According to the [Transparency International Pakistan’sa (TIP) National Corruption Perception, contract management is the second most corrupt sector in Pakistan, after police, and followed by judiciary. Contract management refers to the process of ensuring that contracts are executed according to the agreed terms and conditions. It is a crucial stage of public procurement, as it determines whether the public gets the best value for money and the desired outcomes.
Supply chain corruption is a serious problem that affects many countries, especially developing ones. It refers to the misuse of public funds or resources in the procurement of goods and services for public purposes. It can take many forms, such as bribery, kickbacks, fraud, collusion, nepotism, and favoritism.
Supply chain corruption can have devastating consequences for the economy, society, and environment. It can undermine public trust, waste public resources, reduce the quality and efficiency of public services, distort market competition, and harm human rights and environmental standards.
Pakistan is one of the countries that suffers from high levels of supply chain corruption. According to the [Transparency International’s Corruption Perceptions Index ], Pakistan ranked 140th out of 180 countries.
One of the sectors that is most vulnerable to corruption in Pakistan is public procurement. Public procurement refers to the process of acquiring goods and services by the government or public entities. It accounts for a large share of public spending, estimated at around 20% of GDP in Pakistan. However, public procurement is also prone to corruption, as it involves multiple actors, complex transactions, and large amounts of money.
Therefore, it is imperative that Pakistan takes effective measures to combat supply chain corruption, especially in public procurement and contract management. In this blog post, we will provide some recommendations on how Pakistan can do so, based on the best practices and lessons learned from other countries.
Alarming Examples:
The consequences of supply chain corruption are far-reaching and detrimental. Here are some alarming examples:
- Diamer-Bhasha Dam Construction Project: Allegations of bid-rigging led to delays and cost overruns, impeding critical infrastructure development. (Source: https://www.dawn.com/news/330268/diamer-bhasha-dam-risks-and-controversies)
- Hascol’s management had made Rs7.5 billion in bogus purchase orders (Source: https://riscgroup.co/Hascol_Petroleum#:~:text=Fast%20forward%20to%20July%202021,fraud%20of%20over%20Rs75%20billion.)
- 2021 Sindh corruption allegations in procurement of school furniture (https://www.geo.tv/latest/370804-saeed-ghani-issues-clarification-on-sindh-school-furnitures-bought-at-high-rates
- Dasu Tranmission Line Corruption https://www.brecorder.com/news/40265322/dasu-transmission-line-corruption-ntdc-bod-body-given-2-more-weeks-to-finalise-recommendations
A Deeply Concerning Trend: Medical Corruption:
The healthcare sector faces a significant threat from supply chain corruption, putting public health and safety at risk. Some disturbing examples include:
- Purchasing Medical Equipment at Inflated Prices: This practice diverts resources away from essential healthcare services, impacting patient care. (Source: https://tribune.com.pk/story/2401596/audit-reveals-corruption-in-medicines-procurement )
- Circulation of Fake Drugs and Substandard Supplies: This puts patients at risk and undermines trust in the healthcare system. (Source: https://m.youtube.com/watch?v=2WEZVN5oTzI)
- 2019 Pharmaceutical Company Scandal: Fake invoices were submitted for non-existent drugs, compromising the healthcare system and potentially jeopardizing patient safety. (Source: https://www.thenews.com.pk/tns/detail/557596-the-other-side-of-corruption-in-pakistan)
- E-procurement Systems
One of the most effective ways to reduce corruption risks in public procurement is to implement robust e-procurement systems. E-procurement systems are online platforms that automate and streamline the procurement process, from tendering to payment. They can reduce human intervention, increase transparency, and minimize opportunities for manipulation. Some of the benefits of e-procurement systems are:
- Online tendering and bidding processes: This ensures fairness and facilitates participation from a wider range of bidders.
- Centralized platform for all procurement information: This allows for easy access to data and promotes accountability.
- Automatic evaluation of bids: This minimizes bias and ensures a level playing field.
- Integration with e-payment systems: This streamlines the payment process and reduces the risk of fraud.
Pakistan has already taken some steps to adopt e-procurement systems, such as the [Public Procurement Regulatory Authority (PPRA)] website, which provides information on procurement opportunities, rules, and regulations. However, there is still room for improvement, as the website does not offer full-fledged e-procurement functionalities, such as online bidding, evaluation, and payment. Moreover, the website is not widely used by all public entities, and there is a lack of awareness and capacity among the stakeholders.
Therefore, Pakistan should invest more in developing and implementing comprehensive and user-friendly e-procurement systems, and ensure that they are used by all public entities and monitored by independent authorities. Pakistan can learn from the experiences of other countries that have successfully implemented e-procurement systems, such as South Korea, Georgia, and Estonia.
- Strengthening Competition
Another way to reduce corruption risks in public procurement is to encourage more bidders to participate in the tendering process. This can enhance competition, lower prices, and improve quality. To achieve this, Pakistan should:
- Simplify bidding procedures: Make it easier for businesses, especially small and medium-sized enterprises, to participate.
- Provide clear and concise information about tenders: Ensure that all relevant information is readily available to potential bidders.
- Break down large contracts into smaller packages: Make it easier for smaller businesses to participate.
- Enhance capacity building programs: Provide training and support to businesses to improve their competitiveness.
Pakistan has already taken some measures to strengthen competition in public procurement, such as the [SME Policy 2022], which aims to promote the participation of small and medium-sized enterprises in public procurement. However, there are still challenges, such as the lack of awareness and access to information, the high cost and complexity of bidding, and the preference for large and well-connected firms.
Therefore, Pakistan should implement and enforce stricter rules and regulations to ensure fair and open competition in public procurement, and provide more incentives and opportunities for businesses to participate. Pakistan can learn from the experiences of other countries that have successfully strengthened competition in public procurement, such as Chile, Mexico, and the UK.
- Robust Anti-Collusion Laws
A third way to reduce corruption risks in public procurement is to implement and enforce stricter anti-collusion laws. Anti-collusion laws are laws that prohibit and punish bid-rigging and other forms of collusion among bidders or between bidders and public officials. Bid-rigging is a practice where bidders agree to manipulate the outcome of a tender, such as by fixing prices, allocating markets, or submitting fake bids. Bid-rigging can reduce competition, increase prices, and lower quality.
Pakistan has some anti-collusion laws, such as the [Competition Act 2010], which prohibits and penalizes bid-rigging and other anti-competitive practices. However, the enforcement of these laws is weak, as there is a lack of detection, investigation, and prosecution of collusion cases. Moreover, the penalties for collusion are low, and do not deter fraudulent activities.
Therefore, Pakistan should increase the penalties for bid-rigging and other forms of collusion, and improve the investigative techniques and tools to uncover collusion. Pakistan should also establish effective whistleblower protection programs, to encourage individuals to report corruption without fear of reprisal. Pakistan can learn from the experiences of other countries that have successfully implemented and enforced anti-collusion laws, such as the US, Canada, and Japan.
- Improved Contract Management
A fourth way to reduce corruption risks in public procurement is to establish clear guidelines and robust oversight mechanisms to ensure efficient and transparent contract execution. Contract management refers to the process of ensuring that contracts are executed according to the agreed terms and conditions. It is a crucial stage of public procurement, as it determines whether the public gets the best value for money and the desired outcomes.
Pakistan has some guidelines and mechanisms for contract management, such as the [PPRA Rules 2004], which provide the general principles and procedures for contract management. However, there are still gaps and challenges, such as the lack of standardized contract templates, performance monitoring and evaluation systems, risk assessment procedures, and independent audits.
Therefore, Pakistan should develop and implement more specific and comprehensive guidelines and mechanisms for contract management, and ensure that they are followed by all public entities and contractors. Pakistan should also conduct regular audits and inspections to ensure compliance with regulations and best practices. Pakistan can learn from the experiences of other countries that have successfully improved contract management, such as Singapore, New Zealand, and Denmark.
- Increased Transparency and Accountability
A fifth way to reduce corruption risks in public procurement is to make public procurement data readily available and subject to independent audits. Transparency and accountability are essential for ensuring that public procurement is conducted in a fair, efficient, and effective manner. They can also enhance public trust, participation, and feedback.
Pakistan has some initiatives to increase transparency and accountability in public procurement, such as the [Open Government Partnership (OGP)], which is a global platform that promotes open and accountable governance. Pakistan joined the OGP in 2016, and has committed to implement various reforms, such as publishing open data, strengthening citizen engagement, and improving public service delivery.
However, there is still a lot of room for improvement, as Pakistan’s public procurement data is not fully accessible, reliable, or comprehensive. Moreover, there is a lack of independent and external audits and reviews of public procurement processes and outcomes.
Therefore, Pakistan should publish all tender documents and contract awards online, and provide regular updates on the progress of major projects. Pakistan should also facilitate access to information through public records laws, and empower the media and civil society to monitor and scrutinize public procurement processes and outcomes. Pakistan can learn from the experiences of other countries that have successfully increased transparency and accountability in public procurement, such as Brazil, India, and South Africa.
- Whistleblower Protection
A sixth way to reduce corruption risks in public procurement is to create a safe environment for individuals to report corruption without fear of reprisal. Whistleblowers are individuals who expose wrongdoing or misconduct in the public or private sector. They can play a vital role in detecting and preventing corruption, as they often have access to insider information and evidence
Learning from Global Success Stories:
Despite the challenges, Pakistan can draw inspiration from countries that have successfully addressed supply chain corruption. Here are some examples:
- Georgia: E-procurement systems promote transparency and minimize human intervention. (Source: http://www.procurement.gov.ge/)
- Mexico: Competitive bidding techniques foster a level playing field. (Source: https://www.worldbank.org/en/projects-operations/products-and-services/procurement-projects-programs)
- Singapore: Robust anti-collusion laws deter fraudulent practices. (Source: https://www.cccs.gov.sg/)
- Hong Kong: Effective contract management systems ensure high-quality procurement. (Source: https://tvp-eproq.hkpc.org/
- South Korea: Strict penalties for bid-rigging deter fraudulent activity. (Source: https://www.researchgate.net/publication/265300448_Corruption_and_Anti-Corruption_Policies_in_Korea)
- Malaysia: Whistleblower protection programs encourage the reporting of corruption. (Source: https://www.sprm.gov.my/index.php?page_id=90&language=en)
- Chile: Mandatory e-invoicing prevents corruption and ensures transparency. (Source: https://www.storecove.com/)
- Canada: Merit-based recruitment practices promote fairness. (Source: https://www.canada.ca/en/public-service-commission.html)
- Rwanda: Conflict of interest regulations assure transparency. (Source: https://www.ombudsman.gov.rw/)
- Denmark: Open access to public records and audits guarantees accountability. (Source: https://www.retsinformation.dk/)
Conclusion: A Collective Effort for a Brighter Future Combating supply chain corruption in Pakistan is a complex but achievable goal. By implementing the recommendations outlined above, including e-procurement systems, strengthened competition, robust anti-collusion laws, improved contract management, increased transparency and accountability, and a commitment to whistleblower protection, anti-corruption training, strengthened law enforcement, and civil society engagement, Pakistan can create a more transparent and equitable business environment. This will not only benefit the economy but also contribute to the well-being and prosperity of its citizens. Eradicating this deeply entrenched issue requires a collective effort from the government, private sector, and civil society. By working together, Pakistan can build a brighter future free from the harmful effects.
