The ultimate goals of PPP procurements are obtaining value for money and choosing the right bidder who can support a partnership that is sustainable for the whole life-cycle of the project. This can be difficult under the best of circumstances. However, no excuses should be made when it comes to ensuring that the procurement process is transparent and competitive. If ethical practices are not rigorously applied and a zero-tolerance approach to corruption is applied, the consequences to state institution’s procurement reputations can be enormous.
An Example of a Worst-Case Scenario
A worst case example is the story of the Gupta family who successfully subverted the government procurements in South African by paying enormous bribes to senior members of the ruling party. They were so successful in their subversion of ethical procurement practices that they almost subverted the state through a process of “state capture” that fostered a massive kleptocracy. For those unaware of what state capture means, it is a termed coined by the World Bank in 2003 which describes a form of corruption in which businesses and politicians conspire to influence a country’s decision – thereby making process to advance their own interests by weakening laws, and neutralizing agencies that enforce laws.
That this happened in South Africa is particularly egregious as South Africa was internationally recognized in the past as a leading innovator in the procurement of large PPP infrastructure projects through its PPP guidance policies that were adopted by many countries.
An example of procurement corruption was the alleged improper awarding of a boiler contract at the Duhva Power Station to Dongfang Electric, through a rigged ESKOM tendering process, even though the Dongfang bid was one billion rand more than a bid by General Electric . Unfortunately, this was not the only rigged procurement or nefarious action between the Gupta family and corrupt government officials. Other alleged suspect procurements included an iron ore dispute with ArcelorMittal and Anglo America; a coal supply dispute tied to ESKOM; attempts to secure interests in South Africa’s nuclear energy sector; arms deals; and the mass resignation of the auditor KPMG’s senior leadership in South Africa after it was found that work done for the Gupta family did not meet the firm’s standards. Other actions included attempts to improperly influence railway contracts which according to the recently released South African Governments Zondo Report revealed crimes which cost the parastatal company Transnet US$2,7 billion which amounts to 72% of all contracts tainted by corruption.
The consequences of state capture corruption in South Africa were enormous. It damaged public finances through nefarious actions that saw tens of billions of dollars disappear from Africa’s most advanced economy. Unfortunately, it also tarnished the reputation of the party of Nelson Mandela – the African National Congress (ANC) – and many of its top leaders.
Bad Governance and Unethical Behavior
State capture is a real threat that can impact the economic stability of a state as has recently been exposed by governance and ethical behaviors revelations in Russia. Unless state regulatory entities are strong and can exercises strong procurement controls the enabling environment can be weakened. This is particularly important when it comes to PPP procurements. Regrettably, PPPs have needlessly gained a bad reputation in many countries where corrupt officials and private sector partners have highjacked PPP procurements for personal gain. Corruption has endangered the success of PPP projects and placed government’s fiscal resources at risk because they are still ultimately responsible for commercial risk should PPP projects fail. This is unfortunate, as PPPs do have the potential to deliver projects better through innovative approaches that the public sector is often unable or unwilling to undertake.
Transparent and Competitive Procurements
PPP Procurements can be successful if transparent and procurement best practices are adopted. In this way, innovation and value for money can be harnessed successfully. Corruptly procured PPPs are a poor governance issue where opportunistic unethical behavior or clandestine behaviors undermine the probity of a procurement. If there is general societal consent to unacceptable behavior in a country (i.e. South Africa) the consequences can be long-term in nature and be characterized by a downward spiral in public and private sector trust regarding any procurement process. If the unethical behaviors are rampant, networks of nefarious private sector parties will willingly resort to “playing the game” to win projects, thereby further undermining the ability of a PPP projects to achieve value for money.
Corruption usually requires a fee to be paid by a briber to influence the outcomes of procurements. This can include actions that involve sharing of critical information with select parties at the expense of other bidders; payments for confidential information; bribes to sway procurement evaluators; and the manipulation of technical and financial proposal response evaluations, to name a few. Unfortunately, PPP procurements are often tied to unrealistic timelines which result in short-cuts and fast-tracked approaches being sought which undermine fixed procurement guidelines, often under the excuse of expediting project’s procurement in the national interest. In most instances of this nature, procurement competitivity is lost.
Consequences of Poor Transparency and Competitive Governance
Poor and lax procurement best practices beget corruption. The consequences of corrupt procurement processes include perceptual damage of public institutions, excessive and unnecessary project costs, and the real potential of project failure due to the choice of incompetent partners who are unable to deliver. Serious and ethical investors (often bound by ESG obligations) are not sentimental and will take note of failed PPP procurements. Their unwillingness to invest in corruption tainted institutions places additional burdens on countries to prove the bankability of their projects and lost opportunities. The failure to successfully deliver PPP projects has additional societal costs which impact communities and hobble a countries’ ability to achieve its development goals. In countries where corruption is endemic, procurement governance failure has consequences that last for generations and which steal the future of future generations.
Mitigations – UNECE Zero Tolerance and People First PPPs (PfPPPs)
Ultimately, zero-tolerance for corruption is the only acceptable policy. The United Nations Economic Commission for Europe (UNECE) has released guidance on Standards for a zero-tolerance approach to corruption in PPP procurements (see – https://ppp.worldbank.org/public-private-partnership/library/unece-standard-zero-tolerance-approach-corruption-ppp-procurement).
UNECE believes that the zero-tolerance policy has the ability to combat bribery which globally consumes 10.9% of total transaction’s value in public procurement annually which equates approximately one trillion USD.
The drivers of this policy include changing the notion of PPP procurements from purely being a procurement tool to it being a tool for development through PfPPPs. This approach requires government to proactively combat corruption through concrete actions. It also includes actions that inform and educate all parties, including civil society, on how high-quality PPP projects may be procured and risks managed by ensuring ethical behavior and mitigation of defects caused by the lack of integrity or corruption.
Suggested mitigations included in UNECE’s zero-tolerance policy include the following actions:
- Unequivocal compliance with laws and ethic codes
- Avoidance of conflicts of interest
- Full disclose of all information (transparency)
- Improved governance in PPP units, committees, boards and independent oversight authorities
- The hiring of independent consultants and experts
- Protecting whistle-blowers
- Strict controls over Unsolicited Proposals (USP) by turning them into competitive and transparent procurements
- Ensuring that tender notices and bidding documents are made available to all interested tender parties so that procurements are truly transparent
- Having rigorous pre-qualification processes so that only qualified bidders are considered
- Encouraging dialog-based procurements which help governments make better and informed procurement decisions
- Preserving confidentiality and information maintenance so as to ensure when necessary that the objectives of the procurement are not compromised
- Preventing tender evaluation bias that could favor one bidder over others and
- Ensuring integrity and fairness mechanisms are in place
There are numerous measures in place to ensure that procurement probity is ensured and that the right ethical procurement choices are made that ensure not only value for money (vfm), but also value for people (vfp) and value for the future (vfp). If willingly followed by political leaders, countries would be able to implement impactful PPP programs that are above suspicion and which help governments achieve their sustainable development goals (SDGs).
This can be done if a core cadre of procurement officials embrace transparency and competition and institutions are strengthened to ensure that procurement oversight is independent of outside influences. The UNECE zero-tolerance approach is a good starting point for any country. It will also ensure that a country’s standing on international corruption indexes improve thereby mitigating the concerns of sincere private sector partners in PPPs.