How to Benefit from Public Procurement
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How to Benefit from Public Procurement
By Sam Vaknin
Author of "Malignant Self Love - Narcissism Revisited"
In every national budget, there is a part called "Public
Procurement". This is the portion of the budget allocated to
purchasing services and goods for the various ministries,
authorities and other arms of the executive branch. It was the
famous management consultant, Parkinson, who once wrote that
government officials are likely to approve a multi-billion dollar
nuclear power plant much more speedily that they are likely to
authorize a hundred dollar expenditure on a bicycle parking device.
This is because everyone came across 100 dollar situations in real
life - but precious few had the fortune to expend with billions of
This, precisely, is the problem with public procurement: people are
too acquainted with the purchased items. They tend to confuse their
daily, household-type, decisions with the processes and
considerations which should permeate governmental decision making.
They label perfectly legitimate decisions as "corrupt" - and totally
corrupt procedures as "legal" or merely "legitimate", because this
is what was decreed by the statal mechanisms, or because "this is
Procurement is divided to defence and non-defence spending. In both
these categories - but, especially in the former - there are grave,
well founded, concerns that things might not be all what they seem
Government - from India's to Sweden's to Belgium's - fell because of
procurement scandals which involved bribes paid by manufacturers or
service providers either to individual in the service of the state
or to political parties. Other, lesser cases, litter the press
daily. In the last few years only, the burgeoning defence sector in
Israel saw two such big scandals: the developer of Israel's missiles
was involved in one (and currently is serving a jail sentence) and
Israel's military attache to Washington was implicated - though,
never convicted - in yet another.
But the picture is not that grim. Most governments in the West
succeeded in reigning in and fully controlling this particular
budget item. In the USA, this part of the budget remained constant
in the last 35(!) years at 20% of the GDP.
There are many problems with public procurement. It is an obscure
area of state activity, agreed upon in "customized" tenders and in
dark rooms through a series of undisclosed agreements. At least,
this is the public image of these expenditures.
The truth is completely different.
True, some ministers use public money to build their
private "empires". It could be a private business empire, catering
to the financial future of the minister, his cronies and his
relatives. These two plagues - cronyism and nepotism - haunt public
procurement. The spectre of government official using public money
to benefit their political allies or their family members - haunts
public imagination and provokes public indignation.
Then, there are problems of plain corruption: bribes or commissions
paid to decision makers in return for winning tenders or awarding of
economic benefits financed by the public money. Again, sometimes
these moneys end in secret bank accounts in Switzerland or in
Luxembourg. At other times, they finance political activities of
political parties. This was rampantly abundant in Italy and has its
place in France. The USA, which was considered to be immune from
such behaviours - has proven to be less so, lately, with the Bill
Clinton alleged election financing transgressions.
But, these, with all due respect to "clean hands" operations and
principles, are not the main problems of public procurement.
The first order problem is the allocation of scarce resources. In
other words, prioritizing. The needs are enormous and ever growing.
The US government purchases hundreds of thousands of separate items
from outside suppliers. Just the list of these goods - not to
mention their technical specifications and the documentation which
accompanies the transactions - occupies tens of thick volumes.
Supercomputers are used to manage all these - and, even so, it is
getting way out of hand. How to allocate ever scarcer resources
amongst these items is a daunting - close to impossible - task. It
also, of course, has a political dimension. A procurement decision
reflects a political preference and priority. But the decision
itself is not always motivated by rational - let alone noble -
arguments. More often, it is the by product and end result of
lobbying, political hand bending and extortionist muscle. This
raises a lot of hackles among those who feel that were kept out of
the pork barrel. They feel underprivileged and discriminated
against. They fight back and the whole system finds itself in a
quagmire, a nightmare of conflicting interests. Last year, the whole
budget in the USA was stuck - not approved by Congress - because of
these reactions and counter-reactions.
The second problem is the supervision, auditing and control of
actual spending. This has two dimensions:
1.. How to make sure that the expenditures match and do not exceed
the budgetary items. In some countries, this is a mere ritual
formality and government departments are positively expected to
overstep their procurement budgets. In others, this constitutes a
2.. How to prevent the criminally corrupt activities that we have
described above - or even the non criminal incompetent acts which
government officials are prone to do.
The most widespread method is the public, competitive, tender for
the purchases of goods and services.
But, this is not as simple as it sounds.
Some countries publish international tenders, striving to secure the
best quality in the cheapest price - no matter what is its
geographical or political source. Other countries are much more
protectionist (notably: Japan and France) and they publish only
domestic tenders, in most cases. A domestic tender is open only to
domestic bidders. Yet other countries limit participation in the
tenders on various backgrounds:
the size of the competing company, its track record, its ownership
structure, its human rights or environmental record and so on. Some
countries publish the minutes of the tender committee (which has to
explain WHY it selected this or that supplier). Others keep it a
closely guarded secret ("to protect commercial interests and
But all countries state in advance that they have no obligation to
accept any kind of offer - even if it is the cheapest. This is a
needed provision: the cheapest is not necessarily the best. The
cheapest offer could be coming from a very unreliable supplier with
a bad past performance or a criminal record or from a supplier who
offers goods of shoddy quality.
The tendering policies of most of the countries in the world also
incorporates a second principle: that of "minimum size". The cost of
running a tender is prohibitive in the cases of purchases in small
Even if there is corruption in such purchases it is bound to cause
less damage to the public purse than the costs of the tender which
is supposed to prevent it!
So, in most countries, small purchases can be authorized by
government officials - larger amounts go through a tedious, multi-
phase tendering process. Public competitive bidding is not
corruption-proof: many times officials and bidders collude and
conspire to award the contract against bribes and other, noncash,
benefits. But we still know of no better way to minimize the effects
of human greed.
Procurement policies, procedures and tenders are supervised by state
auditing authorities. The most famous is, probably, the General
Accounting Office, known by its acronym: the GAO.
It is an unrelenting, very thorough and dangerous watchdog of the
administration. It is considered to be highly effective in reducing
procurement - related irregularities and crimes. Another such
institutions the Israeli State Reviser. What is common to both these
organs of the state is that they have very broad authority. They
possess (by law) judicial and criminal prosecution powers and they
exercise it without any hesitation. They have the legal obligation
to review the operations and financial transactions of all the other
organs of the executive branch. Their teams select, each year, the
organs to be reviewed and audited. They collect all pertinent
documents and correspondence. They cross the information that they
receive from elsewhere. They ask very embarrassing questions and
they do it under the threat of perjury prosecutions. They summon
witnesses and they publish damning reports which, in many cases,
lead to criminal prosecutions.
Another form of review of public procurement is through powers
granted to the legislative arm of the state (Congress, Parliament,
Bundestag, or Knesset). In almost every country in the world, the
elected body has its own procurement oversight committee. It
supervises the expenditures of the executive branch and makes sure
that they conform to the budget. The difference between such
supervisory, parliamentary, bodies and their executive branch
counterparts - is that they feel free to criticize public
procurement not only in the context of its adherence to budget
constraints or its cleanliness - but also in a political context. In
other words, these committees do not limit themselves to asking HOW -
but also engage in asking WHY. Why this specific expense in this
given time and location - and not that expense, somewhere else or
some other time. These elected bodies feel at liberty - and often
do - intervene in the very decision making process and in the order
of priorities. They have the propensity to alter both quite often.
The most famous such committee is, arguably, the Congressional
Budget Office (CBO). It is famous because it is non-partisan and
technocratic in nature. It is really made of experts which staff its
Its apparent - and real - neutrality makes its judgements and
recommendations a commandment not to be avoided and, almost
universally, to be obeyed. The CBO operates for and on behalf of the
American Congress and is, really, the research arm of that venerable
parliament. Parallelly, the executive part of the American system -
the Administration - has its own guard against waste and worse: the
Office of Management and Budget (OMB).
Both bodies produce learned, thickset, analyses, reports, criticism,
opinions and recommendations. Despite quite a prodigious annual
output of verbiage - they are so highly regarded, that virtually
anything that they say (or write) is minutely analysed and
implemented to the last letter with an air of awe.
Only a few other parliaments have committees that carry such weight.
The Israeli Knesset have the extremely powerful Finance Committee
which is in charge of all matters financial, from appropriations to
procurement. Another parliament renowned for its tight scrutiny is
the French Parliament - though it retains very few real powers.
But not all countries chose the option of legislative supervision.
Some of them relegated parts or all of these functions to the
In Japan, the Ministry of Finance still scrutinizes (and has to
authorize) the smallest expense, using an army of clerks. These
clerks became so powerful that they have the theoretical potential
to secure and extort benefits stemming from the very position that
they hold. Many of them suspiciously join companies and
organizations which they supervised or to which they awarded
contracts - immediately after they leave their previous, government,
positions. The Ministry of Finance is subject to a major reform in
the reform-bent government of Prime Minister Hashimoto. The Japanese
establishment finally realized that too much supervision, control,
auditing and prosecution powers might be a Pyrrhic victory: it might
encourage corruption - rather than discourage it.
Britain opted to keep the discretion to use public funds and the
clout that comes with it in the hands of the political level. This
is a lot like the relationship between the butter and the cat left
to guard it. Still, this idiosyncratic British arrangement works
surprisingly well. All public procurement and expenditure items are
approved by the EDX Committee of the British Cabinet (=inner,
influential, circle of government) which is headed by the Ministry
of Finance. Even this did not prove enough to restrain the appetites
of Ministers, especially as quid pro quo deals quickly developed.
So, now the word is that the new Labour Prime Minister will chair it-
enabling him to exert his personal authority on matters of public
Britain, under the previous, Tory, government also pioneered an
interesting and controversial incentive system for its public
servants as top government officials are euphemistically called
there. They receive, added to their salaries, a portion of the
savings that they effect in their departmental budgets. This means
that they get a small fraction of the end of the fiscal year
difference between their budget allowances and what they actually
spent. This is very useful in certain segments of government
activity - but could prove very problematic in others. Imagine
health officials saving on medicines, or others saving on road
maintenance or educational consumables. This, naturally, will not do.
Needless to say that no country officially approves of the payment
of bribes or commission to officials in charge of public spending,
however remote the connection is between the payment and the actions.
Yet, law aside many countries accept the intertwining of elites -
business and political - as a fact of life, albeit a sad one. Many
judicial systems in the world even make a difference between a
payment which is not connected to an identifiable or discernible
benefit and those that are. The latter - and only the latter - are
Where there is money - there is wrongdoing. Humans are humans - and
sometimes not even that.
But these unfortunate derivatives of social activity can be
minimized by the adoption of clear procurement policies, transparent
and public decision making processes and the right mix of
supervision, auditing and prosecution. Even then the result is bound
to be dubious, at best.
AUTHOR BIO (must be included with the article)
Sam Vaknin ( samvak.tripod.com ) is the author of Malignant
Self Love - Narcissism Revisited and After the Rain - How the West
Lost the East. He served as a columnist for Global Politician,
Central Europe Review, PopMatters, Bellaonline, and eBookWeb, a
United Press International (UPI) Senior Business Correspondent, and
the editor of mental health and Central East Europe categories in
The Open Directory and Suite101.
Until recently, he served as the Economic Advisor to the Government
Visit Sam's Web site at samvak.tripod.com