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Corruption and Fraud in the Public Procurement Procedure of the European Union

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Name: Ilze Kalke

The one reason why we need law is to eliminate corruption and fraud in the Public Procurement Procedure of the European Union.

Annually more than €2 trillion of the GDP of the European Union (EU) is spent on purchasing goods, works or services involving around 250,000 public authorities.[1] Price Waterhouse study prepared for the European Commission concludes that the direct public loss encountered in corrupt procedures is around €177 million.[2] Given the levels of financial flows generated, public procurement field has always been a hotspot for fraud and corruption. Corruption and fraud in the public procurement procedure results in direct economic losses for the member states; it weakens citizens’ trust in the governing bodies and jeopardizes fair competition. Therefore tackling corruption has always been on the agenda at both- state and EU levels.

The development of public procurement legislation in Europe and EU has a history of more than 40 years. On 18 April 2016 new EU public procurement Directives[3] entered in force with a main priority of : “Preventing corruption and creating a culture of integrity”[4]

The aim of this paper is twofold: Firstly to see why there was a need for these legislative reforms and secondly to review what solutions does the new reform offer for tackling fraud and corruption.  

There are two main reasons why the public procurement reform was launched: firstly the need for innovation in order to meet milestones set out in the European 2020 Strategy and secondly because multiple directives in force still failed to reach all of their legislative goals including effectively addressing corruption.

The success of the Europe 2020 strategy depends on institutional factors such as good governance, rule of law, and control of corruption.[5] The European Strategy 2020 targets for the public procurement are: support of common societal goals and savings on the public expenditure. These goals are to be attained by preventing and sanctioning corruption and other types of fraud such as favouritism, conflict of interests and collusion.[6]Thus it can be argued that the new procurement reform is a natural response to European Strategy 2020, as it calls for reforms and improvement through innovation.

On the other hand the EU2020 does not call for immediate revamping of well established directives for the sake of innovation. Thus it can also be argued that the existing legislation simply did not address the public procurement field challenges in effective manner- an opinion that is widely supported among scholars. As for example C. Moukiou argues that the norms that existed before the reform did not suffice to fight against the corruption in state-level[7], while Popescu et al. states that despite many attempts to restructure the existing provisions and introducing new ones there were still multiple lacunas in the legislation[8], as a result the directives that existed for decade were now reformed and the triplet of new directives were approved by the EU Counsel in February 2014.

With the new directives that came into force on April 2016 competition and equal treatment are no longer the only priorities in public procurement regulation. New reforms of EU public procurement law add anti-corruption, transparency and savings in public money usage to the objectives to be attained by European Secondary legislation.[9]

As for example: Article 24 of Directive 2014/24/EU for the first time defines a conflict of interest at EU-level. With the introduction of this definition possible cases of fraud become easier to trace. In addition, Article 24 also obliges contracting authorities to take measures to prevent conflicts of interest and to ensure equal treatment of all economic operators.[10] 

Moreover Articles 83 and 85 of the same directive envisages monitoring and reporting on concluded contracts of the Member States by the Commission.

Furthermore e-procurement (electronic submission tool for the procurement procedures) becomes mandatory and centralised data and alert system on corruption and fraud is introduced. The use of technology is not only an innovation that simplifies the process of public procurement; it is also a step towards a centralised online public procurement system that, if further developed, could potentially exclude any possibilities for fraud and corruption.

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