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Public contracting - and the big benefits of being 'open'

Published: 28 Sep 2015 Average Rating: 4.8 / 5 Print
 
This article appeared in Contracting Excellence magazine on 28 Sep 2015 view edition
 

Author: Gavin Hayman, Executive Director, Open Contracting Partnership

Bribery, corruption, mismanagement and secrecy have long plagued public contracting the world over. Set up to tackle these global challenges, the Open Contracting Partnership of governments and businesses has now come of age. We meet its newly appointed Executive Director, Gavin Hayman, who describes a revolutionary solution to a menacing procurement problem. If you haven't guessed it, the key word is ''open.''

Bidding for public contracts can be a lengthy, frustrating process. But, hidden from public view, it's vulnerable to mismanagement and unethical practice. Across countries within the EU alone, corruption can account for an estimated 20-25% of total contract costs.1

Backed by the World Bank, the Open Contracting Partnership was set up in 2012 to make sure this massive outlay by governments delivers on its promise to provide public benefit. From small beginnings the partnership is now an independent organization involving more than 40 national governments, cities and leading businesses.

The movement has just launched its three-year strategy to transform key areas of public contracting by promoting and strengthening the implementation of open contracting.2 The aim is to tackle these global challenges through disclosure, data and participation, working together with governments, civil society, businesses and technologists worldwide to make the public procurement process more transparent. Early members of this growing community included governments in Canada, the UK, Slovakia, Paraguay, and the Ukraine, and cities such as Montreal, New York and Mexico City.

Issues are on a vast scale

From paperclips to pharmaceuticals and large-scale public private partnerships, government procurement worldwide is worth $9.5 trillion a year.3 According to the OECD (Organization for Economic Co-operation and Development), this amounts to 13%-20% of global GDP being spent on procuring basic goods and services for citizens through contracts.4

However, despite the enormity of what is at stake, or perhaps because of it, public contracting is plagued by corruption, mismanagement, and secrecy. Some 57% of foreign bribery cases prosecuted under the OECD Anti-Bribery Convention to date involved bribes to obtain public contracts.5 According to a 2013 Eurobarometer survey, more than 30% of companies participating in EU public procurement say corruption prevented them from winning a contract.6 The OECD described "lack of transparency" as the greatest weakness in procurement by its members.

A clear case for open contracting is to detect fraud and corruption. It can be used to scrutinize procurement data and documents for red flags that might indicate public monies being misused, such as persistent non-competitive awards to shell companies for contracts that are more expensive than their peers. This opens up competition and ensures all competing companies are treated fairly.

What is Open Contracting?

Open contracting involves proactively sharing information about the tendering or negotiation process, and, once an award has been made, sharing information about who won, how and why they won and what the resulting contract is. For all partners involved in a contract, being able to monitor service delivery, quality and timeliness via a common database is crucial.

At its heart is a common database achieved via the global Open Contracting Data Standard7 that allows the most important contract information to be published in a structured repeatable way, making it comparable, timely, and accessible. The standard enables any database to export existing contracts data, acquisitions databases, business processes etc. to the standard. It can be used by any organization or individual with no license fee. A pilot is currently in development by the Public Works and Government Services Canada.

Disclosure reaps big savings

When it comes to public procurement, disclosing information rather than restricting it has been shown to reap big savings. For example, by releasing the state's cost estimate for the US state of Oklahoma's highway construction work prior to bid submission, lower average bids and a lower winning bid were received.9 The more complex and uncertain the project, the larger this cost-saving effect has proved to be. It also creates a level-playing field and more opportunities for companies.

Concerns easy to address

Many businesses say they want to open up their procurement information, but they don't know how or what to share – or when. With any new approach, there will always be concerns to resolve. Whenever we speak to businesses about open contracting, we hear concerns about commercial confidentiality, the risk that publication would support collusion, and overall costs. The good news is that these are all relatively easy to address.10

Commercial confidentiality, national-security and privacy are important issues, but in reality such information is not included in most contracts. Commercial interests that might be legitimately confidential would include novel designs and technologies, financial information, and strategic plans.

As part of the tendering process, when submitting their bids, suppliers should be given the opportunity to identify which pieces of information in a contract they regard as being commercially sensitive and would not want published, and the reasons why. For the winning supplier that information should be assessed against exemptions set out in Freedom of Information legislation and other relevant regulations and redacted (censored) whenever it falls within the public interest. This would mean many defense contracts could be at least partially published, with certain information excluded under the existing rules for classification. The same would apply to legitimate privacy concerns, in particular regarding information on third parties that might receive services under a contract but are not signatories to it.

Risk of collusion

Defined as a “secret agreement between two or more parties to defraud others by fixing prices,” collusion is a risk primarily in the tendering round, rather than after the bid is awarded, and when full contract details would be published. Increased transparency would make monitoring easier, and more entrants coming into the market would be a powerful foil to cartelism.

Costs

As already highlighted, not only does proactive publication result in lower average bids, but the overall costs are also much lower. Costs of implementing the standard are offset by the savings in achieving better value for money.10

There are also significant benefits and savings for business. With bid preparation costs up to 1% of contract values on large construction contracts (and often considerably higher for smaller consulting contracts), more information on similar prior contracts can be a significant benefit. Comparable data, and the availability of unit prices, are particularly important in the preparation of bids, allowing better businesses to win better business. Analysis of trends, prices and supplier performance can be incredibly valuable in developing a sustainable business.

The value of having access to past contracts to firms considering bids is underlined by the numerous Freedom of Information requests for contracts made by firms in the United States. There are even companies dedicated to processing such requests as part of efforts to help clients win more government contracting work.

Companies that already hold government contracts will find that open contracting gives them more competitive intelligence about new opportunities and the chance to engage with governments and NGOs on standard-setting. Aspiring government contractors can take advantage of the availability of data to spot opportunities, as well as the improved contracting process, to win new business.

It will happen, but gradually

Open contracting is a journey, not a destination. Trust will be built gradually and reinforced over time. The scale of the opportunity – and the challenge – is immense. We cannot implement open contracting globally by ourselves, so we will build out the field of policy and practice that allows open contracting to flourish. There will be vested interests to overcome.

A more transparent contracting process creates trust, reliability and confidence in a fair process. Transparency allows better businesses to win better business. Businesses can better access and track contracting opportunities including information of what, when and where opportunities might be and how decisions to award contracts will be made. Information on past contracts lowers the barriers to entry for smaller businesses. Open contracting also creates a level-playing field and more opportunities for companies through better and richer data on contracting opportunities with government.

In open contracting, all parties benefit. Governments receive better value for money. Citizens receive better services and public works. And companies have a fair chance at securing a new contract, at less cost. Are governments, contractors and citizens all a little happier? Revolutionary indeed.

END NOTES

  1. https://www.iaccm.com/resources/?id=7467
  2. Open Contracting Partnership Strategy 2015-2018
  3. Kenny, C. November 2014. Publishing Government Contracts. Addressing Concerns and Easing Implementation. Center for Global Development, Washington DC. http://www.cgdev.org/sites/default/files/publishing-government-contracts-report.pdf
  4. http://www.oecd.org/gov/ethics/public-procurement.htm. This share of GDP is even higher if state-owned companies are taken into account, by 2-13% of GDP depending on the country. 
  5. OECD. December 2014. The OECD Foreign Bribery Report. An Analysis of the Crime of Bribery of Foreign Public Officials. http://www.oecd.org/corruption/oecd-foreign-bribery-report-9789264226616-en.htm, p.8.  
  6. EU Anti Corruption Report. March 2014. http://ec.europa.eu/dgs/home-affairs/e-library/documents/policies/organized-crime-and-human-trafficking/corruption/docs/acr_2014_en.pdf, p. 25. 
  7. http://standard.open-contracting.org
  8. https://buyandsell.gc.ca/procurement-data/open-contracting-data-standard-pilot
  9. http://gatton.uky.edu/faculty/lamarche/Lamarche-JPUBE-2009.pdf
  10. Kenny, C. November 2014. Publishing Government Contracts. Addressing Concerns and Easing Implementation. Center for Global Development, Washington DC. http://www.cgdev.org/sites/default/files/publishing-government-contracts-report.pdf

ABOUT THE AUTHOR

Gavin Hayman is Executive Director of the Open Contracting Partnership. Prior to that, he was Executive Director and Director of Campaigns of Global Witness where he oversaw the groundbreaking and award-winning investigative, campaigning and advocacy work uncovering secret deals, corruption and conflict around the world. Gavin helped create the international Publish What You Pay campaign and helped negotiate the intergovernmental Extractive Industries Transparency Initiative that brings together oil and mining companies, home- and host-governments and civil society to improve disclosure and oversight of over $1 trillion dollars of oil and mining money.

He has a Doctorate from the University of Reading and has worked with Chatham House in London and the United National Environmental Programme in the past on analysing and investigating global environmental crime.

ABOUT THE OPEN CONTRACTING PARTNERSHIP

The Open Contracting Partnership is opening up public contracting and procurement information around the world through improved disclosure, data and civic and business participation. Incubated by the World Bank, we are now a lean and dynamic start-up based in Washington DC. 

The Open Contracting Partnership manages a global Open Contracting Data Standard to make contracting data accessible, shareable, and usable. We provide knowledge, training, seed funding, and tools to support local champions and scale up new open contracting approaches. Through specific showcase and learning projects we help generate evidence of change. We are committed to sharing our efforts and learnings, so that our partners and a wider network of open government groups can participate, benefit and take ownership of our mission. More at www.open-contracting.org, http://standard.open-contracting.org or info@open-contracting.org

 
 
 

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