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 USD.
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 the law".
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 to be.
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 criminal offence.
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
secrets").
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 amounts.
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 offices.
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 executive arm.
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 money.
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 labelled "bribery".
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.