1. Anti-corruption measures under the new Public Procurement Directives
Budapest
Bogdan STEFAN
European Commission
Directorate General Internal Market, Industry, Entrepreneurship and SMEs
Directorate G – Single Market for Public Administrations

2. Introduction/structure
Public procurement has been covered by a special chapter in the first EU Anti-Corruption report issued in Significant importance due to:
crucial leverage in the Internal market
"Hot spot" for corruption, subject to significant corruption risks
covered by extensive EU legislation
in addition to the main aim to open the market, the new public procurement rules contribute to
Preventing corruption
Detecting corruption
Redressing corruption.
Background
The last anti-corruption report showed that there are no corruption free zones in Europe
corruption harms all member states and the EU as a whole, lowering investment levels, hampering the fair operation of the internal market and reducing public finances
corruption costs Europe around €120 billion each year. That amounts to about 1% of EU GDP and represents only a little less than the annual budget of the European Union.
according to the Eurobarometer attached to the report, a vast majority (76%) of Europeans think that corruption is widespread in their own country. Also, more than half of Europeans (56%) think the level of corruption in their country has increased over the past three years
PP has a special coverage in the AC report. It is one of the areas most vulnerable to corruption. We must face a reality where a lot of companies still make good business out of corrupt contracts in many parts of Europe. Given that the corruption risk level in the public procurement process is rather high, anti-corruption and anti-fraud safeguards in public procurement should be a matter of priority for both EU Member States and EU institutions
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3. A. Public Procurement is of crucial importance for the Internal Market
1/5 of EU GDP (2.3 trillion EUR) spent by European contracting entities on goods, works and services above and beyond thresholds for the application of EU rules.
Total value of calls for tenders above thresholds (incl. utilities and defence): Billion in 2014 (401,72 in 2012).
Hungary: Increasing trend - public procurement (excl. utilities and defence) worth 16.1 Billion EUR in 2014 (compared to 13,3 Bn EUR in 2011). Public works, goods and services constituted 15.5 % of GDP in 2014 (13,2% in 2011)
Number of contract notices published in TED at EU level (including utilities and defence) in 2014 ( in 2011). Decreasing trend for Hungary (2640 in 2011, 1941 in 2014)
Thresholds : EUR works, EUR most supplies and services
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4. B. Public Procurement is covered by extensive legislation
Classic Public Procurement and Utilities (water, postal, energy, transport) Directives + new Concessions Directive – to be transposed by MS by April 2016
Remedies Directives for classic and utilities procurement allowing judicial oversight of the procurement process
Defence procurement Directive to regulate procurement in a high price and formerly intransparent sector.
Public procurement framework in Hungary:
The new public procurement act and the related government decrees transposing the 2014 EU PP directives were adopted and entered into force on 1 November 2015
A major reorganisation took place in 2014, centralising public procurement regulatory, implementation, control and monitoring functions in the Prime Minister’s Office
National Anti-Corruption Programme for the period promotes the concept of ‘open contracting’- increased disclosure and participation in public contracting.
In the framework of the Partnership Agreement for the programming period, Hungary committed to implement specific measures in the field of public procurement, to respond to the applicable PP ex-ante conditionality.
HU developments :
Extensive secondary legislation - governmental and ministerial decrees or soft law instruments - guidelines and explanatory notes). Public Procurement Act of extensive secondary legislation. The new PPA transposing the new PP directives envisaged to be adopted beginning of 2016
What could be improved in applying PP rules in HU?
the negotiated procedure without prior publication of the notice was more frequently used in Hungary than in the EU in general. In 2014, Hungary had 13% of negotiated procedures without publication for above threshold tenders, compared to an EEA average of 5%
Hungary is the 3rd in the EEA when it comes to the number of single-bidder procedures with 36% (EEA average 15%)
The above two have an effect on competition and transparency
one of the main challenges for the Hungarian government is to adopt a comprehensive e-procurement strategy as part of the broader strategy to reform public procurement. E-procurement can generate significant cost savings, improve transparency of public procurement, shorten lead time and increase competition. Overall, the introduction of e-procurement is an opportunity to rethink and improve the way public procurement is organised in Hungary
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5. C. Public Procurement is a "Hot spot" for corruption
High level of financial interests at stake, in various sectors (e.g. energy and transport infrastructure, construction, defence).
The costs of corruption are difficult to quantify. However, it is a fact that corruption in PP impedes on the sound management of public money, competition and undermines the trust of citizens in democratic institutions
Situation in Hungary: According to the 2013 Eurobarometer Business Survey on corruption, 47% of the Hungarian respondents consider that corruption is widespread in public procurement managed by national authorities (EU average: 56%) and 48% in that managed by regional or local authorities (EU average: 60%).
Public procurement is an area prone to corrupt practices. According to 2008 research on public procurement and corruption, the costs added to a contract as a result of corrupt practices may
amount to between 20 % to 25 %, and in some cases even 50 % of the total cost of the contract
A 2013 study on identifying and reducing corruption in public procurement in the EU concluded that in 2010 the overall direct costs of corruption in public procurement for only five sectors (i.e. road and rail; water and waste; urban/utility construction; training; research and development) in eight Member States ranged from EUR 1.4 billion up to EUR 2.2 billion.
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6. D. Public Procurement rules prevent corruption by enhancing Transparency I
Rules for public procurement are in place to guarantee transparent and non-discriminatory procedures
Transparency is the worst enemy of corruption, if followed in their letter and spirit, public procurement rules can prevent corruption and malpractices.
Contracting entities play a key role in ensuring transparency of the procedure. Transparency would help them getting the best value for money and remain the master of the process by applying the "fair" rules of the game, set by the PP directives, such as:
Preventing corruption and creating a culture of integrity is a priority of the new EU Public Procurement Directives
Enhancing transparency is one of the main means to achieve this goal
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7. Public Procurement rules prevent corruption by enhancing Transparency II
Prior publication of tenders
Clear and unbiased technical specifications
Equal treatment of bidders in all stages of the process
Objective evaluation of tenders
according to an appropriate methodology
unbiased award criteria
avoidance of conflicts of interests
Conclude the contract as tendered
Execute the contract as concluded
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8. Public Procurement rules prevent corruption by enhancing Transparency III – the new directives
Besides enhancing transparency, the reform of the public procurement directives and the new concessions directive are major leap forward by:
creating the framework for effective procedures for purchases at best value for money
tailored to all possible needs of contracting authorities
Promoting streamlined rules avoiding complex, bureaucratic processes which usually extend the opportunities for corruption.
MS should use the transposition period of the new directives (18th April 2016, 2018 for e-procurement) as an opportunity to:
to raise awareness of the rules amongst all public procurement actors, including the judiciary
to overhaul the organisation of their public sector and adapt the institutional structures and internal mechanisms to the requirements of the new directives
to reconsider in depth the efficiency of their public procurement and anti-corruption policies.
First to raise awareness of the rules amongst all public procurement actors, including the judiciary, to overhaul the organisation of its public sector with the aim that all public procurement officials share a common sense of public utility and public service, strive to deliver optimal results for society and to reconsider in depth the efficiency of its current public procurement and anti-corruption policy.
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9. Public Procurement rules prevent corruption by enhancing Transparency IV– the new directives
Novelties in the new directives, directly enhancing transparency :
E-procurement is generalised and becomes mandatory
Separate legal framework for concession contracts enhances transparency in this field
Introduction of a standard form self-declaration for bidders, the "European Single Procurement Document"- it more difficult to exclude tenders in the selection phase
Copies of 10 Mio EUR works + 1 Mio EUR supplies and services contracts must be made available on request; exceptions allowed only in the case of commercially sensitive information
As for the new directives, there are novelties, measures directly enhancing transparency and tackling corruption:
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10. Public Procurement rules prevent corruption by enhancing Transparency V– the new directives
5. The scope of the public procurement directives is extended to the post-award phase (particularly vulnerable to corruption; the modification of contracts during their term without a new tender procedure is now regulated.
6. Guidance for contracting authorities by Member States and administrative exchange of information e.g. on exclusion grounds are required.
Since the post-award period is particularly vulnerable to corruption, the rules for modifying contracts during their term have been clarified and simplified to remove any doubt in this regard. In particular a new call for tenders will not be required for any modifications where the modifications have been provided for in the initial procurement documents in clear, precise and unequivocal review clauses and changes that are not substantive, i.e. do not change the nature or the economic balance of the contract.
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11. New Public Procurement rules – a stronger anti-corruption focus
New Directives strengthen the anti-corruption purpose by introducing:
1. Stronger exclusion grounds, extended to situations where bidders:
have entered into agreements
have tried to influence or mislead the contracting authority
have tried to obtain confidential information.
2. The notion of "conflicts of interests" is for the first time defined at EU level
3. The obligation for the Member States and contracting authorities to take appropriate measures to effectively prevent, identify and remedy conflicts of interests
4. Member States must monitor and report on measures to prevent and detect procurement fraud, corruption and conflicts of interest and other serious irregularities.
• MS should be aware that, for the first time, under the 2014 PP rules (article 24 of the classical directive, article 42 of the Utilities Directive and article 35 of the Concessions Directive) contracting authorities are under a strict mandate to detect, investigate and effectively tackle conflicts of interest.
• MS have an obligation of result to take appropriate measures and put in place systems capable to deliver on the ground in terms of detecting, preventing and redressing the conflicts of interest.
• National authorities should be aware that they will need to carry out a thorough review of their processes and procedures and ensure that all arrangements are made in practice to be compliant with the Directives, once transposed.
• The wording of the directive is not prescriptive in relation to the measures and mechanisms to achieve these objectives. It is within the margin of appreciation of the MS to identify the most appropriate solutions, as allowed by the national jurisdictions.
• The Commission could assist MS in identifying and disseminating the best practices existing in the MS. This would facilitate their mission to identify the optimal legislative and institutional model, adapted to their national contexts.
• PP Directives identify two possible situations where CoI may arise: 1) linked to the the conduct of procurement officers within the contracting authorities and 2) to the involvement of external actors in the conduct of the procurement procedure (i.e. where economic operators participated in the drafting the technical specifications). Therefore, MS should be aware of the situations where consultants acting on behalf of contracting authorities are prone to affect the result of the procedure.
MS should be informed that the provisions on the CoI are complemented by the new ground for exclusion of economic operators in CoI.
The new definition will make it easier to identify and manage such cases and Member States and contracting authorities are asked to take appropriate measures to effectively prevent, identify and remedy such cases.
The widespread practice that public purchasers undertake preliminary market consultations for the preparation of calls for tenders can lead to situations that favour the companies involved. Therefore, in future public purchasers must ensure that the participation of a previously consulted company does not affect competition within the tender procedure and that any information shared with a company as a result of its prior involvement must be sent to the other participating companies as well.
Member States are required to report violations of rules to the competent national authorities, make the results of their monitoring activities public and submit a report to the Commission every 3 years on the most common sources of misapplication or legal uncertainty. Public purchasers must also keep copies of contracts of higher value for their entire duration and available to the public. Moreover any public procurement award procedure must be covered by a specific report by the public purchaser explaining the main decisions relating to the procedure concerned, report any conflict of interests detected and steps taken in this regard and be forwarded to the Commission/national authorities if they so request.
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12. Tools available in the MS to prevent and detect corruption Examples
PSD Croatia:
NGO runnning a database, free of charge, open to the use of the public, gathering information on public procurement procedures, companies, assets and interests of officials
allows for cross-checks by connecting the database of the authority reponsible to check conflicts on interests and the e-procurement data base
PREVENT system/Romania
As part of the public procurement strategy agreed with DG GROW and REGIO, Romania will implement a system (PREVENT) aiming at preventing conflicts of interests
The system will automatically detect whether the bidders are relatives or are connected to people from the contracting institutions' management.
The system cross-checks instantly 3 national data bases: trade register, population register and the e-procurement data base
The Red Flag Signalling System developed by Transparency International Hungary, K-Monitor and PetaByte - monitors documents and information uploaded to public procurement databases and indicates corruption suspicious cases, went live on 9th November
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13. Public Procurement rules to detect corruption – Monitoring
The new directives provide for the obligation for the MS to monitor the application of the public procurement rules
To respond to this obligation, the Commission encourages Member States to develop an efficient monitoring system based on relevant indicators (red flags, anomalies detection tools) and a solid national database on irregularities in PP, building on similar examples such as ARACHNE, TED or contract registers existing in various MS
A solid data base and relevand red-flags/anomalies detection tools in place would also facilitate the task of the Member States to respond to the obligation of reporting on fraud, corruption and conflicts of interest and other serious irregularities linked to public procurement
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14. Public Procurement rules to redress corruption
Effective review procedures
according to the rules of the Remedies Directives
by independent and professional review bodies
to reflect on the possibility to grant active legitimacy for NGOs or citizens ?
Effective monetary follow-up of corrupt practices
by applying financial corrections to EU funds
reflect on the possibility to annul affected contracts ex-tunc?
Effective sanctioning of corruption in procurement
in a procedure of appropriate length
by an independent judiciary which
masters the public procurement rules and is vigilant to corruption
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15. Additional ways to address corruption in public procurement
Businesses should have meaningful compliance programs in place.
Adopt increased whistleblower protection, including leniency schemes
Encourage contracting authorities to adhere to integrity pacts developed by DG REGIO
As all controls have limits, what is mainly needed is to develop the right attitude, a culture of integrity - Public service should aim at
Better quality – procurement officers will ultimately have to work with their purchases
Increased public savings – therefore, budget for higher salaries
Improved business environment – results in more local taxes collected, hence the possibility to build better infrastructure
Procurement officers should take ownership from the very beginning of the process until the very end.
Political leaders leading by example
The transposition period of the new directives (18th April 2016 and 2018 for e-procurement) gives each Member State the opportunity:
Secondly, to promote a culture of integrity in the public service and among businesses (compliance programmes in place, use of integrity pacts, strengthen the protection of whistle-blowers, improve standing of citizens and NGOs in corruption cases, strengthen sanctioning of corruption).
Thirdly, ensure better collection and analysis of data to improve public procurement governance such as ensuring better collection of data on procurement above and especially below EU thresholds, establishing contract registries for public procurement contracts, establishing public procurement irregularities databases based on, inter alia, remedies and audits, developing anomalies detection tools, ensuring interconnectedness between public procurement data and public and business registries and EU funds databases.
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16. Thank you for your attention
All information can be retrieved at our website:
Contact: Bogdan.
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