Swazi Observer

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UNDERSTANDING RED FLAGS IN PUBLIC PROCUREMENT

By SITHEMBILE HLATSHWAYO | 2025-01-20

Public procurement is a vital mechanism for governments, accounting for approximately one-third of public spending worldwide—a staggering figure of around US$13 trillion annually, which represents about 12 per cent of global GDP.

However, as highlighted by the World Bank, the public procurement process is not without its vulnerabilities, often marred by inefficiencies and corruption.

In light of these challenges, the concept of ‘procurement red flags’ has emerged as a critical tool for detecting potential risks of irregularities, corruption and wrongdoing throughout the contracting process. Understanding red flags is paramount to enhancing efficiency, improving practices and fostering greater accountability in public spending.

Eswatini Observer engaged with Eswatini Public Procurement Regulatory Agency (ESPPRA) Chief Executive Officer (CEO) Vusi Matsebula, who explained the concept of procurement red flags.

According to Matsebula, due to the experience they have garnered over the years working in public procurement when reviewing tender documents, adjudicating tender deviation applications as well as advising procuring entities or procurement officers on their procurement plans, methods, procedures and rules, one cannot avoid picking up red flags in some instances even well before the procurement process starts.

Occasionally, Matsebula stated that one may observe controlling officers/CEOs showing an excessive interest in a particular tender or procurement process, when, in fact, it is the Entity Tender Board of the procuring entity that should be leading and engaging in procurements that come to the agency for advice or adjudication. In other instances, the CEO said there may be issues surrounding the vigorous defence of clear non-compliance in a specific procurement process.

Defining Procurement
Red Flags
Procurement red flags are indicators that signal potential incidents of irregularities or corruption within public procurement activities.

While the presence of these indicators does not necessarily confirm corrupt practices, they serve as vital signals to prompt a closer examination of specific procurement procedures. By identifying these red flags, the agency, government officials, partners including the Competition Commission, the Anti-Corruption Commission, auditors, the media, civil society, the public and all other stakeholders—can focus their efforts on high-risk areas, thereby increasing the chances of preventing corruption before it occurs.

The development and implementation of red flag indicators rely heavily on data analytics, which the agency is working on making available to its partners, stakeholders and the public through public procurement datasets and analysis.

It is the hope of the agency that these datasets and analysis reports will be used effectively, leading to more efficient risk detection, improved integrity and a more streamlined procurement process.

Importance of More Efficient Risk Detection
One of the most significant advantages of identifying procurement red flags is the enhancement of risk detection by utilising data-driven approaches.

Traditional monitoring practices often rely on the manual or random selection of procedures for investigation, which can be both time-consuming and inefficient.

However, by incorporating data analytics into the procurement evaluation process, officials can transition to a system that automatically detects risks based on predefined parameters.

This shift allows for more targeted monitoring efforts, ensuring that resources are allocated efficiently to the most relevant and high-risk procedures. Using technology to support data-driven decision-making not only helps in recognising patterns of irregular behaviour but can also reveal systemic inefficiencies within the entire procurement ecosystem.
Increasing Integrity Through Proactive Measures

Implementing a proactive approach to procurement integrity is essential for combating corruption and promoting positive practices. The adoption of flagging and detection methods at the source assists in deterring illicit behaviour before it manifests.

This proactive approach involves tracking high-risk activities within public procurement, thereby creating a culture of accountability and transparency.

Through increased vigilance and the promotion of integrity, the agency seeks to shift its focus from reactive measures—addressing corruption after it has been detected to proactive measures that facilitate a stronger, more transparent procurement environment.

This is achieved through the legal expectation of procuring entities to submit procurement plans, contract management reports, as well as tender documents for review by the agency before the issuing or advertising of the tender. The agency is also enforcing the legal requirement for procuring entities to submit their intentions to award contracts for public advertising.

Improving the Procurement Process and Practices
An essential aspect of identifying procurement red flags is the opportunity to enhance overall procurement processes and practices. By detecting suspicious behaviours or discrepancies, key weaknesses in the procurement ecosystem can be unpacked and addressed.

This knowledge further helps to inform policy and technical changes aimed at improving procurement practices.

For instance, the analysis of bid patterns and the tracking of contract implementation details assists in uncovering inefficiencies and inconsistencies that may suggest the need for regulatory reforms. Understanding how various components of the procurement process interact allows the agency to design better guidelines that promote fair competition and effective service delivery.

Additionally, a focus on continuous improvement leads to increased efficiency and achievement of greater value for money. By monitoring anomalous behaviours, regardless of whether they are rooted in corrupt practices, the Agency, government officials, and the procuring entities, alongside stakeholders can identify systemic issues in public procurement and work towards addressing these challenges constructively.

Identifying Key Red Flag Indicators
The identification of procurement red flags requires a thorough understanding of critical data sets that contribute to risk analysis. Utilising these data sets enables the detection of irregularities, suspicious bidding patterns, or other discrepancies. Below are essential data sets that can aid in identifying procurement red flags:

g Procurement Method: Understanding the procurement method employed is crucial. Different methods come with varied rules and regulations, which can present unique risks. Identifying deviations from standard practices can be an essential first step in flagging suspicious procurement activities. In Eswatini's public procurement legislation, the open tendering method is the preferred procurement method.

It is understood in law that the open tendering method is the most transparent and fair procurement method.

n Details About the Procuring Entity (PE): Knowing who is involved in the procurement process is pivotal. Each procuring entity may exhibit different risk profiles and understanding these profiles can help in effectively analysing procurement data. When analysing the data, one may note that there are procuring entities that do not adhere to the procurement laws and procedures.
g Bidder Information:

Bidders should have their information published, including name, identification details, and ownership structure. This transparency can help identify potential collusion or relationships between bidders that could indicate impropriety and defiance of competition laws.

g Awarded Suppliers: Tracking the details of awarded suppliers is important for understanding who ultimately benefits from public contracts, serving as a basis for further scrutiny.
g Individual Bids: Analysing individual bids—for example, their values and submission dates—can aid in identifying patterns of collusion, price-fixing, or other irregularities.

g Values Across Procurement Stages: Understanding how procurement costs change across different stages of the process can highlight any discrepancies that require further investigation.
g Timelines Across Stages: Monitoring the timing of various procurement activities can uncover unusual delays or expedited processes, which may be indicative of corruption.

g Items Procured: The specifics of what is procured—such as type, quantity, and pricing—can illuminate unusual purchasing trends that warrant further analysis.

g Key Documents: Analysing important procurement documents can reveal inconsistencies, hidden compliance issues, or red flags that suggest irregularities.

g Contract Implementation Details: Keeping track of contract amendments, milestones, and subcontracting procedures is essential for ensuring that contracts are executed as intended and identifying red flags when this is not the case.

g Other Critical Information: Gathering various statuses of awards and contracts and associated criteria provides a fuller picture of how the procurement process is functioning.

Way Forward
Public procurement is a fundamental component of governance and public service delivery.
However, its susceptibility to waste, abuse, and corruption poses challenges in ensuring that taxpayer money is used effectively.

The identification and understanding of procurement red flags presents an opportunity to address these vulnerabilities with a data-driven methodology.
ESPPRA is in the process of employing systematic approaches to detect risks, increase integrity, and improve overall practices.

Governments can actively work towards creating a transparent and efficient procurement landscape. These efforts to monitor anomalies based on clear indicators will build a stronger foundation for accountability, ensuring that public spending ultimately benefits the societies it is meant to serve.

In an era marked by growing demands for transparency and accountability, embedding red flag mechanisms within public procurement processes stands as a pivotal strategy.

As the global community strives towards enhanced governance standards, prioritising red flag detection not only safeguards resources but reinforces public trust and upholds the democratic principles of good governance.

By addressing procurement red flags, governments ensure that public resources are utilised responsibly—ultimately fostering economic growth and improving the quality of life for citizens.

List of Procurement Red Flags
g Planning documents not available
g Failure to adequately advertise the request for bids
g Key tender information and documents are not available
g High use of non-competitive methods
g Unanswered bidder questions
g Contract is not published

Low competition red flags
g Single bid received
g Low number of bidders for item category
g High share of buyer contracts
g High market share
g High market concentration

Fraud red flags
g Bidder has abnormal address or phone number
g Bidder is not listed in business registries
g Bidder is debarred or on sanctions list
g Supplier is not traceable on the web
g Heterogeneous supplier
g Contract has modifications
g Contract amendments to reduce line items
g Contract amendments to increase line items
g Delivery failure
g Contract transactions exceed contract amount
g Contract amendments to increase price
g Discrepancies between work completed and contract specifications

Collusion risk red flags
g Unreasonably low or high line item
g Wide disparity in bid prices
g Fixed-multiple bid prices
g Price close to winning bid
g Excessive unsuccessful bids
g Prevalence of consortia
g Missing bidders
g Identical bid prices
g Bidders share same beneficial owner
g Bidders share same major shareholder

Bid rigging red flags
g Manipulation of procurement thresholds
g The submission period is too short
g Unreasonable pre-qualification requirements
g Unreasonable technical specifications
g Unreasonable participation fees
g Buyer increases the cost of the bidding documents
g Unjustified use of non-competitive procedure
g Splitting purchases to avoid procurement thresholds
g Direct awards in contravention to the provisions of the procurement plan
g Short time between tender advertising and bid opening
g Late bid won
g Winning bid price very close or higher than estimated price
g All except winning bid disqualified
g Lowest bid disqualified
g Poorly supported disqualifications
g Excessive disqualified bids
g Bidder has same contact information as project official
g Small initial purchase from supplier followed by much larger purchases
g Direct award followed by change of orders that exceed the competitive threshold
g Multiple direct awards above or just below competitive threshold
g Winning bid does not meet the award criteria
g Large difference between the award value and final contract amount
g Long time between award date and contract signature date
g Decision period extremely short
g Decision period extremely long
Source: Open Contracting Partnership (2024) Red Flags in public procurement – A guide to using data to detect and mitigate risks - https://lnkd.in/exzbarz2