Theme: Procurement
Agents have played a key role in defence procurement for decades and many cases of procurement corruption have involved agents. They are widely recognised as one of the highest risk factors for corruption across the sector but, despite recent changes to the regulatory environment, the risks are as difficult to manage as ever.
How can governments protect themselves from corruption in the contracting process, without becoming overburdened by long and detailed legal processes? This report offers a new option: suspension and debarment systems. Suspension and debarment systems protect governments from engaging doing business with contractors who pose a business risk by preventing them from participating in government contracts and subcontracts. It explains how they function, both in theory and practice, and it identifies certain “best practices” that characterize a well-functioning suspension and debarment system.
Full and open competition is one tool for governments to help ensure best value for money. Yet previous studies highlight that the defence sector is poor in this respect. This report explores trends in the award of non-competitive or single-source contracts in defence.
Single-source, or non-competitive, defence procurement is a widespread phenomenon that is prevalent both in devel- oping countries and in advanced arms exporting countries. The usual competitive bidding process – which assists in both value-for-money evaluation and in lowering corruption risk – is used much less often than expected in defence procurement. Whilst there can be good reasons for single sourcing, the opportunities and inducements for corruption are significantly escalated.
Corruption within defence procurement can have a detrimental impact on security, operational effectiveness, and public trust. Despite defence procurement being a key area of focus in anti-corruption measures in many countries, there remains a serious lack of transparency. In this article for Getting the Deal Through – Public Procurement 2014, Tehmina Abbas summarises Transparency International’s (TI’s) views on the areas in defence and security procurement that most vulnerable to corruption within defence companies and governments.
Reproduced with permission from Law Business Research Ltd. This article was first published in Getting the Deal Through – Public Procurement 2014, (published in May 2014; contributing editor: Hans-Joachim Prieß of Freshfields Bruckhaus Deringer) For further information please visit www.GettingTheDealThrough.com.
The purpose of this report is to shed light on the quality of due diligence in defence offset programmes, and to identify areas of good practice and areas for improvement. It consists of an analysis of one-to-one interviews between the organisations’ person responsible for, or heavily engaged in, offsets, and the TI team. The interviews were non-attributable, so as to maximise the chance of an open discussion. The report found that companies have improved their offsets due diligence practice in the last two to four years. Nevertheless, there’s also substantial variation in practice within the industry: at one end of the range, there is a block of companies with strong, well established due diligence practices; and at the other, there are many other companies who have either rudimentary processes or who have very recently established them. Some companies distinguish themselves as an example of good practice because they have a clear list of red flags that indicate potential corruption for which their staff and advisers must look out for, and have mandatory processes to be followed when a red flag is identified.
This report addresses one particular area of concern in the defence sector: offsets. Defence offsets are arrangements in which the purchasing government of the importing country obliges the supplying company of the exporting country to reinvest some proportion of the contract in the importing country. Offsets are big business, and yet they are very opaque and receive much less transparency and attention than they should, given their susceptibility to high corruption risk. Many government and defence industry professionals share our view that the integrity around offsets transactions needs to be improved significantly. The publication explores the issue in depth, looking at current industry and government practices, and exploring the nature of the corruption risks associated with offset arrangements. We also look at the economic arguments in favour of and against offsets.