Debarment in public procurement Tina Søreide. Norwegian School of Economics Global Procurement Conference, Rome 4 July 2017

Debarment of dishonest suppliers in public procurement - a good strategy for protecting markets against corruption and collusion? What is “debarment” – and who can be debarred? How/when is a supplier “un-debarred”…? How can we tell whether it works?

Background Europe (EU Procurement Directive), US (longer history), other regions + World Bank and "cross-debarment" High expectations in the policy world "suspension or debarment from public contracts has proven to be an effective tool in the fight against corruption" (UNODC 2013: 25) "The World Bank's sanctions process is critical to eradicate fraud, corruption and collusion from the projects it finances” (Hugeuette Labelle, then Chair of Transparency International in press release, 26 June 2014) Empirical support? Scholarly literature? Economics…?

Debarment in practice Enforcement failure common High market concentration complicates enforcement Debarment rules stipulate exclusion irrespective of where corruption is a problem Procurement agent’s discretion (evidence, identification, need) Negotiated settlements under criminal law = self-cleaned entity Implications for leniency in competition law

Analytic framework (Auriol & Søreide 2017) To what extent would debarment deter corruption IF the rules were enforced as stipulated? Model describing two-sided procurement story: government/procurement and firms/market. IO-approach. Market size/public demand varies across periods. Non- homogenous firms. Endogenous N. Repeated purchases Corruption: the choice of directing a contract to a certain supplier (sole source)

Analysis Debarment can deter bribery under some circumstances Impact on the disinclination to pay bribes number of firms competing in the market firms’ discount rate (the value of future contracts) risk of detection & predictable enforcement Debarment will not affect government decision makers. If corruption continues, more firms are detected & debarred (the number of suppliers decreases) Suppliers: as N decreases, contracts more likely & more to loose The deterrent effect is higher the fewer competitors But now, higher risk of other challenges … . Anticompetitive effect: weaker competition + higher risk of colluson

Policy difficulty Debarment works under the circumstances when enforcement failure and the possible side-effects appear to be at their worst Move debarment authority to market protection agency…? Market competence Unbiased enforcement Coordinated reaction for the sake of protecting leniency tool Ambition to keep suppliers in markets (enforce debarment rules?)

Conclusions Irrational design of rules and enforcement failure; seen as acting without real commitment? (hindering more efficient strategies?) One-sided approach; reflecting hesitance to address corruption within one’s “own” state administration…? Laws as stipulated in EU directive; space for “individual” solutions; governments can choose more efficient solutions if they want to Protecting markets against corruption and collusion? More holistic approaches needed (ref. my LEAR conference presentation) Thanks! tina.soreide@nhh.no