LINKS BETWEEN CORRUPTION IN PUBLIC PROCUREMENT AND HUMAN RIGHTS - Nika Arevadze, May 2022
Nika Arevadze, Researcher in Human Rights and Sustainability, Mphil Candidate at the University of Oslo. Email: nikaa@uio.no
Public procurement processes and systems are often linked to negative human rights impacts. Root governance issues, such as grand or high-level institutional corruption, exacerbate these impacts on specific rights and wider social interests and may represent structural obstacles for integrating human rights in procurement systems.
In light of the global tendencies of privatisation, states increasingly need to acquire goods, services, and works from the private sector through public procurement. As these purchases are often directly linked to core public interests, such as healthcare or education, they have implications for the state’s corresponding human rights duties. While good procurement governance can entail the fulfillment of human rights, flawed practices can be detrimental for them. One challenge to utilising public procurement to realise human rights is the prevalence and significance of corruption. [DM1]
Corruption in public procurement
Public procurement is particularly vulnerable to the threats of corruption for several reasons. First, it represents a significant part of the global economy – its share in the global Gross Domestic Product (GDP) was 12% in 2018, amounting to 11 trillion USD. Moreover, the state enters procurement processes as an economic actor, and it entails close interactions between public officials and private sector representatives. Finally, procurement can be a complex process: it generally includes due diligence mechanisms, but some types of contracts are exempt from procurement regulations or can be concluded through a simplified process. For instance, the European Commission issued guidance on using the public procurement framework in the emergency situation related to the COVID-19 crisis which instructed public buyers on the possibilities to simplify procurement procedures or even award contracts to a preselected economic operator.
While simplified contracts are more susceptible to the risk of corruption, regular procurement procedures can also be manipulated to accommodate corruption. For instance, public officials can tailor contract specifications, leak information on competing bids and companies, or turn a blind eye to a flawed delivery in the post-bidding monitoring processes.
As a result, public procurement contains multiple types of corruption risks. These risks vary depending on the procurement phase, national or institutional context, and other factors. While all types of corruption are harmful to public procurement and the realisation of human rights, high-level institutionalized corruption schemes are more prevalent and detrimental. As they penetrate high levels of government institutions and political elites, these corruption schemes can be difficult to detect and address. In its prevalent and systemic forms, this may lead to corporate state capture – a state of governance that refers to the level of corruption where private interests corrode the democratic and legitimate processes and direct the rules of governance in their benefit.
A good example is awarding public procurement contracts based on political favoritism. This involves trading mutual favors between private and public actors: in return for political contributions and donations, businesses get public contracts. As a rule, such practices rarely look illegal – financial transactions at the heart of this corrupt arrangement have an appearance of legality: neither corporate donations nor reimbursing for a procurement contract is often not illegal per se. Moreover, literature identifies that the exchange of donations and public contracts are not immediate and corresponding, meaning that these are part of broader schemes and systematic rather than singular quid pro quotrades.
Political favoritism in public procurement happens all around the world. For instance, 2010 data from the Czech Republic revealed that only 1.1% of all firms were registered as public contractors, whereas 12.9% of political donor firms received public contracts. A 2020 article studied public procurement data from Lithuania before and after the 2012 ban on corporate political donations. The findings suggest that donor companies had “a steady and unexplained higher chance of winning in procurement tenders” even in Lithuania’s relatively less corrupt and strictly regulated context, whereas these differences between donating and other companies disappeared after the ban. Similar patterns of allocating large portions of procurement contracts to companies that have donated to political parties have been observed in the large spectrum of countries such as, for instance, Romania, Hungary, Croatia, Turkey, Brazil, and the US.
Impacts on specific rights
Corruption in public procurement erodes the division between public decision-making and private interests (the so-called “public-private divide”) that is essential to a functioning state. It also violates the primary objectives of public procurement – it disrupts open competition, discriminates against bidders without political connections, and undermines the value for money principle. However, it also has direct negative impacts beyond the procurement system – on social and public interests, including human rights and democratic values.
The COVID-19 pandemic has shone a spotlight on the issue. A blog on the Anti-Corruption Resource Centerhighlights that grand corruption, a type of systematic high-level corruption which causes serious harm, was a significant challenge to realising the right to health during the COVID-19 pandemic, affecting the delivery of medical supplies, vaccines and healthcare services by infiltrating public procurement and directing funds to the parties of corruption schemes. Another blog on the International Learning Lab on Public Procurement and Human Rightsfocused on Latin America and revealed that corruption in public procurement exacerbated in the majority of states in the region during the COVID-19 pandemic. Furthermore, there were several cases related to the COVID-19 pandemic demonstrating how corrupt procurement processes can deliver unusable goods. In the UK for example, a reportrevealed that more than 3.6 billion items of personal protection equipment (PPE) were deemed unsuitable. A big portion of these items were provided by the companies connected to political elites. In Bolivia, a minister of health was detained in 2020 after purchasing 179 unusable ventilators at twice their original price.
The negative impacts of corruption on human rights are linked to the financial costs of corrupt schemes in public procurement. In corrupt schemes, a portion of public funds is diverted to serve private interests and benefit the parties of the deal. This can be in the form of direct kickbacks to public officials or political donations to political parties. In any case, this may mean the inflation of the price of government contracts or the reduction of the quality of delivered services and goods.[DM2] On the other hand, the diversion of funds to private interests directly affects the amount offunds allocated for public objectives and, in particular, for the delivery of socio-economic rights. In other words, corrupt schemes in public procurement take from the “maximum available resources” – a defining concept for states’ obligations under the International Covenant on Economic, Social and Cultural Rights.
The amount of funds lost to corrupt schemes is not insignificant. For instance, a 2020 study of public procurement practices in the Czech Republic revealed that tenders allocated to politically connected firms were overpriced by at least 8%, totaling a loss of 128 million USD from 2006 to 2018. A study from Lithuania also estimates that cost increases in public procurement caused by political favoritism (more specifically, corporate donations) equals 1% of the GDP, and eliminating this corrupt arrangement would save the state about 180 million EUR annually. However, research confirms that price inflation does not necessarily mean that the delivery quality is not sacrificed – corrupt procurement deals can bring about low-quality and unsafe works, goods, and services.
When it comes to essential public services and goods, corruption in public procurement negatively impacts states’ human rights obligations. For instance, the decision of what state purchases (i.e. substance and quality of procured goods and services) can determine whether the state fulfills its human rights obligations, especially in the area of economic, social, and cultural rights. On the other hand, the decision of who state contracts with has human rights implications regardless of whether the purchase concerns essential goods and services. For instance, if state contracts with a healthcare provider with unfair labor practices, the deal has negative human rights impacts whether or not the acquired healthcare services are deemed essential or satisfy qualitative requirements.
The effects of corruption on public procurement may also impact a wide array of civil and political human rights, such as the right to life where people are killed as a result of a collapse of inferior quality public infrastructure. Corruption was alleged to be the culprit in China where, in 2008, a school collapsed during an earthquake, killing hundreds of students. However, as corruption leeches resources from public funds, resource-demanding economic and social human rights are its primary victims. For instance, systemic and prevalent corruption may divert enough funds to illicit interests to lead to unrealized or discontinued social programs, undelivered basic services, and the absence of substantial infrastructure. [DM3] [NA4] [DM5] [NA6] Additionally, low-quality of delivery may also undermine the qualitative requirements and fulfillment of the right to health, the right to education, or the right to an adequate standard of living (housing, food, water).
Wider effects
Beyond impacts on specific rights, corruption in public procurement has wider social effects. As a rule, grand corruption is sustained in a homogenous group, for instance, in political elites and their loyal business counterparts, which decreases aggregate social welfare and perpetuates inequality among social groups. It can also hamper the growth of local businesses and decrease foreign investments that, in turn, can result in declining job opportunities, reducing tax revenues, and other negative impacts on social development. Finally, corruption in a broad sense has been demonstrated to negatively affect life expectancy, maternal mortality, child nutrition, and education, and erode trust in state institutions.
The Impacts of corruption on public procurement have been explored by UN human rights bodies. In a 2021 report,the UN Working Group on Business and Human Rights also discussed corruption as a fundamental problem specifically for the business and human rights agenda and distinguished public procurement as especially susceptible to corruption. In a 2020 report the United Nations High Commissioner for Human Rights highlighted the challenges and best practices in integrating human rights into anti-corruption practices and underlined “the importance of transparency and accountability in public procurement”, and the nexus between the private sector, negative human rights impacts, and corruption.
As corruption erodes and weakens governance institutions and democratic processes, its impacts go beyond human rights and threaten the environment and economic progress. This is reflected in the text of the 2030 Agenda for Sustainable Development. The Agenda includes the reduction of corruption and bribery as an essential target under SDG 16 which is dedicated to achieving peace, justice and strong institutions for sustainable development. As demonstrated here with examples, corruption in public procurement undermines the promise of the Agenda to “foster a dynamic and well-functioning business sector, while protecting labour rights and environmental and health standards”.
Corruption as an obstacle to the integration of human rights in public procurement
Negative human rights impacts linked to corruption in public procurement deserve more attention in the business and human rights scholarship. Not only because of the prevalence and significance of specific impacts but also because of the role corruption may be playing in the paradoxical absence of human rights in public procurement. I theorise that corruption is one of the root causes that obstructs the integration of human rights within public procurement systems and regulations.
To begin with, procurement deals influenced by corruption are mainly concerned with delivering on the conditions of corrupt schemes. Other other considerations, including human rights, become sidelined or ignored, as incorporating human rights requirements into the procurement process might also result in the loss of tender or disqualification of connected companies – they are not, as a rule, strict adherents to good governance standards.
Moreover, to keep a corrupt arrangement lucrative, the parties – public officials and contracted companies – have to minimize the actual costs of the contract. In this sense, increasing costs of integrating human rights due diligence (HRDD) mechanisms into projects, such as human rights impact assessment (HRIA) can be counterproductive. Even without advanced HRDD mechanisms, integrating the human rights-based approach entails enhanced transparency, accountability and oversight – the very opposite of what corrupt arrangements require to successfully operate.
On the other hand, a human rights-based approach entails empowering rightsholders and victims of abuse and bringing their role into the center of scrutiny. In public procurement, this would shift the perspective and reframe the issue of corruption from an abstract misappropriation of public funds into its actual negative social and economic impacts, which can be important to help tackle corrupt schemes in public procurement.
Considering that ruling or dominant political powers can be the main actors in such corrupt arrangements, it is logical that these same actors would be motivated to ignore or undermine increasing calls on human rights integration within anti-corruption measures or public procurement systems. Furthermore, as this corrupt arrangement involves a close illicit relationship between political, public, and business elites, it erases the traditional public-private divide and enables the business sector to gain informal influence and power over state policies, including business and human rights policies.