Informal relations in public procurement

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Informal relations in public procurement

informal public procurement national

Public procurement accounts for a considerable part of public spending. Within the OECD area, an estimated 15 per cent of GDP is spent on procurement. In many non-OECD states the figure is even higher. Not surprisingly, therefore, corruption represents a serious problem. As the factors motivating it may differ across geographical and cultural borders, not only the corruption as such but also the mechanisms facilitating it need to be examined. Drawing on 774 elite in-depth interviews this paper seeks to establish how two aspects of post-communist culture - attitudes towards the law and informal practice - affect procurement. More specifically, it investigates elite perceptions of the legal framework regulating procurement; the procurement officials; and the procurement process itself, in seven states in East Central Europe (Czech Republic, Slovenia), South East Europe (Bul-garia, Romania) and the West Balkans (Serbia, Macedonia and Bosnia-Herzegovina). It is assumed that disregard for the law and informal practice affect procurement more extensively and in a more negative manner in WB than in ECE and SEE, and also that their impact on procurement is greater in SEE than in ECE.

The European expansion eastwards has been referred to not only as a political and economic, but also as a culture - and value-based, project. Hofstede and Bond define culture as «the collective programming of the mind that distinguishes the members of one category of people from those of another. Culture is composed of certain values, which shape behaviour as well as one's perception of the world». While cultural patterns may change as a result of external influences, social norms «informing» people's behaviour, rarely change through the direct adaptation of outside values. Mihai notes that «although the Europeanization is visible as far as structures are concerned, when it comes to the essence, the process of adopting European values and standards is more cumbersome». Following from this, if negative attitudes to the law and informal practice are rooted in social norms, shaped by national culture, they are not likely to disappear over night.

Our previous research suggests that informal practice rooted in the historical and political past is still prevalent in post-communist Europe. Informal problem-solving is most common in post-communist states that have experienced prolonged periods of foreign rule and big distance between rulers and the ruled; and that have been under Ottoman, as opposed to Habsburg, rule. Citizens residing in such states have had to «try harder» to achieve outcomes requiring some kind of interaction with the state. Informal practice provided them with a means by which to compensate for their perceived or real disadvantages in this regard. Such practice was also used as a tool for dealing with bureaucracy also during communism and it continues to affect the public sector, including procurement, at present.

Based on the above, we assume that informal practice in procurement is more widespread in SEE and WB than in ECE. We also assume that it is more common in WB than in SEE, given that the former has been badly affected by political conflict and war, and as legal and institutional reform have been less extensive than in the post-communist EU member states.

Although our respondents were not specifically asked about the essence of national «culture» or «mentality» as such, some of them referred to these concepts while answering our questions on informal practice. From their statements it is possible to single out three distinct types of «culture» common in post-communist Europe: «culture» in a broader sense (all countries), «informal culture» (SEE, WB), and «legal culture» (all countries except the Czech Republic). «Informal culture» and «legal culture» are particularly relevant for procurement. Respondents described their national cultures as informal because people rely heavily on the use of contacts (SEE; WB) and/or informal networks (Bulgaria, Macedonia); distinguish between «us» and «them» - effectively imposing an obligation on citizens to assist the former at the expense of the latter (Serbia, Bosnia); and condone the use of bribes (Bulgaria, Serbia, Macedonia). Though perceived as an inherent part of their national culture, not all respondents felt comfortable with the habit of using contacts and giving bribes. They referred to the phenomenon as an expression of «rural mentality» (Bulgaria), «small town mentality» or «village mentality» (Serbia). As regards legal culture, proverbs in several post-communist states suggest a rather laid back attitude to the law. The Bulgarians, for instance, have a saying to the effect that «the law is like a door in an open field» - i.e. there is no need to go through the door. As might be expected, the majority of our respondents (except those residing in ECE) therefore thought «disregard» for the law is widespread in their countries. Procurement is conducted against this backdrop and it is likely to be affected by it.

Following the collapse of communism, post-communist states effectively had to build their procurement sectors from scratch. While some states created their own procurement legislation in the 1990s, later harmonising it with the European treaties and secondary EU legislation. However, the majority simply copied or introduced national versions of EU procurement directives. As the latter have undergone extensive revision in recent years, local legislation has had to be adjusted several times to ensure continued compatibility. Former World Bank economist and anti-cor-ruption expert Bryane Michael has criticised the frequent amendments of post-communist legislation, claiming that «despite rewritten anti-corruption laws in almost every single new EU member country, corruption has not de-creased…».

Although we did not ask respondents specifically to assess national procurement legislation, some of them still did. Czech elites were overwhelmingly negative. A Prague-based EU representative described EU initiated amendments to the Czech Act on Public Procurement as «insufficient» and practices as «inconsistent». Besides, the Act was said not to have been implemented in an effective manner. Elites in Slovenia were more positive in their assessment of national procurement legislation though without getting into much detail. Some of the Bulgarian respondents were «satisfied», claiming that national legislation limits the scope for informal practice in procurement. However, their statements were balanced by more sceptical or outright negative comments regarding the manner in which it is implemented. Romanian elites held the view that current procedures are so strict that they leave little room for biased decision-making. Respondents both in SEE (Bulgaria) and WB (Bosnia, Macedonia) noted that procurement officials are quick to utilise loopholes in current legislation.

Perceptions of national procurement legislation also differed across countries in WB. Serb elites were generally positive. They willingly admitted that procurement was corrupt in the past, but suggested that the current legislation, which was passed during the rule of Djindjic, has made wrongdoing increasingly difficult. Procurement officials have largely been deprived of their discretionary powers and effective complaints procedures have been put in place. Respondents in Bosnia were generally favourable to the Act on Public Procurement - though quick to point out that not only its wording but also the manner in which it is interpreted, matters. Respondents in Macedonia had mixed views on the matter.

Respondents who were positive to national procurement legislation expressed satisfaction with recent legislative reform (Romania, Serbia, Slovenia). Those whose views were mixed thought the law as such was mostly of good quality, but were unhappy with the manner in which it is being implemented (Bulgaria, Macedonia, Bosnia). Explanations as to why procurement in post-communist states is considered to be highly corrupt must therefore also be sought elsewhere.

Not only the quality of procurement legislation as such, but also the qualifications and ethical standards of those involved in the procurement process (i.e. those applying the law as well as those being affected by it), are likely to impact on the outcome of public tenders. A well-qualified public official, implementing legislation that leaves limited room for discretion and that hold him/her legally accountable for errors or deliberate wrongdoing, is likely to be cautious of violating the law. An official who is not qualified for the job and/or who is working to unclear or internally contradicting laws or regulations is more likely to do the opposite. As big money is at stake, issues are sensitive and external pressures great, honesty and personal integrity on the part of the procurement officials are important prerequisites for securing fair process.

Culture affects procurement officials in post-communist states in several ways. For a start, administrative culture is still to some extent informed by the communist past. Even though public administration has been thoroughly overhauled in recent years, «most rules and practices in the bureaucracies… still have their origins in the communist era, chiefly because legislative reform has not penetrated deeply into the micromanagement of state agencies». Some 50 per cent of the Romanian mayors surveyed by the European Institute of Romania in 2005, thought administrative reform has had no particular impact.

Second, the procurement sector is suffering from the same staff shortages, poorly educated personnel, lack of - or poor quality - technical equipment, and frequently changing legislation as other parts of post-communist public administration. The problem appears to be further compounded by the absence of, or inadequate (continuous) training available for, government officials and widespread nepotism (especially in SEE and WB). Added to this, disregard for the law (referred to as a facet of «legal culture» by our respondents) appears to be widespread. Incorrect in-terpretation of the law - whether accidental or deliberate - is a major problem both in public procurement and in government administration more generally.

Third, administrative culture in post-communist states continues to be highly politicised. With the collapse of communism the formal state was effectively privatised by individuals who «regard (their official positions) as private endowments rather than as official functions». Such individuals still exert considerable influence on public administration. In Romania, for instance, political influence in public administration has been described as «chronic». Mayors, in particular, are under heavy pressure from various economic interests. Collusion between procurement officials and business representatives appears to be widespread.

Not surprisingly, therefore, elites in ECE are generally sceptical to procurement officials. Czech respondents described them as «weak» and «vulnerable to external pressure». Disregard - even contempt - for the law on their part, is perceived as a real problem, especially in the Ministries of Transport and Defence. Slovenian procurement officials are perceived negatively due to extensive nepotism in the procurement sector. Respondents in SEE, on the other hand, are either negative or cautiously optimistic in their assessment of procurement officials. Bulgarian officials are perceived as being vulnerable to external pressure, though in terms of education and quality some progress had been made, much thanks to EU training programmes. None of the Romanian respondents specifically referred to the quality of the procurement officials.

Just like respondents in ECE, West Balkan elites are negative to procurement officials. Nepotism is perceived as a major problem in Serbia. Procurement officials in Macedonia are perceived as «incompetent» and «greedy», abusing their powers for personal gain and being willingly bribed. Procurement officials in Bosnia were perceived as «selfish» (some even run their own, private businesses!), not particularly knowledgeable, and as frequently making mistakes.

Respondents in all countries pointed out that the quality of procurement officials is poorer at local than at national level. While national ministries tend to have separate departments dealing specifically with procurement, local government bodies are usually too small for this. Consequently, officials are assigned a number of tasks, of which procurement is only one. Some of the habits they have acquired as government officials are therefore simply being «carried over» into procurement. Besides, procurement officials at local level are more vulnerable to external pressure than those working at national level (Czech Republic, Slovenia, Serbia).

While private enterprise was more or less non-existent in the Czech Republic, Bulgaria and Romania before the collapse of communism, it existed in former Yugoslavia. Such enterprise was heavily influenced by the local political elite. In all post-communist states, former high-ranking party and government officials successfully transformed themselves into private businessmen during the 1990s. Several of the most successful business people in Bulgaria, for instance, are former government officials who during communism took part in training programmes organised for higher and middle level state officials. The introduction of lustration in countries such as the Czech Republic effectively forced a large number of former high-ranking officials out of their jobs. For some of these, private business offered alternative career options. As a result, post-communist business people are fairly well connected with government officials - including those working in procurement.

Respondents suggested that political pressure is frequently exerted on procurement officials during tendering. Such pressure may take the form of politicians lobbying on behalf of large domestic or foreign companies (Slovenia, Bulgaria, Macedonia), and coalitions of politicians and businesses being created with a view to obtaining tenders for mutual benefit (Czech Republic, Romania). Politicians assisting businesses in their search for procurement contracts were said to benefit handsomely for the support they provide. Besides, post-communist business-culture appears to be influenced by the past. To give an example, while «functional friendship» was a typical feature of communism, «instrumental friendship» is an inherent part of contemporary Balkan business culture. Business culture appears to be fairly informal even in the Czech Republic.

Informal practice is used during all stages of the tendering process to (i) gain access to the procurement officials (Bulgaria and Macedonia); (ii) obtain better and speedier information (Slovenia, Serbia); (iii) get assistance to quickly obtain all documents required for participating in the tender procedure (Czech Republic), or (iv) get inside information during the preparation of a particular tender (Macedonia). Companies are in some instances given advance notice of upcoming tenders - which, in turn, gives them better time to prepare their bid. In other instances, tenders are published at a very short notice, thus putting non-favoured companies at a great disadvantage. Bids may also be tailored to suit the needs of specific companies (Macedonia).

As regards contacts, respondents perceived them either a prerequisite for (SEE; WB), or as a means by which to facilitate (ECE), tenders. They exert influence both on (potential) competitors and procurement officials, «encouraging» the former to refrain from participating in tenders. A contact should ideally hold a high-ranking position in procurement and his/her services should be properly compensated. Informal networks, for their part, are primarily used to gain control of the procurement process as such. This is done by ensuring that the «right» people are put in the «right» positions in procurement (Bosnia, Serbia). They are then able to influence tenders to the advantage of «their» people. Informal networks engaged in procurement in Bulgaria and Bosnia may be described as «simple» networks. In contrast, networks operating in Serbia and Macedonia are complex, comprising several different elites - each charged with different tasks. The composition of these networks to quite some extent reflects the formal and informal power structures that existed in post-communist states during communism.

Not all our respondents held the view that contacts or informal networks are required in order to win tenders. Some were convinced that informal payments, not the use of contacts and informal networks, are a prerequisite for obtaining tenders. As everything in procurement has a price it is not necessary to approach procurement officials through a go-between. Payments appear to take place at different stages of the procurement process - though predominantly during the final, selection stage. Bulgarian businesses, for instance, typically pay 10-20 per cent of the value of the tender to those facilitating the contract. Informal payments are also made to journalists in order to discredit the winners of procurements even when tenders have been conducted in a non-biased manner.

To gain a better understanding of how disregard for the law and informal practice influence procurement one should look beyond manifestations of corruption and try to identify the motivation underpinning it. If informal practice is simply used in response to a specific situation, then its use may be changed by removing the circumstances facilitating the specific situation in the first place. If, however, the informal practice is rooted in social norms, then changing it requires a different approach.

Both disregard for the law and informal practice are widespread in post-communist Europe and they are rooted in the cultural and historical past. The manner in which our respondents spoke about the use of contacts and informal networks in procurement, suggest that their impact is stronger in SEE and WB than in ECE - thus confirming our first hypothesis. Informal practice also appears to be used for more clandestine purposes in SEE and WB. We did not find any clear differences between SEE and WB and are therefore not able to confirm our second hypothesis.

Karklins (2005) points out that `an independent and effective judiciary is crucial… to ensure the accountability of public officials». Some of our respondents suggested that citizens would obey the law if proper sanctions for breaking it were in place. Their statements resonate well with Michael's suggestion that the most efficient manner in which to reduce corruption in post-communist society is to ensure that legislation is properly enforced. Introducing stricter internal control procedures in government administration might also have an impact. However, the law enforcers and controllers are also affected by informal culture and this, in turn, affects their performance.

Social norms rarely change as a result of external pressure. Consequently, to be successful efforts to reform procurement should address not only corrupt informal behaviour but also its root causes. This requires something more than merely copying laws and regulations from one geographical and cultural setting into another. It also requires a different time perspective.

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