The World Bank: Public Procurement Law - Essay Example

Public Procurement Law The World Bank finances the projects that are executed by the Governments in developing countries and disburses sums of over 19 billion dollars per annum. Procurement is now a major activity with about 30,000 contracts passing for review and funding by the bank every year in 1990. (Westring, 1991). However, the question of corruption in the awarding of contracts has been an issue that the World Bank is increasingly confronted with and its position on this issue has gradually become a more open one, where efforts are being made to identify and take action against those guilty of corruption. In order to prevent the incidence of corruption and to mitigate its occurrence in the future, the World Bank has also published Anti Corruption guidelines and introduced other regulatory policies. In recent years, with the emergence of the Internet, the World Bank has increasingly taken steps to make the procurement process an electronic one. The introduction of an e-procurement process through the use of web based interactive software programs has helped not only in speeding up the procurement process and the disbursal of funds related to it; but has also provided a higher level of transparency in the procurement process, so that fraudulent practices can be more easily identified through the extensive records of data that are maintained. Corruption: The World Bank did not initially have a significant corruption policy and there was a low level of recognition within the institution that the practice did occur, especially in the form of kickbacks in the awarding of contracts and in misuse of funds by intermediary agents and contractors responsible for disbursing funds to developing countries. The need to tackle corruption was first noted by the World Bank President, James D. Wolfensohn what stated that countries cannot afford to avoid dealing with corruption and greater levels of transparency and accountability are vital, if foreign investment is to be promoted and funds are to be raised for international development assistance (Tung, 2002). When huge amounts of funds were being disbursed for economic growth and aid in developing countries through procurement, the incidence of corruption resulted in those funds being diverted for the personal enrichment of some individuals at the expense of the anticipated benefits to the developing country in question. The goal behind the setting up of the World Bank has been to promote economic growth and reduce poverty all over the world, but corruption undermines this effort. A corrupt practice has been defined by the World Bank as “the offering, giving, receiving, or soliciting of anything of value to influence the action of a public official in the procurement process or in contract execution…” (Chanda, 2004). As a result, this could include benefits or kickbacks paid to World Bank officials to divert contracts in favor of particular contractors, or the manipulation of contracts during their various stages to reflect falsely inflated amounts of expenses, or alternatively, even the diversion of funds after arriving at the developing country into the pockets of individuals not intended to be the original beneficiaries. In developing countries, corruption is often caused due to the very structure of the bureaucracies themselves and the institutional environment that may prevail within that country, with a lack of effective law and order. Within the institution of the World Bank, the cause of corruption is generally individual greed and the desire to profit out of procurement funds earmarked for development or providing assistance to the poor. Fantaye (2004) examines the causes of corruption in developing countries and points out that diversion of funds away from the intended recipients into the pockets of corrupt politicians may impede the goals of economic development and poverty reduction. Corruption functions as a vehicle to contravene the goals of the World Bank to alleviate poverty in developing countries. Thus, despite the dispersal of funds, the anticipated benefits may not accrue due to the misdirection of the funds through corruption, as a result, there has been a growing recognition within the World Bank that corruption must be prevented. There is an implicit responsibility for the World Bank to prevent corruption, as laid out in the Bank’s articles of Agreement: “The bank shall make arrangements to ensure that the proceeds of any loan are used only for the purposes for which the loan was granted…”1 With increasing importance being paid to corruption and the need to prevent it, in those instances where the World Bank has suspected corruption, it has withdrawn or suspended support. For example, the World Bank had committed $100 million towards a water project in Ghana and had awarded this amount to a unit of the Enron Corporation. But it later suspended support, citing a payment of $5 million by Enron, which remained unexplained (Chanda 2004). The World Bank has increasingly required greater accountability in the dispersal of funds and has been quicker to clamp down on instances of corruption. On the strength of suspicion about corruption, the World Bank has also taken action against companies. For example, a Canadian company, Acres International, was implicated in a scandal for bribing the Chief Executive of the Lesotho Highlands Development Authority, which was responsible for the development of the Lesotho Highlands Water Project (Williams, 2007). On the basis of allegations made, the World Bank summoned Acres to a Sanctions Committee hearing in 1999. This initial hearing was not successful, on the basis that the amount of evidence was inadequate. But in 2002, Acres was convicted in a Lesotho court for bribing the Chief Executive of the LHDA and this conviction was upheld by the court of Appeal of Lesotho. On the strength of this conviction, the World Bank re-opened its investigation in 2004 and subsequently barred the company from participation in contracts financed by the bank for three years. The World Bank also barred a German Company, Lahmeyer International GmbH, which was also guilty of corrupting officials of the Lesotho Highlands Development Authority. Lahmeyer International GmbH was barred from participation in bank financed contracts for seven years, on the basis of allegations of corruption made against the company.(Williams 2007). This shows that the World Bank has not held back from taking action against those suppliers or contractors who are responsible for disbursement of development funds but may seek to divert the funds elsewhere. The World Bank has also taken action against its own officials when they have been found to be guilty of corruption in any shape or form. In the case of United States v Sengupta2, Sengupta - a task manager of the World Bank working in Washington D.C. was found guilty of accepting a kickback payment from a Swedish Consultant to award four contracts to him. He pleaded guilty on a felony count in the United States District Court for the District of Columbia. The World Bank was thus able to pursue legal action against him in a local Court of law. In the associated case of United States v Basu3, Mr. Basu was found guilty of facilitating payment of bribes from the Swedish Consultant to Sengupta. Both these individuals await sentencing in accordance with the punitive measures available in the District of Columbia. These individuals could face imprisonment from five to ten years and in addition, they also have to repay the World Bank large amounts to compensate for the loss to the institution due to the deflection of payments elsewhere. Apart from pursuing action against corrupt officials in national Courts, the World Bank also has its own internal Administrative Tribunal, where it can initiate criminal action against individuals who are deemed to be guilty of corruption. However, there are also protective measures in place to ensure that when corruption charges are brought against officials, an opportunity is provided for the preservation of employee rights (Chanda, 2004:322). This has not always worked in favor of the World Bank, in pursuing its action against corrupt individuals/entities. In a recent case C v IDRB (cited in Chanda 2004). The Tribunal upheld the rights of an employee to be notified of a criminal referral by the World Bank; however as Chanda (2004) points out, the decision in this case may weaken the efficiency of such criminal referrals on corruption by the World Bank. On an overall basis, however, from the discussion above, it is evident that the World Bank has become more vigilant about corruption in relation to procurement funds. It has adopted a stronger policy against individuals as well as entities suspected of corruption, and pursued action against them, not only through local courts but also within its own institutional framework. Mechanisms for ensuring that beneficiaries comply with procurement rules: The World Bank does not specifically include the curbing of corruption as one among the bank’s purposes and functions. But reducing the incidence corruption is nevertheless, one of the goals that may be noted from the measures implemented by the Bank. Its Articles of Agreement specifically prohibit the bank and its officials from taking non economic considerations into account in arriving at its decisions (Shihata, 1996-7). Conventions between countries and declarations made to fight corruption have also been an additional way to tackle the problem. The World Bank, in a report, has identified that the United Nations has developed a Declaration against Corruption and Bribery in International Commercial Transactions4. This Report set out four strategic goals that spell out the World Bank’s anti-corruption policy on corruption: (a) the prevention of fraud and corruption in projects that are financed by the World Bank (b) Providing assistance that request assistance from the World Bank to support their efforts to reduce corruption (c) Including the corruption issue with the country assistance framework, and the choice and design of projects (d) Adding the voice of the World Bank to international efforts undertaken to reduce corruption. (Tung, 2002). The World Bank has also worked to reduce corruption in developing countries by providing support in bringing about legislative reforms, for example in China and Russia, through legal education as in Zambia and Thailand, through public outreach programs as in Venezuela and Kazakhstan, through comprehensive legal and judicial assessments as in Argentina, Bulgaria and Armenia or by establishing mediation centers as in Argentina.(Tung, 2002). In this way, the World Bank has tried to provide assistance to the borrowing countries in introducing economic, judicial, administrative and legal reforms and fighting corruption indirectly through this approach(Shihata, 1996-7). Specific measures that may be implemented by the World Bank to tackle corruption in developing countries which are the recipients of its loans include introducing banking and tax laws and regulations, to impose a certain degree of control over fraudulent practices (Shihata, 1996-7). In addition, the bank may also provide sectoral investment loans, where the World Bank finances reforms within the developing countries, including judicial reform, civil service reform and public sector reform. As a part of this effort, grants are also provided by the World Bank to prepare new legislation in the developing countries as well as public procurement training and studies on the civil service and the judiciary in order to diagnose the inherent problems that may exist (Shihata, 1996-7). The World Bank has initiated the Voluntary Disclosure Program. This is a process that has been initiated mainly to address the need to improve the information collection and investigation, so that corruption can be dealt with by prevention and deterrence. Under this program, incentives are provided to individuals or entities involve din the World Bank’s procurement processes, to divulge any knowledge or information about corrupt practices.(Williams, 2007). Staff rules prohibit World Bank executives from receiving any funds, remunerations or gifts from government entities or other persons, or from misusing any of the funds that they are in charge of allocating. If any employee is found to be corrupt in any shape or form, then s/he is to be immediately dismissed. Moreover, the World Bank also pursues criminal action in national courts against those individuals who are found guilty of corruption (Chanda, 2004). The World Bank is also required to ensure that the proceeds of any loan are used only for the purposes for which they are meant(Aguilar et al). In the event fraud and corruption are suspected, the World Bank has the authority to reject a proposal for an award or cancel the portion of a loan allocated against a contract, or declare a firm ineligible to be awarded a World Bank contract.5 The World Bank can conduct research into the causes and effects of the phenomenon of corruption, and bring up this subject matter in the dialogue with the developing countries to which it disburses its loans. If the bank perceives that the level of corruption in the proposed recipient country will have an adverse impact on the effectiveness of the assistance which is to be provided by it, then it may take this factor into account and tailor its lending strategy towards that country accordingly (Shihata, 1996-7). The World Bank has also taken steps to address potential corruption at all the stages of the loan process. During the early stages of project design and appraisal, the World Bank invites the participation of the affected people and NGOs which improves the accountability of the Government agencies. During the implementation of the project, there is a much stronger emphasis that is placed upon effective supervision of the loan disbursement process, including supervision of the auditing requirements. The Bank has adopted an open disclosure policy on all its loans, which allows or a greater input from NGOs and the public in order to bring about a more effective monitoring of World Bank financed projects (Shihata, 1996-7). Accounting and auditing procedures have been strengthened through the implementation of a new operational policy statement and procedure, according to which specific procedures are to be followed in the disbursement of loans, so that anomalies can be identified and loans can be cancelled if corruption is suspected. Anti-Corruption guidelines have been provided by the Bank, whereby borrowers are also required to take steps to prevent the occurrence of corruption. For instance, they are required to take some active steps to prevent corruption and fraud in bank financed projects. Some of these steps are to maintain the required administrative and fiduciary arrangements, to raise awareness about the anti corruption measures and the penalties that could be issued, as well as cooperating with the Bank where fraud and corruption are likely to occur. Use of electronic procurement methods and techniques: Where the question of procurement is concerned, three basic policies are important (Westring, 1991): (a) the need for efficiency and economy in procurement of goods and works involved in the procurement of those goods (b) since the bank is an international institution, it is required to give all qualified firms in both developed and developing countries, the opportunities to compete in providing goods and services (c) the bank is also interested in encouraging development of local contractors and manufacturers in the borrowing countries. In order to ensure that the process of procurement is carried out fairly, international competitive bidding takes place, and this is carried out through international advertising so that every eligible service provider is aware of the opportunities. International Competitive bidding is often the chosen method for procurement of services, because it ensures that all eligible bidders have the opportunity to participate in the process, ensures that the bidding process is carried out fairly and reduces opportunities for corruption.(Westring, 1991:359). Introducing prequalification into the contract, also ensures that bidders who come forward are screened on the basis of actual requirements. This process ensures that only the most qualified bidders, with the necessary resources and capabilities to carry out the contract are selected. Prequalifying bidders also eliminates the potential for grounds of alleged conspiracy or conflict later on. In the current global environment where technology is being increasingly used and facilitating the communication and exchange of information, the e-environment allows for a greater awareness of commercial opportunities and scope for greater levels of competition among suppliers, so that the World Bank is able to procure the best services from the most qualified bidders. As pointed out by Westring,(1991), the use of e-procurement helps to shorten and simplify the manual process of procurement and also enables more accuracy to be ensured in maintenance of records of procurement data. Almost all elements of the procurement process can be carried out electronically, starting from the initial bids to the final delivery of the end products, right up to the customer in the case of some service contracts.(Davies, 2000). Thus, the e-procurement process not only allows existing manual procurement procedures to be automated, it also allows for refinement and consolidation of the existing processes. The World Bank has refined its prior, manual process of selecting consulting services to an e-procurement process. This process essentially involves the automation of procurement processes using electronic systems like the Internet.(Leipold et al, 2004). One of the most important processes involved in procurement is the selection of quality consultants. As pointed out by Leipold et al (2004), there are several method of selecting consultants, or the most competitive bidder – it could be on the basis of cost, on the basis of quality of the service likely to be rendered, selection on the basis of least costs, or on the basis of qualifications. The World Bank’s e-procurement methods support all the various kinds of selection processes, although the preferred method may be examining the quality of the proposal as well as the cost of services. One of the advantages of the e-procurement process is that it allows for a better evaluation of the supplier’s ability, which is an intangible product. It allows for a greater element of transparency, which facilitates better evaluation. The e-procurement method condenses several stages of the manual selection process and streamlines them into a more efficient process (Liepold et al, 2004:324). The web based procurement option integrates e-commerce, workflows and document management into one single solution. As a result, it enables the World Bank to function effectively within a decentralized, international environment while simultaneously increasing transparency, improving compliance efforts and also promoting accountability by enhancing institutional memory, since data pertaining to all stages of the process and data on all consultants is all carefully stored within the e-procurement system. In the case of procurement of services, Leipold et al (2004) have provided a description of the Appian software procurement software used by the World Bank. This integrated software comprises a core process engine, process design tools, process reporting and business rules, document management and community based knowledge management, as well as other tools, all geared towards simplifying the complexities of procurement.(Leipold et al, 2004). The system has several interfaces, one of which is the interface to the Bank’s SAP ERP system or Enterprise Resource Planning system which allows access to project based data such as contract and budget data. Additionally, the e-procurement system also allows for an interface with the central archive system of the Bank so that all data pertaining to the contract can be carefully and accurately stored and used later if necessary. The workflow system which is also a feature of the Appian software e-procurement software allows all documentation processes and approvals to be reviewed online, thereby providing additional scope for transparency and the identifying of corruption or other fraudulent practices. Davies points out that in relation to e-procurement, the public sector enjoys less leeway and freedom as compared to private enterprises (Davies, 2000). When a public sector enterprise such as the World Bank desires to use e-procurement, it is also necessary to ensure that Directives set out by the Community are adhered to in relation to the procurement of goods and services through the use of International Competitive Bidding. A public sector enterprise may not engage in spot purchases for example, because it is subject to complex regulatory regimes which are also somewhat inflexible. Contracts for procurement of goods and services, as regulated by the Directives, require detailed procedures to be followed. The goal of introducing such procedures and regulations is to ensure that there is no discrimination occurring between domestic and foreign suppliers, and also to ensure that full transparency is maintained at every stage of the procurement process. For instance, some of the regulations that are laid out by the Directives in relation to e-procurement contracts are (a) all procurement contracts must be widely advertised to reach the highest pool of potential suppliers or consultants (b) potential bidders/consultants are to supply confidential, sealed tenders and (c) contracts are to be finally awarded based upon the criteria set out in the tender as well as the price at which the service is offered (Davies, 2000). On the basis of the above, it must be concluded that where public sector enterprises such as the World Bank are concerned, e-procurement is associated with a more complex regulatory framework. Despite this however, there are considerable benefits available through e-procurement, such as savings in time, consolidation of processes and greater transparency and accountability, with better retrieval facilities for data, thereby contributing to an improvement in institutional memory. …………………………………..3500 words. Bibliography * Aguilar, Mario A, Gill, Jit, B.S. and Pino, Livio, “Preventing Fraud and Corruption in World Bank Projects: A guide for Staff”, The World Bank, Washington D.C * Chanda, Parthapratim, 2004. “The effectiveness of the World Bank’s anti-corruption efforts: Current legal and structural obstacles and uncertainties” 32, Denver Journal of International law and Policy, 315 * Davies, Arwel, 2000. “Electronic public procurement initiatives within the European Community”, European law Review: 1-9 * Fantaye, Dawit Kiros, 2004. “Fighting corruption and embezzlement in third world countries”, Journal of Criminal Law, 68(170) * Leipold, Knut, Klemow, Jason, Holloway, Francine and Vaidya, Kishor, 2004. “The World Bank e-procurement for the selection of Consultants: Challenge sand lessons learned”, Journal of Public Procurement, 4(3):319-339 * Shihata, Ibrahim, F.I., 1996-7. “Corruption – a General review with an emphasis on the role of the world Bank”, 15, Dickinson Journal of International Law, 451 -486 * Tung, Ko-Yung, 2002. “The world bank’s institutional framework for combating fraud and corruption”, http://www.imf.org/external/np/leg/sem/2002/cdmfl/eng/tung.pdf; May 10, 2008 * Westring, Gosta, 1991. “Procurement of contractors and Consultants – A World Bank perspective”, 19 International Business Lawyer, 357. * Williams, Sope, 2007. “World Bank introduces new measures to reduce fraud and corruption in bank financed projects and the administration of bank loans”, Public Procurement Law Review, Read More