Report on anti-corruption measures in public procurement

122 Pages·2015·1.87 MB·English

by  Igor Kisil

HARMONISATION OF PUBLIC PROCUREMENT SYSTEM IN UKRAINE WITH
EU STANDARDS
www.eupublicprocurement.org.ua

REPORT ON
ANTI-CORRUPTION MEASURES
IN PUBLIC PROCUREMENT:
INTERNATIONAL BEST PRACTICES

Ms Anastasia Kalina
in co-operation with Mr Valentin Dereviankin, Mr Steen
Bruun-Nielsen and Mr Oleksandr Shatkovskiy

October 2015

A Project funded by the European Union and
implemented by a Consortium led by Crown Agents Ltd
HARMONISATION OF PUBLIC PROCUREMENT SYSTEM IN UKRAINE WITH EU STANDARDS
Report on anti-corruption measures in public procurement: international best practices

The contents of this Report are the sole responsibility of the Crown Agents and its Consortium
partners and the opinions expressed in this Report are not to be understood as in any way
reflecting an official opinion of EUROPEAID, the European Union or any of its constituent or
connected organisations.
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HARMONISATION OF PUBLIC PROCUREMENT SYSTEM IN UKRAINE WITH EU STANDARDS
Report on anti-corruption measures in public procurement: international best practices

ABBREVIATIONS

ADB Asian Development Bank
AfDB African Development Bank
AMCU Anti-Monopoly Committee of Ukraine
CoE Council of Europe
DCFTA Deep and Comprehensive Free Trade Area
EBRD European Bank for Reconstruction and Development
ECJ European Court of Justice
EU European Union
EU PP Directives European Union Public Procurement Directives
GDP Gross domestic product
IADB Inter-American Development Bank
IMF International Monetary Fund
MEDT/Ministry Ministry of Economic Development and Trade of Ukraine
OECD Organisation for Economic Co-operation and Development
PFM Public Finance Management
PP Public Procurement
PPL Law of Ukraine “On the implementation of Public Procurement” No. 1197-VII
of 10 April 2014
PCA Partnership and Cooperation Agreement
SIGMA Support for Improvement in Governance and Management: a joint
initiative of OECD and the EU, principally financed by the EU
TI Transparency International
UN United Nations
UNCAC United Nations Convention against Corruption
UNCITRAL United Nations Commission on International Trade Law
UNCITRAL Model United Nations Commission on International Trade Law Model Law on Public
Law Procurement
UNODC United Nations Office on Drug and Crime
UNPSA United Nations Public Service Award
WB World Bank
WTO World Trade Organisation
WTO GPA World Trade Organisation Government Procurement Agreement

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Report on anti-corruption measures in public procurement: international best practices

TABLE OF CONTENTS

Page
EXECUTIVE SUMMARY 7
1. INTRODUCTION 12
2. OVERVIEW OF INTERNATIONAL STANDARDS AND POLICIES FOR FIGHTING 14
CORRUPTION IN PUBLIC PROCUREMENT
2.1. United Nations Convention against Corruption 14
2.1.1 Introduction to the UNCAC 14
2.1.2 UNCAC and Public procurement 16
2.1.3 Analysis of main provisions 17
A. Fundamental principles 17
B. The UNCAC’s guidance on the application of the principles of 18
transparency, competition and objective criteria in decision-making
C. Assessment of the requirements of Article 9 (1) of UNCAC 21
D. Minimum requirements set out by Article 9 (1) of UNCAC 21
E. Article 8. Codes of conduct for public officials 21
2.1.4 UNCAC and Ukraine 22
2.2. UNCITRAL Model Law on Public Procurement 23
2.2.1. About United Nations Commission on International Trade Law 23
(UNCITRAL)
2.2.2. Introduction to the UNCITRAL Model Law on Public Procurement 24
2.2.3. Analysis of main provisions 25
2.2.4. UNCITRAL Model Law on Public Procurement and Ukraine 26
2.3. World Trade Organisation Government Procurement Agreement 26
2.3.1. World Trade Organisation (WTO) 26
2.3.2. Introduction to the WTO GPA 26
2.3.3. Analysis of main provisions 27
2.3.4. WTO GPA and Ukraine 29
2.4. EU Public procurement Directives 30
2.4.1. Introduction to the Directives 30
2.4.2. EU PP Directives and Ukraine 31
2.5. The Council of Europe framework against corruption 32
2.5.1. Council of Europe vs. Economic crime 32
2.5.2. Overview of Council of Europe legal framework 34
2.5.3. Council of Europe and Ukraine 34
2.6. World Bank/International Financial Institution Guidelines 34
2.6.1. World Bank 35
2.6.2. European Bank for Reconstruction and Development 36
2.6.3. Asian Development Bank 36
2.6.4. African Development Bank 37
2.6.5. Inter-American Development Bank 37
2.7. OECD Procurement Assessment Tools and Principles for Enhancing Integrity in 38
Public Procurement
2.7.1. OECD Convention on Combating Bribery of Foreign Public Officials in 39
International Business Transactions
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HARMONISATION OF PUBLIC PROCUREMENT SYSTEM IN UKRAINE WITH EU STANDARDS
Report on anti-corruption measures in public procurement: international best practices
2.7.2. OECD Principles for Integrity in Public Procurement 39
2.7.3. Policy Brief – Keeping Government Contracts Clean 40
2.7.4. Guidelines for fighting bid rigging in public procurement helping 40
governments to obtain best value for money
2.7.5. Integrity in Public Procurement: Good Practice from A to Z 40
2.7.6. Bribery in Public Procurement: Methods, Actors and Counter-measures 40
2.7.7. Fighting Corruption and Promoting Integrity in Public Procurement 41
2.7.8. Recommendation of the Council on Public Procurement 41
2.7.9. OECD Integrity initiatives and Ukraine 43
2.8. Transparency International tools to battle corruption 44
2.8.1 TI and its guidelines in public procurement 44
2.8.2 Transparency International in Ukraine 45
3. PROCUREMENT STEP BY STEP: STAGES, RISKS AND METHODS MAPPING 47
3.1. THE PROCUREMENT CYCLE 47
3.2. RISK MAPPING AND PREVENTION STEPS 48
PRE-TENDER STAGE 48
3.2.1. Needs assessment 48
3.2.2. Categories of procurement 50
3.2.3. Planning and budgeting 51
3.2.4. Structuring of the bidding process 52
(a) Procurement procedure 52
(b) Tender documents, contractor qualification and technical specifications 53
(c) Minimum and selection criteria 55
(d) Award criteria 56
TENDER STAGE 57
3.2.5. Public bid opening 57
3.2.6. Evaluation of tenderers and tenders 58
POST-TENDER STAGE 58
3.2.7. Contract management 59
3.2.8. Order, payment and audit 60
3.3. PRINCIPLES OF RISK MITIGATION 61
3.3.1. Risk factors 61
3.3.2. Pillars of integrity in procurement (OECD approach) 63
3.3.3. Practitioners tools for risk mitigation 66
3.4. METHODS OF CORRUPTION IN PROCUREMENT 67
3.4.1 Bribery 67
3.4.2 Bid rigging 70
3.4.3 Other forms of misdoings in procurement 71
4. CASE EXAMPLES OF GOOD PRACTICES 75
5. CONCLUSIONS, RECOMMENDATIONS AND FURTHER STEPS 78
5.1. Conclusions 78
5.2. Recommendations 79
5.3. Further steps 81
ANNEXES 82
Annex 1: Citation of the relevant international texts 83
Annex 2: International key actors on fighting corruption in procurement and useful 104
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online resources
Annex 3: Checklist summarising risks and mitigation strategies 107
Annex 4: Checklist for meeting minimum requirements set out in Article 9 of UNCAC 117

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Report on anti-corruption measures in public procurement: international best practices

EXECUTIVE SUMMARY

The EU funded Project “Harmonisation of Public Procurement System in Ukraine with EU Standards”
commenced its work in Kyiv on 11 November 2013. The general objective of the Project is “to
contribute to the development of a solid and consistent public finance management through the
establishment of a comprehensive and transparent regulatory framework for public procurement, an
efficient public procurement institutional infrastructure, the accountability and integrity of public
authorities in regard to public procurement and the development of the Ukrainian state aid system”.
The Project is currently providing priority assistance in regard to the planning of public procurement
reforms in parallel with specific assistance towards necessary changes in public procurement
legislation in Ukraine. The Project is also assisting civil society organisations in developing capacities
for dealing actively with public procurement policies and in developing methodologies for evaluating
public procurement activities and capacities for assessing legislation and regulatory instruments,
monitoring the level of integrity in public procurement sector. In line with the need to increase the
interest of the business community in public procurement, especially SMEs, the Project is also
mandated to prepare recommendations concerning anti-corruption measures with an emphasis on
codes of conduct and other non-legislative tools.
Corruption is a wide-ranging and widespread issue – at the local, national and international levels –
and, while it is a bigger problem in some countries, no country is immune from corruption or the risk
of corruption. Whether on a big or small scale, corruption poses real challenges to society and to the
public policies of government. Across the world, governments, businesses and civil society are
addressing this challenge, as it becomes increasingly understood that corruption offends democratic
values and threatens society. It undermines democracy and the rule of law, leads to violations of
human rights, distorts markets, erodes quality of life and allows organised crime, terrorism and other
threats to human security to flourish1.
Corruption issues arise, to a greater or lesser extent, in every system of public procurement. Against
that background, this Report2 explores international instruments that can be used to improve
transparency, integrity and anti-corruption initiatives in the field of public procurement. This Report
addresses the core issues of corruption in public procurement, although similar aspects are relevant
to the procurement operations by private organisations as well.
Total public procurement expenditure in Ukraine in the last three years amounted on the average to
1.1 billion UAH and represented between 15% and 32% of GDP. While public procurement legislation
is evolving progressively, there are continuing concerns (whether factually based, based on
perceptions or merely anecdotal) about the high level of corruption in the Ukrainian system. In
parallel with important reforms to adapt the Ukrainian public procurement system to EU standards,
efforts are being made to fight and prevent corruption in this sphere (including through the
promotion of e-procurement and oversight of public spending by civil society activists and NGOs).
To be clear from the outset, some words in regards to the definition of corruption are indispensable

1 Kofi Annan, Foreword to the United Nations Convention against Corruption, 2004.
2 This Report is envisaged under Component 4.4 of the Project’s approved work programme “Improving the
Integrity in the Public procurement process through the development of anti-corruption mechanism and the
adoption of codes of conduct” in the context of general work to promote Public Procurement transparency and
awareness.
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HARMONISATION OF PUBLIC PROCUREMENT SYSTEM IN UKRAINE WITH EU STANDARDS
Report on anti-corruption measures in public procurement: international best practices
to delineate of the approach used in this Report.
In the science of criminal law, there are two approaches to the interpretation of corruption –
involving a "narrow" understanding and a "broad" interpretation of the concept. Those focused on
the "narrow" interpretation of corruption are mainly interested in bribery. Arguing their
understanding of corruption, they claim that a broader interpretation of the term of corruption will
lead to the unification of various crimes that are different by their criminological characteristics:
embezzlement, malfeasance and bribery; and that the logic of the legislator will be therefore
undermined or confused.
International conventions on corruption do not provide a common understanding of corruption,
defining it by listing the acts attributed to the category of corruption. But each convention does this
differently. Thus, under international law a common understanding of the concept of corruption has
not developed and there is no uniform list of acts that are attributable to corruption.
Proponents of the “broad” approach to corruption view the concept as any misuse of public power
for private gain and may, in extremis, extend as far as anti-competitive practices such as bid-rigging
which are, in fact, independent of public power and are generally a matter for competition law. At
the same time, it seems that the "broad" understanding of corruption is the most appropriate (for
the purpose of this Report). Such an understanding to a greater extent reflects the essence of
corruption, rather than the "narrow" view; because corruption goes beyond bribery per se, there are
many other forms, such as tribalism, nepotism, patronage, and so forth.
Not all conducts that society might deem corruption are reflected in the law. In addition, among the
characteristics of corruption are both its invisibility and a constant trend of innovation. The legislator
can simply not keep up with all sorts of new forms of corruption, so it is clear that the law does not
cover the whole range of acts of corruption. For example, in the political sphere there are many
conventional forms of behaviour which, while to some degree considered unacceptable to society,
are rarely directly prohibited by law, such as favouritism, patronage, lobbying. They could also be
attributed to corruption, but to regulate these a single abstract concept of corruption would be
required. At the same time, development of a single and adequate concept of corruption is the
greatest difficulty. On the other hand, it is not realistic to formulate an abstract definition of the
concept of corruption in order to apply it directly within legislation, since such a definition might be
too vague.
Hence, the term “corruption” is used is this Report as a notion covering all kinds of misuse of public
power for private gain and “manipulations” in public procurement procedures; including efforts to
avoid or influence the competitive procedure. Manipulations in public procurement procedures are
not fully correlated with corruption in broad sense, but they share the same symptoms and similar
behaviour on the part of the persons involved. The Ukrainian cases provided in Chapter III of this
Report also go beyond the Ukrainian definition of corruption.
The key issue in the broad approach to corruption is the private gain intention and the consequential
abuse of trust on the part of public authorities. Thus, there may be many types of behaviour that can
be characterised as being irregular but which are not corrupt because the private gain intention is
lacking. Irregularities may be due to protectionism for policy reasons and without any inducement
from private parties (e.g. to stimulate local employment and maximise tax revenue). Or it may be
caused by a sheer lack of knowledge or excessive caution; for example in cases of excessive
qualification requirements. None of these cases could appropriately be labelled as cases of
corruption.
This Report sets out to raise a number of issues for further consideration by the Ministry of Economic
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HARMONISATION OF PUBLIC PROCUREMENT SYSTEM IN UKRAINE WITH EU STANDARDS
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Development and Trade of Ukraine, as the public procurement regulator, with a view to ensuring a
comprehensive and coherent regulatory framework aligned with the modern international standards
and good practices of combatting corrupt practices in this field. This Report is also addressed, as
relevant, to the Cabinet of Ministers, the Ministry of Justice, the Parliamentary Committee on
Corruption Prevention and Counteraction, the Parliamentary Committee on Economic Policy, the
Anti-Monopoly Committee of Ukraine, the Ministry of Interior, the Prosecutor Office, the State
Security Service, the Accounting Chamber, the State Financial Inspection, the State Treasury Service,
the Ministry of Finance, non-governmental organisations, the business community (including small
and medium-sized enterprises) and the media.
The Report is based on publically available information as at August 2015; in particular referring to
the materials of the United Nations Office on Drug and Crime, the Organisation for Economic Co-
operation and Development, Transparency International and the U4 Anti-Corruption Resource
Centre3.
Chapter 1 of the Report introduces the issues and identifies the area of public procurement as a
sphere significantly prone to corruption.
International experience provides a reliable framework for shaping the national public procurement
legislation with regard to anti-corruption measures. Due to the large volumes of public funds spent
and the multiple risks of corruption in public procurement, several international organisations have
published recommendations to promote safeguards against corruption in this sector. Those
publications include measures to improve transparency and integrity in public procurement and to
otherwise directly tackle corruption-related issues.
Chapter 2 provides an overview and analysis of the available international instruments developed to
fight corruption. Each section in Chapter 2 provides a brief summary of an international instrument
and a brief description in terms of its objectives. Finally, the key international instruments are
analysed from the perspective of their binding or non-binding nature for Ukraine.
This Report provides a review of the following international instruments:
(1) United Nations Convention against Corruption,
(2) UNCITRAL Model Law on Public Procurement,
(3) World Trade Organisation Government Procurement Agreement,
(4) EU Public Procurement Directives,
(5) The Council of Europe framework against corruption,
(6) World Bank/International Financial Institution Guidelines,
(7) OECD Procurement Assessment Tools and Principles for Enhancing Integrity in Public
Procurement,
(8) Transparency International tools.

3 As supplementary information to the Report, Annex I contains the texts of key provisions of the international
framework documents referred to in Chapter 2 of this Report for convenience of reference. Annex II maps out
a list of stakeholders and useful on-line sources for more information and resources and Annex III includes a
checklist of risks and relevant mitigation strategies. The checklist for meeting minimum requirements set out in
Article 9 of the UNCAC is presented in Annex IV.

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Report on anti-corruption measures in public procurement: international best practices
These documents are targeted at the establishment of effective systems of public procurement
based on the fundamental principles of transparency, non–discrimination, equal treatment and
competition.
Recent reforms in public procurement around the world reflect best international practices. The
main directions of these reforms are the following:
 Several countries have codified and published public procurement rules, making their
procurement operations more predictable and transparent. More transparent public
procurement makes it easier for the civil society to monitor and for economic operators to
participate in public contracts. Some countries made a step further introducing electronic
procurement which allows for money saving and brings higher transparency in the system.
 Procurements tainted by corruption are effectively challenged in courts or before
independent review bodies on the simple premise that corruption precludes awarding of
public contracts on the best value basis.
 Some countries have bolstered the rules for ethical behaviour of public officials and their
contractors.
 A number of countries have improved accountability of public procurement agents, for
example, by having sanctioned and debarred of corrupt and fraudulent contractors.
 Many countries, drawing on technical assistance from an array of international institutions,
have invested in professionalization of procurement officers.
Chapter 3 looks at corruption risks and key elements for an efficient public procurement cycle
(divided into the pre-tender, tender and post-tender stages). It also covers possible remedies for
infringements of public procurement rules, as well as corruption-prevention strategies. This chapter
also provides examples of possible responses to the risks of corruption through the presentation of
some international and Ukrainian cases. The Ukrainian examples presented in this Report are based
on publicly available information and are not to be understood as cases of corruption but rather as
cases with irregularities similar to those experienced internationally.
The Report is intended to address the following questions:
 Why and how does corruption occur in public procurement?
 Why is it important to prevent corruption in public procurement?
 What are the main risks of corruption in procurement?
 What are the best international practices and tools to curb corruption in public procurement?
 Who are the key actors in fighting against corruption and what sources of information are
available concerning anti-corruption measures?
A series of good practice examples - two of which won the United Nations Public Service Award
(UNPSA) - are set out in Chapter 4.
Chapter 5 of the Report sets out conclusions, recommendations and further steps for the
stakeholders in the light of the earlier explorations and analyses.
It is noted that International experiences in regard to anti-corruption measures in public
procurement provide a framework for shaping national public procurement legislation. Thus, while
Ukraine pursues its EU integration course and commits to transpose the important EU Public
Procurement Directives into Ukrainian law and practice, and advances its e-procurement initiatives,
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