Better legal protection for EU financial interests in Romanian public procurement Conference organised by Freedom House in Bucharest, Romania, on 17 June 2015 Fight against fraud – the EU perspective The new public procurement directives and the new ESI programming period 2014 - 2020 Thomas Steiger Policy officer European Anti-fraud Office (OLAF) Directorate ‘Policy’ Unit ‘Fraud Prevention, Reporting and Analysis’

What is OLAF? European Institutions‘ investigative service Policy Advice and Service Platform Legal Basis Commission Decisions 2013/478/EU and 1999/352/EC Regulation (EU EURATOM) No 883/2013 Article 325 TFEU 9/21/2018

What does OLAF do? Conduct external investigations, defending the financial interests of the European Union against fraud, corruption and any other illegal activities; Conduct internal investigations, protecting the reputation of the European Institutions by investigating serious misconduct by their staff that could result in disciplinary or criminal proceedings; Provide policy-making and advisory services, supporting the European Commission and cooperation partners at Union, Member State and international level in developing and implementing fraud prevention and detection policies. The mission of OLAF is threefold: 9/21/2018

Public procurement: Context Public procurement = about 20% GDP in the EU (2010: € 2.4 trillion) Public procurement in Romania = about 25 % of GDP (2011: € 33.5 billion)

Types of corruption identified in PwC study Type of corruption by sector Sector Bid rigging Kickbacks Conflict of interest Deliberate mismanagement Urban/utility construction 19 14 11 3 Road & Rail 10 8 4 1 Water & Waste 15 6 Training 2 Research & Development 12 Total* 57 35 22 5 Type of corruption by Member State Member State France Hungary 9 Italy Lithuania Netherlands Poland Romania Spain Table: types of corruption identified (Source: PwC) 5

Public Procurement is a "Hot spot" for corruption High levels of financial interests at stake, especially in sectors such as infrastructure, urban planning, health Corruption affects the economy, public finances and citizens' trust According to a Eurobarometer survey, 93 % of respondents from Romania believe corruption is widespread (average EU 76%) 25 % of RO respondents report that they have been asked or expected to pay a bribe in the past year (EU average 4%) Présentation Powerpoint 9/21/2018

More detailed perception of corrupt practices in public procurement among RO business people 44% of respondents prevented from winning because of corruption 59 % of respondents reported tailor made specifications 53 % of respondents observed collusive bidding 57% of respondents noted conflict of interests 56 % of respondents pointed to unclear selection and evaluation criteria Présentation Powerpoint 9/21/2018

Public Procurement rules to prevent corruption I Rules for transparent and non-discriminatory public procurement, if followed, prevent corruption: Objective evaluation of tenders according to an appropriate methodology based on unbiased award criteria not guided by conflicts of interests Concluding the contract as tendered Executing the contract as concluded (Source: DG GROW) Présentation Powerpoint 9/21/2018

Public Procurement rules to prevent corruption II The reform of the public procurement directives and the new concessions directive should ensure effective procedures for purchases at best price simpler rules because complex, bureaucratic processes extend the opportunities for corruption The transposition period of these new directives gives each Member State the opportunity to raise awareness of the rules amongst all public procurement actors, including the judiciary to overhaul the organisation of its public sector (Source: DG GROW) Présentation Powerpoint 9/21/2018

Public Procurement rules to prevent corruption III The new directives enhance transparency: E-procurement is generalised and becomes mandatory. The setting of a legal framework for concession contracts enhances transparency in this field. A standard form self-declaration for bidders, the "European Single Procurement Document" is introduced, which makes it more difficult to exclude tenders in the selection phase. (Source: DG GROW) Présentation Powerpoint 9/21/2018

Public Procurement rules to prevent corruption IV The new directives enhance transparency: The scope of the public procurement directives is extended to the vulnerable post-award phase, as the modification of contracts during their term without a new tender procedure is now regulated. Copies of 10 Mio EUR works + 1 Mio EUR supplies and services contracts must be made available on request; exceptions: commercially sensitive information. Guidance for contracting authorities by Member States and administrative exchange of information e.g. on exclusion grounds are required. (Source: DG GROW) Présentation Powerpoint 9/21/2018

Public Procurement rules to prevent corruption V New Directives strengthen the anti-corruption purpose: Exclusion grounds are strengthened and extended to situations during the procedure, where bidders: have entered into agreements have tried to influence or mislead the contracting authority have tried to obtain confidential information The notion of "conflicts of interests" is defined at EU level. Member States and contracting authorities are asked to take appropriate measures to effectively prevent, identify and remedy conflicts of interests. (Source: DG GROW) Présentation Powerpoint 9/21/2018

Fraud Indicators = Red Flags A red flag is a fraud indicator, a warning signal, a hint. The existence of a red flag does not mean that fraud exists but that a certain area of activity needs extra attention to exclude or confirm potential fraud. Some patterns, practices and specific forms of activity are red flags that could signal irregularities or fraud. Présentation Powerpoint 9/21/2018

Red Flags Preparation Bidding Staff Company Evaluation Implementation 14

Red flags: Rigged specifications only one or abnormally low number of bidders respond to request for bids; similarity between specifications and winning contractor’s product or services; complaints from other bidders; specifications are significantly narrower or broader than similar previous requests for bids; unusual or unreasonable specifications; the buyer defines an item using brand name rather than generic description. Présentation Powerpoint 9/21/2018

Collusive bidding – red flags I In the same tender procedure: Links between bidders High prices by all bidders Same percentage of distance between offers Suspicious information in one offer: old postal code Présentation Powerpoint 9/21/2018

Collusive bidding – red flags II Observation of several tender procedures over time: The same bidders Losers keep bidding Rotation of winning bidders Présentation Powerpoint 9/21/2018

Example Irregularities in the tender procedures Cohesion Fund Total realised damage: around EUR 40 million (with EU co-financing 50%) Initial source of information: an e-mail to OLAF informing about potential irregularities in one tender: conflict of interest and ineligible expenses. 18

Modus operandi Conflict of interest / Kick-back A public official, responsible for implementing EU funded projects, was hired by a contractor involved in the projects. The person concerned changed jobs within one week after the contract was awarded. The company allegedly paid for the house renovation of the person concerned. 19

Red flags: Evaluation stage The tender was not won by the company offering the lowest price. Before the award decision, the notice had been changed several times. Consequently, the most experienced company among the bidders had to be excluded. The winning company had less professional experience than all the other bidders. 20

Red flags: Implementation stage Several deadlines were missed within the project resulting in a contract delay of over 15 months. Additional works had to be done after the implementation of the contract; they were carried out by a company not selected in the tender procedure. Contract penalties were applied rarely and they accounted for around 1% of the contract value – reflecting a preferential treatment. Repeatedly the concerned company was awarded new contracts when the implementation of the previous ones already encountered severe problems. 21

Red flags: Undisclosed conflict of interest I Sudden increase in wealth Socialisation Lack of conflict of interest declaration STAFF Favourite contractor/seller Undisclosed side business Local agent in one of the representation in Africa secured a contract for supplying IT equipment for a company in which he hold shares. Sudden Increase in wealth Socialisation A company owned by a person who helped a chair of the selection panel to organise an exhibition of his works, created as a hobby, received a big contract for PR campaign. Declined promotion Lack of conflict of interest declaration The financing officer in one of the agencies selected in a tender selection a company for which his wife worked. Declined promotion Undisclosed side business 22

Red flags: Undisclosed conflict of interest II contractor has a reputation for paying kickbacks; arbitrary disqualification of bidders; manipulating the scoring of bids during evaluation; one bidder's offer relies on unpublished information; in secondary procurement: pressure by project officials on contractors to select a particular subcontractor; unjustified sub-contracting for dubious/unclear services Présentation Powerpoint 9/21/2018

Rounding up Main problems at the level of procurement by beneficiary Manipulated tenders, false offers, collusion – frequent Fraud at evaluation level is often followed by fraud at implementation level (false invoices, deliverables of inferior quality, etc.) Attention by beneficiary saves money and time Get familiar with possible types of fraud Get familiar with red flags When more than one red flag present = check closely If verifications turn out suspicious results, go more in depth and take precautionary measures Présentation Powerpoint 9/21/2018

Thank you for your attention! Contact: thomas.steiger@ec.europa.eu