Are you a Tendering Rogue?

rebateAllocation of tendering areas are agreements in which tendering competitors divide markets among themselves. In such plans, competing companies allocate specific customer or type of customers, products, or territories among themselves. For example, one tenderer will be allowed to sell to, or tender on contracts let by, customers allocated to the other competitors. In other schemes, competitors agree to sell only to customers in certain geographic areas and refuse to sell to, or quote intentionally high prices to, customers in geographic areas allocated to conspirators companies.

However, in countries where corruption is a common problem it tends to disturb the market mechanisms and impede economic development. Corruption in public procurement makes the officials or the politicians in charge purchase goods or services from the best briber, instead of choosing the best price-quality combination. The result may be construction projects several times as costly as necessary, or the acquisition of goods not actually needed.

In 2013-14, for example in South Africa the public sector spent R500-billion on goods, services and construction. At least R30-billion of this was lost to corruption particularly related to tenders.

According to Andvig and Moene (1990), the negative dynamics can be explained as follows: When corruption is rare, the economy is in a “low- corruption-equilibrium”, in which both demand and supply is limited. Looking for someone to bribe is more risky when the bureaucrats hold high ethical standards. With increasing corruption levels, however, the request for bribes becomes easier, so does the proposal of bribes. The moral scruples of corruption as well as the risk of being caught, falls with a higher frequency of corrupt acts. This way corruption may lead the economy into a vicious circle, ending up in kleptocratic circumstances under which corruption is the standard, where honesty is too costly, with a general disregard of law and a higher level of criminal activity, and where each individual is busy making the most for him/herself, feeling no obligations for the country. The situation is often referred to as a corruption-trap. This self-propagating force of corruption may also explain parts of the difference in corruption levels sometimes experienced by quite similar economies. (Andvig and Moene, 1990; Søreide, 2000).

Corruption is rarely a one-sector phenomenon, occurring only in one institution of the state, or at one level of the bureaucratic hierarchy. Where it exists as a problem, it tends to pervade large parts of the state administration. The impairment of judicial systems, the police and investigative institutions are particularly destructive in this respect. Frequent failures to sanction and arrest perpetrators create a general disregard of existing laws. Trying to curb corruption by implementing anti-corruption measures into the procurement procedures can therefore appear optimistic in such a setting.

Corruption is rarely a one-sector phenomenon, occurring only in one institution of the state, or at one level of the bureaucratic hierarchy. Where it exists as a problem, it tends to pervade large parts of the state administration. The impairment of judicial systems, the police and investigative institutions are particularly destructive in this respect. Frequent failures to sanction and arrest perpetrators create a general disregard of existing laws. Trying to curb corruption by implementing anti-corruption measures into the procurement procedures can therefore appear optimistic in such a setting.

Reporting corruption

In many cases bribery is detectable only for the colleagues of a corrupt official. The cases difficult to observe for the police may be apparent for the associates. These can, for instance, discover unreasonable argumentation in favour of a certain company. Other people involved in the tender may also come across corruption. A way to report on the cases should therefore be established and published. A problem with anonymous “whistle-blowing”, however, is the risk of dishonest information reported in order to blacken certain persons and companies. Still, anonymous information has to be accepted to obtain knowledge about corruption from people fearing sanctions. In any case, the safety of persons revealing corruption scandals has to be considered.

When corruption is revealed the persons involved should be charged. Sanctions are therefore mainly a matter of the legal system. Either imposed by judges or the bureaucracy, the sanctions should, however, include a system of incentives in which the penalties for the corrupters grow more than proportionally to the price of the public contract.

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