copy the linklink copied!4. Managing Risks and Supporting Accountability throughout the Public Procurement Cycle

Public procurement is a government activity subject to a high potential risk of corruption, conflicts of interest and inefficient use of public resources. Some of the chief reasons why public procurement is considered a high-risk activity are the volume and the regularity of transactions, the close interaction between the public and private sectors, and the complexity of the procedures. The fact that it involves significant financial resources creates both opportunities and incentives for dishonest behaviour on the part of public officials and private suppliers.

    

Corruption is a risk at any stage of the public procurement cycle. It can distort decisions on the selection of purchasing procedures, for example, selecting a direct award process rather than a public tender. It can also distort the type and volume of supplies needed, the purchase prices and the selection criteria. Potentially corrupt practices during procurement processes for the health sector (such as bribes to public officials or collusion behaviours) can result in severe financial losses for the buying organisation (OECD, 2013[1]).

International conventions describe bribery as an undue advantage (which may be pecuniary or non-pecuniary in nature, tangible or intangible) that is committed if the undue advantage is provided to a public official or a third-party beneficiary. An undue advantage can take in a variety of forms, such as money, loans, shares in a company, holidays, food and drinks, sex or a promotion (OECD, 2008[2]). Bribes can also occur at any stage of the supply chain of any product or service bought by the government. In procurement, bribery can emerge when officials obtain an undue advantage, in order to provide procurement contracts, or giving a monopoly position at the tendering stage, or when suppliers fail to deliver the product/service and are not accountable for it (WHO, 2008 in (OECD, 2013[1])).

In Mexico, the perception of corruption is high. A recent survey by Mexico’s Statistics Office (INEGI, 2016[3]) found that 82% of businesses perceive corruption as frequent or very frequent. For the state of Sonora, 86% of businesses perceive corruption as frequent/very frequent.

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Figure ‎4.1. Perception of corruption in Mexico and Mexican states
Percentage of businesses that perceive corruption as frequent and very frequent
Figure ‎4.1. Perception of corruption in Mexico and Mexican states

Source: OECD research with data from INEGI-ENCRIGE, 2016. http://www.beta.inegi.org.mx/proyectos/encestablecimientos/especiales/encrige/2016/.

According to business perception, two of the ten main causes subject to acts of corruption are linked to public procurement. The national statistics data show that 14% of businesses are aware of corruption when obtaining public procurement contracts and 13% in public tenders. By contrast, in the state of Sonora, 43% of businesses are aware of corruption in obtaining public procurement contracts and 37% in public tenders.

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Figure ‎4.2. Perception of the causes of acts of corruption
Figure ‎4.2. Perception of the causes of acts of corruption

Source: OECD research using data from INEGI-ENCRIGE, 2016. http://www.beta.inegi.org.mx/proyectos/encestablecimientos/especiales/encrige/2016/.

Effective prevention of corruption, well-designed public procurement systems, and good governance of public procurement processes can enhance allocation of resources and success in achieving secondary policy objectives (e.g. environmental protection, innovation, job creation, as well as the development of small and medium-sized enterprises, standards for responsible business conduct, or broader industrial policy objectives, among other factors).

The OECD Recommendation of the Council on Public Procurement (2015[4]) consists of 12 integrated principles that address potential risks of corruption. It outlines essential measures to help policy makers instil a culture of integrity throughout the public procurement cycle. The 12 principles take a holistic view, addressing various risks to integrity, from needs assessment, through the award stage, contract management, and up to final payment. Such principles include enhancing integrity in public procurement systems; promoting actions to integrate risk-management strategies for mapping, detection and mitigation throughout the public procurement cycle; applying oversight and control mechanisms to support accountability throughout the public procurement cycle, including appropriate complaint and sanctions processes; encouraging transparent and effective stakeholder participation; and preserving the integrity of the public procurement system through general standards and procurement-specific safeguards.

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Figure ‎4.3. The 12 integrated principles of the OECD Recommendation of the Council on Public Procurement
Figure ‎4.3. The 12 integrated principles of the OECD Recommendation of the Council on Public Procurement

Source: (OECD, 2015[4]), OECD Recommendation of the Council on Public Procurement. www.oecd.org/governance/procurement/toolbox/principlestools/, accessed on 26 November 2017.

This chapter assesses the integrity framework to manage risks and support accountability throughout the public procurement cycle in the Institute of Security and Social Services of the Workers of the State of Sonora (Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado de Sonora, or ISSSTESON), from the perspective of the principles of risk management, integrity, participation and accountability. It is organised into four sections: i) encouraging effective risk-based internal control in ISSSTESON’s procurement activities, ii) preserving the integrity of the public procurement system through general standards and procurement-specific safeguards, iii) providing opportunities for direct involvement of relevant external stakeholders in the procurement system to increase transparency and integrity, and iv) developing an effective complaints and sanctions system, including suppliers.

copy the linklink copied!4.1. Encouraging effective risk-based internal control in ISSSTESON’s procurement activity

The OECD Recommendation of the Council on Public Procurement (2015[4]) suggests applying an internal control and risk-management framework to safeguard integrity in public sector organisations. It recommends developing a control environment and strategic approach to risk management, as well as building an efficient monitoring and quality assurance mechanism for the risk-management system. In particular, the recommendation suggests:

  • ensuring a control environment with clear objectives that demonstrate managers’ commitment to public integrity and public-service values, and that provides a reasonable level of assurance of an organisation’s efficiency, performance and compliance with laws and practices;

  • ensuring a strategic approach to risk management that includes assessing risks to public integrity and addressing control weaknesses (including building warning signals into critical processes), as well as building an efficient monitoring and quality assurance mechanism for the risk management;

  • ensuring control mechanisms are coherent and include clear procedures for responding to credible suspicions of violations of laws and regulations and facilitating reporting to the competent authorities without fear of reprisal.

Controls help organisations run smoothly, reduce costs, avoid waste, hold officials to account for their actions, and report to the public and oversight institutions on the performance and value for money achieved. Internal controls are the policies, structures, procedures and processes that enable an organisation to identify and appropriately respond to internal or external risks, to comply with its mandate or objectives, safeguard its assets, and use public resources properly and efficiently (OECD, 2017[5]).

In effective risk management and control, duties of teams of internal auditors, enterprise risk-management specialists, internal-control specialists, quality inspectors and fraud investigators should be delegated and co-ordinated carefully to ensure that risk and control processes operate as intended; assigning and co-ordinating clear responsibilities effectively among these groups and understanding the boundaries of their responsibilities, so that there are neither “gaps” in controls, nor unnecessary duplications. Governments need a cohesive, co-ordinated and systematic approach to enhance communications on risk management and control by clarifying essential roles and duties. The “three lines of defence” model provides a simple and effective way (The Institute of Internal Auditors, 2013[6]) to illustrate this point (see Figure ‎4.4 and Box ‎4.1).

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Figure ‎4.4. The ‘three lines of defence’ model
Figure ‎4.4. The ‘three lines of defence’ model

Source: Adapted from (The Institute of Internal Auditors, 2013[6]), “Position paper: The three lines of defence in effective risk management and control”, available at https://global.theiia.org/, accessed on 19 March 2018.

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Box ‎4.1. Mechanisms of operation of the ‘three lines of defence’ model

First line of defence: operational management

It is in charge of line and mid-level managers (operational managers), who are responsible for:

  • maintaining effective internal controls and executing risk and control procedures on a daily-to-day basis;

  • identifying, assessing, controlling and mitigating risks;

  • guiding the development and implementation of internal policies and procedures;

  • ensuring activities are consistent with goals and objectives;

  • implementing corrective actions to address process and control deficiencies.

Second line of defence: risk management and compliance functions

Aims to monitor the first line-of-defence controls and plays functions on risk management, compliance and control of financial risks. The responsibilities of the second line of defence vary depending on the specific nature of the organisation, but usually include the following:

  • supporting management policies, defining roles and responsibilities, and setting goals for implementation;

  • providing risk-management frameworks;

  • identifying known and emerging issues;

  • identifying shifts in the organisation’s implicit risk appetite;

  • assisting management in developing processes and controls to manage risks and issues;

  • providing guidance and training on risk-management processes;

  • facilitating and monitoring implementation of effective risk-management practices by operational management;

  • alerting operational management to emerging issues and changing regulatory and risk scenarios;

  • monitoring the adequacy and effectiveness of internal control, accuracy and completeness of reporting, compliance with laws and regulations, and timely remediation of deficiencies.

‘Third line of defence’: internal audit

Internal audit provides assurance on the effectiveness of governance, risk management and internal controls, including the manner in which the first and second lines of defence achieve risk-management and control objectives. Internal audit should act in accordance with recognised international standards for the practice of internal auditing, reporting to a sufficiently high level in the organisation to be able to perform its duties independently and ensuring an active, effective reporting line to the governing body. The responsibilities of the third line of defence include the following:

  • Revising, auditing and reporting on the efficiency and effectiveness of operations and the accomplishment of the objectives of each administrative area in the organisation (including safeguarding of assets; reliability and integrity of reporting processes; and compliance with laws, regulations, policies, procedures and contracts).

  • Revising, auditing and reporting all elements of the risk management and internal control framework, including: the internal control environment and the elements of the risk-management framework (i.e. risk identification, risk assessment and response, information and communication, and monitoring).

  • Revising, auditing, and reporting overall entity, divisions, subsidiaries, operating units and functions including business processes, such as sales, production, marketing, safety, customer functions and operations, as well as supporting functions (i.e. revenue and expenditure accounting, human resources, purchasing, payroll, budgeting, infrastructure and asset management, inventory, and information technology).

Source: Adapted with information from (The Institute of Internal Auditors, 2013[6]), “Position paper: The three lines of defence in effective risk management and control”, available at https://global.theiia.org/, accessed on 19 March 2018.

Governing bodies and senior management are the primary stakeholders served by the “lines”, and they are the parties best placed to help ensure that the three lines of defence model is reflected in the organisation’s risk-management and control processes. All three lines should exist in some form at every organisation, notwithstanding its size or complexity. Regardless of how the three lines of defence model is implemented, senior management and governing bodies should clearly communicate the expectation that information be shared and activities co-ordinated among each of the groups responsible for managing the organisation’s risks and controls (The Institute of Internal Auditors, 2013[6]).

In the past, ISSSTESON had no administrative structure to monitor risks, but on 28 August 2017, the Committee for Control and Institutional Performance (Comité de Control y Desempeño Institucional, or COCODI) was created. According to the Integrated Framework for Internal Control (Marco Integrado de Control Interno, or MICI) and its Administrative Manual, which is issued by the Ministry for Control, each ministry and agency of the public administration of Sonora was to set up a COCODI to support its head in implementing the MICI, applying and strengthening internal control, ethics and integrity, and to institute mechanisms to prevent the risk of corruption. The COCODI in ISSSTESON, presided over by the institute’s General Director, met three times in 2018 (in April, July and October) and also in February 2019. In 2018, it reached 23 committee agreements. Responsibility for supervising such agreements is managed by the Unit for Institutional Planning and Innovation (Unidad de Planeación e Innovación Institucional, or UPII).

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Box ‎4.2. The Committee for Control and Institutional Performance (COCODI) in ISSSTESON

The COCODI is a collective and specialised body presided over by the institute’s General Director and including the following officials:

  • the head of the Internal Control Body (Órgano Interno de Control, or OIC) as its executive;

  • the head of UPII, as member 1;

  • the head of the Legal Unit, as member 2;

  • the head of the Information Technologies Department, as member 3;

  • the representative of the sector co-ordinator, as member 4.

Furthermore, the heads of the different administrative units and the liaisons for internal control and risk management are permanent invitees.

The objectives of COCODI are the following:

  • contributing to the timely fulfilment of institutional goals and objectives through preventive measures;

  • strengthening and updating institutional internal control;

  • overseeing compliance with and improvement of budget programmes;

  • identifying and managing institutional risks, including risks of corruption;

  • identifying and monitoring relevant topics and, if applicable, helping address problems through the approval of agreements and commitments;

  • managing relevant and negative situations that emerge in the operation (financial, budget, technological and administrative) and suggesting agreements of corrective measures to address them;

  • creating value for institutional management by efficiency and effectiveness in decision making.

Source: Produced by the OECD Secretariat with information provided by ISSSTESON.

Originally, the institute had planned to create an administrative area called the Specialised Internal Control Unit, responsible for identifying institutional risks that could impede the proper functioning of the institute. This idea was, however, abandoned. If the institute had in fact had an administrative area to control risks, it could have helped to avoid the current financial situation. The Annual Programme of Work for Internal Control (Programa Anual de Trabajo de Control Interno) identifies four areas for enhancing the efficiency and effectiveness of institutional management and preventing corruption: internal control, public accounts and budgeting, integrity and transparency, and audit.

The evaluation of the annual programme of work is a responsibility of ISSSTESON’s OIC (see Box ‎4.3 for a summary of the results of the 2018 evaluation).

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Box ‎4.3. Evaluation of ISSSTESON’s System for Institutional Internal Control and Programme of Work for Internal Control (2018)

As of the end of 2018, two evaluations of internal control in ISSSTESON had been conducted, in December 2016 and September 2018. At the strategic level, compliance increased from 44.71% to 68.68%, while at the directive level, compliance increased from 56.82% to 61.93%. However, at the operational level, compliance fell from 64.60% to 47.72%, from an “average” to an “underperforming” score. Improvement was thus necessary chiefly at the operational level.

Additionally, the last evaluation highlighted such progress as:

  • communication of the institute’s Code of Ethics and Conduct, vision and mission;

  • application of organisational climate surveys;

  • formalising the functions of the system for internal control and risk management in the organisational manuals of the General Directorate and the Deputy Directorate for Administration;

  • compliance at 100%, for the second consecutive year, with the submission of the asset declarations by public officials.

As for risk management, the evaluation noted that drafting of risk matrixes and the programmes of work to address operational and strategic risks was launched from March to April 2018.

Finally, the assessment recommended that ISSSTESON analyse the results for each control element, to better align them with the improvement measures suggested in the Programme of Work 2019.

Source: Produced by the OECD Secretariat with information provided by ISSSTESON.

4.1.1. ISSSTESON’s senior management could demonstrate a strong commitment to internal control and audit, ethics and integrity

ISSSTESON’s Board of Directors should establish the three lines of defence and empower the administrative units responsible for implementing them. The first line is in charge of all the operational managers of the organisation. Middle- and high-level managers are in charge of implementing controls and helping identify and prevent risks in their areas. ISSSTESON’s second line of defence should be in charge of all senior managers and, at the same time, could be organised and supervised by UPII, as the unit in charge of following up the agreements taken in COCODI. Additionally, to comply with the third line of defence, ISSSTESON could set up a new function of internal audit reporting to the board and complementing external audit.

The COCODI provides ISSSTESON an opportunity to develop efficient risk-management strategies to avoid corruption in public procurement and enhance financial sustainability, both fulfilling its mandates (health services, financial services, and pension and mortgage administration) and promoting secondary policy objectives, such as competitiveness of local enterprises in the health sector.

The fact that UPII has the responsibility to follow up on the agreements made by COCODI offers several advantages. Issues related to internal control, for example, are easily co-ordinated and managed because under the current ISSSTESON Internal Regulations (Article 18), the unit is also responsible for setting up and co-ordinating several programmes, such as: institutional planning, co-ordinating and integrating the sector programme, the institutional development programme, ISSSTESON’s annual operational and budget programme, and the annual public works plan. It is also in charge of monitoring, performance evaluation and accountability of the institute (including administrative units and deconcentrated bodies). This includes gathering statistics, reports on public funds (cuentas públicas), organisation and proceedings manuals, and implementing codes of ethics and conduct. The unit is also legally mandated to identify opportunities, propose administrative innovations and regulatory changes, and make recommendations on administrative development and management processes, including streamlining procedures.

Despite this progress, the institute’s internal control and risk management systems leaves room for improvement. ISSSTESON, for example, needs to create an internal audit function. This should be under the General Director’s first line of control and should report its findings and recommendations to the Board of Directors. The Audit Unit should also propose audit rules and plans to the Board for its approval.

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Figure ‎4.5. ISSSTESON organisation chart for its new Audit Unit
Figure ‎4.5. ISSSTESON organisation chart for its new Audit Unit

Source: Adapted from ISSSTESON’s Internal Regulations (2015).

Integrating risk-management strategies for mapping, detection and mitigation of risks in public procurement is vital for effective internal control. The OECD Recommendation of the Council on Public Procurement (2015[4]) explicitly suggests identifying and addressing: 1) threats to the proper function of the public procurement system, 2) potential mistakes in the performance of administrative tasks, and 3) deliberate transgressions. Any risks and threats noted should be brought to the attention of the relevant officials. To prevent fraud, misuse of public funds and corruption in public procurement, public officials, and particularly procurement practitioners, need a full understanding of the potential risks. This will help them address threats and limit fraud and corruption: to detect potential deviations, to exclude corrupt suppliers/bidders, and to take action against dishonest procurement practitioners (OECD, 2009[7]).

Risk management covers two main areas: risk assessment and risk mitigation/treatment (OECD, 2009[7]). Risk assessment plays a key role in the selection of appropriate internal control measures (OECD, 2017[5]), because it consists of identifying potential risks, analysing their causes and consequences and evaluating their impact.

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Figure ‎4.6. The risk-management cycle according to ISO 31000:2009
Figure ‎4.6. The risk-management cycle according to ISO 31000:2009

Source: Adapted by (OECD, 2017[5]) from ISO 31000: 2009; (OECD, 2013[8]), OECD Integrity Review of Italy: Reinforcing Public Sector Integrity, Restoring Trust for Sustainable Growth, https://doi.org/10.1787/9789264193819-en.

Integrity risks emerge in different types of procedures, as well as at different stages of the public procurement cycle. For example, in open tenders, corruption can occur when confidential information on supplier bids is selectively disclosed, allowing particular bidders access to inside information. In a direct award, corruption may arise when the assessment of quality and reliability are unfair and influenced by bribes. In a limited invitation procurement, there may be opportunities for extortion and bribery during the back-and-forth of price discussions with firms (Vian, 2002, in (OECD, 2013[1])). On the other hand, if businesses expected to compete against each other agree tacitly or overtly to raise the price of goods or services, a specific type of collusion, known as bid rigging, occurs (OECD, 2011[9]). This harms governments, because it prevents them from maximising value for public money.

Corruption can occur in the different phases of tendering. The following table illustrates actions or omissions implying risks of corruption, according to relevant activities in each phase of tendering.

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Table ‎4.1. Checklist of integrity risks in the procurement process

Phase of the public procurement cycle

Relevant activities in the phase

Actions or omissions implying risk of corruption

PHASE 1

Pre-tendering phase

Needs assessment and market analysis

Lack of adequate needs assessment

Influence of external actors on officials’ decisions

Informal agreement on contract

Planning and budgeting

Poor procurement planning

Procurement not aligned with overall investment decision-making process

Failure to budget realistically or deficiency in the budget

Development of specifications/ requirements

Technical specifications are tailored for a specific company

Selection criteria is not objectively defined and not established in advance

Requesting unnecessary samples of goods and services

Buying information on the project specifications

Choice of procurement procedure

Lack of proper justification for the use of non-competitive procedures

Abuse of non-competitive procedures on the basis of legal exceptions: contract splitting, abuse of extreme urgency, non-supported modifications

PHASE 2

Tendering phase

Request for proposal/ bid

Absence of public notice for the invitation to bid

Evaluation and award criteria are not announced.

Procurement information is not disclosed and is not made public.

Bid submission

Lack of competition or cases of collusive bidding (cover bidding, bid suppression, bid rotation, market allocation)

Bid evaluation

Conflict of interest and corruption in the evaluation process through:

1. familiarity with bidders over time

2. personal interests such as gifts or future/additional employment

3. no effective implementation of the “four eyes principle”

Contract award

Vendors fail to disclose accurate cost or pricing data in their price proposals, resulting in an increased contract price (i.e. invoice mark-ups, channel stuffing)

Conflict of interest and corruption in the approval process (i.e.  no effective separation of financial, contractual and project authorities)

Lack of access to records on the procedure

PHASE 3

Post-award phase

Contract management performance

Abuses of the supplier in performing the contract, in particular in relation to its quality, price and timing:

1. Substantial change in contract conditions to allow more time and/or higher prices for the bidder

2. Product substitution or sub-standard work or service not meeting contract specifications

3. Theft of new assets before delivery to end user or before being recorded

4. Deficient supervision from public officials and/or collusion between contractors and supervising officials

5. Subcontractors and partners chosen in a non-transparent way or not kept accountable

Order and payment

Deficient separation of financial duties and/or lack of supervision of public officials leading to:

1. False accounting and cost misallocation or cost migration between contracts

2. Late payments of invoices

False duplicate invoicing for goods and services not supplied and for interim payment in advance of entitlement

Source: (OECD, 2016[10]), Preventing Corruption in Public Procurement, OECD, Paris, http://www.oecd.org/gov/ethics/Corruption-in-Public-Procurement-Brochure.pdf.

ISSSTESON faces relevant risks in the procurement cycle, such as:

  • Pre-tendering phase: Even when ISSSTESON develops a budget plan every year, non-competitive procedures like direct awards are not exceptions but common practice.

  • Tendering phase: The lowest price and binary method are the common evaluation and award criteria in ISSSTESON’s public procurement procedures. In addition, the Law on Acquisitions, Leases and Services of the State Public Administration (Ley de Adquisiciones, Arrendamientos y Prestación de Servicios Relacionados con Bienes Muebles de la Administración Pública Estatal) establishes in its Article 24, the option to use two more criteria: evaluation by points and percentages and cost-benefit evaluation. These could be used if government entities provide justification to show that applying such mechanisms allows them to objectively assess the creditworthiness of the proposals, and/or when government entities need to obtain goods, leases or services that involve the use of highly specialised technical features or technological innovations. Interviews with the personnel involved with technical tenders in ISSSTESON, however, revealed that they fear they may be subject to sanction, because administrative units usually consider only the lowest price criterion. As a result, some confusion persists among both technical and administrative personnel over the application of the methods established by the law, which constrains procurement practitioners from making better decisions.

  • Post-award phase: ISSSTESON uses an electronic system of Sonora’s Ministry for Control (Evidence System) to monitor the progress of contracts (http://sevi.sonora.gob.mx). However, ISSSTESON does not have a monitoring strategy, evaluation method, and a record of the performance evaluation of each contract and supplier.

4.1.2. To address corruption, COCODI and UPII should have clear functions of risk management and internal control

COCODI, through UPII, should communicate better to the different areas of the institute the risk assessment methodologies, consisting of at least the following elements:

Risk identification

UPII could map all the risks associated with corruption. In order to do so, it can use checklists, like the checklist of integrity risks in the procurement process (Table ‎4.1) and the generic checklist to enhance integrity in non-competitive tender methods (Box ‎4.4).

The corruption risk map should identify critical processes, risk activities and vulnerable positions. With this information, the UPII could create and establish internal controls using a risk-based approach, so that oversight is focused on processes, activities and positions with a higher potential risk of corruption.

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Box ‎4.4. Generic checklist for enhancing integrity in non-competitive tender methods

Price competition and comparability

  • Have multiple quotes or some form of price competition for procurement been solicited?

  • Have price comparisons or reconciliation been made with previous procurement projects?

  • Where highly specified goods or services are required, have existing and proven suppliers been considered?

Risk identification

  • Have potential risks associated with the procurement been identified and considered (e.g. insurance, warranties, deliverables, etc.)?

  • Have adequate efforts been made to identify and address potential conflicts of interest?

  • Have the scope and term of contracts entered into under non-competitive processes been limited to the minimum required to respond appropriate and effectively?

Documentation and reporting

  • Have conversations, communications and instructions associated with the procurement been documented and filed?

  • Have contracts in excess of [a specified price] been published in the relevant government gazette/online procurement portal?

  • Have contracts in excess of [a specified price] been noted as non-competitive procedures in the procuring authorities’ reports?

Source: (OECD, 2009[11]), “Public Procurement Toolbox, Tool: Template and checklist for enhancing integrity in non-competitive tender methods”, http://www.oecd.org/governance/procurement/toolbox/search/template-checklist-enhancing-integrity-non-competitive-tender-methods.pdf, accessed on 20 March 2018.

Impact evaluation of the potential consequences of risks

Identifying risks is not enough. It is also necessary to link them to their potential consequences and, where possible, to measure the impact of the consequences if they arise. Impact measurement is always desirable, because it offers perspective on the probability of risk and helps design strategies for risk mitigation.

Strategies for risk mitigation

Such strategies consist of developing a system of warning signals in critical processes, vulnerable positions and risky activities or projects. ISSSTESON could design an indicator system (red flags) signaling corruption in its public procurement process, to help detect and prevent risk. Some of the most common red flags in public procurement are (OECD, 2017[12]):

  • physical losses

  • unusual relationships with suppliers

  • manipulation of data

  • photocopied documents

  • incomplete management/audit trail

  • IT controls of audit logs designed to not allow budget overspends

  • IT login outside working hours, unusual invoices (i.e. format, numbers, address, phone, VAT number)

  • overly vague descriptions of goods/services supplied

  • duplicate/photocopied invoice

  • a high number of failed IT logins

  • round-sum amounts invoiced

  • favoured customer treatment

  • sequential invoice numbers over an extended period of time

  • failure to declare interest/gifts/hospitality

  • no process for identifying risks (i.e. risk register)

  • unusual increases/decreases.

The World Bank has also identified the ten most common red flags of fraud and corruption in procurement.

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Box ‎4.5. Ten most common red flags of fraud and corruption in public procurement processes
  1. 1. Complaints from bidders

  2. 2. Numerous contracts with values just under procurement thresholds (contract splitting);

  3. 3. Unusual bid patterns, for instance:

    • Bids are distinguished from one another by a regular percentage, i.e. 1%, 3% 10%.

    • Bids are inexplicably too close or too far apart, i.e. less than 1% or more than 10% between the lowest bid and the next lowest bid.

    • Losing bid prices are round or unnatural numbers, i.e. USD 355 000 or USD 65 888 000.

    • Unexplained inflated bid prices, i.e. total bid or components of the bid are unreasonably higher than the cost estimate.

    • Losing bidders become subcontractors.

    • Winning bidders apparently rotate.

    • Delays in completing the Bid Evaluation Report (BER) or contract award and signing may indicate negotiation of corrupt terms.

    • Bid security is repeatedly extended.

  4. 4. Fees of agents or prices of goods are apparently inflated.

  5. 5. Bidders appear suspicious, such as fictitious or shell companies.

  6. 6. Lowest price bid is unjustifiably declared non-responsive.

  7. 7. Repeat awards to same contractor;

  8. 8. Unjustified changes in contract terms and value are made.

  9. 9. Multiple change orders to the contract are made after the contract has been signed and during implementation.

  10. 10. Goods/services are of low quality or not delivered.

Source: (The World Bank, n.d.[13]), Most Common Red Flags of Fraud and Corruption in Procurement in Bank-financed Projects, http://siteresources.worldbank.org/INTDOII/Resources/Red_flags_reader_ friendly.pdf, accessed on 20 April 2018.

Specific measures for avoiding risks in the procurement cycle

Some specific steps to consider include raising awareness of risks among the procurement workforce and suppliers, procurement workforce workshops to deal with the identified risks, specialised training for public procurement practitioners, and whistle-blower protection programmes.

UPII should propose to the General Director and Board of Directors of ISSSTESON a set of measures to prevent and detect risks in the procurement cycle. The implementation of those measures and the recommendations of the annual evaluation reports should be designed and co-ordinated by this unit.

Monitoring and evaluating the risk-management strategy

Risks of corruption are not static and evolve as changes occur in the organisation and the outside world. Another element for enhancing the strategy to assess the risk of corruption is to introduce a system to monitor and periodically evaluate the strategy, to ensure that it reflects reality and remains effective (OECD, 2017[12]).

COCODI could lead the monitoring and evaluation of the risk-assessment strategy to make sure it is updated and, if necessary, adjusted.

Communicating the risk-management strategy

Senior management has a strong influence on internal control and risk management. Employees generally observe the behaviour of top management closely and model their decisions, attitudes and conduct on the tone communicated (OECD, 2017[12]).

ISSSTESON’s senior management should send clear messages to the organisation’s staff to support the strategy and to model correct behaviour. It should also empower administrative areas in charge of internal control and audit functions. UPII could design a communication plan of the risk-management strategy to inform employees of the risks that have been identified (critical processes, risk activities and vulnerable positions) and of the specific measures intended to mitigate them, such as whistle-blower protection programmes and mechanisms and penalties for acts of corruption.

copy the linklink copied!4.2. General standards for safeguarding the public procurement system

Organisations should develop a strong legal and institutional integrity framework and enhance public officials’ capacity to manage the risk of corruption in the public procurement. The aim of integrity policies in public procurement is to promote a culture of integrity throughout the public procurement cycle, from needs assessment to contract management and payment. Integrity can be defined as the use of funds, resources, assets, and authority, according to the intended official purposes, in the public interest. Public integrity implies consistent adherence to shared ethical values, principles and norms for upholding and prioritising the public interest over private interests in the public sector (OECD, 2017[14]).

Preserving integrity in public procurement requires integrity frameworks and codes of conduct with high standards of ethics and integrity and rules of conduct for all stakeholders in the procurement cycle, training programmes for the procurement workforce and internal controls, compliance measures and anti-corruption programmes for suppliers, including appropriate monitoring (OECD, 2009[15]).

Integrity policies in public procurement should adapt tools to specific risks of the procurement cycle as necessary. Public procurement, as the government activity with the highest integrity risks, requires highly qualified officials. For example, the procurement workforce should be able to identify potential conflicts of interest between private interests and public duties that could influence public decision making.

4.2.1. Integrity framework

The integrity framework is a systemic, comprehensive approach involving instruments, processes and structures for encouraging integrity and preventing corruption in public organisations. It involves interdependence and co-ordination between internal elements of the system (instruments, processes and structures). Governments may organise these internal elements into four functions: determining and defining integrity; guidance towards integrity; monitoring integrity; and enforcing integrity. These should attempt to strike a balance between a rule-based and a value-based approach (OECD, 2009[16]).

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Table ‎4.2. A classification of integrity management instruments

Determining and defining integrity

Guidance towards integrity

Monitoring integrity

Enforcing integrity

Core

Rules-based

• Risk analysis

• Code of conduct

• Conflict-of-interest policy

• Gifts and gratuities policy

• Post-employment arrangements

• Structural measures (e.g. function rotation)

• Rules-based integrity training

• Oath, signing an “integrity declaration”

• Advice, counselling

• Whistle-blowing policies

• Complaints policies

• Inspections

• Integrity testing

• Early-warning systems

• Systematic registration of complaints, investigations, etc.

• Survey measurement of integrity violations and organisational climate

• Formal sanctions

• Procedure for handling integrity violations

Values- based

• Analysis of ethical dilemmas

• Consultation of staff and stakeholders

• Code of ethics

• Non-written standard setting

• Values-based integrity training

• Integrating integrity in the regular discourse (e.g. announcing the integrity policy through channels of internal and external communication)

• Exemplary behaviour from management

• Coaching and counselling for integrity

• Survey measures of integrity dilemmas

• Informal probing for ethical dilemmas and issues among staff

• Informal sanctions

Complementary

• Assessing the fairness of the reward and promotion systems

• Appropriate procedures for procurement, contract management and payment

• Measures in personnel management (e.g. integrity as a criterion for selection, evaluation and career promotion)

• Measures in financial management (e.g. “double key”, financial control)

• Measures in information management (e.g. protecting automated databases)

• Measures in quality management (e.g. reviewing the quality-assessment tool)

• Internal control and audit

• External control and audit

Source: (OECD, 2009[16]), Towards a Sound Integrity Framework: Instruments, Processes, Structures and Conditions for Implementation, GOV/PGC/GF (2009)1, http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?doclanguage=en&cote=GOV/PGC/GF(2009)1, accessed on 20 March 2018.

In Mexico and its federal states, the preference has commonly been for rules-based approaches in integrity policies. On 11 May 2017, the state of Sonora endorsed its Law on the Local Anti-Corruption System (Ley del Sistema Estatal Anticorrupción del Estado de Sonora, or LLLACS), a set of revised and newly expressly enacted laws, notably the Law on the Local Anti-Corruption System and the State Responsibilities Law (Ley Estatal de Responsabilidades). The first establishes the principles and general rules of the integrity framework of the state of Sonora, as well as the public entities that constitute the system and their mandates (see Box ‎4.6). The second establishes the principles and obligations of the adequate performance of public officials; it differentiates between serious and less serious administrative offenses by public officials, the sanctions applicable, as well as the procedures for their application and the powers of the competent authorities to impose them.

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Box ‎4.6. Objectives of the Law on the Local Anti-Corruption System of the State of Sonora

I. Establishing the foundations and mechanisms for co-ordination among the various units to fight against corruption in public entities;

II. Establishing and, where appropriate, implementing the minimum foundations for the prevention of corruption and administrative offences;

III. Establishing the foundations for the issuance of comprehensive public policies against corruption, as well as on audit and control of public resources;

IV. Establishing the basic guidelines that define co-ordination of the competent authorities of all levels of government for the development of public policies on prevention, detection, control, punishment and the fight against corruption;

V. Regulating the organisation and functioning of the Local Anti-Corruption System, its Co-ordinating Committee and Executive Secretariat, as well as establishing the foundations for co-ordination among its members;

VI. Establishing the foundations, principles and procedures for the organisation and functioning of the Citizen Participation Committee;

VII. Establishing the foundations and policies for the promotion and dissemination of a culture of integrity in the public service, as well as accountability, transparency, auditing and control of public resources;

VIII. Establishing permanent actions that promote integrity and the ethical behaviour of public officials, as well as creating the foundations for all governing bodies in the State, establishing effective policies of public ethics and responsibility in the public service;

IX. Establishing the foundations for co-ordination of the State authorities that are members of the National Audit System;

X. Harmonising the foundations for the development and implementation of electronic systems mandated by the Law of the National Anti-Corruption System for the supply, exchange, systematisation and update of the information produced by public entities;

XI. Promoting the foundations for the development and implementation of an electronic system that guarantees the proper supply, exchange, systematisation and updating of the information produced in the framework of the transparency laws, the competent institutions in the state and municipalities.

Source: Law on the Local Anti-Corruption System of the State of Sonora, Article 2, issued 11 May 2017.

On 1 June 2017, the State Government of Sonora issued its Code of Ethics and Conduct, as well as the Integrity Rules for public officials of the State Public Administration. According to Article 5 of the LLACS, the public entities of the State of Sonora are mandated to create and maintain structural and regulatory conditions that allow for the proper functioning of the state as a whole, and the ethical and responsible performance of each public servant. ISSSTESON, as a decentralised body with legal personality and its own budget, is to abide by this legal framework.

Article 5 of the LLACS establishes guiding principles that govern the public service: legality, objectivity, professionalism, honesty, loyalty, impartiality, efficiency, effectiveness, fairness, transparency, economy, integrity and merit. On the other hand, Article 7 of the State Responsibilities Law establishes that public officials will observe, in the exercise of their employment, position or commission, the principles of discipline, legality, objectivity, professionalism, honesty, loyalty, impartiality, integrity, accountability, effectiveness and efficiency. Article 4 of the Code of Conduct and Ethics for Public Servants of the State of Sonora Public Administration (Código de Ética y Conducta para los Servidores Públicos de la Administración Pública Estatal) establishes and defines the values that all public servant of the State of Sonora must observe in their activities, which are: honesty, legality, collaboration, connectivity, efficiency, integrity, gender equality, accountability, respect, service, sustainability and transparency. The State of Sonora’s framework for integrity promotes 21 values or principles (Figure ‎4.7).

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Figure ‎4.7. Principles and values in the State of Sonora’s Law and Ethics Code
Figure ‎4.7. Principles and values in the State of Sonora’s Law and Ethics Code

Source: Information from Article 5, LLACS; Article 7, State Responsibilities Law and Article 4, Ethics Code.

Twenty-one values or principles are mentioned in the three legal instruments. Only four (19%) are mentioned in all three. Seven principles (33%) are mentioned in two of the instruments, and the remaining ten (48%) are mentioned only in one. The table below shows which values are mentioned in which instruments.

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Table ‎4.3. State of Sonora integrity principles

Principles/values

LLACS (Article 5)

LRSS (Article 7)

Code of Ethics (Article 4)

Efficiency

X

X

X

Honesty

X

X

X

Integrity

X

X

X

Legal

X

X

X

Effective

X

X

Impartiality

X

X

Loyalty

X

X

Objectivity

X

X

Professionalism

X

X

Accountability

X

X

Transparency

X

X

Collaboration

X

Merit competence

X

Connectivity

X

Discipline

X

Economy

X

Gender equality

X

Equity

X

Respect

X

Service

X

Sustainability

X

Total values/principles

13

11

12

Source: Based on information from Article 5, LLACS; Article 7, State Responsibilities Law and Article 4, Ethics Code.

The State of Sonora recently passed ten rules for integrity, including: i) public performance, ii) knowledge of regulations and their applicability, iii) developing duties, iv) use and distribution of material, human and financial resources, v) public information, vi) public procurement, permits, licences, authorisations and concessions, vii) relationship with co-workers, vii) relationship with public entities, ix) relationship with society, and x) co-operation with integrity. The sixth rule establishes that public officials, directly or indirectly, in charge of public procurement, permits, licenses, authorisations and concessions, should be transparent, neutral and legal, that they should conduct their decisions according to social needs and the public interest, and that they should guarantee the best conditions for the State. To advance public officials’ commitment to the Ethics and Conduct Codes and the rules of integrity, each public official must sign a Commitment Letter.

In in 2014, the State of Sonora issued an Anti-Corruption Law in Public Procurement, which applies to public procurement processes at the state and municipal levels. It establishes the responsibilities and sanctions that will be imposed on any person or business (enterprises, suppliers and public servants who participate, directly or indirectly, in the procurement process) for infractions related to public procurement in the state or its municipalities. The law also stipulates that the sanctioning procedure be conducted by the control bodies with the objective of determining responsibility for participation in public procurement and application of the corresponding sanctions. Article 6 establishes that participants in a public procurement process shall conduct themselves ethically, with truth and honesty in all acts and attitudes, without giving rise to acts of corruption throughout the whole procurement process until its completion, and refraining, at all times, from offering, lending, giving, conditioning, delivering or any other action that resembles, by itself or by a third person, for any reason, benefits, services, money or any other good to any public servant in the recruitment procedure.

Likewise, in June 2018, Sonora’s Ministry for Control issued a guide to identify and prevent conflicts of interest in the State Public Administration (Guía para identificar y prevenir la actuación bajo conflicto de interés en el ejercicio de la función pública en la Administración Pública Estatal). This is intended as a tool to provide advice to public servants and contribute to the identification, prevention and management of conflicts of interest faced in the work environment or outside it. Its specific objectives are:

  • Establishing general guidelines to facilitate the understanding, identification and correct management of conflicts of interest that public servants of the State Public Administration should follow;

  • Helping instil a culture of transparency, accountability, the rule of law, ethics and public integrity, by introducing tools to prevent conflicts of interest;

  • Harmonising criteria to identify, prevent and manage conflicts of interest in the ministries and agencies of the State Public Administration.

Under this general framework and based on the Guidelines for Establishing and Operating Committees for Integrity, Ethical Practices and Good Government of the State Public Administration (Lineamientos para la Integración y Funcionamiento de los Comités de Integridad, Prácticas Éticas y Buen Gobierno de la Administración Pública Estatal), published on 26 June 2017 in the State Official Gazette, ISSSTESON approved its own integrity programme in December 2017 and established its Committee for Integrity, Ethical Practices and Good Government (Comité de Integridad, Prácticas Éticas y Buen Gobierno, or CIPEBG) on 8 June 2018. This committee’s main objective is to strengthen the fundamental values and principles inspiring public servants to respect the law and reject corruption, and to promote conduct that dignifies and appreciates public service. The institute’s General Director is the Committee’s President, and it also includes a vice-president, a technical secretariat that serves as the liaison with the Ministry for Control and the representatives of the different administrative units. The committee’s Annual Report 2018 reports a compliance index of 93.3% with its programme of work (see Box ‎4.7).

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Box ‎4.7. 2018 Report of ISSSTESON’s Committee for Integrity, Ethical Practices and Good Government

The committee’s report for 2018 states that 14 of the 15 activities anticipated in the Annual Programme of Work were carried out, although training staff on ethics and values is still pending. It also documents a survey assessing the knowledge and implementation of the principles and commitments established under the Integrity Programme. The survey was sent via e-mail to selected staff to be applied in the medical units of Guaymas, Nogales and Ciudad Obregón. It was also directly applied in the headquarters and the Hermosillo hospital, for a total of 161 participants.

The survey shows that 70% of the ISSSTESON workers surveyed are aware of the institute’s Code of Ethics and Conduct, but that only 43% can identify its contents. In light of this finding, the report recommends a permanent effort to communicate the Integrity Programme, to train staff from all the administrative units and to have new recruits sign the Code of Ethics and Conduct during the hiring process.

The document notes that the Committee did not receive any reports of violation of the Code of Ethics and Conduct during the period analysed.

Source: Produced by the OECD Secretariat with information provided by ISSSTESON.

As part of ISSSTESON’s Integrity Programme, it published its own Code of Ethics and Conduct and Integrity Rules (Código de Ética y Conducta y Reglas de Integridad del ISSSTESON) in August 2017 (see Box ‎4.8). This follows the code and rules applicable to all state public officials, and although some guidelines directly apply to the public procurement function, ISSSTESON could complement its efforts with an integrity framework tailored specifically for the procurement workforce.

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Box ‎4.8. The Code of Ethics and Conduct and Integrity Rules for ISSSTESON employees

This code applies to all public servants working in ISSSTESON headquarters, hospitals, pharmacies, warehouses and modules. It is organised into several sections:

  • Ethical principles for public servants: mission, vision and quality policy of the institute.

  • Code of Ethics: collaboration, connectivity, efficiency and results, honesty, integrity, rule of law, gender equality, accountability, respect, service, sustainability and transparency.

  • Values and conduct (administrative offices): empathy; honesty; responsibility and equality; leadership and innovation; commitment and integrity; unity and congruence; and transparency, impartiality and rule of law.

  • Values and conduct (medical centres, hospitals, clinics and modules): empathy; honesty; responsibility and equality; leadership and innovation; commitment and integrity; unity and congruence; and transparency, impartiality, and rule of law.

  • Integrity rules: public behaviour; knowledge of the regulatory framework and its application; exercise of duties; use and allocation of material, human and financial resources; public information; public procurement, licences, permits, authorisations and concessions; relationships with work colleagues; relationship with ministries and agencies of the public administration; society engagement; co-operation for integrity; and conflicts of interest.

Source: ISSSTESON (2017), Código de Ética y Conducta y Reglas de Integridad, Hermosillo. http://www.isssteson.gob.mx/index.php/codigoetica, accessed on 2 May 2019.

Given the general framework and ISSSTESON’s own Code of Ethics, and taking into account the rules of action established in the Law on Acquisitions and the Law of Public Works of the State of Sonora (Ley de Obras Públicas del Estado de Sonora), ISSSTESON should develop a specific Code of Conduct and specific guidance for procurement officials. This should conform with the legal provisions of the Anti-Corruption Law in Public Procurement and should also ensure that specific provisions for public procurement are included in the codes developed by hospitals and clinics. A Code of Conduct for procurement officials would have the advantage of being tailored to the specific risks of the procurement cycle in the health sector.

The Internal Regulations of ISSSTESON (Article 18, Fraction XX) grants the UPII authority to co-ordinate and lead direct actions for the promotion of values in the institute; elaborate in collaboration with the administrative units and deconcentrated bodies the corresponding Ethics and Conduct Codes for the authorisation of the Ministry for Control; and keep them updated and co-ordinate their dissemination with the support of the Social Communication Liaison Unit.

With the participation of public officials and stakeholders, ISSSTESON’s UPII should design a Code of Conduct or Ethics to emphasise the specific conduct expected in public procurement and prioritising the values to be observed. This would guide the conduct of procurement practitioners when they face ethical dilemmas. This unit should also set up an annual programme to train public procurement officials and regular and potential suppliers, focusing on communicating the priority values and identifying conflicts of interest and mechanisms for reporting corruption.

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Box ‎4.9. Codes of conduct and codes of ethics

Conceptual issues

A distinction is often made between a “code of conduct” and a “code of ethics”. This distinction usually refers to both the contents of the code and the way in which it is enforced.

The “code of conduct” is a typical instrument of a rules-based approach to integrity management. It starts from the assumption that people are essentially self-interested and that they will only behave with integrity when this coincides with their self-interest. Hence, a preferably detailed code of conduct will describe, as specifically and unambiguously as possible, the behaviour that is expected. Such a code of conduct will also establish strict procedures to enforce the code: systematic monitoring and strict punishment of those who break the rules.

A “code of ethics”, on the other hand, is rooted in a values-based approach. It focuses on general values, rather than on specific guidelines for behaviour, thus putting more trust in the organisational members’ capacities for independent moral reasoning. Rather than telling them what to do, the organisation provides its members with a general framework that identifies the general values and provides support, training and coaching for the application of these values in everyday real-life situations.

As for choosing between the two types of codes, the recommendation is to situate this in the broader question of the balance between rules-based and values-based approaches. This should also take into consideration the external context. If a detailed and well-developed legal framework already exists outside the organisation and is applicable to it, one could argue that there is no need for detailed rules-based codes within the organisation.

Source: (OECD, 2009[16]), Towards a Sound Integrity Framework: Instruments, Processes, Structures and Conditions for Implementation, GOV/PGC/GF(2009), http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?doclanguage=en&cote=GOV/PGC/GF(2009)1.

The UPII should guarantee the creation of rules-based and values-based codes on the public procurement cycle, and where applicable, phase by phase, on the following themes:

  • prioritised values for public procurement, whenever possible, by phase of the procurement cycle

  • conduct expected during the public procurement cycle

  • conflict-of-interest policy, in line with the Guide, to identify and prevent conflicts of interest in the State Public Administration, issued by the Ministry for Control

  • gifts and gratuities policy

  • post-employment arrangements.

In drafting the Code of Ethics and Conduct of Procurement officials, ISSSTESON should consider the new national and state anti-corruption legal frameworks and the statements regarding values, conflicts of interest, gifts and gratuities and post-employment arrangements, especially Mexico’s General Law of Administrative Responsibilities (Ley General de Responsabilidades Administrativas, or LGRA) and the State Responsibilities Law (Ley Estatal de Responsabilidades).

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Box ‎4.10. Canada’s Government Code of Conduct for Procurement

The Code of Conduct for Procurement supports the Government of Canada in fulfilling its commitment to reform procurement, advancing greater transparency, accountability and the highest standards of ethical conduct. The Code consolidates the government's existing legal, regulatory and policy requirements into a concise and transparent statement of the expectations of its employees and suppliers. The Code of Conduct for Procurement applies to all transactions entered into by Public Works and Government Services of Canada, either for their own procurement or on behalf of a client department. The Code of Conduct for Procurement gives guidance regarding i) responsibilities of public servants, ii) conflict-of-interest measures, iii) post-employment measures, iv) vendors’ responsibility regarding solicitation and contract provisions, v) vendors’ duty to respect the responsibilities of public servants, vi) vendor complaints and procedural safeguards, and vii) sanctions.

Conflict-of-interest measures

Public servants:

  • are required to evaluate their assets and liabilities, taking into consideration the nature of their official duties and the characteristics of their assets. If there is any real, apparent or potential conflict of interest between the execution of their official duties and their assets or liabilities, they are to report this to their deputy head in a timely manner;

  • may engage in employment outside the public service and take part in outside activities unless the employment or activities are likely to give rise to a real, apparent or potential conflict of interest or would undermine the impartiality of the public service or the objectivity of the public servant;

  • considering involvement in political activity, should seek the advice of their manager, a designated departmental official, the Public Service Commission (PSC) or a human resources adviser before acting;

  • are not to accept any gifts, hospitality or other benefits that may have a real, apparent or potential influence on their objectivity in carrying out their official duties and responsibilities or that may place them under obligation to the donor. This includes activities such as free or discounted admission to sporting and cultural events, travel or conferences;

  • may not solicit gifts, hospitality, other benefits or transfers of economic value from a person, group or organisation in the private sector who has dealings with the government (with the exception of fundraising for such officially supported activities as the Government of Canada Workplace Charitable Campaign). When fundraising for such official activities, public servants should ensure that they have prior written authorisation from their deputy head in order to solicit donations, prizes or contributions in kind from external organisations or individuals;

  • are responsible for demonstrating objectivity and impartiality in the exercise of their duties and in their decision-making, whether related to staffing, financial awards or penalties to external parties, transfer payments, programme operations or any other exercise of responsibility.

Post-employment measures

All public servants have a responsibility to minimise the possibility of real, apparent or potential conflict of interest between their most recent responsibilities within the federal public service and their subsequent employment outside the public service. Former public servants in executive positions or positions at risk for post-employment conflict of interest, for a period of one year after leaving office, shall not:

  • accept appointment to a board of directors of, or employment with, private entities with which they had significant official dealings during the period of one year immediately prior to the termination of their service. The official dealings in question may either be directly on the part of the public servant or through their subordinates;

  • make representations on behalf of persons or entities outside the public service to any government department or organisation with which they had significant official dealings during the period of one year immediately prior to the termination of their service. The official dealings in question may either be directly on the part of the public servant or through their subordinates;

  • give advice to their clients or employer using information that is not publicly available concerning the programmes or policies of the departments or organisations with which they were employed or with which they had a direct and substantial relationship.

Source: Adapted from (OECD, 2016[17]), with information from Public Works and Government Services Canada (2014), “Context and purpose of the Code”, www.tpsgc-pwgsc.gc.ca/app-acq/cndt-cndct/contexte-context-eng.html, accessed on 21 March 2016.

copy the linklink copied!4.3. Involving stakeholders in the procurement system to increase transparency and integrity

Stakeholder participation is crucial for the success of procurement policies and for enhancing their efficiency, transparency, integrity and accountability. Creating a level playing field where suppliers can compete for government contracts, and supporting citizen involvement in oversight of government operations requires proactive and adequate disclosure of information throughout the procurement cycle (OECD, 2009[18]).

Stakeholder engagement in procurement procedures helps create a level playing field for suppliers, encouraging competition in public procurement and opening channels for the participation of civil society (OECD, 2018[19]). Equally, opportunities for direct involvement of relevant external stakeholders in the procurement system increases transparency and reduces the risk of corruption in public procurement. Scrutiny of procurement operations by external stakeholders (i.e. civil society organisations, the media, business organisations and the wider public) creates positive incentives for public officials and complements government accountability and control mechanisms.

In this sense, the OECD 2015 Recommendation of the Council on Public Procurement establishes three pillars to encourage transparent and effective stakeholder participation:

  • developing and following a standard process when formulating changes to the public procurement system;

  • engaging in transparent and regular dialogues with suppliers and business associations to present public procurement objectives and to ensure a correct understanding of markets;

  • providing opportunities for direct involvement of relevant external stakeholders in the procurement system, while ensuring an adequate level of scrutiny.

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Figure ‎4.8. Pillars of participation of the public procurement system
Figure ‎4.8. Pillars of participation of the public procurement system

Source: (OECD, 2009[20]), Public Procurement Toolbox, http://www.oecd.org/governance/procurement/toolbox/, accessed on 21 March 2018.

4.3.1. Public consultation on reforms in the public procurement system

The experience of OECD member countries indicates that open and inclusive policy making can help governments better understand and respond to the changing needs of society, to use ideas and resources from civil society and business to confront complex policy challenges, to lower costs and improve policy outcomes, and to reduce administrative burdens on policy implementation and service delivery (OECD, 2017[21]).

One tool for encouraging participation in procurement is to organise public consultations about any reforms to the procurement system. Such consultations should be conducted in a transparent, inclusive fashion, soliciting the participation of business associations, civil society organisations, regular and potential suppliers, procurement officials, as well as citizens and enterprises in general.

Engaging the private sector and civil society in any proposed changes to the public procurement system aims to align the expectations and understanding of both suppliers and procurement officials.

The standard process for formulating changes in public procurement should allow for public consultation and, at the same time, set up the rules for how to conduct such consultations. These should include details of how the consultations should be organised, which channels can be used (for both active and passive consultation), how far-reaching the consultation process should be, and how to disclose the comments received and the answers given by the procurement authority, as well as the outcome of the consultation and the justification for the decisions taken.

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Box ‎4.11. Prerequisites for a good consultation process

The Australian Productivity Commission has identified certain preconditions for a good consultation process:

  1. 1. Consultation objectives need to be set. Clear objectives help identify the target audience and select the right consultation method to assist evaluation.

  2. 2. The stakeholders need to be clearly identified. In particular, the target audience may be broader than those directly affected or those who have a known interest.


  3. 3. Other departments and agencies may need to be involved.

  4. 4. Methods of consultation need to be determined.

  5. 5. The nature and form of questions included in written consultation documents need to be considered.

  6. 6. Consultation risks need to be managed. Actions may need to be taken to mitigate risks such as low participation rates and poor presentation of complex issues that may be too difficult to understand.

Source: Productivity Commission (2004), Regulation and its Review 2003-04, Annual Report Series, Canberra, on (OECD, 2008, p. 17[22]), Building an Institutional Framework for Regulatory Impact Analysis (RIA): Guidance for Policy Makers, http://www.oecd.org/gov/regulatory-policy/buildinganinstitutionalframeworkforregulatoryimpactanalysisriaguidanceforpolicymakers.htm, accessed on 21 March 2018.

The procurement authorities should consider (OECD, 2009[18]):

  • establishing rules of public consultation in the standard process of formulating changes to the public procurement system,

  • promoting public consultation,

  • inviting comments from the private sector and civil society,

  • taking into account the input, comments and feedback received, if relevant and applicable,

  • publishing the results of the consultation phase,

  • explaining the decisions taken,

  • designing programmes to build the capacity of relevant stakeholders to understand changes to the public procurement system.

The State of Sonora has a Regulatory Improvement Law (Ley de Mejora Regulatoria para el Estado de Sonora), which establishes a procedure for the review, improvement and citizen participation in the preparation of the regulatory framework in agencies and entities of the state’s public administration. The regulatory procedure mandates state regulators to draft a Regulatory Impact Analysis (RIA) for each regulatory proposal issued, including the following elements:

  • the reasons for issuing the new regulation;

  • the alternatives considered, the reasons for rejecting them and the solution proposed;

  • the potential risks of not issuing the regulatory proposal;

  • the legal basis of the regulatory proposal, the regulatory background and the coherence of the regulatory proposal with the legal system in force;

  • the costs and benefits of the regulatory proposal;

  • identification and description of the formalities created by the regulatory proposal;

  • the resources and mechanisms to ensure compliance with the regulation.

The State of Sonora’s Commission for Regulatory Improvement (Comisión de Mejora Regulatoria de Sonora, or COMERS) is charged with implementing a regulatory improvement process like the one in force at the federal level in Mexico. Under its Regulatory Improvement Law, COMERS is to publish the RIA and the regulatory proposals in online forums, as soon as they are received by the Commission, so stakeholders can send their comments, suggestions and observations. As in the federal regulatory improvement process, if regulatory proposals do not involve compliance costs or delays for citizens and enterprises, the agencies and entities of the State Public Administration are not obliged to draft an RIA.

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Box ‎4.12. Mexico’s RIA process, regulatory consultation and public procurement issues

In Mexico at the federal level, regulatory consultation (i.e. consulting stakeholders on the contents of draft regulations) is strongly influenced by the requirements formally established in two separate pieces of legislation. The General Law on Regulatory Reform (Ley General de Mejora Regulatoria) sets out specific public consultation requirements as an integral part of the Regulatory Impact Assessment (RIA) process applicable in drafting primary and secondary regulations. Second, transparency legislation has established more general consultation requirements independent of the RIA process. In particular, this law requires all regulatory proposals to be published on the website of the relevant ministry or regulatory agency.

The RIA process provides important opportunities for public consultation, as well as safeguards to ensure that comments from stakeholders receive the necessary attention. The National Commission for Regulatory Improvement (Comisión Nacional de Mejora Regulatoria, or CONAMER) publishes all draft RIAs as soon as they are received, as well as its own comments on the draft RIA and all input received from stakeholders. This generalised publication of a wide range of RIA-related documentation is good practice among OECD countries. Publication of CONAMER’s response to the draft RIA, notably, provides stakeholders with additional information that can potentially allow them to participate more effectively in the process. For example, by highlighting weaknesses in the analysis, this material may help stakeholders identify data or other materials they possess that could be incorporated into the analysis to enhance its quality. More generally, the publication of all stakeholder comments on the proposal provides the basis for a detailed dialogue on its merits among interested parties.

The draft RIA is required to be open for consultation for at least 20 working days. In practice, however, much longer consultation periods appear to be the norm. This reflects, in part, the time CONAMER requires to undertake its initial analysis of the RIA document and publish its response. The process thus offers extensive opportunities for stakeholder input.

It is always possible that procurement-related regulations impose compliance costs only on government institutions, and not on private individuals. In such a case, exceptions may be requested. For example, CONAMER exempted the State Employees’ Social Security and Social Services Institute (Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado, or ISSSTE) Procurement Guidelines (also known as POBALINES) from the RIA process in October 2011 on this basis.

Source: (OECD, 2018[19]), Second Public Procurement Review of the Mexican Institute of Social Security (IMSS): Reshaping Strategies for Better Healthcare, OECD Public Governance Reviews, OECD Publishing, Paris, https://doi.org/10.1787/9789264190191-en.

ISSSTESON has no standardised procedure for revising its rules on procurement. The State of Sonora has a Regulatory Improv2ement Unit, COMERS, but ISSSTESON does not appear to comply with the requirement to review and analyse regulatory proposals or use other tools for regulatory improvement, such as public consultation and RIA. It does not solicit proposals or comments from civil society and business associations to improve the public procurement system when amending regulations or issuing new ones.

As a good practice, ISSSTESON should develop an internal policy to subject procurement-related rules to the regulatory quality requirements and controls established in the Regulatory Improvement Law of the State of Sonora, which are not necessarily applied to ISSSTESON at present.

ISSSTESON would benefit from setting up an internal protocol or procedure to subject itself systematically to COMERS’ regulatory impact process when developing new procurement rules or modifying the existing ones, even in cases where there are no compliance costs for citizens and enterprises. ISSSTESON could benefit from COMERS’ expertise and by further public consultation, letting stakeholders access more information about procurement regulatory proposals and encouraging them to engage more actively in the process.

If COMERS does not have the capacity to receive and process ISSSTESON’s public procurement regulatory proposals, ISSSTESON would need to establish and regulate an internal standard process (regulatory impact process) to follow each time it revises one or more elements of its public procurement system. The standard process should include an early regulatory public consultation process for all the stakeholders (internal and external, foreign and domestic), formalising the policy for letting stakeholders comment on draft procurement regulations. ISSSTESON should also formally disclose to all its stakeholders, and publish online, both the standard process and the rules for early regulatory consultation.

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Box ‎4.13. Public consultation in Canada

In 2009, the government of Canada issued a Guide for Effective Regulatory Consultations. The guidelines give information on the components of effective regulatory consultation, with checklists, on:

  • an ongoing, constructive and professional relationship with stakeholders

  • a consultation plan

    • statement of purpose and objectives

    • public environment analysis

    • developing realistic timelines

    • internal and interdepartmental co-ordination

    • selecting consultation tools

    • selecting participants

    • effective budgeting

    • ongoing evaluation, end-of-process evaluation and documentation

    • feedback/follow-up

  • conducting the consultations

    • communicating neutral, relevant and timely information

    • ensuring that officials have the necessary skills.

Source: Treasury Board Secretariat (2009), Guidelines for Effective Regulatory Consultations, www.tbs-sct.gc.ca/rtrap- parfa/erc-cer/erc-cer01-eng.asp (consulted on 20 March 2015), on (OECD, 2015[23]), OECD Regulatory Policy Outlook 2015, OECD Publishing, Paris,. http://dx.doi.org/10.1787/9789264238770-en.

ISSSTESON could consider the following questions in designing its internal standard process:

  • When should it apply the internal standard process to consult with external stakeholders about reforms to procurement regulations? For instance, whenever new procurement rules are issued or if the existing ones are reformed by ISSSTESON.

  • Who is in charge of the internal standard process? It might be advisable to designate ISSSTESON’s Institutional Planning and Innovation Unit for this role.

  • What kind of public procurement rules would be subject to the standard process? For instance, would all rules relative to procurement that will be issued, or only the amended procurement rules with compliance costs for enterprises or citizens?

  • What kind of analysis should be drawn up to present the procurement regulatory proposals? For instance, ISSSTESON could adopt the structure proposed by OECD for the RIA (Box ‎4.14).

  • Where and when should the procurement regulatory proposals and their RIA or analysis be published? For instance, on ISSSTESON’s website, or on a special website created for the standard process?

  • How long should the regulatory public consultation last? Most OECD countries guarantee minimum periods of public consultation of more than four weeks (OECD, 2015[23]).

  • Through which channel(s) should stakeholders send their comments? Online or face to face, including information and communications technology (ICT) tools used for consultation: for example, by email, on a government website, in virtual discussions or on social media) as well as face-to-face consultation? ISSSTESON could use such means as advisory groups or preparatory committees; meetings for formal and informal consultation with selected groups; and focus groups.

  • How and when will ISSSTESON give feedback on comments received? It could consider establishing an obligation to produce a report on the regulatory public consultation processes.

  • What should the report of regulatory public consultation include? Ideally, it would include feedback on the comments received, indicating the input considered, explanations of the option(s) chosen, and if applicable, the new version of the regulatory proposal.

  • Where could stakeholders find the report on regulatory public consultation? This might either be on ISSSTESON’s website or on a special website created for the standard process.

  • How will the institute publicise the new regulation(s) issued and the date of entry into force? It would be advisable for ISSSTESON to include in the internal standard process an obligation to design a communications strategy for the new procurement regulation that is to be issued or amended, to inform the relevant stakeholders. The strategy could include programmes to build the capacity of relevant stakeholders to understand changes in the public procurement system.

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Box ‎4.14. Elements of RIA in OECD countries

Constitutive elements

I. Definition of the policy context and objectives, in particular the systematic identification of the problem that provides the basis for action.

II. Identification and definition of all possible regulatory and non-regulatory options that will achieve the policy objective.

III. Identification and quantification of the impact of the options considered, including costs, benefits and distributional effects.

IV. The development of enforcement and compliance strategies for each option, including an evaluation of their effectiveness and efficiency.

V. The development of monitoring mechanisms to evaluate the success of the policy proposal and to feed that information into the development of future regulatory responses.

VI. Public consultation incorporated systematically, to give all stakeholders the chance to participate in the regulatory process. This provides important information on the costs and benefits of alternatives, including their effectiveness.

Focusing the analysis

Additionally, RIA could include specific analyses on:

  • risk assessment

  • competition assessment

  • environmental impact

  • market openness.

Source: (OECD, 2008[22]), Building an Institutional Framework for Regulatory Impact Analysis (RIA): Guidance for Policy Makers, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264050013-en.

In addition to setting up a RIA process for public procurement issues, ISSSTESON could consider a programme to reduce red tape and streamline administrative burdens in public procurement procedure. The aim would be to increase participation of suppliers and small and medium enterprises (SMEs) in public procurement. The institute could call on all suppliers involved in one or more tenders in the recent past, and even those that were not awarded, with the goal of consulting them on the key problems faced in the tender process, and specifically, about the opportunities for improving procurement formalities.

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Box ‎4.15. Spain’s simplification of the public procurement procedure: Self-Declaration

Through the Act 14/2013 for the support and internationalisation of entrepreneurs, (which modified the Royal Legislative Decree 3/2011, of Contracts of the Public Sector), Spain introduced measures to support and facilitate participation of SMEs in public procurement.

In addition to several changes in the legal regime of classification, and to expand the thresholds requiring pre-classification, Act 14/2013 added a new paragraph to Article 146 of the Royal Legislative Decree 3/2011, in Contracts of the Public Sector. This allows contracting entities to accept a self-declaration from potential suppliers, rather than requiring them to submit a series of documents certifying the legal, social, and fiscal situation of a SME willing to participate in public procurement procedures. This self-declaration will always suffice in contracts for projects of less than EUR 1 million and in provision and service contracts of less than EUR 90 000.

The tenderer chosen for award of the contract is, however, required to provide the relevant evidence, and contracting authorities are not permitted to conclude contracts with bidders that are unable to do so. Contracting authorities should also be entitled to request all or part of the supporting documents at any point, if they consider this to be necessary to respect the proper conduct of the procedure.

Although these measures have been adopted as targets by national authorities in Spain, they comply with the new European Union Directives on Public Procurement: “Many economic operators, and not least SMEs, find that a major obstacle to their participation in public procurement consists of administrative burdens deriving from the need to produce a substantial number of certificates or other documents related to exclusion and selection criteria. Limiting such requirements, for example through use of a European Single Procurement Document (ESPD) consisting of an updated self-declaration, could result in considerable simplification, for the benefit of both contracting authorities and economic operators.”

Source: Spain Ministry of Finance and Public Administrations on (OECD, 2015[24]), “Compendium of Good Practices for Integrity in Public Procurement”, GOV/PGC/ETH(2014)2/REV1.

4.3.2. Encouraging dialogue between procurement authorities, suppliers and business groups

Another way to encourage stakeholders (internal and external) to participate in the public procurement system is transparent and regular dialogue between procurement authorities and suppliers and business associations. Dialogue with the relevant stakeholders adds a level of scrutiny that can help identify problems (bottlenecks in processes and possible risks of corruption and collusion) and opportunities for improvement in the procurement process. It can also help improve tender design.

Procurement authorities should encourage such dialogue to give potential suppliers a better understanding of their needs and give procurement officials information on market capabilities that can help them develop more realistic and effective tender specifications (Table ‎4.4). Such interactions should also ensure that foreign companies participating in tenders receive transparent and effective information. These interactions between potential suppliers and procurement officials should be subject to appropriate fairness, transparency and integrity safeguards (OECD, 2009[18]).

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Table ‎4.4. Objectives and basic actions for regular dialogues with suppliers

Objective

Basic actions

Objective 1. Give potential suppliers a better understanding of the procurement authority’s needs

• Offer potential suppliers the chance to seek clarification before tendering, especially for high-value procurements (i.e. the disclosure of information should be carefully considered, taking into account possible risks of collusion between private sector actors)

• Provide prompt responses to potential suppliers’ questions for clarification, and communicate them consistently, to create a level playing field (time frames should be defined in the legal framework)

• Debrief unsuccessful bidders so that they understand why their proposals did not match others’ tenders, without disclosing commercially sensitive information about other tenders,

• Promote regular dialogue between both parties in the contract management phase, so problems can be quickly identified and resolved

• Adapt the interactions to ensure that foreign companies participating in tenders receive transparent and effective information (in terms of language and timeliness),

• Establish regular contact with business associations.

Objective 2. Ensure that procurement authorities have a correct understanding of markets, so they can develop more realistic and effective tender specifications

• Conduct effective market research, regular market surveys and strategic sourcing on all tenders (i.e. collect relevant information on potential suppliers, products and prevailing prices for goods and services),

• Discuss economic competition

• Use (early) engagement mechanisms with suppliers, such as Requests for Information (RFIs) and one-to-one consultations with suppliers, and hold industry/supplier days, information discussions, competitive dialogues (when necessary), etc.

Source: Adapted from (OECD, 2009[18]), “Public Procurement Toolbox, Participation” http://www.oecd.org/governance/procurement/toolbox/principlestools/participation/, accessed on 22 March 2018.

Several effective tools can be used to manage dialogues with relevant stakeholders (internal and external), which can be structured depending on the phase of the procurement cycle (Table ‎4.5). Stakeholders can be involved at any point of the procurement cycle, as long as the procurement authorities conduct themselves with high standards of integrity (fairness, openness, transparency, equal access and treatment, non-discrimination, providing the same information to all suppliers) and maintain records of any discussions, lists of attendees and information shared, as well as questions and answers.

In the pre-tendering phase, it is advisable for procurement authorities to organise capacity-building workshops on the legal framework of public procurement, the anti-corruption system and potential penalties. Specialised training could be organised to communicate to potential suppliers the purchasing needs (for instance, the annual procurement programme), as well as tips and practical sessions on how to elaborate bid proposals, among other themes that suppliers request and consider necessary.

It would be advisable for ISSSTESON to organise discussions about draft calls for tender, to solicit relevant input from suppliers to improve tender documents and develop effective tender specifications. It would also be beneficial to establish supplier training desks (either physical or online) to provide assistance to suppliers.

At the same time, and with the aim of obtaining information from the market, procurement authorities could introduce such activities as: RFIs, inviting suppliers to “show and tell” events, and organising industry days. This would encourage buyers to discuss their needs and allow suppliers or industry representatives to offer information about their products or services, as well as to explain how the industry works, analyse possible solutions, and identify suppliers able to offer the goods and services that procurement authorities need.

In the tendering phase, the procurement authority could organise one press conference with industry and external stakeholders to present the tender and another to communicate results. As noted earlier, the participation of the media and relevant external stakeholders enhances the level of scrutiny and promotes a level playing field, which in turn increases transparency and accountability. Clarification meetings with all potential suppliers are desirable. The number of meetings needed will depend on the size of the tender and the technical specifications of the purchase, but at least one is called for. Suppliers who are interested in submitting a bid or who have submitted an expression of interest can participate in clarification meetings. In the same vein, procurement authorities could hold a question-and-answer session or send a list of all questions and their answers to all suppliers.

The Law on Public Works and Related Services of the State of Sonora (Ley de Obras Públicas y Servicios Relacionados con las Mismas para el Estado de Sonora) establishes in Articles 44 and 46 that the call for tenders should include the date, time and place where the clarification meeting will take place. Although the Law on Acquisitions does not explicitly include an obligation to hold a clarification meeting, ISSSTESON follows as good practice the requirement established in the Law on Public Works and usually includes a clarification meeting in its calls for tender.

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Table ‎4.5. Tools to increase stakeholder participation in the procurement cycle

Phase of public procurement cycle

Tools for promoting a constructive dialogue

PHASE 1

Pre-tendering phase

• Publication of forward procurement plan (i.e. Annual Procurement Plan)

• “Meet the buyer” events for interested suppliers

• Capacity-building workshops on the legal framework, to communicate purchase needs, including tips and practical sessions on how to elaborate bid proposals.

• Public consultation on draft calls for tender

• Supplier training desks to assist suppliers

• One-to-one consultations with suppliers

• Pre-tender briefings for suppliers interested in a contract opportunity

• RFIs

• “Show and tell” meetings to allow suppliers to explain their proposed solutions

• Industry days

PHASE 2

Tendering phase

• Press conference with industry and external stakeholders to launch the tender

• Clarification meetings with all potential suppliers

• Question-and-answer sessions, or lists of questions and answers sent to all suppliers

• Press conference with industry and external stakeholders to communicate results

PHASE 3

Post-award phase

• Communication with suppliers to inform them who has been successful

• Publication of contract award notice

• Debriefings with unsuccessful bidders to provide feedback

• Clarification meetings with suppliers awarded a contract

• Opinion surveys of tenders

Source: Adapted from (New Zealand Government, 2015[25]), Constructive Market Engagement: A Guide to Engaging Effectively with Suppliers, https://www.procurement.govt.nz/assets/procurement-property/documents/guide-constructive-market-engagement.pdf, accessed on 22 March 2018.

In the post-award phase, it is desirable to let suppliers know who has been successful and publish a contract award notice. Procurement authorities can also hold debriefings with unsuccessful bidders to address their concerns and receive feedback on the tender process. Debriefings are also useful to let suppliers know why their proposals were unsuccessful, to help them develop capacity and lend transparency and trust to the process. To manage contracts, the procurement authority could organise clarification meetings with the supplier awarded a contract. These meetings are helpful to explain the contract terms, defined times, organisation mechanisms, and so on. Opinion surveys on tenders are also a good way of obtaining feedback on the process and identifying opportunity areas for future tenders.

Verbal debriefings and meetings can improve suppliers’ relationship with procurement authorities and the quality of their offers, while giving them valuable insights. They must, however, be used judiciously, under clear guidelines, to reduce any risks and costs associated with breaches of integrity. To increase the benefit of discussions, and to mitigate potential risk, procurement authorities should develop guidelines or protocols to establish a clear framework that governs the process. The amount and type of information dispensed will depend on the circumstances of the contract and the market situation (OECD, 2018[19]).

The procurement authority should ensure that no competitive advantage, for whatever reason, is afforded to any suppliers. Special attention should be paid when sharing any information, at any point, to ensure that all suppliers receive the information. For example, if a tender is anticipated, particular care should be taken in interactions with external stakeholders and suppliers.

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Box ‎4.16. Policy of New Zealand’s procurement authority on asking suppliers for information

Pre-procurement

After publishing a notice of procurement

At the pre-procurement stage, the procurement authority will probably be conducting basic market research and analysis to inform the procurement plan. This may be informal, but should nevertheless be planned. The procurement authority may want to ascertain:

• the number of suppliers and the total size of the market

• key suppliers and their market shares (supply)

• the number of buyers and their influence on the market (demand)

• the degree of competition

• current prices, pricing methods and other factors influencing price

• market trends and regional differences

• the availability of alternative goods and services (product differentiation)

• any current or potential developments, innovation or new technology in the market

• the nature and quality of the supply chain(s)

• supplier positioning – the level of vulnerability buyers would be exposed to if a particular supplier was to fail.

Once the procurement authority enters into a formal tender process, it must ensure that the engagement with suppliers is well planned, properly managed and fully recorded. There are increased risks because it has now embarked on a formal process.

At this stage, the procurement authority may want to engage with suppliers to:

• explain in detail its needs and specify its requirements

• describe the results it wants to achieve and what success would look like

• allow suppliers to ask questions

• encourage suppliers to identify improved efficiencies in the design of the product or delivery of the service

• seek opportunities for suppliers to develop innovative solutions

• give suppliers an opportunity to fine-tune their solution to best meet needs.

Source: (New Zealand Government, 2015[25]), Constructive Market Engagement: A Guide to Engaging Effectively with Suppliers, http://www.procurement.govt.nz/procurement/pdf-library/agencies/guides-and-tools/Constructive-Market-Engagement.pdf, accessed on 22 March 2018.

ISSSTESON has no mechanisms of participation for stakeholders to provide comments, information and ideas for improving tenders. The only such mechanism noted was the clarification meeting that ISSSTESON is mandated to conduct as part of the procurement procedure mandated by the Law on Public Works. In these meetings, suppliers can seek clarifications and ISSSTESON officials can obtain elements to correct and/or clarify the calls for tender. Clarification meetings are conducted in person and the participation of potential suppliers is optional, but they usually participate so their questions can be answered. Information on the meeting is uploaded to the e-procurement system, Compranet. At present, however, ISSSTESON has no systemic, regulated participation scheme for the entire public procurement cycle.

4.3.3. ISSSTESON should introduce stakeholder participation at all phases of the procurement cycle

Meanwhile, ISSSTESON should develop protocols and a clear procurement framework to regulate precisely when each participation tool can be used and what kind of information can be shared, depending on the phase of the procurement cycle and the participation tools selected. ISSSTESON could identify the best channels for communicating with potential suppliers.

ISSSTESON does not at present have guidelines for elaborating draft tenders, other than what is mandated by law. Consequently, procurement practitioners usually rely on previous tenders or the experience and opinions of Sonora’s Ministry for Control. Even though the ministry’s mechanism of control must be maintained, ISSSTESON could develop guidelines to elaborate draft tenders with the aim of harmonising criteria and facilitating the work of procurement practitioners.

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Box ‎4.17. IMSS’ Strategy to Increase Competition in Public Tenders

On 20 July 2017, IMSS launched the Strategy to Increase Competition in Public Tenders, which aims to facilitate the participation of the largest number of bidders in the market and to upgrade procurement conditions in terms of price and quality for IMSS.

The strategy is based on two pillars: i) strengthening the tender processes carried out by IMSS and ii) protocol for carrying out priority tenders.

The protocol establishes higher standards than those required by law for tenders that have been classified as a priority, using the following criteria:

  • social impact: tenders with a high impact due to the type of goods or service purchased.

  • adjustments in the call for tender: tenders whose terms have been adjusted relative to previous processes in order to increase participation.

  • size: tenders exceeding MXN 500 million.

The protocol starts by identifying tender processes at risk of exposure to external pressure. The process of these tenders is public and involves stakeholders at every stage. The protocol consists of the following steps:

  1. 1. A meeting is organised with external stakeholders, including chambers of commerce and civil society organisations, two weeks before the publication of the call for tender. During these meetings, IMSS staff explains the tender process and, if it differs from previous processes, explains the reasons why.

  2. 2. The call for tender is published on CompraNet for ten working days.

  3. 3. A press conference is held on the day that the calls for tender are published and on the day of the contract award. These press conferences involve external stakeholders, such as chambers of commerce and civil society organisations.

  4. 4. Clarification meetings, opening of bids and the award event are broadcast on several platforms (IMSS’ own website, Twitter and Facebook).

Source: (OECD, 2018[19]), Second Public Procurement Review of the Mexican Institute of Social Security (IMSS): Reshaping Strategies for Better Healthcare, OECD Public Governance Reviews, OECD Publishing, Paris, https://doi.org/10.1787/9789264190191-en.

4.3.4. Involvement of external stakeholders in the procurement system for ensuring scrutiny

To enhance public policies, trust in government is necessary to improve government relations with citizens. Consultation and active participation provide government with an informed basis for policy making. At the same time, they ensure more effective implementation, as citizens become better informed about the policies and are involved in their development. Involving citizens in public issues creates greater acceptance for the political outcomes, since when governments endorse openness, citizens tend to perceive them as worthy of their trust. Making governments more transparent and accountable enhances the basis for active citizenship, which in turn leads to a stronger democracy (OECD, 2001[26]).

(OECD, 2001[26]) defines active participation as the participation of citizens in policy discussions, for instance, by proposing policy options. At the same time, the responsibility for formulating policy and the final decision rests with the government. Engaging citizens in policy making involves an advanced two-way relationship between government and its citizens, based on the principle of partnership.

Given the risk of corruption in procurement operations, it is good practice for governments to enlist representatives of civil society, academics or end users in reviewing the integrity and functioning of the procurement process, as well as involving the media and the wider public through awareness-raising programmes and communication campaigns. The role played by oversight institutions such as Congress and the Supreme Audit Institution (at national or subnational level) through their reports is particularly helpful for enhancing public scrutiny of public procurement (OECD, 2009[27]).

Involving external stakeholders as observers of the procurement system, and introducing open-data strategies throughout the public procurement cycle encourages citizens’ active participation in public procurement. The OECD Recommendation of the Council on Public Procurement (2015[4]) suggests introducing “direct social control” and “community monitoring” mechanisms to encourage citizens’ active participation at key decision-making points. The following box shows some of the actions governments can take to involve external stakeholders.

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Box ‎4.18. Opportunities for direct involvement of external stakeholders

Encouraging involvement of relevant external stakeholders in the procurement system.

  • Implementing “direct social control” and “community monitoring” mechanisms that encourage the involvement of representatives from civil society, academics or end users as external observers of the procurement process or at key points, such as social witness programmes or public hearings;

  • Facilitating access to data to the relevant external stakeholders;

  • Providing clear channels to allow external observers to inform control authorities of potential irregularities or corruption, using an online complaint mechanism and digital means;

  • Designing confidential and accessible complaint mechanisms to reduce potential intimidation of users, while allowing public officials to have access to feedback on public services and policies.

Ensuring scrutiny to ensure confidentiality, equal treatment and other legal obligations in the procurement process.

  • Disclosing relevant information related to public procurement processes (records can be made available for civil society, media and the wider public), including on open data websites;

  • Disseminating information on budgetary and financial execution (which facilitates civil society initiatives to track the management of public funds);

  • Implementing an “open agenda” mechanism, under which procurement officials disclose to the private sector every meeting and the minutes of those meetings.

Source: (OECD, 2016[28]), Checklist for supporting the implementation of OECD Recommendation of the Council on Public Procurement: Participation, http://www.oecd.org/governance/procurement/toolbox/search/Checklist%2005%20Participation.pdf.

Procurement practitioners should take at least two steps: i) introduce “direct social control” mechanisms with legal and direct channels, to allow external observers to inform control authorities of potential irregularities or corruption; and ii) design confidential, accessible complaint mechanisms to reduce potential user intimidation (OECD, 2009[27]).

Direct social control mechanisms involve an independent expert monitor in the procurement process. This expert may be from civil society, the academy or an end user, or commercially contracted. The external independent expert usually has access to all documents and meetings on the procurement process.

Procurement authorities should set up strict criteria to define when direct social control mechanisms may be used, as well as for selecting an external observer. Criteria for determining when direct social control mechanisms should be used include the value (especially for high-value procurement), complexity and sensitivity of the procurement. External observers should be subject to systematic verification to confirm they have no conflicts of interest and are aware of restrictions and prohibitions on potential conflicts of interest, such as the handling of confidential information. Governments should support these initiatives by ensuring timely access to information and providing clear channels to allow the external observer to inform control authorities in the case of potential irregularities or corruption (OECD, 2009[27]).

At the federal level, Mexico has a successful mechanism of direct social control, “social witnesses”, documented in OECD integrity reviews (Box ‎4.19).

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Box ‎4.19. Social witnesses in Mexico

Since 2009, Mexico has required that social witnesses participate at all stages of public tendering procedures above certain thresholds, to enhance public scrutiny. In 2017, the thresholds were MXN 400.2 million (approximately EUR 18.6 million) for goods and services and MXN 800.4 million (approximately EUR 37.2 million) for public works.

Social witnesses are non-government organisations and individuals selected by the Ministry of Public Administration (Secretaría de la Función Pública, or SFP). SFP keeps a registry of the approved social witnesses and evaluates their performance. Unsatisfactory performance can lead to their removal from the registry. If a federal entity requires the involvement of a social witness, it informs the SFP, which designates one from the registry.

Social witnesses’ functions include proposing strategies to improve transparency, impartiality and compliance with the legal framework, as well as reporting any illegal acts they may uncover. Their participation is required by law in public tenders worth more than MXN 5 million minimum daily wages applied in Mexico City, as well as in other cases where SFP deems it appropriate.

As of 16 August 2017, the SFP had registered 45 social witnesses in CompraNet for public procurement projects (up from five in 2005): seven civil society organisations and 38 individuals. SFP notes that the monitoring of the most relevant procurement processes of the federal government by social witnesses has so improved procurement procedures, thanks to their contributions and experience, that they have become a strategic element for ensuring the transparency and credibility of the procurement system. An OECD-World Bank Institute study found that the participation of social witnesses in the procurement processes of the Federal Electricity Commission (Comisión Federal de Electricidad, or CFE) created savings of approximately USD 26 million in 2006 and increased the number of bidders by over 50%.

At the end of a procurement process, a social witness issues a report containing comments and recommendations. These reports are published on CompraNet. However, social witnesses do not have the authority to stop a procurement process or revoke a decision. They may express opinions, but do not have any influence or right to make decisions. If social witnesses raise concerns over a possible corrupt action during a procurement process, their opinions and concerns are recorded in the report.

Source: Research based on information from (OECD, 2015[24]) Compendium of Good Practices for Integrity in Public Procurement, OECD, Paris, GOV/PGC/ETH(2014)2/REV1, http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=GOV/PGC/ETH(2014) 2/REV1&docLanguage=En, and (OECD, 2018[19]).

ISSSTESON encourages the participation of “Citizen Commissioners”, who are responsible for providing input on public perception of health services. Selected by Sonora’s Ministry for Control, they are typically senior citizens and retirees who have worked for ISSSTESON and are familiar with its services. Citizen Commissioners receive compensation, and the result of their work is presented to senior officials.

Citizen Commissioners, however, do not participate in procurement processes. ISSSTESON, with Sonora’s Ministry for Control, could thus consider adding new functions for Citizen Commissioners and adapting the mechanism to create social witnesses or external observers of public procurement processes.

To this end, ISSSTESON and the Ministry for Control should develop strict criteria to define when Citizen Commissioners may assist public procurement processes, and the profiles and requirements they need to participate. In addition to senior citizens and retirees (as end users), representatives of civil society and other experts might be invited to participate.

A local college, Kino University, has created an anti-corruption education programme, called “You can succeed without being corrupt” (“Se puede alcanzar el éxito sin ser corrupto”.) This offers an opportunity to link academia and students with procurement practitioners and increase awareness of integrity in society at large.

Although civil society, the media and chambers of commerce have not yet engaged in oversight activities, ISSSTESON could invite them to participate in the review of open public procurement processes. This would enhance their awareness of integrity and increase their expertise in procurement.

copy the linklink copied!4.4. Developing an effective complaints and sanctions system

Accountability enhances good governance and integrity in public procurement. The OECD (2015[4]) Recommendation of the Council on Public Procurement establishes four key elements to encourage accountability in the public procurement cycle (Figure ‎4.9).

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Figure ‎4.9. Key elements to encourage accountability in the public procurement cycle
Figure ‎4.9. Key elements to encourage accountability in the public procurement cycle

Source: (OECD, 2009[29]), “Public Procurement Toolbox, Accountability Principle”, http://www.oecd.org/governance/procurement/toolbox/principlestools/accountability/.

The first and second elements refer to developing a well-defined chain of responsibility by outlining the authority for approval (for instance approval of spending, sign-off and key stages) based on an appropriate segregation of duties, as well as the obligations for internal reporting. This chain of responsibility should be developed through a comprehensive control framework, through regulations, internal guidelines and in general, legal foundations.

To ensure appropriate oversight of procurement transactions (reception, bids opening, evaluation, award, contract management, compliance, effectiveness and efficiency of procurement operations), the control framework should consider four factors: i) internal controls, ii) independent internal audit function, iii) external audits and iv) competent oversight bodies. These should be integrated and co-ordinated to enhance procurement performance monitoring, avoid duplication of responsibilities and efforts, and harmonise and mutually reinforce internal and external audits.

To segregate duties, it is important to discuss and define at which level procurement practitioners should be authorised to grant approvals in the procurement cycle; and the responsibilities of public servants involved in public procurement. For example, policy makers should know who can be authorised to sign off, what kind of responsibilities are delegated, and which kind of internal reports will be done and for whom.

Efficiency and effectiveness will be facilitated if duties are properly defined and if a clear chain of authority and control is established for decision making. These elements are not enough, however, to maintain public confidence in procurement operations. To complete the accountability strategy, it is necessary to add two more elements: a comprehensive complaints system, including whistle-blower protection, and an effective and enforceable sanctions system.

ISSSTESON’s public procurement rules on segregation of duties and the approval criteria of procurement awards appear confusing. On the fact-finding missions, ISSSTESON procurement practitioners expressed concern about the processes of control and audit. Although both technical and economic criteria are permissible criteria for consideration in awarding contracts, in practice, award decisions that do not select the lowest bid are questioned.

4.4.1. ISSSTESON should develop guidelines for internal and external audits with the Ministry for Control

ISSSTESON has a Supervisory and Audit Committee that is charged with analysing, integrating and co-ordinating internal control duties with the internal and external audit information. Every three months, ISSSTESON’s General Director sends the committee a report on the financial management of the funds of the institute. It is also charged with obtaining from the Superior Institute of Audit and Control (Instituto Superior de Auditoría y Fiscalización, or ISAF), information related to the financial status and results of the audits, as well as the inspections and visits to ISSSTESON. The committee participates as a contributor of the Ministry for Control in the audit and review procedures conducted in ISSSTESON.

The Supervisory and Audit Committee (Comité de Vigilancia y Fiscalización) monitors the expenditure of the institute and the investment of its resources, and supervises their application. Members of the committee may not be members of ISSSTESON’s Board of Directors or hold any position in the institute, with the exception of the General Director, who acts as Technical Secretariat of the Committee, with the right to speak but not to vote. Committee members perform their duties on an honorary basis.

Oversight of monitoring and evaluation activities of the institute is carried out by a Public Commissioner appointed by Sonora’s Ministry for Control and an internal control body. Both bodies are part of ISSSTESON organisational structure, but they make technically independent decisions and opinions and are accountable to the Ministry for Control.

The Public Commissioner evaluates the general performance and functions of the institute, analyses ISSSTESON’s expenditure efficiency and, in general, requests information and performs the acts required for the proper performance of its functions. The Public Commissioner participates in the Procurement Committee, as well as ISSSTESON’s Board of Directors.

The Internal Control Body (Órgano Interno de Control, or OIC), which aims to support and enhance the management of the institute, carries out its functions in accordance with guidelines issued by Sonora’s Ministry for Control. The OIC also collaborates with ISSSTESON in observation of other oversight entities. The OIC has a legal department in charge of complaints, a department in charge of audits and one more to carry out its administrative functions.

The OIC has an annual audit plan, which may be adapted if, during the year, certain complaints are received or if circumstances warrant a special review or supervision. The OIC works in two types of evaluations: performance and financial evaluations. Some of them may be ex officio and should be included in the annual audit plan and others may be requested and based on complaints from beneficiaries.

4.4.2. ISSSTESON and its oversight bodies should agree on internal and external audit plans

Agreement on the audit plans could benefit from publication on an online system that also publishes the audit reports and their results, principal auditing observations and recommendations, as well as the follow-up on implementing and enforcing the audit recommendations. This would enhance the institute’s accountability.

ISSSTESON should be aware that complaints communicate useful information to the procurement system and can help identify challenges in the process, the barriers to entry and the risks of corruption that suppliers are experiencing. Complaints are a source of input for improving the procurement system.

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Box ‎4.20. Online complaint form, New York State, Office of the Inspector General (US)

The Inspector General’s Office is entrusted with the responsibility of ensuring that the state government, its employees and those who work with the state meet the highest standards of honesty, accountability and efficiency.

To report allegations of misconduct in the state government, the office has created an online complaint form designed to provide as much information as possible on:

  • Who is engaged in misconduct?

  • Which state agency is involved?

  • What wrongdoing occurred?

  • When did it happen?

  • Are there witnesses to the misconduct that we can contact?

  • What laws or agency regulations have been violated?

The form also asks for information about complainants, who may request confidentiality. Complainants can provide information about the documentation in their possession that relates to the complaint. The form is available in other six languages, including French, Spanish, Chinese and Russian.

Source: (OECD, 2015[30]), Effective Delivery of Large Infrastructure Projects: The Case of the New International Airport of Mexico; OECD Procurement Toolbox 2009, http://www.oecd.org/governance/procurement/toolbox/search/online-complaint-form-new-york-office-of-the-inspector-general.pdf.

The State Government should set up a system to gather and handle all complaints, in a fair, timely and transparent way. An effective public procurement complaints system should permit complaints regarding, at the least: i) infringements of public procurement rules, ii) public procurement procedures, iii) contract award decisions, and iv) the interpretation of contract clauses in managing the contract.

A public procurement complaints system should consider establishing mechanisms for challenging procurement decisions. These are usually called “remedies to challenges” and may be organised into two or more levels of challenges. First, the procurement system could include an alternative dispute settlement mechanism (i.e. conciliation), encouraging informal problem solving and preventing formal reviews. Secondly, it could establish a formal review process conducted by the procuring entity and, in a third instance, by a body with enforcement capacity independent of the respective procurement authorities.

“Remedies to challenges” should be provided at an early stage of the decision-making process, before the contested contract is signed. A good practice in OECD member countries is a mandatory standstill period between the contract award and the beginning of the contract, to allow legal actions by the harmed bidder to allow a reasonable chance of being reinstated in the procurement procedure (OECD, 2009[27]; OECD, 2009[29]).

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Box ‎4.21. New Zealand’s Guide to supplier feedback and complaints

New Zealand’s Guide to supplier feedback and complaints gives suppliers a short overview of how to give feedback or raise concerns about a government procurement process, how to make a formal complaint, and how to use other options to resolve a problem if previous steps do not give satisfaction. It includes information about the procurement process, suppliers’ rights in the process, the responsibilities of those involved in the process, and the role of the Ministry of Economic Development. It also explains how an agency should respond to supplier complaints and provides useful contacts.

A supplier may complain to an agency if it has concerns about any part of a procurement process and if it believes the agency has failed to follow the rules. This process supports ongoing development and improvement in procurement throughout government, during and after the tender process. Concerns can be raised at the agency dealing with the process or using the New Zealand Government Procurement’s Supplier Feedback Service (SFS). New Zealand Government Procurement (NZGP) monitors the number and nature of supplier complaints. If necessary, it will clarify procurement policy and practice guidance for agencies, so that similar problems are less likely to arise in the future. NZGP must be sent copies of all written complaints (and related correspondence) that government agencies’ chief executives receive. SFS allows suppliers to voice their concerns to a neutral agency and gives government an understanding of the problems suppliers are experiencing in the procurement process.

According to the Guide, suppliers have several options for communicating their concerns:

Step 1. Attempt to sort the matter out directly with the agency (supplier + agency). Options available:

  • discussion

  • formal complaint.

Step 2. Engage third party to help resolve the issue with the agency (supplier + agency + third party, i.e. SFS). Options available:

  • mediation or alternative dispute resolution

  • an independent review or investigation, also called a “probity audit”.

Step 3. Escalate complaint to an authority and/or go to court (supplier + agency + authority court). Options available:

  • investigation by the Auditor-General

  • investigation by the Ombudsman

  • investigation by the State Services Commission

  • going to court.

Source: (New Zealand Government Procurement, 2015[31]), “Guide to supplier feedback and complaints: How to provide feedback or make a complaint about procurement”, https://www.procurement.govt.nz/assets/procurement-property/documents/guide-supplier-feedback-and-complaints.pdf, accessed on 22 March 2018.

To encourage transparency and accountability, it is always desirable to have clearly defined procedures for submission and resolution of complaints, as well as for follow-up. It is advisable to maintain an online portal updated with the procedures, decisions or resolutions taken from complaints and statistics about number of challenges filed and the types and the number of sanctions imposed each year.

Procurement authorities also have to design and implement a whistle-blower protection framework in public procurement. Whistle-blower protection refers to legal protection from discriminatory or disciplinary actions for employees who disclose to competent authorities, in good faith and on reasonable grounds, wrongdoing of any kind in their workplace, including in both public and private sector organisations (OECD, 2016[32]).

Employees in both public and private sectors can access up-to-date information concerning workplace practices and are usually the first to recognise wrongdoing. However, if the organisation has no mechanism to protect those who report wrongdoing, employees may be subject to intimidation, harassment, dismissal and violence by their colleagues or superiors (OECD, 2016[32]). Fear of reprisal is an important reason for potential whistle-blowers to avoid reporting wrongdoing. An organisational culture that creates “fear of consequences or risk aversion” can be less oriented towards ethics and integrity results.

Whistle-blower protection frameworks (and a regulatory framework that is actively implemented) give employees positive incentives to help authorities deter and detect wrongdoing, as corrupt acts, fraud and mismanagement. As part of this framework, a legal obligation for public officials to report corruption and other criminal offences could be set up, as well as criminal sanctions for those who fail to report.

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Box ‎4.22. Austria’s whistle-blower hotline

In March 2013, Austria’s Ministry of Justice set up a whistle-blower hotline on the homepage of the Public Prosecutor's Office Against Corruption and White-Collar Crime. As of September 2013, approximately 590 notifications were submitted, of which only 53 were deemed not relevant. The whistle-blower hotline had a pilot phase of two years. The Federal Ministry of Justice’s whistle-blowing website enables investigators from the Public Prosecutor's Office against Corruption and White-Collar Crime (Zentrale Staatsanwaltschaft zur Verfolgung von Wirtschaftsstrafsachen und Korruption, or WKStA) to get in direct contact with whistle-blowers, while protecting their anonymity. Whistle-blowers are entitled to decide whether they want to remain anonymous or to identify themselves to investigators.

Source: (OECD, 2016[33]), Towards Efficient Public Procurement in Colombia: Making the Difference, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264252103-en.

ISSSTESON and Sonora’s Ministry for Control have set up mailboxes to collect complaints from suppliers and citizens. Suppliers seldom use them, however, because they fear being singled out and being excluded from upcoming bids or procurement processes. ISSSTESON does not receive many appeals or complaints, because providers do not want to challenge the government. Suppliers also often do not know where and how to file a complaint or appeal.

OIC staff collect citizen complaints (complaints, suggestions and recognitions) from the mailboxes every Monday. After review, they are turned over for investigation to the corresponding ISSSTESON division and have a deadline of five working days to provide a response to the OIC. In all cases, ISSSTESON’s General Director is copied. After assessing the responses, the OIC determines if they are adequate and, if so, are sent by certified mail to the person who filed the complaint. If complainants are not satisfied with the response, they have a few extra days to ask for additional information or clarifications. The OIC produces a monthly report for the General Director detailing the status of the complaints, suggestions and recognitions received, classifying the information by subject and the administrative unit concerned.

The State of Sonora’s Anti-Corruption Law in Public Procurement lists at least seven types of infringements in public procurement (Box ‎4.23). The law requires individuals to report these to the corresponding control body. It also mandates all those participating in the procurement process and all public servants to report, in writing, the actions or omissions they are aware of in the exercise of their functions that could be sanctioned under the Law. If they fail to comply with this obligation, they may be sanctioned.

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Box ‎4.23. Infractions in public procurement in the State of Sonora

Any person who:

  • promises, offers or delivers money or any other gift to a public servant or third party, in exchange for performing or refraining from undertaking an act related to his/her functions or to those of another public servant, with the purpose of obtaining or maintaining a benefit or advantage, regardless of the acceptance or receipt of the money or the gift or the result obtained.

    They will also incur responsibility when the promise or money offered, or if any gift is made to a third party that in any way interferes with the design or preparation of the public bid or any other act related to the public procurement process.

  • takes any action that implies or has the purpose or effect of obtaining an improper benefit or advantage in public procurement;

  • is responsible for acts or omissions whose purpose or effect is to participate in public procurement, despite being prevented from doing so by law or administrative resolution;

  • is responsible for acts or omissions whose purpose or effect is to avoid the requirements or rules established in public procurement regulations or to simulate compliance with them;

  • intervenes on his/her own behalf in the interests of another person or persons who are unable to participate in public procurement, so that those persons may obtain, totally or partially, the benefits derived from contracting;

  • unlawfully obliges a public servant to give, subscribe, grant, destroy or deliver a document or any kind of good, in order to obtain an advantage or benefit for themselves or a third party;

  • promotes or uses influence, economic, political or social power, over any public servant, in order to obtain for themselves or a third party a benefit or advantage, independently of the acceptance of the public servants or of the obtained result;

  • presents false or altered documentation or information with the purpose of achieving a benefit or advantage.

Source: Article 7, Anti-Corruption Law on Public Procurement of the State of Sonora.

According to the Anti-Corruption Law on Public Procurement of the State of Sonora, the complaint letter shall contain the facts and any other information about alleged infringements, the identification data of the alleged suspect; and the evidence for the alleged infringements.

Even though the Anti-Corruption Law on Public Procurement of the State of Sonora establishes a complaint and sanction system for state and municipal public procurement, Sonora does not have whistle-blower protection and witness protection mechanisms. The current legal framework protects neither external whistle-blowers nor ISSSTESON public officials who wish to report wrongdoing.

To prevent violation of public procurement laws, internal control bodies can sign collaboration agreements with individuals and corporations who participate in public procurement, as well as with chambers of commerce or industrial and trade organisations, to help them develop self-regulatory mechanisms, including the implementation of internal controls and an integrity programme to advance an ethical culture, as well as mechanisms for complaint and protection of whistle-blowers (Anti-Corruption Law on Public Procurement of the State of Sonora, Articles 32-33). No evidence, however, suggests that collaboration agreements have been signed or that mechanisms or programmes for complaints and protection of whistle-blowers have been set up between ISSSTESON and its stakeholders.

As for developing a system of effective and enforceable sanctions for government and private-sector procurement participants, Sonora’s Anti-Corruption Law on Public Procurement establishes an administrative sanctioning procedure to be set up by internal control bodies. It also determines administrative sanctions, as well as mechanisms to reduce penalties.

Administrative sanctions could be economic sanctions that are equivalent to from one to 50 000 measurement and updating units (unidades de medida y actualización) or 30% to 35% of the amount of the contract awarded to both individuals and companies, as well as being barred from participating in public contracts in the State of Sonora for a period of not less than six months and no more than ten years in the case of individuals and 20 years for companies. A person who has committed any of the offences sanctioned by the Anti-Corruption Law on Public Procurement of the State of Sonora, or participates in carrying it out, can benefit from a reduction in penalties if he/she confesses his or her responsibility. The benefit may reduce the penalty by between 30% to 50% of the amount of the sanction.

ISSSTESON and its oversight bodies should take the opportunity afforded by the local anti-corruption reform to review, harmonise and adapt its procurement regulatory framework with Mexico’s General Law of Administrative Responsibilities. ISSSTESON and the state government could consider developing a clear legal framework protecting whistle-blowers, and creating simple, transparent mechanisms for filing complaints. They should also consider introducing a clear mechanism facilitating follow-up of any complaints submitted, from the submission of complaints until the final decision is made. An online platform for this purpose would be desirable. Finally, ISSSTESON should develop a communications strategy for the sanctions system and its procedures, to publicise complaints about public procurement processes, the consequences of acting improperly, and remedies for challenging mechanisms.

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Proposals for action

ISSSTESON faces important challenges in its procurement system. To increase its efficiency and its capacity to manage and avoid corruption in the public procurement cycle, it should review, adjust and improve its internal control mechanisms, integrity policies and tools, and internal and external stakeholders’ participation schemes, as well as its audit procedures and co-ordination mechanisms, and the complaints and sanctions system.

Sonora’s recent Law on the Local Anti-Corruption System and all the anti-corruption legal framework issued offers ISSSTESON an opportunity to develop and harmonise its internal integrity policies with the new state regulations and international good practices. This legal framework also allows it to actively promote a robust framework of secondary regulations on co-ordinating internal controls and audit mechanisms conducted by the state oversight bodies, such as the Ministry for Control and the Superior Institute of Audit and Control.

The following provides an overview of the key proposals for action in this regard.

Encourage effective risk-based internal control in ISSSTESON procurement activities

  • ISSSTESON should create and organise its three lines of defence to develop a cohesive, co-ordinated and systematic approach to enhance communications on risk management and control and to clarify essential roles and duties.

  • The first line is the responsibility of the organisation’s operational managers. Middle and high-level managers are in charge of implementing controls and helping identify and prevent risks in their areas.

  • The second line of defence, which includes functions of risk oversight (risk management, compliance and control of financial risks) should be the responsibility of the Committee for Control and Institutional Performance (COCODI), through the Unit for Institutional Planning and Innovation (UPII), and senior management.

  • The UPII should be empowered by the Board of Directors to develop efficient risk-management strategies, including those governing public procurement.

  • The COCODI and the UPII should have clear functions of risk management and internal control. The UPII should communicate its risk-assessment methodologies, including, at the very least, the following elements: risk-identification mechanisms, impact evaluation measures, strategies for risk mitigation, specific measures to prevent or avoid risks associated with the procurement cycle, and monitoring and evaluation.

  • As for the third line of defence, ISSSTESON could create a new function of internal audit. This function should propose to the Board of Directors the audit rules and plans, and report directly to it.

Preserve the integrity of the public procurement system through general standards and procurement-specific safeguards

  • ISSSTESON should develop a dedicated Code of Ethics or Conduct and specific guidance for procurement officials and also ensure that specific provisions for public procurement are included in the codes that hospitals and clinics develop. A Code of Conduct for procurement officials would have the advantage of being tailored to the specific risks of the procurement function.

  • As the unit that co-ordinates and leads direct action for promoting ethical values in the institute, the UPII should:

    • design, with wide participation from public officials and stakeholders, a specific Code of Conduct or Ethics for the procurement workforce, emphasising the conduct expected in public procurement and prioritising the values that should govern the resolution of ethical dilemmas faced by procurement practitioners.

    • develop an annual training programme for public procurement officials focusing on communicating the prioritised values, identifying conflicts of interest and the mechanism for reporting misbehaviour.

    • help develop integrity standards for the public procurement function, and where applicable, focus phase by phase on the following elements:

      • prioritised values for public procurement,

      • conduct expected of procurement officials,

      • policy on conflicts of interest, in line with the Guide to identify and prevent conflicts of interest in the State Public Administration issued by the Ministry for Control,

      • gifts and gratuities policy,

      • post-employment rules.

Provide opportunities to involve external stakeholders in the procurement system, to increase transparency and integrity

  • As a measure of good practice, ISSSTESON could create an internal policy, protocol or procedure to subject its procurement-related rules to the regulatory quality requirements and controls established in the Regulatory Improvement Law of the State of Sonora via the COMERS, but which are currently not necessarily applicable to ISSSTESON.

  • If COMERS does not have the capacity to receive and process ISSSTESON’s regulatory proposals for public procurement, it is advisable for ISSSTESON to establish and regulate an internal standard process (regulatory impact process), to follow each time it modifies one or more elements of its public procurement regulations.

  • This standard process should include an early public consultation process that should be accessible for all stakeholders (internal and external). The standard process and the rules of early regulatory consultation should be formally disclosed to all stakeholders and published on ISSSTESON’s website.

  • ISSSTESON should create a stakeholder participation scheme for suppliers, industry and civil society to obtain detailed information about the institute’s needs and support better public policies. At the same time, ISSSTESON should consider developing protocols or guidelines to select and apply stakeholder participation mechanisms when applicable.

  • ISSSTESON, with the Ministry for Control, could consider adding new functions for Citizen Commissioners and adapting the mechanism for creating social witnesses or external observers of public procurement processes. Participation need not be limited to senior citizens and retirees (as end users), and could include representatives of civil society and academia. ISSSTESON and the Ministry for Control should define which cases could involve Citizen Commissioners and the profiles and requirements for participating as Citizen Commissioner.

Develop an effective complaint and sanctions system

  • ISSSTESON, with the Comptroller General’s Office, could develop clear guidelines for internal and external audits, harmonising priorities and key elements of control.

  • ISSSTESON and oversight bodies (ISAF, OIC, the Ministry for Control and the Supervisory and Audit Committee) should carry out independent audits to public procurement operations and co-ordinate the internal and external audit plans by developing an online system where they can disclose the audit plans, the audit reports, the main auditing observations and recommendations, as well as any follow-up on the implementation and enforcement of the audit recommendations.

  • ISSSTESON’s oversight bodies should:

    • take the opportunity given by the local anti-corruption reform to review, harmonise and adapt the procurement regulatory framework and make the necessary adjustments, in order to incorporate good international practices on integrity and management control.

    • consider developing a clear legal framework for whistle-blower protection, as well as establishing easy and transparent complaint mechanisms anyone can use.

    • consider simplifying the follow-up mechanisms for complaints submitted until a final decision is taken. The use of an electronic platform would be desirable.

    • develop a communication strategy for the sanctions system and its procedures.

Further reading

Anti-Corruption Law on Public Procurement of the State of Sonora (Ley anticorrupción en contrataciones públicas para el Estado de Sonora), accessed on 29 January 2018 and available at the following website: http://transparencia.esonora.gob.mx/Sonora/Transparencia/Poder+Ejecutivo/Entidades/ ISEA/Marco+Normativo/Leyes/.

Code of Ethics and Conduct of Public Servants of the Executive Branch of the State of Sonora (Código de Ética y Conducta de los Servidores Públicos del Poder Ejecutivo del Estado de Sonora) http://transparencia.esonora.gob.mx/NR/rdonlyres/165D1234-7A1C-4B48-9FBF-2B5980 E4251C/129451/CC3B3digodeC3A9ticayconducta.pdf.

Internal Regulations of ISSSTESON (Reglamento interior del ISSSTESON), last reformed 30 April 2015, http://transparencia.esonora.gob.mx/NR/rdonlyres/BE0EB737-B4FE-479E-BA01-0AF1BB55D097/145459/REGLAMENTOINTERIORISSSTESON2015.pdf.

General Law of Administrative Responsibility (Ley General de Responsabilidades Administrativas), new law issued on 18 July 2016, http://www.diputados.gob.mx/LeyesBiblio/pdf/LGRA.pdf.

Law on Acquisitions, Leases and Services of the State Public Administration (Ley de Adquisiciones, Arrendamientos y Prestación de Servicios Relacionados con Bienes Muebles de la Administración Pública Estatal), last reformed 27 June 2013, http://transparencia.esonora.gob.mx/NR/rdonlyres/AD4A17EC-5A28-4DB7-9A4A-AE0F0520568C/99073/Leydeadquisicionessrrendamientosyprestacionesdeser.pdf.

Law of Public Works of the State of Sonora (Ley de Obras Públicas del Estado de Sonora), last reformed 26 December 2016, http://transparencia.esonora.gob.mx/NR/rdonlyres/AD4A17EC-5A28-4DB7-9A4A-AE0F0520568C/197854/2016LeydeObrasPublicasyServiciosrelacionadosconlas.pdf.

Regulatory Improvement Law of the State of Sonora (Ley de Mejora Regulatoria para el Estado de Sonora), last reformed on 29 May 2006, http://transparencia.esonora.gob.mx/NR/rdonlyres/AD4A17EC-5A28-4DB7-9A4A-AE0F05 20568C/88835/Leydemejoraregulatoriaparaelestadodesonora.pdf.

State Responsibilities Law (Ley Estatal de Responsabilidades), new law issued on 18 July 2017, http://www.stjsonora.gob.mx/acceso_informacion/marco_normativo/LeyEstatalDeResponsabilidades.pdf.

References

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[26] OECD (2001), Citizens as Partners: OECD Handbook on Information, Consultation and Public Participation in Policy-Making, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264195578-en.

[6] The Institute of Internal Auditors (2013), “IIA Position Paper: The Thee Lines of Defense in Effective Risk Management and Control”, https://na.theiia.org/standards-guidance/Public%20Documents/PP%20The%20Three%20Lines%20of%20Defense%20in%20Effective%20Risk%20Management%20and%20Control.pdf.

[13] The World Bank (n.d.), Most Common Red Flags of Fraud and Corruption in Procurement in Bank-financed Projects, http://siteresources.worldbank.org/INTDOII/Resources/Red_flags_reader_friendly.pdf (accessed on 20 April 2018).

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