Module III: Public Procurement and Good Governance

1. Governance Issues in Public Procurement

Introduction

We keep hearing about such incidents happening around us. Whether related to constructions
collapsing or people dying due to wrong treatment. Do you know why such incidents occur?
Such incidents occur because of
➢ Procuring sub-standard materials
➢ Employing irresponsible personnel for carrying out these works and services
➢ Some of the officials indulging in corrupt practices, like colluding with contractors
➢ No diligence during the selection and award of contracts
➢ Contractors end up doing a bad job
Utmost diligence is essential in public procurement, as people’s money and safety are at stake.
This calls for utmost honesty, ethics and transparency in all actions that the public officials
perform.
Concepts of Right and Wrong
1. Values and Morals

• Values and morals are belief system.

• They can be defined as those things that are important to or valued by
individuals, groups or organisations
• Values are more personal and individual, having a broader concept
For example, you may value delivery timeliness and transparent negotiations during
procurement.
• Morals have greater social element and tend to have wider acceptance
Example: You may not wish to procure goods manufactured using child labour.
You may also not like to undertake works that are likely to cause damage to environment,
as your morals do not permit it.
• Values and Morals determine ‘What is Right and What is Wrong’
• Helps us identify the relative level of importance of the element in our belief system when we
have to trade off compliance between one element of values and morals and another
• Values and Morals are extraordinarily important tools for
a. Making Judgements
b. Assessing probable outcomes of contemplated actions
c. Choosing among alternatives
• Values and morals are neither written down, nor overtly prescribed by the society.
• Values and morals are voluntary beliefs
• Values and morals do not have any prescribed retribution for transgression.
• Values and morals may attract social sanctions

2. Integrity and Ethics

• Adherence to values and morals demonstrated consistently in actual practice over a long period
constitute integrity and ethics.
• Integrity and ethics are values and morals in action
• Integrity and ethics evolve into well-founded standards of what individuals are expected to do.
Whether in terms of
▪ Rights
▪ Obligations
▪ Fairness
▪ Specific values and morals
▪ Benefit the society
• Integrity is also neither written down, nor overtly prescribed by the society
• Ethics are often written down and externally prescribed for groups and organisations
• Integrity and ethics do not have any prescribed retribution for transgression
• Integrity and ethics may attract social sanctions
 3. Codes and Laws

• Codes are written standards of behavior in professional matters, along with specified
retributions for transgression.
• Codes are prescribed by professional associations for their members
• Codes of a profession may not have the force of law
• Codes have punitive consequences for its members
• Laws determine whether an act is permissible
• If the act is not permissible, what should be the legal punishment
• Codes and laws are written down and prescribed by external authorities
• Codes and laws stress on judgement of the behavior and punishment of transgressors

Relationship among Principles

As we move from the larger concept of
values and morals to specific concepts of
codes and laws, we move
• Voluntary to Perspective
• Beliefs to Behaviour
• Generalities to Specifics
• Focus to Positives
• Social Sanctions to Punitive actions

You may have never broken any laws or codes. However, you cannot say that you have lived the
best. This is because being a part of a civilized society means to go beyond what the law demands
of us.
It means to live according to values and morals, integrity and ethics; most of which ask much
more of us than codes and laws do. The answer to
“What should I do?” should therefore, not be “What can I get away with legally?” and “What do
value and morals require of me?”

Let’s consider s scenario: A criminal defense lawyer needs to defend a person charged with
murder.
The lawyer’s value and morals may urge him to ensure justice for the deceased victim. However,
the codes and ethics of his profession enjoin that he defend his client as strongly as possible.

Professional codes and ethics mostly overrides personal values and morals. This is for the
greater good of upholding a justice system in which the accused are given a fair trial.

Example related to workplace

Corporate greed or ambition of bosses may expect its salespersons to win a public contract
by hook or crook.
Should the salesman follow his values and morals and face consequences of failure to win the
contract? Thus, in practice, borderlines may often be quite blurred.
Governance Issues in Public Procurement
Purchasing agencies, bidders, suppliers, contractors and consultants are an integral part of
the process of public procurement.

It is morally essential that they all observe highest standard of ethics during procurement or
execution of contracts.

Governance issues faced in public procurement are because of

1. Corrupt practice
2. Fraudulent practice
3. Collusive practice
4. Coercive practice
5. Obstructive practice
6. Conflict of interest

Corrupt practice
• Corrupt practice means to offer, give, receive or solicit anything of value for influencing a
public official.
• A corrupt practice can be direct or indirect at any stage in the procurement process or
during execution of the contract
Example: A contractor gives a bribe to the public official to accept inferior quality material for construction of
a dam.

Fraudulent practice
• Fraudulent practice means misrepresentation or omission of facts to influence the
procurement process or execution of a contract.
• It can be direct or indirect at any stage of the procurement process.
Example: Is submission of a forged or false certificate of work experience by a bidder to meet the eligibility
criteria.

Collusive practice
• Collusive practice means an arrangement between two or more bidders, with or without
the knowledge of the purchaser.
• It is designed to establish artificial and non-competitive bid prices.
• A collusive practice can be direct or indirect at any stage of the procurement process.
Example: When, tenders being invited for procuring material for construction of bridge. Two bidders collude
and set-up on-competitive bid prices, so that another colluding partner’s tender is accepted.

Coercive practice
• Coercive practice means harming or threatening to harm person or their property to
influence to influence their participation in the procurement process or affect execution of
the contract
• A coercive practice can be direct or indirect at any stage of the procurement process
Example: IS forcing a technical official into accepting inferior quality material for constructing a dam. The
technical official is threatened not to reveal the fact of inferior quality material to other officials.
 Obstructive practice
• Obstructive practice means deliberately, falsifying, altering or concealing any evidence,
which is material to the investigators
• An obstructive practice involves making false statements to investigators
▪ This is to materially impede the purchasing organisation’s investigation into the
allegations of unethical practices.
• Obstructive practice also means threatening, harassing or intimidating any party
▪ This is to prevent it from disclosing matters relevant to the investigation or relevant
for pursuing the investigation
• Obstructive practice also means materially impending the concerned procurement agency’s
contractual rights of audit or access to information
Example: The anti-corruption wing of a procurement organisation is investigating a particular procurement
process. They are seeking certain documents exchanged between the bidders and the procurement agency. The
bidders and the officer concerned in the procurement agency are not cooperating in making the documents
available to the anti-corruption wing.

Conflict of Interest
Conflict of interest means
• When a bidding firms or any of its affiliates is involved in a consultancy contract with
which the procurement is linked
• When a bidding firms or any of its affiliates is involved in more than one bid in the
procurement
• When a bidding firms or any of its affiliates is involved in a relationship with any of the
procuring organisation’s personnel linked to procurement process
Example: Where a consultant has been engaged to develop the specification of a machine to be procured. In the
subsequent procurement of the machine, the same consultant bids for the supply of the machine.

Remedial Actions Against Governance Issues

Governance issues may include any one of the already mentioned unethical practices. If the bidder
or contractor directly, or through an agent, is engaged in any unethical practice in competing for
the contract or in executing a contract, the given polices should be adopted

Remedial Policies
• Bids of such bidders should be rejected, if the contract has not yet been approved
• Proposal for award should be rejected, if evaluation has been completed
• The contract should be cancelled, if it has been awarded

In case any individual among the staff is found responsible, suitable disciplinary or criminal proceedings
should be initiated against him/her.

Firms or individuals should be banned and or blacklisted, though after following the due process.
Governance Risk Areas in Public Procurement

There are risks areas related to governance during

each stage of any public procurement. The stages
of public procurement are
1. Need assessment
2. Development of specifications
3. Development of procurement plan
4. Bidding process
5. Evaluation of bids
6. Contract Execution
7. Consultancy Services

Risk Areas in Need Assessment

• The risk in the need assessment stage is that the decision may not be according to the policy
rationale. Or, it may not address an existing need.
▪ This may be to channel benefits to an individual or an organisation
Example: For a village, 20 desks are sufficient. However, to favor the supplier who has a large stock of desks,
the quantity required is changed to 50 desks in the need assessment stage.

Risk Areas in Development of Specifications

• At the development of specifications stage, there is a risk that specifications and terms of
reference are so made that they favor a particular supplier or contractor
• In public procurement, asking for samples to be submitted along with the offer for
subjective evaluation should be discouraged.
Example: In a procurement, the actual requirement is a 5hp motor. However, during the development of
specifications stage, the procurement officer favors a manufacturer and changes the specification to 7hp motor.

Risk Areas in Development of Procurement Plans

• During the procurement planning stage, you decide on clubbing or splitting of requirements
of various field units.
▪ This has a very big influence on the competition that may be available during the
bidding
• Exceptions to open bidding process may be abused, leading to single source processes
• It is necessary to involve the stake holders to arrive at an appropriate procurement plan
• Care needs to be taken in developing evaluation criteria for a bid, so that it is not abused
Example: The education department wants to buy schoolbags for children of the village school. In such a
procurement, a large number of local businesses are capable of submitting their bids
However, the district headquarters wants to club the requirements of the schoolbags from about hundred schools
in the district. In such a case, the competition could get restricted to one or two large manufacturers. This
illustrates the dilemma and risks in development of procurement plans.
Risk Areas in Bidding Process
• The risk involved in the bidding process stage could be lack of publicity for open bids
• Companies may bribe to be included in the short-lists
• Very little time is given to bidders
• The aim is to make it difficult for them to present their bids
• At the bidding process stage, there may also be abuse of confidentiality. This denies a level
playing field to all bidders
• There could be lack of publicity or transparency, leading to unjustifiable decisions
• Anti-competitive practices may be adopted by many bidders to influence prices.
Example: A procurement agency wishes to hire consultants for a complex study. To submit a proposal for such
procurement, the prospective bidders would require at least 2 months of time. The procurement agency has been
in touch with one of the prospective bidders who has prepared his bid in advance.
The procurement agency allows only 20 days for submission of proposal for this procurement. It is obvious that
in such a short time, other prospective bidders may not be able to submit their well-prepared proposals.

Risk Areas in Evaluations Bids

• At the evaluation of bids stage, there is a risk of not citing explicit evaluation criteria,
thereby leading to non-transparent decisions.
• Subjective evaluation may give scope to manipulation and biased assessments
• Also, the Tender Committee Members may have personal interests in the bidding
companies that are participating in the tender process
• Further, pre-qualification bidding may be misused to restrict or facilitate the entry of a
certain bidder or bidders
• There may also be misuse by way of post-tender negotiations
Example: During the procurement of personal computers(PC’s) for an office, the hardware configurations are
clearly laid down. However, the bidding document is silent about the Operating System(OS). Certain bidders in
their bids are offering OS free of cost, even though the OS is not asked for in the bidding documents.
During the bid evaluation stage, the tendering committee does not recommend the lowest bidder. This is even
though the bidder is meeting the laid down hardware specification. The tendering committee’s reason is that the
bidder has not offered the OS free of cost.

Risk Areas in Contracts Execution

• The contract execution stage has the risk of advance payments
• They may also be the risk of contract changes and re-negotiations after the award of
contract
• Supervising agencies or individuals can be influenced to alter contents of their reports so
that changes in the quality go unnoticed
• Further risks are that false or inaccurate claims by contractors can be allowed by those in
charge of checking the claims made.
• Subcontractors and partners may remain unaccountable and can be used to channel bribes
Example: In the execution of a certain construction contract, the proportion of cement used is much less than
the specified proportion. The contract supervising engineer ignores this violation and does not mention it in his
report.
 Risk Areas in Consultancy Services
• This stage has the risk of deviation in the scope of work of the appointed consultants after
the contracts is awarded.
• Consultants or firms hired for preparation of a project may subsequently provide goods,
works or services related to the initial assignment of the same project
Example: A consultancy contract has been awarded to an architecture firm to design hostels blocks in 10
different localities. The firm has submitted claims for 10 designs, although it is the same design repeated in all
the 10 places. Clearly, the consultancy contracts were not properly drafted.

Anti-Competitive Practices
The risk related to anti-competitive practices occur when bidders secretly conspire to
frustrate the buyer’s attempts to get value-for-money in a bidding process. The anti-
competitive practices include
1. Bid-coordination
▪ All the bidders collude and quote rates higher than the reasonable price. Their aim
is to force the buyer into conceding exorbitant prices
2. Cover bidding
▪ Cover bidding is designed to create an impression of genuine competition by
making supporting bids for the leading bid-rigger
3. Bid Suppression
▪ Bid suppression means a company does not submit a bid for final consideration in
support of the leading bid-rigger
4. Bid Rotation
▪ In bid rotation schemes, conspiring firms bid, but agree to take turns to be the
winning bidder
5. Market Allocation
▪ Competitors divide the market among themselves based on customers or
geographical areas.
▪ They agree to let the nominated bidder in a particular market area to be the winning
bidder
▪ They also agree on who will be the winning bidder in their respective areas

Note: Anti-Competitive practices are Collusive practices in governance issues in public procurement.
 2. Prevention on Corruption

Introduction to Corruption
Based on Colin Nye’ classical definition
“Corruption is a behaviour, which deviates from
the formal duties of public role, whether the
person involved has been elected or appointed.
The deviation if for personal gain, be it for self,
family or a private group. This gain may lead to
financial or status improvement, violating specific rules set up to prevent such gains.
Corruption includes such behaviour as
• Bribery: Use of reward to prevent the judgement of a person in position of trust
• Nepotism: Bestowing of a patronage by reason of relationship rather than merit
• Misappropriation: Illegal appropriation of public resource for private use
Corruption broadly refers to abuse of public office for personal gain.
Corruption impacts in many ways. These are
• Political
• Economic
• Social
• Environmental
Political Impact of Corruption
• In political sphere, corruption impedes democracy and the rule of law
• In a democratic system, public institutions and offices may lose their legitimacy when they misuse
their power for private interest
• Corruption (Political Sphere) may also result in negative consequences such as
▪ Encouraging cynicism
▪ Reducing interest in political participation
▪ Inducing political instability
▪ Reducing political competition
▪ Reducing the transparency of political decision making
▪ Distorting political development
▪ Sustaining political activity based on patronage, nepotism and money
• The political impact of corruption is often manifested through
▪ Political intolerance
▪ Problem of accountability and transparency to the public
▪ Low level of democratic culture
▪ Low level of principles of consultation
▪ Low level of participatory dialogue
Economic Impact of Corruption
• Corruption is often responsible for increased costs of goods and services
• Corruption (Economic Sphere) leads to
▪ The depletion of national wealth
▪ In funneling of scare public resources to uneconomic high profile projects at the expense
of the much-needed projects such as schools, hospitals, roads or the supply of potable water
▪ Diversion and misallocation of resources
▪ Conversion of public wealth to private and personal property
▪ Inflation
▪ Imbalanced economic development
▪ Weakening of work ethics and professionalism
▪ Hindrance of the development of fair market structures and unhealthy competition, thereby
deterring competition
• Large scale corruption damages the economy and impoverishes entire population
Social Impact of Corruption
• In social sphere, corruption discourages people from working together for the common good.
• Corruption also results in frustration and general apathy among the public, which, in turn, results
in a weak civil society
• Demanding and paying bribes becomes the tradition
• Corruption (Social Sphere) results in
▪ Social inequality
▪ Widened gap between the rich and poor
▪ Civil strife
▪ Increased poverty
▪ Jealousy
▪ Hatred and insecurity
▪ Lack of basic needs like food, water and drugs
Environmental Impact of Corruption
• Corruption (Environmental Sphere) leads to
▪ Unsustainable and unwarranted exploitation of natural resources, which has long-term
environmental effects
▪ Damages the environment and depletes the reserves of natural resources, which, in turn,
impacts the future generations
• Corruption in allocation of mineral resources and corruption in environmental clearance of mega-
projects deprives ethnic and tribal communities of their traditional livelihoods and habitat

Methods to Prevent Corruption

The various methods to prevent corruption
include
1. Codes of conduct or ethics for public
servants including elected
representatives
2. Transparency systems
3. Competency and training systems
4. Whistleblower hotlines and help
lines and protection of witnesses and
whistleblowers
5. Grievance redressal framework
against arbitrary exercise of powers
by public servants
6. Corporate ethical commitment against corruption
7. Control or enforcement
8. Banning and blacklisting delinquent firms
1. Codes of Conduct and Ethics Against Corruption
• Values, morals, integrity, ethics, codes and laws play an important role in ensuring ethical
behaviour
• A clear enunciation of Ethical Standards and Codes of Conduct for public servants in general
and public procurement executives in particular is the basic method for preventing corruption
• Conflict of interest code and post-employment code usually form part of such codes
• Although, codes of conduct are laid down for the government servants, a separate code of
conduct particularly for procurement executives needs to be enunciated in the procurement
law of the country.

2. Transparency System
• Transparency in public procurement is ensured through the public procurement laws, rules and
regulations.
• The public procurement regime in a country is best founded on a public procurement law
• Public procurement laws have been passed in Afghanistan, Bangladesh, Nepal and Pakistan
• In Bhutan, Maldives and Sri Lanka, public procurement is still governed by rules, regulations and
guidelines
• In India, except for two states, public procurement is regulated by General Financial Rules.
• Public procurement Bill, 2012 is currently under consideration of the Indian Parliament
Apart from such laws, there is a need for rules and manuals of procedures for transparent public
procurement. Many countries have such rules and regulation, having varying levels of alignment with
international best practices.
Such laws, rules or manuals should ensure that the decision-making system is transparent and
publicized.
Other Methods to Ensure Transparency
To eliminate secrecy, it is necessary to have a Right to Information Law or Freedom of Information Law in
the country.
India in 2006 and Pakistan in 2013 have promulgated such Acts. Bangladesh in 2008 promulgated an
Ordinance.
Since public procurement is part of a larger governance process, ensuring transparency has to go beyond the
public procurement regime.
Some of the steps for ensuring transparency that go beyond such boundaries are
• Simplification of administrative procedures
• Deletion of redundant over-regulation laws, permits and procedures
• Reforms in the political system to make monetary contributions transparent
• Reforms in the monetary system to eliminate black money economy or large cash transactions
• Clear demarcation of public and private domains for public servants
• Financial or interest disclosure and asset declaration
3. Competency and Training Systems Against Corruption
A government hospital requires a new x-ray machine. The superintendent sends requisition
to the procurement department. Mr. P, a new Procurement Officer, is assigned the task of buying
the X-ray machine.
Mr. P contacts the local X-ray machine manufacturing unit. He places the order without gathering
all the details. The manufacturer delivers the machine, but does not install and commission it.
Since the machine has not been installed and commissioned, the hospital is unable to use the
machine even after purchasing it. Where do you think Mr. P, went wrong in the procurement
process?
• Mr. P did not follow the protocol in the procurement process.
• He lacked skills in managing procurement
• He did not talk to the manufacturer about the installation and commissioning of the
machine
• He also forgot about getting the hospital staff trained on using the machine
Due to these reasons, the hospital could not use the X-ray machine, which could have helped
doctors diagnose various ailments
Lack of training, competency and certification for public procurement executives is one of the
main reason for poor governance in public procurement.
Usually such issues are tackled in public procurement law. But, institutions dedicated for training and
professionalisation of public procurement are absent in most of the countries.

4. Whistleblower Hotlines and Help Lines Against Corruption

Whistle blowing is an act of an informant or
whistleblower who exposes wrongdoing within an
organisation in the hope of stopping it.
A Public Procurement Executive may go beyond normal
bounds of official secrecy and highlight serious governance
issues for redressal. Such an action is fraught with dangers
for the whistleblower.
Consider some more news stories
There is a need to provide whistleblower hotlines and help lines in vigilance organisations.
There is also a need for Whistleblower Protection Law. While such laws do not exist yet, the 2011
Whistleblower’s Protection Bill is under consideration of the Upper House in India.

5. Grievance Redressal Framework Against Arbitrary Exercise of Powers

If any bidder claims to have suffered or may suffer loss or injury due to a manner in which
procurement has been conducted, he/she should be able to seek review.
However, the review should not be later than the specified time, say 10 days, from publishing of the
notice announcing the Award of Contract.
However, the following are excluded from review
• Selection of procurement method
• Choice of selection procedure
• Issues related to ambiguity in contract may not be taken up after the contract has been signed
All such issues should be highlighted before consummation of the contract by the supplier and
Complaints against specifications may be permissible under the premise that they are either vague or too
specific, so as to limit competition.
Other cases include unethical behaviour on part of any executive of the Procurement Agency who is
connected with any stage of procurement.
It is also good to have an independent Grievance Redressal Mechanism.
Normally, Public Procurement Laws lay down a two-tier or three-tier grievance redressal mechanism.

6. Corporate Ethical Commitment Against Corruption

Without a proactive ethical commitment by the corporate sector against corruption, the fight
against corruption may not go very far.
Industry associations should thus encourage corporate sector to develop and adopt ethical self-
regulatory standards against corruption in public procurement.
Integrity pact developed by Transparency International is also an effort in this direction.
• It provides a framework in which corporate bidders get bound by a legal document
• It consists of punitive measures to eschew corruption and anti-competition
7. Control and Enforcement Against Corruption
Control and enforcement against corruption involves
a. Laws relating to control and enforcement
b. Investigation and prosecution agencies
Laws relating to investigation and prosecution for corrupt behaviour by a public servant or other
stakeholders may consists of
i. Country’s Penal and Criminal Procedures Codes
ii. Public Procurement Law
iii. Anti-Corruption Law
Anti-Corruption Laws
Many countries have enacted specific anti-corruption laws
• India, Bangladesh and Pakistan: Prevention of Corruption Acts
• Bhutan: Anti-Corruption Act, 2011

Investigation and Prosecution Agencies for Control and Enforcement

Some investigation and prosecution agencies are
A. Ombudsmen
B. Public Finance Audit Agencies
C. Anti-Corruption Commissions
D. Chief Vigilance Officer in Procurement Organisations
E. NGO’s, media and civil society

Ombudsmen for Control and Enforcement

Some countries have Ombudsmen Institutions at
• National level
• Provincial level
• These institutions have greater degree of independence and statutory status
In India, “Lokpal and Lokayuktas Act, 2014” has been passed to create such institution, though
with restricted scope.
Public Finance Audit Agencies for Control and Enforcement
• In India and Bangladesh: Comptroller and Auditor General
• In Sri Lanka and Pakistan: Auditor General
• Role of such agencies is to audit all receipts and expenditure of the
▪ National and Provincial Governments
▪ Bodies and authorities substantially financed by the government
• The agencies duty is to uphold the
▪ Constitution of the country
▪ Laws of the Parliament in the field of financial administration
 • Since public procurement forms a major part of the Government expenditure, such audits
cover all aspects of this function
• The reports of such auditors are taken into consideration by the Parliament
• Investigations by such institutions are normally restricted to scrutiny of documents
• There is no punitive power given to the institutions

Anti-Corruption Commissions for Control and Enforcement

In some countries, such as Bhutan, Bangladesh and Sri Lanka: Anti-Corruption Commissions
have been enacting suitable legislation to carry out investigations and prosecutions in case of
corruption.
Such commission is known as
• In India and Afghanistan: Central Vigilance Commission
• In Pakistan: National Accountability Bureau, created under National Accountability
Ordinance, 1999
• These agencies inquire or cause an inquiry or investigation to be made either on reference
made by the Government or on its own choice.
• These agencies review the progress of the penal actions or prosecutions order by them after
such investigations
• Most of the agencies also carry out preventive checks and system audits
• There is provision of placement of an annual report of such anti-corruption agencies in the
Parliament
• In many countries, such agencies are hampered in their fight against corruption, because it
▪ Does not have Police power to arrest
▪ Seize properties
▪ Enforce compliance from non-government agencies
• Such tasks are normally carried out by Special Police Bureaus such as Central Bureau of
Investigation(CBI) in India
Chief Vigilance Officer for Control and Enforcement
• CEOs and Heads of procurement organisations have the primary responsibility for
maintenance of transparency, integrity and efficiency in their respective organisations.
• These authorities are assisted by an officer called Chief Vigilance Officer(CVO) in the
discharge of vigilance functions.
• The CVO acts as a special assistant/advisor to the chief executive officer and reports
directly to him all matters relating to vigilance.
• As the Head of the Vigilance Division of the organisation concerned, he/she serves as a
link between his/her organisation and the Anti-Corruption Commission.
• The CVOs functions can be broadly divided in to three types
1) Preventive vigilance
2) Punitive vigilance
3) Surveillance and detection
 NGOs, Media and Civil Society for Control and Enforcement
• NGOs, media and civil society play an educationist, vigilante and crusader’s role in the
fight against corruption.
• Enactments of Right to information or Ombudsmen legislation has happened as a result of
relentless campaign by such institutions

8. Banning and Blacklisting of Delinquent Firms

• Banning and blacklisting of delinquent firms is a potent tool to prevent corruption.
• Since it restricts a firm’s right to participate in public procurement- it is open to judicial
review
• It should be done in a manner that will stand scrutiny in a Court of Law
• The banning of business could be of three types, namely
1) Banning confined to a Public-Sector Firm or any Autonomous Public Body
2) Banning confined to one Ministry
3) Banning to be implemented by all Ministries

Procedure for banning

1. Conducted by Reviewing Officer(RO) at the respective level
2. As it is a quasi-judicial process, the firm or person needs to be provided adequate
opportunity to represent its or his case
3. He has to be provided sufficient grounds and documents on which the proposal to ban is
based
4. He may be given sufficient time to submit a written response.
5. He should also be provided opportunity to present his case in person before the RO, in
addition to the written submission
6. After he written and oral submission, the RO prepares a written report for the approval by
the Nominated Banning Authority
7. The authority approves the final orders including the period of the ban
Anti-Competitive Practices
• Anti-competitive practices reduce competition in the market
• Companies collude, form cartel and try to bid at uncompetitive prices
• They maintain market conditions such that the price is maintained at a given level by controlling
supply and demand
• The intent of price fixing is to push up the prices as high as possible
• This leads to profit for all sellers
• Due to such anti-competitive practices, the buyer will not get the right value for its procurement
• Many countries, have enacted Fair Competition Laws to make anti-competitive behaviour as a
criminal offence
▪ Competition Act: Nepal (2006), India (2002/2007), Pakistan (2010) & Bangladesh (2007)
• Such an Act also provides for Statutory Body (Competition Commission) to
▪ Investigate or adjudicate
▪ Punish any violation
Characteristics that Facilitate Anti-Competitive Practices

1. Lack of buyer’s awareness

If the buyer is not aware of the suppliers and competition, it may result in anti-competitive
behaviour. Some of the methods to prevent this is
• Buyer should carry out need assessment taking into consideration market characteristics,
likely level of competition and procurements risks involved.
• The bid document should include a warning regarding the punitive measures for all anti-
competitive practices
• If the buyer suspects that the bid outcome is not competitive, then the buyer reserves the
right not to award the contract
• Establishments of complaints mechanism for firms to convey competition concerns
• Undertake comparison checks between lists of companies that have submitted an
expression of interest and the companies that have submitted the bids. This is to identify
possible trends such as bid withdrawals and use of sub-contractors.
• Conduct interviews with vendors who no longer bid on tenders and unsuccessful vendors
• Implement a regular training programme on bid rigging and cartel detection for your staff,
with the help of the competition agency or external legal consultants
2. Lack of free competition buyer’s awareness
Limited number of bidding firms enables bidders to reach an agreement on how to rig bids. Some
of the methods to prevent this is to
• Avoid unnecessary restrictions that reduce the number of qualified bidders
• Reduce constraints on foreign participation, whenever possible
• Do not over-emphasise the importance of performance records
• Avoid large monetary guarantees from bidders
• Reduce the preparation costs of bid
• Do not disclose or unnecessarily limit the number of bidders in the bidding process
• Do not favour incumbents
• Avoid any kind of preferential treatment for a certain class or types of suppliers

3. Undifferentiated specifications
Identical or simple requirements makes it easier for the firms to reach an agreement and maintain
that agreement over time. To avoid this, you need to
• Use performance specifications rather than product description. Product description forces
specification differentiation
• Define your specification allowing for substitutes products or in terms of functional
performance and requirements whenever possible

4. Stability of demand and packaging

Same quantity and clubbing of demands facilitates suppliers to arrive at an anti-competitive
agreement. To avoid this, you need to
• Avoid predictability in your contract requirements regarding the size and timing of tenders
• Avoid packing contracts with almost identical values that can be easily shared among
competitors
• Reconsider packaging and bundling of requirements. Whenever possible, allow bids on
certain lots of objects within the contract or on combination thereof, rather than bids only
on the whole contract

5. Procedural opportunities for collusion

Certain procedures in public procurement provide platform for suppliers to interact and conspire
to devise anti-competitive strategies. To avoid this, you need to
• Use post-qualification to avoid collusive practices among pre-qualified group
• Avoid a very long period of time between qualification and award, as this may facilitate
collusion
• Avoid bringing potential suppliers together by holding regularly scheduled pre-bid
meetings
• Consider if procurement methods other than single-stage tender, such as negotiated tenders
and framework agreements, can be used
• Ensure that bidders disclose upfront if they intend to use subcontractors, which can be a
way to split the profits among bid riggers
• As joint bids, can be a way to spilt profits among bid riggers, be particularly vigilant about
joint bids by firms
 • Avoid splitting contracts between suppliers with identical bids
• Beware of using industry consultants to conduct the bidding process, because they may
have established working relationship with individual bidders
• Instead, use the consultant’s expertise to clearly describe the criteria/specifications and
conduct the procurement process in-house
• Ensure that consultants sign confidentiality agreements. In addition, they should be subject
to a reporting requirement if they become aware of improper competitor behaviour or any
potential conflict of interest

Using Information Technology Against Corruption

• Information technology (IT) is an effective tool in prevention of corruption
• IT creates a virtual scenario where processes are anonymous and without intermediators. These
processes are available 24/7, irrespective of location
• IT enables transparency and equality among bidders
Therefore, IT can be a great tool to reduce corruption
Various facets of IT relevant for e-Government Procurement or eGP are
1. e-Governance
2. e-Procurement
3. e-Payment
e-Governance
• e-Governance is a system that involves replacing manual interfaces by web-enabled interfaces for
▪ Regulatory
▪ Enforcement
▪ Other functions of governance
• E-Governance may be an effective tool for reducing corruption through direct public interface
• This is done by including specific information such as rules and procedures governing the issue
of licenses or permission
• Additionally, to make convenient, downloadable forms should be made available
• Ensure that status of individual application is transparently published on the internet
This has gone long way in reducing corruption through public interface in many countries.
e-Procurement
• The ways in which e-Procurement helps in reducing corruption are
▪ Greater transparency and fair competition
▪ Minimises delays and human greed in bid processing
• Through e-Procurement, bidders get
▪ Access to all bidding opportunities
▪ Provision of sending alerts to the registered bidder on SMS or e-mail as and when a bid of
his interest is published
• The information to all the bidders is same. This is because
▪ Bid documents are downloadable and tamper-proof
▪ Bidder’s submissions are kept confidential till bid-opening
▪ Any corrigendum is immediately available to all bidders
▪ Bidders need not come physically to drop their bids, where they may face Mafias, Cartels
and Local Thugs
▪ Bidders get evaluation summary immediately on bid-opening
▪ Even the progress of processing the procurement can be seen online
▪ Standardise procurement processes across the organisation/government
▪ Uniformity of procurement processes, forms, conditions of Bid and Contracts are essential
for reducing corruption. This is achieved by e-Procurement
• e-Procurement standardises procurement process across the organisation or government
• e-Procurement provides uniformity of procurement processes, forms, conditions of Bid and
Contracts are essential for reducing corruption
• Delays are an important weapon in the hands of corrupt officials
• e-Procurement helps in drastically cutting the procurement delays
• Due to automated process, the chance of human errors (deliberate or otherwise) are obviated
• The evaluation summary is automated and in reverse auction, even evaluations is automated, thus
reducing human element
e-Payment
• Payments are a great source of corruption
• Electronic Transfer of Payment should be made mandatory, such as
▪ Electronic Clearance Service (ECS)
▪ Electronic Funds Transfer (EFT)
▪ Real Time Gross Settlement (RTGS)
• This means there is no need for the contractor to physically visit the payment office several times
• Many e-Payments systems allow online submission of bills and tracking of payment process