Improving red flag instruments for public procurement
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Improving red flag instruments for public procurement Tünde Tátrai1 · Anita Németh2
© ERA 2018
Abstract This article explores the modes of application of red flags in public procurement by comparing widely known red flag tools that have been developed by international organisations. The main items of interest are the tools designed and used by TI, the World Bank, the OECD, and others supported by the European Commission. The objective of the research is to call attention to the fact that in the course of identifying red flags it is necessary to clarify the objectives of the related instruments and the available data, while acknowledging that the former must be realistically applicable and regularly maintained. Keywords Public procurement · Red flags · Corruption
1 Introduction Numerous researchers deal with public sector corruption,1 but a discussion of red flags is not one of the basic focal areas.2 It seems that the topic of the importance of the former and the risks inherent in their use are presently being discovered in the literature about corruption in public procurement. 1 Tátrai [20]. 2 Williams-Elegbe [23].
B T. Tátrai
[email protected] A. Németh [email protected]
1
Associate professor, Corvinus University of Budapest, F˝ovám tér 8, 1093 Budapest, Hungary
2
Attorney at law, Honorary Professor, Faculty of Law, Eötvös Loránd University, Egyetem tér 1–3, 1053 Budapest, Hungary
T. Tátrai, A. Németh
However, prior to identifying red flag tools, it is necessary to clarify what exactly we mean by red flags in public procurement. Dorn et al.3 lays out the basic tenets by considering red flags to be specific risks identified in the phases of preparation, selection of tenders and execution of contracts. Similarly, Ferwerda et al.4 say in their seminal work that red flags are widely used to minimise the risk of various forms of economic misconduct, including corruption in public procurement. According to a study by OLAF,5 indicators, or red flags, signal the greater likelihood that corruption has occurred in the procurement of a product, service or other piece of work. As the OECD understands them, red flag (or risk-) indicators raise awareness among procurement practitioners of the key items that may be verified throughout the procurement process.6 Based on the definition provided by the U4 Anti-Corruption Resource Centre, ‘red flag guides are useful in examining a procurement process for possible fraudulent behaviour. They should be used with caution, however, because the lists often are so extensive that all processes—whether corrupt or not—could potentially raise a few red flags. Thus, procurement staff and management, as well as donors, should use these tools in combination with other methods to gain an accurate picture of the legitimacy of a given procurement process. [. . . ] In short, red flags are a warning of a potential risk and not a certain sign of corruption’.7 ‘A wide variety of factors can increase the level of corruption risk in a given contract, including large size,
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