1. 1 Procurement procedures and the size of firms in infrastructure contracts Annual World Bank Conference on Development Economics 29-30 May 2006, Tokyo. Parallel session on Infrastructure and Governance Tina Søreide Chr. Michelsen Institute (CMI), Norway.

2. 2 Procurement procedures are not enough Infrastructure contracts and concessions The need for public private partnerships is well documented. Elaborated and internationally recognized tender procedures are usually in place. Political will to improve welfare for the poor is usually being uttered. Many success-stories But also repeated failures to improve public service delivery for a poor population.

3. 3 Infrastructure contracts and concessions Perceived to be particularly prone to corruption: Size of contracts Sector Technology Opportunities to obtain market power Tender procedures Urgency Local level of corruption Risk of being caught Trust in business practices of competitors

4. Influence on tender procedures – not necessarily corruption Honest and professional business conduct Ordinary marketing Marketing targeted at specific individuals Violations of rules of communication Acquire secret information about evaluation, use of “fronts” “Facilitation payments Misuse of facilitation payments Buy secret information about competitors’ bids Gifts to political parties Unsolicited proposals Persuade politicans at home to put pressure on local gvms. Middlemen and agents Quid pro quos Bargaining on opportunities for reconcessioning Gifts to people involved in the tender procedure Local partnership with relatives of people with authority Direct or indirect financial transactions to individuals with influence on the procedure

5. 5 A business survey on corruption Procurement procedures: The way firms are selected and their contracting terms The perspective of firms – a business survey – conducted during 2004 Norwegian firms with long experience from international markets, many also with FDI - cooperation with the largest business organization (NHO) - most firms in infrastructure sectors (construction, telecom and IT, oil, gas and power transmission) - close to 100 questions on corruption, many on procurement - 82 responses (500 submitted questionnaires) - executive level, people involved in the tender procedures 2/3 claimed to have lost an important contract because of corruption

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7. 7 Business survey on corruption: results on tender procedures Tender specifications - sometimes designed to fit with the offer of one specific company, according to 41% 1/3 found themselves ’sometimes able to influence or advise clients on tender specifications’ Tender rules can not prevent corruption - according to 55%. Foreign political influence on local governments is a problem in large tenders. 1/3 believed competitors had obtained contracts this way.

8. 8 Business survey on corruption: results on tender procedures

9. 9 Business survey on corruption: results on tender procedures

10. 10 Business survey on corruption: results on tender procedures

11. 11 Results on large firms and tender procedures Large firms -are better able to influence tender specifications -are more likely to suspect tender results to be pre-determined -has a lower trust in procurement procedures’ ability to prevent corruption -are more likely to find the competition in their own industry ‘biased’. -more often believe that diplomatic pressure has an influence on the competition -are more often asked for quid pro quos

12. 12 Business survey – firms with long experience Firms with long experience from international markets: -are more likely to think that they have lost contracts because of corruption -say more frequently that they negotiate the contract all through the tender procedure -have more often obtained contracts in a way that needs to be kept confidential -are more likely to consider the business practices of their competitors ‘unethical’ More results from this survey are published in Soreide, T. (2006). ‘Corruption in international business transactions: the perspective of Norwegian firms.’ In S. Rose-Ackerman: Handbook of Economic Corruption (forthcoming), Edward Elgar.

13. 13 Opportunities to manipulate infrastructure tenders Four categories: 1. Hidden violations -Large and unique projects -Limited invitation, short-listing/pre-qualification -Misuse of confidential information -Renegotiation of infrastructure concessions 2. Legitimate violations -Discretionary authority -Justifications for bilateral negotiations -Unsolicited proposals

14. 14 Opportunities to manipulate infrastructure tenders 1. Hidden violations 2. Legitimate violations 3. Diplomatic and political pressure - Influence is ’accepted’ - Willingess to pay and industrial organization 4. Few whistle-blower reactions -Commercial confidentiality -Few responses by firms if contracts are awarded unfairly

15. 15 Concluding remarks Political intervention in the procurement procedures - needs to be better addressed -disregarding the motivations behind such interventions Continued professionalization of procurement entitites in poor countries -Important issues: how to handle unsolicited proposals and renegotiation of concessional terms Focus on welfare results -in the form of consumer surplus and access for the poor, rather than state revenues or producer surplus; ex ante and ex post poverty analyses are needed. The responsibility of firms - CSR needs to take new directions - reliable commitment, responses to corruption, appeal processes, court cases