Corruption in Procurement

UNIVERSITY OF DAR ES SALAAM BUSINESS SCHOOL| AN ASSESSMENT OF CORRUPTION IN THE PROCUREMENT PROFESSION IN GOVERNMENT: CASE IN TANZANIA. | | BY| BERNARD, HELLEN| REG. NO. 2009-06-00929 | RESEARCH PROPOSAL SUBMITTED FOR APPROVAL TO CARRY OUT RESEARCH FOR THE DEGREE OF MASTERS OR BUSINESS ADMINISTRATION. | Table of Contents 1. 0 INTRODUCTION 1. 1 background3 1. 2 STATEMENT OF THE PROBLEM4 2. o research aim6 2. 1 RESEARCH OBJECTIVES6 3. 0 RESEARCH QUESTIONS………………………………………………………………………………………………………………………6 3. 1 RESEARCH HYPOTHESIS. 7 4. 0 LITERATURE REVIEW 4. 1 CONCEPTUAL LITERATURE…………………………………………………………………………………………………8 4. THEORETICAL FRAMEWORK………………………………………………………………………………………………. 10 4. 3 EMPIRICAL LITERATURE…………………………………………………………………………………………………….. 12 5. 0 METHODOLOGY………………………………………………………………………………………………………………………………. 14 REFERENCES…………………………………………………………………………………………………………………………………………. 17 1. 0. INTRODUCTION 1. 1 Background The Tanzania Government has long realized the importance of public procurement to the economic development of Tanzania and hence to the fulfillment of key objectives within the national Poverty Reduction Strategy. To this effect, Tanzania was one of the first countries in Sub-Saharan Africa to enact a law modeled on the UNCITRAL model law.

Since 1996, when the first country procurement assessment report (CPAR) was carried out, the Government has been working closely with the World Bank and other development partners to enhance the economy and efficiency of its procurement system and to make it more transparent and accountable. The Government has long acknowledged that there is rampant corruption in Tanzania and has been fighting hard to reduce it. It is estimated that at the national level about 20 percent of the government expenditure on procurement is lost through corruption, mainly through kick-backs and bogus investments that have to be written off.

Considering that public procurement accounts for about 70 percent of the entire government expenditure budget, this translates to a loss of TShs 300 billion (USD 300 million) per year, enough to finance the combined annual recurrent budgets of the ministries of health and education. Clearly such a loss is economically unsustainable. Major losses occur in construction and supply contracts, which are the major avenues for corruption, particularly at the local government level. The need for enhancing the transparency of the procurement system cannot therefore be overemphasized.

The Government of Tanzania is fully aware that its public procurement is still weak and needs to be strengthened substantially to enable it to ensure that the procurement laws and institutions become effective tools in the efficient and transparent management of public funds. Strategic management in the public sector begins by looking up toward politics -the current expectations and aspirations of citizens and their representatives and the older political agreements formally enshrined in the legislation that defines public managers’ mandates for action.

Corruption had been inculcated in the political culture of most underdeveloped countries; while, it still elicits the criticism and opposition of the public, it has nonetheless been accepted as a fact in the political life. One of the primary areas of corruption is in the procurement process. Grounded on the idea that, the bread and butter of politicians exists in this aspect, the procurement process has been the locus and target of most politicians aiming to get a slice of the cake. In third world countries, this part of the cake proves to be the life of people.

The foreign aid given by international organizations like the World Bank and the International Monetary Fund and the government revenue from taxes is easily lost once the budget is distributed to departments and the “purchase” of equipments and materials has begun. . Earlier on we questioned the assumption or perception that corruption, especially petty corruption is a function of low pay. In our review of theories of motivation we noted that there is consensus among theorists on motivation on pay

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being a necessary, but not sufficient condition for an employee to perform at a minimum level in an organization.

Where an employee has a perception that the level of compensation given by the employer cannot and will not meet basic living/existence needs, and the employee is not in a position to exit from the organization, he/she will adopt deviant work behavior, which will include a number of income maintenance strategies, including corruption to address the income shortfall. 1. 2 statement of the problem The procurement process has been the locus of government corruption- unless this can be addressed; the citizens of Tanzania will continue to suffer.

It is necessary that strategies and measures be introduced in the government procurement profession to reduce the corruption in this process and in effect, corruption in the government. Procurement corruption is deeply rooted in the political culture and traces its roots on the nature of governments. As long as the nature of government and politics remains to be relatively immature, corruption in the procurement process will remain. Thus, the need for strategies to hamper this occurrence arises.

A focus on newspaper reports, editorials and letters from readers in any of the last ten years would make one conclude that this country has been eaten away by the corruption scourge. Contrast the foregoing situation with what obtained between 1961, as we became independent and the late 1970s. The decade following Tanzania’s independence (1960-1970) did not manifest intense corruption. Where it took place it tended to be restricted to low-level officials who demanded and received negligible sums of money.

As the country expanded the public sector and public administration institutions progressively decayed, entailing the rise of bureaucratic malfunctioning, opportunities for rent-seeking behavior and asking and offering bribes started creeping in. In the same period, the cost of living rose dramatically while public service pay remained static or declined. Public officials became driven by a culture of survival and they progressively adopted deviant behavior patterns discussed earlier in the paper, including the use of corruption as an income maintenance strategy.

To address and control the trend of increased corruption, the Nyerere Government enacted the leadership code as part of the Arusha Declaration which had been adopted in 1967 and dedicated Tanzania to the pursuit of Ujamaa and Self Reliance as its ideology. While moral suasion through a socialist code of conduct was making its contribution to the fight against corrupt tendencies, the country came to experience a major economic crisis following the oil crisis and the after effects of the war with Idd Amin in the late 1970s and early 1980s, with double digit inflation, major fiscal deficits and negative economic growth.

That situation saw the state lose its ability to pay public servants a living wage. Official salaries, even at managerial and executive levels, fell below subsistence needs, creating incentives to look for side incomes. As the state controlled economy declined, an informal one arose to take its place. Smuggling became rampant. In the end, the harsh realities of scarcity and poverty overwhelmed the dedication to socialist equality and corruption became embedded in Tanzania society. 2. 0 RESEARCH AIM This study aims to propose measures and strategies that could resolve the issue of government corruption in the procurement process. . 1 research objectives This research paper aims to: 1. Identify the different procurement corruptions in governments of Third World countries 2. Determine the stages of the procurement process and discover where corruption happens 3. Evaluate the nature of Third World Government and politics and the corruption in procurement 4. Propose measures that can resolve the issue of corruption in the procurement profession 3. 0 RESEARCH QUESTIONS This study seeks to answer the following questions: 1. What are the indicators of procurement corruption and how extensive is it mong governments (Developed, developing and Third World) 2. What are the different corrupt practices in the process of procurement? 3. Outlining the procurement process, what stage(s) does corruption happen? 4. In relation to the nature of Third World Governments, what is their relation and to what degree that these two variables (corruption in procurements and government) affect each other? 5. What are the measures and strategies that governments have employed to address this issue? 3. 1 Research hypothesis 1.

The nature of government and politics in a country is significantly related to its corruption practices 2. The more accountable the government, the lesser the tendency of corruption in the procurement process 3. Further, procurement corruption is directly related to the lack of transparency in government purchases. 4. 0 LITERATURE REVIEW 4. 1 Conceptual literature CORRUPTION Corruption is a very widespread phenomenon with most governments having a least some. While corruption usually meets with disapproval, it may have some redeeming features (Tullock, 1996).

It may make possible smaller or no salary payments to officials who, if carefully supervised, will still carry out their functions on a fee-for-service basis (Tullock, 1996). Transparency International (TI) has chosen a clear and focused definition of the term: Corruption is operationally defined as the misuse of entrusted power for private gain. TI further differentiates between “according to rule” corruption and “against the rule” corruption. Facilitation payments, where a bribe is paid to receive preferential treatment for something that the bribe receiver is required to do by law, constitute the former.

The latter, on the other hand, is a bribe paid to obtain services the bribe receiver is prohibited from providing. The cost of corruption The cost of corruption is four-fold: political, economic, social, and environmental. On the political front, corruption constitutes a major obstacle to democracy and the rule of law. In a democratic system, offices and institutions lose their legitimacy when they are misused for private advantage. Though this is harmful in the established democracies, it is even more so in newly emerging ones.

Accountable political leadership cannot develop in a corrupt climate. Economically, corruption leads to the depletion of national wealth. It is often responsible for the funneling of scarce public resources to uneconomic high-profile projects, such as dams, power plants, pipelines and refineries, at the expense of less spectacular but more necessary infrastructure projects such as schools, hospitals and roads, or the supply of power and water to rural areas. Furthermore, it hinders the development of fair market structures and distorts competition, thereby deterring investment.

The effect of corruption on the social fabric of society is the most damaging of all. It undermines people’s trust in the political system, in its institutions and its leadership. Frustration and general apathy among a disillusioned public result in a weak civil society. That in turn clears the way for despots as well as democratically elected yet unscrupulous leaders to turn national assets into personal wealth. Demanding and paying bribes become the norm. Those unwilling to comply often emigrate, leaving the country drained of its most able and most honest citizens.

Environmental degradation is yet another consequence of corrupt systems. The lack of, or non-enforcement of, environmental regulations and legislation has historically allowed the North to export its polluting industry to the South. At the same time, careless exploitation of natural resources, from timber and minerals to elephants, by both domestic and international agents has led to ravaged natural environments. Environmentally devastating projects are given preference in funding, because they are easy targets for siphoning off public money into private pockets.

PROCUREMENT Procurement is the full process involved in acquiring required goods, services or works. Procurement involves identifying the requirement of the purchasing authority, building a list of minimum requirements, and then scoring any interested parties who meet the minimum requirements, usually offering the highest score based on the most economically advantageous bid, commonly known as “best value”. Part of the Procurement process is also to manage the contract once awarded, to ensure that the successful suppliers, or suppliers, are providing a quality service.

Collaborative contracts are becoming more commonplace; where multiple public bodies will combine their requirements and run a single Procurement process to meet their merged requirements. Due to the higher volume of business promised by collaborative contracts, suppliers will usually offer larger discounts. Collaborative contracts are usually led by one public body, acting on behalf of the others. In addition to this, some Procurement Centers of Expertise set up and manage contracts on behalf of public bodies, allowing all public bodies to use these collaborative contracts.

Some examples of these Centers of Expertise are OGC, Buying Solutions and Procurement Scotland. The stage of the Procurement cycle when suppliers are invited to submit bids is known as the Tendering process. Usually, in addition to submitting their monetary bid, suppliers are required to respond to a questionnaire which the public body has put together with the intention of identifying and eliminating suppliers who are unable to meet their basic requirements, thereby preventing their tender from being successful regardless of whether they have the most economically advantageous bid. . 2 Theoretical framework The systematic study of political corruption encompasses matters of definition, typology, cause, and consequence, linked by a common theoretical framework. A substantial body of literature explores these issues, but many problems exist. The countless definitions inadequately set out the fundamental normative and behavioral dimensions of corruption and fail to incorporate the phenomenon into a broader theoretical framework or to deal accurately with the question of private interests.

Typologies of corruption, though equally rife, also seem to lack clear theoretical relevance. Existing explanations of corruption can be attacked for projecting confusing and contradictory hypotheses, for being fragmentary, and for failing to differentiate various types of corrupt behavior; those centering on the functions of corruption also seem incomplete. Some, for instance, underscore the positive effects of corruption in integrating ruling elite but fail to question whether corruption influences feelings of legitimacy toward government or inspires destabilizing protests and mobilizations.

As a form of deviant political behavior, corruption is political conduct contrary to political norms. This definition underscores both its normative and behavioral components. The normative aspect of corruption centers on the evaluative standards or rules that determine political propriety: the criteria used to judge the legitimacy or illegitimacy (i. e. , the “corruptness”) of a political act; the behavioral aspect corresponds to observable actions (Morris, 1991). The norm provides the standard by which all acts of government are to be interpreted and judged.

Accordingly, any private usurpation of that pertaining to the public domain, which negates this principle, invites condemnation. An important issue that warrants attention concerns the role of personal gain or interest. Including personal gain or what is tantamount to private interest in a definition of corruption presents two major problems. First, it is generally held that all acts are a function of personal gain; in formal theory, this is referred to as “rationality. ” Consequently, all acts by government officials, whether corrupt or otherwise, are thought to be motivated by a rational promotion of private interest.

In other words, a non corrupt act is promoted by personal interest just as is a corrupt act. Since personal interest is an assumption of human behavior and a constant, it need not be included in a definition Strategic management in the public sector begins by looking up toward politics -the current expectations and aspirations of citizens and their representatives and the older political agreements formally enshrined in the legislation that defines public managers’ mandates for action.

Politics, and the laws that politics produce, deserve this pride of place for three key reasons. First, it is this realm that managers must search to discover what purposes are deemed publicly valuable and can, therefore, be practically and normatively sustained as the focus of their managerial efforts. It is in and through politics that they can discover and help shapes their mandates for action.

Second, political institutions grant public managers the resources they need to accomplish their operational purposes–including money and authority over their own organizations and over those beyond their organizations who can contribute to the managers’ purposes. Third, it is to politics and law that public managers are both theoretically and practically accountable; their performance is graded and their reputations made within this realm.

Procurement contracting often entails large monetary sums and involves widely known or powerful people inside and outside government. Thus, this kind of corruption can be especially damaging to a country in terms of distorted incentives, undermined public trust, and inequitable distribution of national budgets. This is particularly prevalent in Third World countries where the political socialization of people seems to accept corruption as a part of the political culture.

Among the principal types of procurement corruption includes: collusion in bidding (leading to higher costs/prices for the city, payments for which may or may not be shared with corrupt officials); kickbacks by firms to “fix” procurement competition; and bribes to officials who regulate the winning contractor’s behavior (which may permit lowball bids with subsequent cost overruns and unnecessary changes in contract specifications) (Klitgaard, MacLean, and Parris, 2000). 4. 3 Empirical literature Corruption is about economics, gaining power, maintaining power and unfortunately to some, survival (Green, 2000).

Generally, it’s been my experience that corruption usually involves bribery, kickbacks, gratuities and gifts to government employees from individuals doing business or attempting to do business with the government. A large percentage of corruption taking place within governments and businesses worldwide rests within the procurement of goods and services. The movement toward decentralization, accountability, and democratic forms of government at the local level is gathering momentum (Klitgaard, MacLean, and Parris, 2000).

In this context, the enormous costs of corruption are being explicitly recognized, as is the urgent need to correct governmental malfeasance (Klitgaard, MacLean, and Parris, 2000). Corruption is an entrenched symptom of misgovernance often reflected in patronage, red tape, ineffective revenue-generating agencies, large scale bribery in procurement, and failure to deliver services to city dwellers When the government needs a good or service, the city government has the two broad alternatives of making it or buying it: that is, the city can provide the good or service itself, or rocure it from the private sector (Klitgaard, MacLean, and Parris, 2000). Corruption is one of the dimensions of this choice. Because contracting is “where the money is”, most government officials are tempted by the lure of procurement services often at the expense of the public. Recent developments and current trends are highlighting the role of accountants in governance.

Foremost among these are: the increasing concern with rising levels of corruption, the renewal of interest in accountability and transparency as inoculations against corruption; the new government focus on results, benchmarking and value-for-money (the “new public management”) and the corresponding thrust in the private sector through business process reengineering, knowledge management and intranets — where accounting systems play a major role; decentralization and participation by citizens and NGOs in public management are multiplying the needs for credible accounting information; the privatization of utilities in several countries is increasing the need for regulation, in which accountants have a major role in reducing information asymmetry; the globalization of corporate finance has enhanced the need for global standards of accounting and auditing; the Asian crisis has highlighted the weaknesses in transparency, in financial sector regulation and in corporate governance generally in a number of countries (Bennett,  2000). There are several measures that could be done in order to reduce the incidence of corruption. First, reducing the scope and role of personality politics.

An increase in public policy debates and other activities of government, opening the closed doors, and permitting greater public scrutiny of official processes would clearly have such an impact. Generally, the more public government affairs become, the less corrupt they can be (Bennett, 2000). Enhancing the autonomy of the state’s subsystems would also reduce the likelihood of corruption. This could be pursued, for instance, by creating an effective civil service system or merit system or opening up grass-roots political involvement. Such reforms would cripple the centralization of recruitment and thereby temper the loyalty patterns that currently prevail.

Strengthening the autonomy and role of Congress or democratizing corporate organizations would be steps in this direction (Bennett, 2000). Strengthening social organizations would also impinge on corruption. This could be done by reducing the tutelary role of the state and lessening the dependency of social organizations on the state or by enhancing popular input into the organizations themselves. Not only must businesses or union’s articulate demands on the government, but such organizations must be structurally responsive to the demands of their constituents. Tying the fate of leaders of social organizations to criteria internal to the group rather than those determined by the state would greatly inhibit current patterns of corruption (Bennett, 2000). 5. 0 METHODOLOGY

This chapter will discuss the method of research to be used, the respondents of the study, the sampling technique, the instrument to be used, the validation of the instrument, the administration of the of the instrument and the statistical treatment of the data that will be gathered. Research Methodology and Techniques for data collection This study will use the descriptive approach. This descriptive type of research will utilize interview, observation and questionnaires in the study. To illustrate the descriptive type of research, the researcher will be guided by Calmorin when he stated: “Descriptive method of research is to gather information about the present existing condition. The purpose of employing this method is to describe the nature of a situation as exists at the time of the study and to explore the cause/s of particular phenomena.

Proposed subject Population/Sample The general population for this study will be composed of government officials and personnel in the procurement process, randomly selected private companies who have been involved in the bidding process and randomly selected citizens. I will use a combination of cluster and random sampling. First, I will cluster the respondents from the government, the private sector and the public sector. To make the sampling easier for every specific cluster, I will seek the aid of any anti-corruption non-government organization to facilitate the names and addresses of the respondents or have them together in one place (i. e. in an organizational meeting) so that the surveys can be given in one session. I will pick one hundred (100) respondents per cluster for a total of three hundred (300) respondents. Validation of the Instrument For validation purposes, I will initially submit a survey questionnaire and after approval, the survey will be given to five respondents from the government, private corporations and the public sector. After the survey questionnaire will be answered, I will ask the respondents for any suggestions or any necessary corrections to ensure further improvement and validity of the instrument. I will again examine the content of the survey questionnaire to find out the reliability of the instrument.

I will exclude irrelevant questions and will change words that would be deemed difficult by the respondents, too much simpler terms. Administration of the Instrument The revised instrument will then be administered to the respondents of the study which will be chosen through a combination of cluster and random sampling. I will exclude the ten respondents who will be initially used for the validation of the instrument. I will also tally, score and tabulate all the relevant data in the survey questionnaire. Statistical Treatment of Data When the entire survey questionnaire will have been collected, the researcher will use statistics to analyze all the data.

The statistical formulae to be used in the second and third part of the survey questionnaire will be the following: 1. Percentage – to determine the magnitude of the responses to the questionnaire. 2. Weighted Mean 3. I will use chi-square to relate the participation rate of the government employees, companies and the public sector. I will be assisted by the SPSS in coming up with the statistical analysis for this study. Resource, Confidentiality and other consideration The survey respondents and interviewees’ identities will be held confidential. Only I will have the knowledge on their identities and utmost secrecy will be provided. Further, personalities who do not want to be quoted in interviews will not be disclosed. REFERENCES. 1.

Klitgaard, Robert, MacLean, Ronald and Parris, Lindsey, Corrupt Cities: A Practical Guide to Cure and Prevention, Ics Press, 2000 2. Bennett, Anthony, “The Role of Accounting in Good Governance”, In Carter, Williiam, Davies, Mark, El, Yassin and Ford, Kevin, Government Ethics and Law Enforcement: Toward Global Guidelines, Praeger Publishers, 2000 3. Green, Vincent, “An Approach to Investigating Corruption in Government”, In Carter, Williiam, Davies, Mark, El, Yassin and Ford, Kevin, Government Ethics and Law Enforcement: Toward Global Guidelines, Praeger Publishers, 2000 4. Morris, Stephen, “A State-Society Approach to the Study of Corruption “, Corruption & Politics in Contemporary Mexico, University of Alabama Press, 1991

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