Up to 70 percent of a state’s national budget is on average channelled through procurement contracts in one way or another. Government spending related to the provision of goods, public works or services adds up to more than US$4 trillion worldwide each year.

Losses due to corruption in this area are estimated at normally between 10 and 25 percent. In some cases losses may reach 40 to 50 percent of the contract value.

Why it matters

The area of public contracting is often perceived as a grey and remote area strictly under the jurisdiction of government authorities and the private entity contracted to provide goods and services. However the outcomes of the process are very real and directly affect the well-being of society at large. Corruption in public contracting leads to:

• a distortion of fair business competition
• the waste of scarce resources
• the neglect of basic needs

This results in the perpetuation of poverty and inequality.

In developing countries in particular, it is often the most vulnerable groups that will end up paying the grunt of corruption in public contracting as they are the most in need of sound public policies and services. If a bridge collapses because the contract for its construction was illegitimately passed onto an incompetent construction company or if schoolchildren don’t have access to adequate learning materials because the government funds destined to the procurement of school textbooks are diverted by dishonest individuals, the victims of these corrupt practices are the citizens.

These are in fact two very real cases which constitute examples of projects our national chapters get involved in on the ground.

The need to better identify the stages of the process where risks of corruption in public contracting lie led Transparency International (TI) to develop the Public Contracting Monitoring System. This specific assessment methodology aims to examine the risk of corruption faced by a national public contracting system. The methodology was piloted in nine Latin American countries.

How risk is diagnosed

A country’s national system is compared to an ideal system defined by a list of 138 indicators on the basis of TI’s Minimum Standards for Public Contracting, as well as provisions anchored within the Inter-American Convention Against Corruption (IACAC) and the United Nations Convention against Corruption (UNCAC). These indicators register legal provisions-in-place as well as their application and contextual conditions influencing this application.

TI now presents the results of the implementation for this methodology in nine Latin American countries – Chile, Colombia, Costa Rica, Ecuador, Guatemala, Panama, Paraguay, Peru and Venezuela – and provides recommendations on how to improve current procurement systems. The following report also allows a general overview of the status of public contracting systems in Latin America.

Findings at country level (in Spanish)

• Chile,
  informe_nac_chile.pdf 28.39 kB
• Colombia,
  informe_nac_colombia.pdf 22.51 kB
• Costa Rica,
  informe_nac_cr.pdf 32.33 kB
• Ecuador,
  informe_nac_ec.pdf 18.61 kB
• Guatemala,
  informe_nac_guate.pdf 14.16 kB
• Panama,
  informe_nac_pan.pdf 20.70 kB
• Paraguay,
  informe_nac_py.pdf 13.33 kB
• Perú,
  informe_nac_peru.pdf 38.33 kB
• Venezuela
  informe_nac_venezuela.pdf 81.87 kB

The embedded and hugely distorting nature of corruption risks in public contracting led TI to identify at a very early stage the need to develop a tool to help businesses, governments and civil society work together to root out corruption. It became a clear priority to disentangle corruption from within the contracting process by offering contracting stakeholders the opportunity to enter into a trusting relationship bound by specific rights and obligations formally agreed to by all engaging parties.

The fulfilment of these contributes to levelling the playing field, enabling companies to abstain from bribing by providing the assurance that

• their competitors will also refrain from bribing and
• transparent rules will be integrated into contracting procedures at the government level.

Civil society, in its position as primary stakeholder of cost-effective and fair procurement processes, plays an absolutely crucial role in monitoring such a process.

How civil society helps transparency

Transparencia Mexicana has implemented more than 100 Integrity Pacts and paid great value to this crucial monitoring element, developing the notion of witnesses specifically for this purpose. The so-called “social witness” is a member of civil society who supervises the Integrity Pact and then not only monitors the contracting process but also strives to maximise access to public information through the media. The social witness is selected based on a high level of personal integrity and public trust and must also be fully independent from all parties to the contracting process in order to avoid any risk of conflict of interest. Following the success of this model, Poder Ciudadano (TI’s chapter in Argentina) visited Mexico with a view to replicating this model in their country.

Examples:

Mexico: Integrity Pact for the concession for a railway Service in the State of Mexico. Integrity Pact for the hiring of the waste management services in the municipality of Tuxtla Gutiérrez, Chiapas

Other TI national chapters in Latin America that are highly involved in the implementation of Integrity Pacts:

• Poder Ciudadano (Argentina)
• Transparencia por Colombia
• Corporación Latinoamericana para el Desarrollo (Ecuador)
• Transparencia Mexicana
• Transparencia Paraguay

The groundwork carried out by our national chapters and their implementation of specifically designed TI-tools are revealing of the multi-level and multi-sectorial nature of public contracting and of the implications on the daily life of many of these processes.

Poder Ciudadano – Argentina
The chapter’s work in public contracting is geared towards creating transparency tools for the business interaction between the public and private sector and to promote citizen participation in public contracting both at national, state and municipal level. To this end, Poder Ciudadano has published a book that explores the vulnerabilities of the public contracting system in the country.

Poder Ciudadano also acts as external observer on various contracting processes in order to identify irregularities in the system to generate the highest possible level of transparency.

A Textbook case: Argentina’s educational system is marked by vast inequality that adversely affects access to, and the quality of, schooling for boys and girls. The publication and distribution of textbooks is largely unregulated. High levels of discretion exist for officials and educators in the selection of textbooks.

In 2003, the Ministry of Education, Science and Technology (MEST) asked Poder Ciudadano to assist in the procurement process of more than three million textbooks. An agreement was subsequently signed between MEST and the chapter to introduce transparency measures, including open debates about terms of reference, conflict of interest guidelines and the signature of an Integrity Pact.

Brazil
The hidden cost of decentralised education:
In 1996, the federal government established FUNDEF (Fund for Development and Maintenance of Elementary Teaching and Teacher Profession Improvement) with the aim of redistributing
to states and municipalities the funds needed to pay for teacher training and salaries in public elementary schools. Despite the success of FUNDEF with regards to its macro objectives, weaknesses concerning payment by federal authorities and the greater occurrence of fraud in poorer municipalities persists.

This study analyses irregularities found by the Inspector General’s Office (Controladoria Geral da União, or CGU) when auditing FUNDEF and tries to estimate the percentage of resources misused. It finds that some 13 percent of FUNDEF’s total budget is lost to fraud during procurement with some municipalities losing up to 55 percent of their FUNDEF allocation.

Transparencia por Colombia
The chapter analyses the pertinence and efficiency of instruments for transparency in public contracting proposed by the State. A study published by the chapter evaluates the implementation of two Colombian e-systems in public contracting: the official public contracting portal (Portal Ùnico) as well as the online public contracting monitoring system (SICE). The study found that the information from the archives of contracting authorities and the information entered into the portal – supposedly identical – often does not match. One of the recommendations of the study was the need to strengthen the social oversight of public contracting processes by adopting new participation tools.

Anti-bribery pact: The Colombian association of water pipe manufacturers – who account for 95 percent of market share in this sector – wanted to promote a joint initiative to counter corruption, after some unsuccessful attempts. They approached Transparencia por Colombia to identify possible solutions and after working jointly for months the companies signed an agreement committing not to pay bribes in their business with the public sector.

The methodology has now been implemented in Argentina.

Ecuador: Corporación Latinoamericana para el Desarrollo
The TI chapter carries out Integrity Pacts and acts as an independent observers in contracting processes. They are also the technical counterpart in Ecuador of the Inter-American Development Bank and the World Bank to implement a plan for integral reforms in public procurement.

Guatemala: Acción Ciudadana
On one hand the chapter promoted the development of a national e-procurement system, GUATECOMPRAS. The chapter strengthens transparency in contracting processes by promoting institutional and regulatory reforms. The work also involves looking at increasing the advocacy capacity of civil society organisations through workshops and other means.

Nicaragua: Etica y Transparencia
Building Better Schools: The chapter monitored six large construction contracts and procurement processes related to the school maintenance. This project was part of a longer-term programme of Supervision and Evaluation of Public Works with the Ministry of Education (MECD). The aim was to assess the quality of goods and services provided, and to verify that they were in line with the amounts paid and the terms of the contracts. The study found (a) that the quality of contracted works was inferior due to poor technical supervision; and (b) that weak project pre-investment and poor administration caused extra contract costs, delays in start-up of works and irregularities in payments of legal fees.

Dominican Republic: Participación Ciudadana
Has published a series of reports and manuals, the latest of which recommends a transformation of the public procurement system. The collection of documents available in Spanish, provides an in-depth presentation and analysis of the actual public procurement system in the country and concludes that although efforts have been made to increase transparency and modernise the public procurement system; there is still a significant lack of systemic planning and adequate technical processes, specifically the need for an electronic purchasing and tracking system.

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