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EU Grant Agreement Number: 290529 Project Acronym: ANTICORRP Project Title: Anti-Corruption Policies Revisited

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EU Grant Agreement Number: 290529 Project Acronym: ANTICORRP Project Title: Anti-Corruption Policies Revisited This project is co-funded by the Seventh Framework Programme for Research and Technological Development of the European Union EU Grant Agreement number: 290529 Project acronym: ANTICORRP Project title: Anti-Corruption Policies Revisited Work Package: WP8, Corruption, assistance and development TitleU of deliverable: D8.1) Country policy reports on institutions in public procurement for the infrastructure sector Due date of deliverable: 28 February 2015 Actual submission date: 30 March 2015 Editor(s): Alina Mungiu-Pippidi Organization name of lead beneficiary for this deliverable: Hertie School of Governance Project co-funded by the European Commission within the Seventh Framework Programme Dissemination Level PU Public X PP Restricted to other programme participants (including the Commission Services) RE Restricted to a group specified by the consortium (including the Commission Co CServices)onfidential, only for members of the consortium (including the Commission Services) The information and views set out in this publication are those of the author(s) only and do not reflect any collective opinion of the ANTICORRP consortium, nor do they reflect the official opinion of the European Commission. Neither the European Commission nor any person acting on behalf of the European Commission is responsible for the use which might be made of the following information. 1 Table of Contents Executive Summary Author: Alina Mungiu-Pippidi D8.1.1. The Bulgarian public procurement market: Corruption risks and dynamics in the construction sector Authors: Ruslan Stefanov and Stefan Karaboev D8.1.2. The Public Procurement of Construction Works: The Case of Croatia Authors: Munir Podumljak and Elizabeth David-Barrett D8.1.3. A look inside the black box: Corruption risks in the German public procurement system Author: Roberto Martínez B. Kukutschka D8.1.4. The political economy of grand corruption in public procurement in the construction sector of Hungary Authors: Péter András Lukács and Mihály Fazekas D8.1.5. Romanian public procurement in the construction sector. Corruption risks and particularistic links Authors: Mădălina Doroftei and Valentina Dimulescu D8.1.6. Public Procurement in Infrastructure: The Case of Turkey Authors: Uğur Eme and Muhittin Acar 2 EXECUTIVE SUMMARY Concepts and research questions The goal of this deliverable is to provide an assessment of the impact of corruption on development by focusing on infrastructure through a survey of EU-funded infrastructure projects in selected countries. The reports on public procurement in this work package were meant to advance the understanding of government favouritism and state capture by using public procurement data. We define government favouritism as the process whereby a government agent treats certain economic actors in a preferential manner against others of similar background. We define state capture as the situation when a government agency acts systematically for the benefit of a specific interest group or company instead of autonomously pursuing its public goal for broader social benefit as defined in either law or policy. We define as corrupt the situation when the particularistic distribution of public funds can be associated with evidence of reciprocation - profit (of any kind) for the individuals or parties enjoying authority who decide over preferential social allocation from the recipients of their favour or their associates. We seek to understand the rules of the game in the governance of public resources, especially whether the dominant norm is particularism (transaction explained by the presence of a particular connection or identifier) or universalism (transaction identical for the whole category of non-state actors). Particularism on behalf of the government towards non-state actors (individuals, organizations or companies) can result in two situations. In the case of favourable treatment we speak of favouritism. In the case of unfavourable treatment we speak of discrimination. Our reports focus on the construction sector because this sector is indicated by nearly every source as the highest public investment and top risk area in nearly all the countries. We differ from most of the literature on procurement which is focused on regulations, loopholes and potential risks, as we ask the following research questions: 1. What is the norm in the public resource distribution in the area of construction? In the case of a modern and non-corrupt government we would expect that the government acts to maximize social welfare (outcome is beneficial for most people), treating every actor (for instance, companies which bid for tenders) in a non-preferential and impersonal manner (process is fair and impartial) by pursuing values such as ethical universalism (everyone treated equally and fairly) and seeking maximum return for public investment (value for money). Can we estimate how many transactions from the total in our area of study come close to this benchmark? Is there enough transparency to assess if the norm is universalism or rather particularism/favouritism? Are corrupt exceptions known and controlled adequately? Is the situation different for EU funds compared to national funds? 2. The second research question, once we establish if most transactions are particular rather that universal, is what is the nature of the particularistic link. Why is government treating preferentially some private actors? Is there evidence of 3 profit reciprocation, and if not, is this due to absence of data and lack of adequate investigations, or other factors? 3. If we find evidence of systematic government favouritism and state capture, what is the impact of this for the market and society? Do we find evidence of market or political distortion (e.g. through party financing)? Indicators and case selection To answer these questions our research teams set to collect these indicators: 1. Indicators on transparency of government transactions in the area of procurement and public-private partnership in infrastructure. These were basically collected from the process of retrieving data, based not only on online accessibility but also to the responsiveness of national authorities to disclose the data needed to document this report. 2. Indicators on the material stake of procurement in the budget and construction sector at least from 2008 to the last available year, as follows: National level data: o Share of total procurement volume in GDP (%), if possible, breakdown to national vs. local level o Share of construction sector in GDP and in total public expenditures (%) o Share of construction spending in total procurement (%) o Share of EU-funded projects in total construction sector (%) Firm level data: o Mean/median market share of the companies that participate in allU U (relevant) public procurement in construction sector and EUU funded U projects separated between domestic and international companies o Mean/median share of public procurement income in total income of these companies (%) 3. Indicators on national procurement legislation and practice: What are the national peculiarities in procurement legislation? Are there substantial differences between national and EU procurement rules? How have the national rules changed over time? Were there any changes after elections / government changes? How are members of procurement award boards appointed? Are they bureaucrats or mostly politicians? Again, is there a systematic turnover after elections / government changes? Do national laws, courts and/or political decisions indicate any systematic pattern for a particularistic distribution of resources? If yes, what is the nature of the particularistic link? Is there important contestation, and where does it come from? 4. Indicators on government favouritism and corruption in public procurement, as follows: Outcome indicators. Non-random patterns after data mining of public procurement indicating some companies win disproportionately a large number of contracts or some agencies grant most of their budget to certain companies 4 Process indicators. Number and relative share of single bidding in the tendering process, as well as of other frequent tendering irregularities Indicators of profit for the awarding public authority. Individual or party donors to electoral campaigns and any other financial contributions to political parties (financial ties to politicians). The countries selected for this study changed slightly compared to the project document. The original case selection included an EU old member state, at least one new post-communist member state, one accession state and one neighbouring country. The latter was supposed to be Ukraine, which was discarded due to beginning of the war there and the difficulty of retrieving data. The final case selection included thus four new member countries with four different accession dates (Hungary - 2004; Romania and Bulgaria - 2007; Croatia - 2014), an accession country (Turkey) and an old member state (Germany). Greece was discussed in the context, but discarded due to difficulty of data gathering and lack of variation in the panel, which missed a country with good control of corruption perception. With the inclusion of Germany, the resulting panel varies sufficiently both in terms of EU membership and the level of control of corruption reported. The universe of transactions was established as contracts in the field of public infrastructure (construction) of over 1 million euros starting in 2008, so to cover at least two electoral cycle and
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