Controlling Fraud, Corruption & other Undesirable Practices in Emergency Procurement & Supply Management

Global Procurement Summit 2021 organized by All India Management Association with support of Ministry of Finance, Government of India , the World Bank and the Asian Development Bank gave platform for discussion and exchange of ideas between senior officials engaged in public procurement at central and state public entities and the key bidding communities represented by manufacturers, suppliers, contractors and consultants. The key objective of the summit was to discuss impact of COVID-19 on procurement and contract management functions and come out with recommendations for the way forward.

One of the plenary sessions of the summit on “Controlling Fraud, Corruption & other Undesirable Practices in Emergency Procurement & Supply Management” was chaired by Mr. K Rajendran, Chief Vigilance Office, Cochin Shipyard Limited. The esteemed panel for discussion included Mr. Mihaly Fazekhas, Assistant Professor, Central European University, Nonresident Research Fellow, University of Cambridge (UK) & Senior Research Associate, the University College London, Ms. Yamini Sarangi, Managing Director, Odisha State Medical Corporation, Ms. Bernadine Fernz, Global Head of Infrastructure, Open Contracting Partnership and Mr. Gaurav Godhwani, Co-Founder & Director, Civic Data Lab.

Initiating the proceedings for the session, Mr. K. Rajendran mentioned that under normal circumstances procurement budget fluctuates between 20-30% of the country’s GDP that account to around $9.5 trillion and it is estimated that around $2.4 trillion can be attributed to fraudulent activities and hence, the topic becomes utmost important. He stated that there is a fine line between fraud and corruption. He mentioned that fraud involves betrayal of trust and corruption involves breach of trust. He further explained that these activities become much more frequent in case of any disaster and similar trends were noticed during COVID scenario as well.

Later during his address, Mr. K. Rajendran highlighted a few cases from around the globe that involved fraudulent activities in procurement of goods/ materials and listed some of the key challenges faced by various governments. He stated an example of import made by the Brazil Government, where they received a lot of masks with undesirable quality standards which were subsequently returned to the suppliers and also quoted the arrest of Health Minister in Bolivia who procured ventilators at double the price in emergency times. In conclusion, he also mentioned that around 25% of the total spending made in Global Procurement of Healthcare products is lost to corruption.

The next speaker for this session, Mr. Mihaly Fazekhas shared his findings on “Using Data Analytics for detecting Corruption in Public Procurement”. He mentioned that Corruption can be estimated in public procurement with targeted metrics. He stated that in public procurement, the aim of corruption is to steer the contract to the favored bidder without detection. This is done in several ways, including avoiding competition (e.g., unjustified sole sourcing or direct contract awards) and favoring a certain bidder by tailoring specifications, sharing inside information, etc.

Mr. Fazekhas then provided conceptualized indicators for identifying the cases that involved corrupt practices. These indicators were broadly categorized under Buyer Risk Indicators (BRI), Supplier Risk Indicator (SRI), Political Risk Indicator (PRI) and Tendering Risk Indicator (TRI). He then shared examples of some publicly available international procurement data base and provided risk scoring methodology. He further explained the assignment of red flags for various irregular activities and suggested that similar exercise would help the government in identifying agencies that may be involved in malpractices.

The next speaker for the session, Ms. Yamini Sarangi, made a detailed presentation that included the measures undertaken by Odisha State Medical Corporation Ltd. (OSMCL) for ensuring transparency in emergency procurement during the COVID-19 scenario as well. She mentioned some measures like online indenting by Healthcare Facilities in the e-Niramaya portal, followed by rationalization of indents approved at the apex level by State Drug Management Committee (SDMC)/ State Equipment Management Committee (SEMC) ensuring transparency in procurement activities. Some other measures that improved transparency of public procurement in health sector included mandatory tendering through GeM or e-tender portal of NIC and subsequent evaluation of the tender by multi-disciplinary committees comprising of specialists from external organisations like AIIMS Bhubaneswar, Medical Colleges, District Headquarter Hospitals, etc.

She also mentioned that once awarded, the details of the contract were immediately uploaded on GeM / e-tender portal and OSMCL’s website. Further to ensure the quality of the procured good, some random samples from each batch were sent to NABL accredited laboratories for quality inspection and the results were uploaded on the e-Nirmaya Portal. Further, she also mentioned that inventory management and payment transactions was also carried only through e-Niramaya portal ensuring full transparency through entire supply chain process. Further, for facilitating emergency procurement due to COVID scenario, she mentioned that OSMCL ensured constitution of an Emergency Procurement Committee that would decide the items and quantity for urgent procurement by waiver of tender process. She further mentioned that OSMCL adopted “Aggressive” Procurement measures for fulfilling the emergency demands by providing special incentives for quicker delivery after fixing the ceiling rates, transportation cost and testing charges were borne by OSMCL and special air cargo operations were initiated.

Following Ms. Yamini Sarangi, Ms. Bernadine Fernz and Mr. Gaurav Godhwani then presented their views on how Open Contracting is transforming the Public Procurement. While Ms. Bernadine explained the approach behind open contracting along with some international success stories, Mr. Gaurav Godhwani elaborated on some of the key opportunities and challenges for open contracting in India. Initiating the presentation, Ms. Bernadine stress upon the exasperating corrupt practice with due to emergency procurements and set the need for an innovative solution to public procurement.

She explained Open Contracting initiatives could be potential tool in dealing with all these issues. She further explained that Open Contracting Partnership (OCP) is a silo-busting collaboration of organizations that work towards a common goal of transforming public contracting. She further stated that OCP has supported procurement agencies in Ukraine to achieve a cost benefits of more than 1 billion euros in a year. She further explained that with the use of Open Contracting Data Standard (OCDS), the government agencies at the national level can undertake better planning and coordinated procurement and provide potential business opportunities for participants in tenders. She also mentioned an example of Colombia where open contracting system assisted in identifying collusion in public procurement and suggested that data analytics shall be a very beneficial tool in order to alleviate malpractices from the system.

Building on the momentum, Mr. Gaurav talked about the initiatives related Open Contracting implemented in India and how would this be useful in transforming the procurement practice. While highlighting some pertinent issues related to public procurement in India, he mentioned that procurement process still lack in efficiency, adequate value for money and appropriate participation of the contractors and mentioned that open contracting would help in connecting the prospective proponents with relevant business opportunities. However, he highlighted that the India’s open data policy does not cover government procurement and mentioned that the data which is available online is published in various formats and in different file types, that can’t be read by machines and hence lead to delays in data analysis. Finally, he suggested use of OCDS for strengthening the procurement ecosystem in the country.

At the end, Mr. K Rajendran, Chief Vigilance Office, Cochin Shipyard Limited along with the other panelists answered some of the questions raised by the audience and concluded the session by offering his vote of thanks.

The deliberations of the session can also be viewed by visiting https://www.indiaprocurement.in/expert-speaks