How are public procurement tenders rigged?

A European Commission study from February 2014 on corruption in all 28 member states of the European Union showed that lack of transparency in public procurement practices is a fundamental source of corruption in member countries, especially at the local level of executive authority.

It highlights that state-owned enterprises are non-transparent when signing public procurement contracts, which is exacerbated by the excessive discretionary power of politicians, bureaucrats, or managers of public companies. Not so long ago, in 2010, it was estimated that the cost of corruption in public procurement in five industrial sectors in just eight member states ranged between 1.4 and 2.2 billion euros. The total damage from corruption in the European Union is estimated to be equal to its annual budget.

We wrote about public procurement in the holiday double issue of the weekly Lider, and now we discuss how public procurement tenders are rigged.

1. Specification conditioning according to the requested product
• The Music Academy in Zagreb sought a grand piano with 92 keys instead of 88, which is produced only by the German Bösendorfer, and which is offered in Croatia only by Euro-unit from Čakovec, the authorized dealer of Bösendorfer pianos, thus unfairly excluding all others from the competition.
• The government sought laptops with copied specifications of Lenovo laptops in a public tender.

2. Favoring certain manufacturers
• In the tender for equipping its premises at Markov trg, the Constitutional Court sought expensive ebony furniture pieces with exact specifications similar to those of furniture made by the Italian brand Giorgetti instead of standard office furniture. The value of that tender was five million kuna.

3. Favoring existing contracted entities
• Velika Gorica in October sought transportation services for elementary school students, and one of the conditions for potential bidders was a previously registered county bus line in that area, which favored only the existing carrier.

4. Job conditioning based on work experience
• Split Airport is currently seeking cleaning assistance services for aircraft and part of the facilities. One of the main conditions for applying to the tender is proof that the company has already performed ‘the same or similar procurement subject’ and that 50 trained employees have worked on that ‘same or similar’ job in the last three years.

5. Vaccination as a prerequisite for participation in the tender
• One hospital insisted on receiving a list of 20 people vaccinated against hepatitis B in the tender for the maintenance and cleaning of hospital premises, as only with such employees can maintenance companies compete for that job. Only companies that had previously performed that job and had a contingent of vaccinated workers could apply.

6. Insisting on certain service characteristics
• The City of Zagreb ordered an X-ray mammogram for the Public Health Institute ‘Dr. Andrija Štampar’ that would, among other things, be serviced by individuals with exclusively Croatian qualifications. Since such devices are not produced here, almost all suppliers train their service personnel abroad, which is why many were unfairly excluded from the tender.

7. The only condition is the lowest price
• In a public tender for travel services for the University Computing Center of the University of Zagreb (SRCE) worth 320,000 kuna, which was reported by Poslovni dnevnik, the job was awarded to the travel agency Ulix whose offer was only one lipa. Speranza lost because it was four times more expensive – four lipas, while the highest offer was only 34,000 kuna.