1. Better legal protection for EU financial interests in Romanian public procurement
Conference organised by Freedom House
in Bucharest, Romania, on 17 June 2015
Fight against fraud – the EU perspective The new public procurement directives and the new ESI programming period
Thomas Steiger
Policy officer
European Anti-fraud Office (OLAF) Directorate ‘Policy’ Unit ‘Fraud Prevention, Reporting and Analysis’

2. What is OLAF? European Institutions‘ investigative service
Policy Advice and Service Platform
Legal Basis
Commission Decisions 2013/478/EU and 1999/352/EC
Regulation (EU EURATOM) No 883/2013
Article 325 TFEU
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3. What does OLAF do?
Conduct external investigations, defending the financial interests of the European Union against fraud, corruption and any other illegal activities;
Conduct internal investigations, protecting the reputation of the European Institutions by investigating serious misconduct by their staff that could result in disciplinary or criminal proceedings;
Provide policy-making and advisory services, supporting the European Commission and cooperation partners at Union, Member State and international level in developing and implementing fraud prevention and detection policies.
The mission of OLAF is threefold:
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4. Public procurement: Context
Public procurement = about 20% GDP in the EU (2010: € 2.4 trillion)
Public procurement in Romania = about 25 % of GDP (2011: € 33.5 billion)

5. Types of corruption identified in PwC study
Type of corruption by sector
Sector
Bid rigging
Kickbacks
Conflict of interest
Deliberate mismanagement
Urban/utility construction 19 14 11 3
Road & Rail 10 8 4 1
Water & Waste 15 6
Training 2
Research & Development 12
Total* 57 35 22 5
Type of corruption by Member State
Member State
France
Hungary 9
Italy
Lithuania
Netherlands
Poland
Romania
Spain
Table: types of corruption identified (Source: PwC) 5

6. Public Procurement is a "Hot spot" for corruption
High levels of financial interests at stake, especially in sectors such as infrastructure, urban planning, health
Corruption affects the economy, public finances and citizens' trust
According to a Eurobarometer survey, 93 % of respondents from Romania believe corruption is widespread (average EU 76%)
25 % of RO respondents report that they have been asked or expected to pay a bribe in the past year (EU average 4%)
Présentation Powerpoint
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7. More detailed perception of corrupt practices in public procurement among RO business people
44% of respondents prevented from winning because of corruption
59 % of respondents reported tailor made specifications
53 % of respondents observed collusive bidding
57% of respondents noted conflict of interests
56 % of respondents pointed to unclear selection and evaluation criteria
Présentation Powerpoint
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8. Public Procurement rules to prevent corruption I
Rules for transparent and non-discriminatory public procurement, if followed, prevent corruption:
Objective evaluation of tenders
according to an appropriate methodology
based on unbiased award criteria
not guided by conflicts of interests
Concluding the contract as tendered
Executing the contract as concluded
(Source: DG GROW)
Présentation Powerpoint
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9. Public Procurement rules to prevent corruption II
The reform of the public procurement directives and the new concessions directive should ensure
effective procedures for purchases at best price
simpler rules because complex, bureaucratic processes extend the opportunities for corruption
The transposition period of these new directives gives each Member State the opportunity
to raise awareness of the rules amongst all public procurement actors, including the judiciary
to overhaul the organisation of its public sector
(Source: DG GROW)
Présentation Powerpoint
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10. Public Procurement rules to prevent corruption III
The new directives enhance transparency:
E-procurement is generalised and becomes mandatory.
The setting of a legal framework for concession contracts enhances transparency in this field.
A standard form self-declaration for bidders, the "European Single Procurement Document" is introduced, which makes it more difficult to exclude tenders in the selection phase.
(Source: DG GROW)
Présentation Powerpoint
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11. Public Procurement rules to prevent corruption IV
The new directives enhance transparency:
The scope of the public procurement directives is extended to the vulnerable post-award phase, as the modification of contracts during their term without a new tender procedure is now regulated.
Copies of 10 Mio EUR works + 1 Mio EUR supplies and services contracts must be made available on request; exceptions: commercially sensitive information.
Guidance for contracting authorities by Member States and administrative exchange of information e.g. on exclusion grounds are required.
(Source: DG GROW)
Présentation Powerpoint
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12. Public Procurement rules to prevent corruption V
New Directives strengthen the anti-corruption purpose:
Exclusion grounds are strengthened and extended to situations during the procedure, where bidders:
have entered into agreements
have tried to influence or mislead the contracting authority
have tried to obtain confidential information
The notion of "conflicts of interests" is defined at EU level. Member States and contracting authorities are asked to take appropriate measures to effectively prevent, identify and remedy conflicts of interests.
(Source: DG GROW)
Présentation Powerpoint
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13. Fraud Indicators = Red Flags
A red flag is a fraud indicator, a warning signal, a hint.
The existence of a red flag does not mean that fraud exists but that a certain area of activity needs extra attention to exclude or confirm potential fraud.
Some patterns, practices and specific forms of activity are red flags that could signal irregularities or fraud.
Présentation Powerpoint
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14. Red Flags Preparation Bidding Staff Company Evaluation Implementation14

15. Red flags: Rigged specifications
only one or abnormally low number of bidders respond to request for bids;
similarity between specifications and winning contractor’s product or services;
complaints from other bidders;
specifications are significantly narrower or broader than similar previous requests for bids;
unusual or unreasonable specifications;
the buyer defines an item using brand name rather than generic description.
Présentation Powerpoint
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16. Collusive bidding – red flags I
In the same tender procedure:
Links between bidders
High prices by all bidders
Same percentage of distance between offers
Suspicious information in one offer: old postal code
Présentation Powerpoint
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17. Collusive bidding – red flags II
Observation of several tender procedures over time:
The same bidders
Losers keep bidding
Rotation of winning bidders
Présentation Powerpoint
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18. Example Irregularities in the tender procedures
Cohesion Fund
Total realised damage: around EUR 40 million (with EU co-financing 50%)
Initial source of information: an to OLAF informing about potential irregularities in one tender: conflict of interest and ineligible expenses. 18

19. Modus operandi Conflict of interest / Kick-back
A public official, responsible for implementing EU funded projects, was hired by a contractor involved in the projects.
The person concerned changed jobs within one week after the contract was awarded.
The company allegedly paid for the house renovation of the person concerned. 19

20. Red flags: Evaluation stage
The tender was not won by the company offering the lowest price.
Before the award decision, the notice had been changed several times. Consequently, the most experienced company among the bidders had to be excluded.
The winning company had less professional experience than all the other bidders. 20

21. Red flags: Implementation stage
Several deadlines were missed within the project resulting in a contract delay of over 15 months.
Additional works had to be done after the implementation of the contract; they were carried out by a company not selected in the tender procedure.
Contract penalties were applied rarely and they accounted for around 1% of the contract value – reflecting a preferential treatment.
Repeatedly the concerned company was awarded new contracts when the implementation of the previous ones already encountered severe problems. 21

22. Red flags: Undisclosed conflict of interest I
Sudden increase in wealth
Socialisation
Lack of conflict of
interest declaration
STAFF
Favourite contractor/seller
Undisclosed side business
Local agent in one of the representation in Africa secured a contract for supplying IT equipment for a company in which he hold shares.
Sudden Increase in wealth
Socialisation
A company owned by a person who helped a chair of the selection panel to organise an exhibition of his works, created as a hobby, received a big contract for PR campaign.
Declined promotion
Lack of conflict of interest declaration
The financing officer in one of the agencies selected in a tender selection a company for which his wife worked.
Declined promotion
Undisclosed side business 22

23. Red flags: Undisclosed conflict of interest II
contractor has a reputation for paying kickbacks;
arbitrary disqualification of bidders;
manipulating the scoring of bids during evaluation;
one bidder's offer relies on unpublished information;
in secondary procurement: pressure by project officials on contractors to select a particular subcontractor;
unjustified sub-contracting for dubious/unclear services
Présentation Powerpoint
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24. Rounding up Main problems at the level of procurement by beneficiary
Manipulated tenders, false offers, collusion – frequent
Fraud at evaluation level is often followed by fraud at implementation level (false invoices, deliverables of inferior quality, etc.)
Attention by beneficiary saves money and time
Get familiar with possible types of fraud
Get familiar with red flags
When more than one red flag present = check closely
If verifications turn out suspicious results, go more in depth and take precautionary measures
Présentation Powerpoint
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25. Thank you for your attention!
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