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Country reports: Europe and Central Asia
for tenders and reward the order by providing favours to the representative of the institution or his/her party. In July 2007 a bid for a tender in the municipality of Kistokaj Község illustrated some of the irregularities that may occur during the bidding process. The municipality published a call for tenders to build 1,440 metres of covered rainwater trenches and gates. The call was sent out to ten potential applicants on 31 July 2007. The evaluation criteria included the bidding price, the financial stability of the applicant, work references, the guarantee and the most favourable bid overall. The authority modified the evaluation criteria and weighted them based on bidding price (10), guarantee and insurance (5), deadline (5) and work references (5). Seven bids were submitted (one of which was not valid). In response to the municipality’s final decision, one of the rejected bidders appealed against the decision on the grounds that the municipality did not follow the evaluation method in the original tender documentation. As a consequence, the procurement was annulled.20 Although the municipality’s motives in changing the criteria are not clear (whether it was inefficiency or dishonest manipulation), what is clear is that it did not adhere to the procurement rules. Such deviations from procurement rules increase the risk of corrupt practices entering the process. It is particularly important that deviations from procurement rules be avoided, because many such instances do not come to light; losing bidders often do not challenge such occurrences, partially out of concerns that, once they are considered troublemakers by the authorities, they will lose future opportunities to win tenders. 20 21 22 23
On the other hand, the tendering process can also be manipulated by the private sector. This can come in the form of cartels set up by private companies bidding for the same government contract. In practice, these companies agree on which one will win the contract and at what price. The Competition Authority, which investigates these practices, produces evidence of collusion in every tenth reasonably suspicious case, leading to three to five cartel cases per year.21 Fines for such behaviour do not provide an adequate deterrent, however, and often fall far short of the claim for damages made by the institution calling for tenders. In November 2007 the Competition Authority revealed a cartel agreement between the Hungarian Post Office and the Hungarian Newspaper Distribution Company to divide the market for the distribution of different types of newspapers and journals from 2001 to 2007. The sanction for each cartel member was Ft 468 million (US$2.34 million).22 The office also fined the Kortex Engineering Office Ft 77 million (US$380,000) for signing a contract with another company to become the exclusive subcontractor during a public procurement procedure.23 Although the Competition Authority is strict enough in imposing fines and successful in revealing cartel agreements, it does not have enough capacity to investigate smaller-scale cartels involving small and medium-sized enterprises. As can be seen, the public procurement system has high corruption risks for both the authorities and the companies taking part. The ongoing modification and focus on the Public Procurement Act is a step in the right direction, but it is not likely to prevent corruption based on the network of mutual favours formed from personal connections. While the legislation is adequate and the legal sanctions on business
Decision D. 543/9 /2007. of the Public Procurement Arbitration Board, 24 October 2007. Statistical Data of the Competition Office. Decision Vj-140/2006/69. of the Competition Council, 8 November 2007. Decision Vj-81/2006/74. of the Competition Council, 18 December 2007.