Editorial: Systemic failures of public procurement processes

One of the most corruption- and mismanagement-prone government activities is public procurement.

The volume and size of transactions and the financial interests at stake, the complexity of the process, the close interaction between public officials and businesses and the multitude of stakeholders are the reasons behind the system failures evident in this administration’s management of the procurement processes.

An internal probe by the ministry of health exposes massive cost overruns at the Qormi and Birkirkara clinics refurbishment projects.

While, so far, the probe did not find evidence of corruption or collusion, investigators concluded that the failures were “at best gross negligence and at worst grave misconduct” and that both the CEO and financial controller at the time must shoulder responsibility.

A myriad of integrity risks along the public procurement cycle threaten the interests of taxpayers. Policymakers and managers are in a position of trust and the public rightly expects that they ensure ‘value for money’ in everything paid for by their taxes.

The facts that came out of the ministry of health’s probe are a textbook example of moral hazard – the concept that individuals have incentives to alter their behaviour when others bear their risk or bad decision-making.

Public officials too often procure services through systems that lack integrity, transparency, stakeholder participation, adherence to procurement regulations and weak oversight and control. Procurement processes are underpinned by an implied moral contractual relationship between the principal - the taxpayer - and the agent who provides the goods or services. Reality is somewhat more complex as the persons in charge of enforcing rules are not the taxpayers but high-ranking public officials at the political and administrative levels of government.

Health Minister Jo Etienne Abela argues that the investigation was an “internal, preliminary, fact-finding exercise that is now subject to further external investigations and scrutiny”, adding that when “we have conclusions at hand, the ministry will take all the necessary action”.

While it is expected that the public officials responsible for these cases of mismanagement and abuse of the public procurement system will be held accountable, more must be done to address the frequent incidents of unreasonable cost overruns in public procurement projects.

Lack of adequate needs assessment; the influence of external actors on public officials’ decisions; poor procurement planning; failure to budget realistically; contractor selection criteria that are not objectively defined and not established in advance; lack of transparency in the evaluation and award criteria;  familiarity with bidders over time; no effective implementation of the ‘four-eyes principle’; and false accounting and cost miscalculations are just some of the risks that weaken the public procurement process.

However, the most worrying aspect of the Qormi and Birkirkara health centres investigation is the inadequate oversight and control by those responsible for this function.

The National Development and Social Fund (NDSF) provided “a big chunk” of the funding. It is therefore pertinent to ask what progress reports and feedback the NDSF received from the project managers to ensure that public money was being spent according to strict public procurement regulations.

Effective oversight and control must be the rock base of the procurement cycle that is characterised by clear accountability and the promotion of integrity in the process. The ministry of health investigation has shown that, despite many red flags being waved, these projects were allowed to progress before remedial action could be taken to save taxpayers from excessive overrun costs.

It is time for the political and administrative arms of government to make root and branch reforms of the public procurement systems and project management to make them fit for purpose.