The conflict between rules and discretion within public procurement as countries grappled with rapidly-changing circumstances during the pandemic has been examined in a book.
The tension between discretion – where buyers have flexibility to use their own judgement – and strict regulatory frameworks lies at the heart of public procurement approaches, according to the book Discretion, efficiency, and abuse in public procurement, by a team of academics at the Centre for Economic Research Policy.
The book said flexibility could lead to an “agency problem”, in which the behaviour of buyers could be “corrupt" – seeking to enrich themselves – or “lazy” – they can't be bothered to achieve their contractual objective.
It said: “The procurement of public goods and services is a textbook example of moral hazard: an agent buys goods that he does not use with money he does not own.
“Public procurement of goods and services is a large and essential component of government functionality. Yet, the process is vulnerable to issues of agency and moral hazard, which can result in concerns surrounding efficiency and abuse.”
The book comes after governments scrambled to source PPE and procurement policies were controverisally changed to allow for the awarding of contracts without public tender.
It examined procurement responses across Asia, Russia, the UK and Italy.
It found flexible approaches to procurement increased in times of national crisis, which can save lives, and reduce the impact of the situation at hand.
This can take the form of a relaxing of rules over transparency, flexible pricing strategies, more frequent renegotiations, accelerated timelines and increased use of direct contracting – as was the case during the pandemic.
It noted such approaches are often associated with “corrupt agents” who look to “actively exploit” their positions for monetary gain, but stressed “laziness” throughout procurement processes was equally as damaging.
It said: “A common assumption is that agents (and their monitors) are corrupt, that is, they actively exploit their position to extract rents. A less common assumption is that they have a strong preference for leisure and therefore put little effort in achieving their contractual objective of getting value for money.
“This distinction between corrupt and lazy agents is important because policies designed to curtail corruption such as strict rules that require extensive documentation can backfire if the agent is lazy – or even just cautious – as deviating from the rules is punishable even when doing so would benefit the taxpayer.”
The book said while emergencies justify a departure from standard procurement rules, “implementation failures and rent-seeking opportunities remain substantial. Emergency procurement has historically been linked to corruption, collusion and abuse”.
It said examples of such corruption and abuse include awarding contracts at inflated prices to firms of family, friends and bribes, reduced quality, and increased contracts to politically-connected firms.
The UK’s procurement process to the pandemic attracted “sleaze” allegations and controversy after it was alleged contracts were awarded to firms linked to friends and donors of Conservative Party politicians.
The book offered two recommendations to protect against corruption during times of crises where standard procurement procedures may be bypassed.
By planning for emergencies, public bodies can establish crisis-ready contracting procedures, and establish crisis response principles to allow for “unanticipated shocks”.
It argued while procurement rules should be the main focus of this effort, other aspects of regulation – for example, rules on financial asset disclosures – play an important role as well.
Increasing monitoring can ensure the increased discretion established in emergency procurement responses can ensure it is not abused.
Monitoring is best focused on outputs and results rather than “procedural correctness”. It said audits and citizen oversight should be strengthened, including through the use of open data.
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