PROF. LAURENCE FOLLIOT LALLIOT PUBLIC PROCUREMENT POLICIES AND PRACTICES

PROCUREMENT SYSTEMS: THINKING OUTSIDE THE BOX Agenda Why regulate procurement? Understanding legal procurement context and broader procurement issues Understanding International public procurement context Focus on Fraud and corruption 2

WHY REGULATE PUBLIC PROCUREMENT?

PUBLIC PURCHASING: A GROWING GLOBAL ACTIVITY World Total, around $ Billions Billions Euros for European Union (2011) $ 600 Billions US Federal Government (2011)

1.1. WHY REGULATE PUBLIC PROCUREMENT ? An administrative function that exists in every country and goes beyond public purchasing: Legal and economic objectives Public sector reforms, Governance reforms Financial reform Social dimension International perspective, Trade 5

IMPACTS ON ECONOMIC GROWTH ? What? Public investment, infrastructures, Services Goods Trade, exports and imports Total, in general, 15 et 20 % of GDP (18,3 % of EU GDP) How? Stimulus package in developed countries Savings on public spending Development, Aid Reshaping the private sector Sustainable development

NEW REQUIREMENTS: WHY PUBLIC PROCUREMENT POLICIES MUST CHANGE Governance: Accountability Transparency, Information of civil society Competition, equal access Performance Professionalization of procurement staff Audit, controls Innovations: E-procurement procedures Framework contracts Integrity Anti-corruption Anti-collusion, debarment 7

NEW (CONTRADICTORY ?) ISSUES Efficiency versus integrity? Transparency versus confidentiality? New financing ? (PPPs) Access of foreign companies, competition, Protectionnism? SMEs, Sustainable procurement, Socio-economic policies in favor of disadvantaged groups

I. UNDERSTANDING INTERNATIONAL CONTEXT AND PUBLIC PROCUREMENT STANDARDS

INTERNATIONAL INSTRUMENTS ADDRESSING PROCUREMENT Binding instruments: *UNCAC *Government Procurement Agreement (WTO) *Regional Procurement provisions: EU Directives, WAEMU, COMESA *Regional Trade agreement: e.g. NAFTA *Bilateral treaties (BTA, BIT)  World Bank (& other MDBs) Guidelines Soft Law instruments: UNCITRAL Model Law on procurement OECD/DAC methodology FIDIC 10

COVERAGE ? Mainly procurement process : standardization of the administrative process/formation of the contract From a competition angle Contract administration and management remain domestically ruled Exception Bank’s SBDs/GCC, FIDIC, (UNCITRAL) Legislative Guide on PFI, future UNCITRAL work? 11

A. UNITED NATIONS CONVENTION ON ANTI-CORRUPTION (UNCAC) ART State parties ; Entry into force December “1. Each State Party shall, in accordance with the fundamental principles of its legal system, take the necessary steps to establish appropriate systems of procurement, based on transparency, competition and objective criteria in decision-making, that are effective, inter alia, in preventing corruption. “ (…) 12

B. GPA (WTO) Plurilateral (v. multilateral) Agreement between 43 WTO countries Treaty signed in 1994, Renegotiation in 2006, ratified in 2011 Goal: promote international trade by opening the procurement markets to the member states, country by country approach 13

GPA 14 Albania Negotiating accession = 9 Georgia Jordan Kyrgyz Republic Moldova Oman Panama Ukraine China Observers = 13 countries Argentina, Australia, Bahrain, Cameroon, Chile, Colombia, Croatia, India, Mongolia, New Zealand, Saudi Arabia, Sri Lanka, Turkey Current members = 43 countries Armenia, Canada, EU + (28 countries) Hong Kong China, Iceland, Israel, Japan, Korea, Liechtenstein, Netherlands with Aruba, Norway, Singapore, Switzerland, Chinese Taipei, United States

HARMONIZATION AROUND THE GPA PROVISIONS? - Above thresholds (e.g.: $5,000,000 for construction contracts) - Open, selected tendering, restricted tendering - International Advertisement - Time frame for bid preparation - Challenge/complaint system - Award criterion: Most advantageous tender or/ price 15

C. EU FRAMEWORK GOAL: BUILDING THE INTERNAL MARKET - Directive 2004/18/EC (“classic Directive) Directive 2004/17/EC (“utilities” Directive) Binding for their objectives: advertisement at the EU level (in 22 languages) Applying above thresholds: aligned with the GPA’s New Directives to be enacted soon 16

54 COUNTRIES CONCERNED BY THE EU FRAMEWORK… - EU Procurement Directives providing a legal framework (quite detailed) mandatory for 27 member states; +EEA Agreement = 3 countries : Norway, Liechtenstein and Iceland. - Part of the “acquis communautaire” to be implemented by acceding countries 3 Candidates countries : Croatia, Turkey, Macedonia + 5 potential candidates : Albania, Bosnia and Herzegovina, Montenegro, Serbia as well as Kosovo under UN Security Council Resolution 1244/99.AlbaniaBosnia and HerzegovinaMontenegro SerbiaKosovo - Guidance for all countries looking for accession Turkey started accession negotiations on 3 October EU neighbors 17

D. SOFT LAW INSTRUMENTS: I. UNCITRAL Model Law on procurement (United Nations Commission For International Trade Law) Agreed in 1994 revised in 2011 No binding provisions but recommendations Drafted by an expert group and approved by UNCITRAL Committee II. OECD/DAC methodology for assessing national procurement systems (MAPS) 18

E. WORLD BANK PROCUREMENT GUIDELINES (2011) Designed to cover the big (above threshold) contract awarded by a Borrower-country under a Bank’s financed project GL for works, supplies, non-consultant services and GL specific for Consultants Open competition default method Allow for domestic preferences + SBDs +General Conditions of Contract (GCC) to govern the execution/administration of the contract Master Bidding Documents, Procurement of goods and User’s Guide (to cover the execution of the contract) 19

PRINCIPLES OF THE WB PROCUREMENT POLICIES Four main principles: the need for economy and efficiency, the interest in having all eligible bidders having equal opportunity to compete, the desire to encourage the development of domestic industries, the importance of the transparency of the procurement process.

PROF. LAURENCE FOLLIOT LALLIOT FRAUD, CORRUPTION AND CONFLICT OF INTERESTS IN PUBLIC PROCUREMENT

CORRUPTION AND THE PUBLIC ADMINISTRATION: A NEW FOCUS During the 1990s, the governments of several important countries (Italy, Japan, Brazil, others) fell because of corruption. “Measures” of corruption became available. Some governments and international institutions started to react to corruption. Various surveys indicated that political parties, parliaments and some public institutions were the sectors more exposed to corruption. “Transparency International” and the “Corruption Perception Index”, (CPI), since 1995.

CORRUPTION AND THE PUBLIC ADMINISTRATION: HOW ? Fighting corruption in the public sector Budgeting and public expenditures Public employment and management Public sector innovation and e-government Regional development Regulatory policy Risk management Integrity in Public Procurement :// sector/integrityinpublicprocurement.htm :// sector/integrityinpublicprocurement.htm 23

PUBLIC PROCUREMENT: THE MOST VULNERABLE GOVERNMENT ACTIVITY TO CORRUPTION (OECD 2007). 24

HOW? Favoretism; Restricted Authorizations and Licenses: i.Controls and inspections to small enterprises. ii.Bureaucratic obstacles to small entrepreneurs. iii.Differential costs between small and large enterprise. Use of facilitators iv.Forced “charitable” contributions.

CORRUPTION AND OTHER OFFENCES “corrupt practice” “fraudulent practice” “collusive practice” “coercive practice” "obstructive practice" Paragraph 1.16 of the Procurement Guidelines and paragraph 1.19 of the Consultant Guidelines Targets: -corruption, -anti-competitive behavior -to protect Bank’s investigation.

CONFLICT OF INTERESTS PLAY IN TWO WAYS: Passive = existing situation known or unknown by the entity/person but not used to produce any advantage Active = conflict of interest is effectively used to produce directly or indirectly an advantage

CASE STUDY: Two short-listed Firms A and B submit proposals in which they are associated with the same Firm C. C is a well- known firm in the privatization telecommunication sector. A is associated with C in the form of a joint venture; B is associated with C in the form of a sub-consultancy. The standard request for proposals indicates that the short- listed firms cannot associate between themselves but can associate with outside firms in order to complement their expertise. Question: What type of offence here ? Can firm C participate in these two proposals?

SANCTIONS 29

WB LIST OF OFFENCES “corrupt practice” “fraudulent practice” “collusive practice” “coercive practice” "obstructive practice" Paragraph 1.16 of the Procurement Guidelines and paragraph 1.19 of the Consultant Guidelines Targets: -corruption, -anti-competitive behavior -” -to protect Bank’s investigation. 30

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DOMESTIC PROVISIONS Link contract/law ? Where are the Corruption and fraud issues taken care of? Procurement Law? Competition Law? Criminal Law? Civil service Law: disciplinary sanctions? Anti-corruption Law? 33