a policy proposal for addressing bid-rigging in public procurement in pakistan: ensuring value for money
1.
Organisations often rely on a competitive
bidding process to achieve the best goods and services at the best prices. The
competitive process only works, however, when competitors set prices honestly
and independently. When competitors collude, prices rise and/or quality is
compromised. The benefits of free and open competition do not occur.
2.
Bid rigging is when what should be a
competitive public bidding process, centred on transparency and equal
opportunity, is manipulated in such a way to let a selected bidder win. There are two common forms of bid rigging. One,
firms agree to submit common bids,
thus eliminating price competition. Two,
firms agree on which firm will be the lowest bidder for a bid and will rotate bids so that each firm wins an
agreed-upon number or value of contracts.
3.
In some cases, rigging takes place among
some or all the participating bidders without the knowledge of the public
officials responsible for conducting the procurement process. In others, public
officials actively participate in the rigging, sometimes with the willing
collaboration of some or all bidders or, at other times, by coercing some or
all the bidders to participate in the scheme.
4.
Bid rigging is an international concern,
attracting the attention of international organisations such as the WORLD BANK, the ASIAN DEVELOPMENT BANK,
and the OECD.[1]
5.
Bid rigging is truly an international
problem. The WORLD BANK says, “public procurement is one of the government
functions most prone to corruption” and according to TRANSPARENCY INTERNATIONAL, “up to a fifth
of the value of government contracts may be lost to corruption.” [2]
6. In
December 2016, Pakistan became a
signatory to the OPEN GOVERNMENT PARTNERSHIP initiative.
Anti-corruption is one key policy area the OGP focuses on and a specific point is OPEN
CONTRACTING AND PROCUREMENT. “OGP helps governments adopt open contracting policies focused on
disclosure, participation, and oversight throughout the entire procurement
chain. The combination of these activities helps governments save money, fight
corruption, and expand the number of participating businesses, particularly
small and women-owned businesses.”[3]
7. The
OPEN
CONTRACTING PARTNERSHIP says “Governments around the world spend an
estimated US$ 9.5 trillion through
contracts every year. Yet, contracting information is often unavailable for
public scrutiny.”[4]
8.
In November 2019, the U.S. DEPARTMENT
OF JUSTICE created a PROCUREMENT COLLUSION STRIKE FORCE that
“leads a coordinated national response to combat antitrust crimes and related
schemes in government procurement, grant, and program funding at all levels of
government—Federal, state, and local. The PCSF is comprised of the
Antitrust Division of the U.S. Department of Justice, multiple U.S.
Attorneys’ Offices around the country, the Federal Bureau of Investigation (FBI),
and the Inspectors General for multiple Federal agencies.” Assistant Attorney
General for Antritrust, MAKAN DELRAHIM, said “The PCSF has
two core objectives. The first is to deter and prevent antitrust and
related crimes on the front end of the procurement process through outreach
and training. The second objective is to effectively detect,
investigate, and prosecute crimes that do occur through better
co-ordination and partnership in the law enforcement and inspector
general communities.” [5]
9.
The WORLD BANK’s
PAKISTAN@100 report[6] says Pakistan should “significantly
increase spending in health, education, and social protection.” Also,
“improvements in how these resources are spent will also be necessary.”[7] An important
“improvement” would be taking all possible measures to ensure the public
procurement process is not affected by bid rigging or leakages. For example,
research by the International Monetary Fund shows there is a 30% efficiency gap
between the money spent on infrastructure and the quality of what gets built.[8]
10.
Some
numbers. Pakistan’s growth recovery and job creation in 2020 is to be supported by increasing the PUBLIC SECTOR DEVELOPMENT PROGRAMME (PSDP)
spending. The government has allocated PKR 1.6
tr to PSDP in 2019-20,
from the PKR 1.2 tr in the 2018-19 fiscal year.[9]
11.
Public
procurement in Pakistan is valued at around 20% of GDP. FARRUKH SALEEM says
“The magnitude of government procurement is around $60 billion a year (19.8 percent of GDP). Estimates of leakage in this procurement
of $60 billion a
year vary from 30 percent to 60
percent. In dollar terms, that’s
anywhere between $18 billion to $36 billion
per annum. Up to 50
percent of goods and services procured are said to be ‘substandard’ and
‘over-valued’. A 25 percent improvement
in this sector will yield $15 billion per year
every year. For the record, we have had 21 IMF programmes since 1950, and the potential savings in
government procurement are more than any IMF programme.”[10]
12.
SAKIB SHERANI says “Another area under PFM that involves substantial allocation
each year from budgetary resources and spending of large amounts of money is
procurement by the public sector. By virtue of its size and nature, public
sector procurement is open to massive misuse and corruption. It requires a strong
regulatory framework and oversight mechanisms to minimise abuse and
over-spending.”[11]
13.
Government procurement contracts, especially
under the PSDP, are
most susceptible to bid rigging. It is crucial to protect against possible
collusive behaviour from taking place. Given Pakistan’s current financial
condition, government expenditure needs to be managed but at the same time, the
value of goods and services that are procured every year must be ensured [PARA 5].
14.
Transparency, accountability, and
competitiveness in the procurement process are crucial if this quantum of
leakage is to be plugged. Recognising this, Pakistan has taken some key steps
to improve the process of public procurement in the country, but more can be
done to ensure the integrity of the
process.
Achieving 25 Percent Improvement: Key Organisations and the Legal Framework
15.
The NATIONAL
ANTI-CORRUPTION STRATEGY (NACS),[12] a significant milestone in the history of
Pakistan, recognises that any “freedom from poverty, freedom from servitude and
a quality of life where they are able to live without fear of injustice and
tyranny” must be inextricably linked to instituting effective preventive
measures that limit the “misuse of
entrusted power for private benefit.”
16.
§4.3.7
(NACS)
talks about “Development projects, procurement and contracting” where one sees
an unprecedented candour in discussing the genesis of corruption.[13]
§4.3.7.2 discusses ‘Procurement and contracting,’
supporting the WORLD
BANK’s recommendations to ‘overhaul the procurement system,’ [14]
as provided in Country Procurement Assessment Report, 2000.[15]
17.
The NATIONAL ACCOUNTABILITY BUREAU has an important role in
procurement matters. §33-B
of National
Accountability Ordinance, 1999, says it is mandatory for
public contracts and/or projects of PKR 50 million and
above to provide comprehensive details of the procurement and ensuing contract
to them.[16]
NAB’s
jurisdiction extends all over Pakistan.
18.
The PUBLIC PROCUREMENT REGULATORY AUTHORITY is an autonomous body established under the Public
Procurement Regulatory Authority Ordinance, 2002.[17]
It prescribes regulations and procedures for public procurement by Federal
Government-owned public-sector organisations. Its main objective is to optimise
efficiency and make the tendering process fair and competitive by providing
equal opportunity to all bidders. In December 2016, administrative oversight of PPRA was transferred
to the FINANCE DIVISION from
the CABINET DIVISION.[18]
19.
With the Public Procurement Rules,
2004 (PPR
2004), the
absence of coherent single law instead of the then-existing complex laws,
rules, regulations, codes and cumbersome practices and customs[19]
was largely addressed. But the point in the NACS, “Procurement and contracting is an area
which deserves urgent attention,” remains valid. While it claims to maintain a
record of all public-sector procurement since it was formed, the Federal PPRA has no enforcement
powers.
20.
The COMPETITION COMMISSION OF PAKISTAN was established under the Competition Ordinance, 2007, subsequently
enacted by Parliament as the Competition Act, 2010. It has the power to
investigate prohibited agreements (including collusion in bidding) under §4 of the Competition Act, 2010.[20]
21.
As the monitoring institution for the PUBLIC SECTOR DEVELOPMENT
PROGRAMME, the PLANNING
COMMISSION is an important
stakeholder in development projects and their related procurement activities.
Achieving 25 Percent Improvement: Roles of the Commission, Public Procurement Regulatory Authority, the National Accountability Bureau
22.
Cartels are difficult to discover as
evidence and signs of collusion are carefully concealed by the parties
involved. Bid-rigging in public procurement is different as it requires
companies to have an interface with procurement agencies in the form of
technical documents and financial statements. This information is submitted to
the PUBLIC PROCUREMENT
REGULATORY AUTHORITY as a matter of
course and is, thus, available in the public domain for analysis for signs of collusion.[21]
The PPRA is
mostly concerned with the tender specifications and the dissemination process. The COMPETITION COMMISSION OF
PAKISTAN is interested in the bidding aspect.
23.
The COMMISSION is uniquely situated to detect and prosecute instances
of collusive bidding. It is the only public-sector organisation in Pakistan
that has both a legal mandate and the powers to detect and prosecute collusive
bidding under the aegis of prohibited agreements.[22]
However, the evidence to detect such practices depend on the (i) availability
of and (ii) rigorous analyses of procurement data.
24.
Preventing bid rigging in public requirement
requires a meaningful partnership
with PPRA to help
create the necessary information linkages and regulatory oversight at the pre-
and post-bidding stages to minimise risks of corruption and collusion in
bidding.
25.
To access procurement data, the CCP and FEDERAL PPRA signed an MoU in January 2017.
This MoU
must translate into effective information sharing. But PPRA continues to lack the necessary
manpower to operate effectively. Key positions in the Federal PPRA were filled in 2018 only.
26.
Procurement was devolved to the provinces
under the 18th constitutional
amendment, hence a federal and four provincial procurement regulatory
authorities independently oversee the procurement regulatory environment with
no hierarchical relationship between them. There is no central database for
collection or collation of procurement data that may help in, inter alia, informing the key decision
makers about bid rigging and how to tackle it.
27.
At this point, the timeliness, quantity, and
accuracy of data submitted to NAB under §33-B
of the NAO
cannot be determined, neither can its utilisation by NAB at this moment.[23]
A tri-partite arrangement between the CCP, the PPRA, and NAB will allow the CCP to have another
source of data (assuming data from PPRA is also available now and in future, data from the
provincial PPRAs)
at hand to run the necessary analytics.
28.
The anti-competitive aspects of bid
rigging in public procurement will be addressed under the Competition Act, 2010.
29.
Many countries, including Pakistan,
implement e-procurement systems in varying degrees. The ability to convert
e-procurement data into OPEN
DATA FORMAT[24] will help in detecting patterns of
collusion. The KOREAN
FAIR TRADE COMMISSION (KFTC), the CCP’s counterpart in
South Korea, has developed a world-renowned system to detect patterns of bid
rigging, known as the BID
RIGGING INDICATOR ANALYSIS SYSTEM (BRIAS).[25]
30.
If Pakistan adopts a similar system, the savings
in public procurement can be considerable and the capacity of key institutions
will improve to detect and prevent financial losses in procurement.
31.
NAB
will be responsible for the corruption aspects of bid rigging in public
procurement.
32.
Bring the PPRA, the CCP, and NAB in a technical partnership for sharing of
crucial procurement data. At a later stage, the provincial PPRA’s can be
included.
33.
Strengthen the operational capacity of the FEDERAL PPRA in terms of staffing – key positions were filled in 2018 – and necessary
implementing rules and regulations.
34.
Training of officials responsible for the
procurement function [PARA 8]. The NATIONAL INSTITUTE OF PROCUREMENT was established for
this purpose.[26]
The CCP and NAB can participate as
resource persons in these trainings.
35.
Create the interface between these
organisations and the WORLD
BANK-funded project for OPEN GOVERNMENT (to be) implemented by the FINANCE DIVISION.
36.
Establish an effective monitoring and
oversight mechanism that includes, inter
alia, the PUBLIC
ACCOUNTS COMMITTEES, the AUDITOR GENERAL OF PAKISTAN to ensure the technical partnership
between the Federal and provincial PPRAs, the CCP,
and NAB delivers
results.
37.
Moving towards open contracting systems need
a strategy. Open contracting is at the cutting edge of open government across
the globe.[27]
According to the OPEN CONTRACTING PARTNERSHIP
(OCP), “open contracting is about publishing and using open, accessible,
and timely information on government contracting to engage citizens and
businesses in identifying and fixing problems.” Open contracting consists of
disclosure and engagement throughout the entire chain of procurement, including
planning, tendering, awarding, and implementation. It can also cover
non-procurement issues such as licensing and extractives contracts.[28] This will first
convert existing data into OPEN DATA FORMAT,[29] making it easy to analyse, and second, place
key procurement data (both federal and provincial) in the public domain,
helping promote transparency and governance. Having relevant data in OPEN DATA FORMAT will help in the
“independent monitoring of government procurement and projects over and above a
certain floor or minimum amount. This could include the full public
disclosure/availability on a website of all contract details and of the
bids/tenders received, including prices and technical specifications.” It would
also help in “setting up public registers/databases of contractors on public
sector projects and a list of black-listed entities with full details of
ownership.”[30]
38.
The OGP
(PARA 6) says “Open contracting and transparency in
public procurement have proven to save money and broaden competition.”
39.
The potential gains to Pakistan from
improving procurement processes are substantial. The legal framework (software)
and the relevant organisations (hardware) already exist. What is needed is for
the government, to bring them together for this cause.
40.
Importantly, Pakistan’s ranking in the Corruption Perceptions Index of TRANSPARENCY INTERNATIONAL
can be brought below 100,
sending a demonstrable message to the world of improvement on a key global
benchmark.[31]
[1] Two
documents of the OECD are of particular relevance. Detecting Bid Rigging in Public Procurement, online at https://www.oecd.org/competition/cartels/42594486.pdf and Guidelines for Fighting Bid Rigging in
Public Procurement, online at https://www.oecd.org/competition/cartels/42851044.pdf
[2] World Bank,
Why Reform Public Procurement, 2012, http://www.worldbank.org/content/dam/Worldbank/document/MNA/Why_Reform_Public_Procurement_English.pdf
[3] Open Contracting and Procurement policy area,
Open Government Partnership, online at https://www.opengovpartnership.org/policy-area/open-contracting-procurement/
[5] Details of the Strike Force are available
online at https://www.justice.gov/procurement-collusion-strike-force. Makan Delrahim’s remarks at the Remarks at the
Procurement Collusion Strike Force Press Conference in Washington, DC, on 5
November 2019: https://www.justice.gov/opa/speech/assistant-attorney-general-makan-delrahim-delivers-remarks-procurement-collusion-strike
[8]
International Monetary Fund, Making
Public Investment More Efficient, June 2015, online at http://www.imf.org/external/np/pp/eng/2015/061115.pdf
[9] Khaleeq
Kiani, Shaikh promises recovery, jobs, Dawn, 6 January 2020, https://www.dawn.com/news/1526420/shaikh-promises-recovery-jobs
[10] Farrukh
Saleem, Moving Forward, The News, 5
August 2018; https://www.thenews.com.pk/print/350709-moving-forward. See also
Saleem, $60 Billion, The News, 19
August 2018; https://www.thenews.com.pk/print/357044-60-billion and Saleem, Chasing
Shadows, The News, 29 December 2019; https://www.thenews.com.pk/print/590158-chasing-shadows
[11] Sakib
Sherani, Institutional Reforms in
Pakistan: The Missing Piece of the Development Puzzle, November 2017,
available online at library.fes.de/pdf-files/bueros/pakistan/13947.pdf
[12] Pakistan’s National Anti-corruption Strategy of
2002 says:
The large scale
corruption, both in development projects and routine government fund
utilisation, has been during procurement
and contracting. The worst offenders
have been the public sector corporations, particularly those in the
power/utilities, and infrastructural and public works.
In recent years, the donor agencies and the government
have come to realise that corruption in procurement and contracting is a
serious impediment to the efficient and effective utilisation of resources. The
World Bank thus undertook a comprehensive review of Pakistan’s procurement
system and recommended an overhaul of the procurement system. The government
has only implemented one of the Report’s key recommendations, by creating the
Public Procurement Regulatory Authority (PPRA) in May 2002 to serve as the
repository of procurement expertise.
Pakistan has no coherent single law setting standards and
no effective legal protection against collusion and corruption in the award of
government contracts. Instead, there is an accretion of complex laws, rules,
regulations, codes and manuals which create a web of lengthy and cumbersome
practices and customs. (Unlike other developing countries, donors’ procurement
rules do not prevail over local rules, although the Ministry of Finance has
tried to enforce this.) The rules and
regulations are manipulated to deter
competition, thwart objectivity and transparency and give officials wide and unsupervised latitude in applying or
ignoring the tangle of rules. The ground
for corruption is laid at every stage of the procurement process [§4.3.7.2,
procurement and contracting, pg 40, available online at http://www.nab.gov.pk/Downloads/Doc/NACS.pdf]
[16] NAB’s
evaluation form is available at http://nab.gov.pk/Downloads/Revised%20Contract%20Evaluation%20Form.docx
[17] §5 of the
PPRA Ordinance, 2002 says:
(2) Without prejudice to the generality of the
powers conferred by sub-section (1), the Authority may
(a)
monitor
application of the laws, rules, regulations, policies and procedures in respect
of, or relating to, procurement;
(b)
monitor the
implementation of and evaluate laws, rules, regulations, policies and procedures
in respect of, or relating to, inspection or quality of goods, services and
works and recommend reformulation thereof or revisions therein as it deems
necessary;
(c)
recommend to
the Federal Government revisions in or formulation of new laws, rules and policies
in respect of or related to public procurement;
(d)
make
regulations and lay down codes of ethics and procedures for public procurement,
inspection or quality of goods, services and works;
(e)
monitor
public procurement practices and make recommendations to improve governance,
transparency, accountability and quality of public procurement;
(f)
monitor
overall performance of procuring agencies and make recommendations for
improvements in their institutional set up;
(g)
provide and
coordinate assistance to procuring agencies for developing and improving their
institutional framework and public procurement activities;
(h)
submit
reports to the Government in respect of public procurement activities of
procuring agencies;
(i)
call any
functionary of procuring agencies to provide assistance in its functions and
call for any information from such agencies in pursuance of its objectives and
functions; and
(j)
perform any
other function assigned to it by the Federal Government or that is incidental
or consequential to any of the aforesaid functions.
[18] Regulatory Bodies’ Control Given to
Government, The News, 20 December 2016, https://www.thenews.com.pk/print/173187-Regulatory-bodies-control-given-to-govt
1. No
undertaking or association of undertakings shall enter into any agreement
or, in the case of an association of undertakings, shall make a decision
in respect of the production, supply, distribution, acquisition
or control of goods or the provision of services which have the object
or effect of preventing, restricting or reducing competition
within the relevant market…
2. Such agreements include, but are not
limited to
(a) Fixing the purchase or selling
price or imposing any other restrictive trading conditions with regard to
the sale or distribution of any goods or the provision of any service;
(b) Dividing or sharing the markets for the goods
or services, whether by territories, by volume of sales or purchases, by type
of goods or services sold or by any other means;
(e) collusive tendering or bidding
for sale, purchase or procurement of any goods or service;
[23] Recently,
the NAB has taken notice of problems in the submission of procurement data by
procurement agencies:
“The chairman NAB noticed that some Public
Sector Departments of all the provinces and federal capital are not submitting
the copies of contracts of Rs50 million or above to NAB as per law for scrutiny
and review. As per law, all public sector departments are duty bound to submit
the copies of contracts of Rs50 million or above to NAB including details of
procurements and tendering process so that NAB may review and securitise [sic] the transparency in the execution
of the projects under its prevention regime as per NAO, 1999.
Chairman NAB has directed all DGs of NAB to
ensure submission of copies of all contracts of Rs50 million or above from
public sector departments comes under their areas of jurisdiction to NAB as per
law. Strict action would be taken against the failure officers as per law.”
SOURCE: Recovering
Looted Money NAB’s Top Most Priority, The News, 12 August 2018, https://www.thenews.com.pk/print/354038-recovering-looted-money-nab-s-top-most-priority
[24] OPEN DATA
FORMAT, also known as OPEN CONTRACTING DATA STANDARD (OCDS) is an open data
standard for publication of structured information on all stages of a
contracting process from planning to implementation.
The publication of ODF/OCDS data can enable greater
transparency in public contracting and can support accessible and in-depth
analysis of the efficiency, effectiveness, fairness, and integrity of public
contracting systems.
Implementation of OCDS is considered an essential early
step on the road to e-procurement. More details on OPEN DATA FORMAT can be seen
at https://en.wikipedia.org/wiki/Open_format
[25] Information
about the BID RIGGING INDICATOR ANALYSIS SYSTEM can be found in a KOREAN FAIR
TRADE COMMISSION presentation of 2014 – MEANS OF BID-RIGGING DETECTION: HOW TO
DETECT BID-RIGGING IN PUBLIC PROCUREMENT IN KOREA – given at a bid rigging
workshop in Malaysia:, online at http://www.mycc.gov.my/sites/default/files/Bid-Rigging-Workshop-PPT_KFTC.pdf
[27] For
example, journalists in Bulgaria are using data to investigate abuse of EU
funds in procurement, https://www.open-contracting.org/2018/10/21/how-journalists-in-bulgaria-are-using-data-to-investigate-abuse-of-eu-funds-in-procurement/
[28] Much of this paragraph is taken from Why
Open Contracting, online at https://www.open-contracting.org/why-open-contracting/#what-isopen-contracting
[29] Users can use and reuse open data
free-of-charge without impediment. They can copy open data and combine it with
other information for non-profit and commercial purposes. The main consumers of
open data are developers of applications and services who use open data as
baseline information, as well as journalists and other stakeholders who can
conduct in-depth social-and-economic academic research based on “raw” data on
the main directions of improving the public administration system.
[31] The CORRUPTION
PERCEPTIONS INDEX of 2017 places Pakistan at 117 of 180 countries ranked. In
the SAARC region, India is ranked 81, Bangladesh 143, Nepal 122, and Sri Lanka
91. https://www.transparency.org/news/feature/corruption_perceptions_index_2017
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