of the scope and the time frame for using the crisis provision, with regular reviews to see if it is still needed.

Corruption can never be locked out entirely – but we must keep trying

In Denmark, it is not so often that we experience cases of bribery, fraud and corruption in connection with public procurement, but unfortunately, they do exist – also in the health service according to jv.dk. And as several organizations, and experts at the conference Nordic Public Procurement Forum point out, crises such as the COVID19 pandemic can be exploited, and it is therefore up to the legislators and the public authorities to try to establish frameworks that can close the door for corruption as much as possible – to close it completely is probably not realistic unfortunately, even in a well-functioning society like ours.