developing an anti-corruption policy in hungary – the case of public procurement

Foundation for Market Economy 1

Developing an anti-corruption policy in Hungary – the case of public procurement

and the role of NGOs’ in trust-building

The role of think tanks and NGOs in developing The role of think tanks and NGOs in developing an anti-corruption policyan anti-corruption policy

Irkutsk, Russia9-11 July, 2004

Mária Major Dezsériné Executive Director

Foundation for Market Economy


ContentsContents (1) (1)

I.I. Objectives and scope of FME researchObjectives and scope of FME researchA. Objectives of the researchB. Scope of the researchC. Growing importance of the public procurement market in Hungary D. Importance of the NGO/NPO sector in Hungary

II. II. How do legislation and rule-making support How do legislation and rule-making support anti-corruption measures?anti-corruption measures?Hungary’s international embodyingLegislation and rule-making 1

Legislation and rule-making 2

III. III. Findings of FME research on public Findings of FME research on public procurement classified into 3 groupsprocurement classified into 3 groups

1. Non-implementation of the Act 2. Evaluation of ensuring equal opportunities, transparency and clarity 3. Efficiency of public procurement from the point of corruption and/or

savings in public money


Contents (2)Contents (2)

• IV. Findings of FME research on IV. Findings of FME research on developing of NGOs’ anti-corruption developing of NGOs’ anti-corruption practice practice 1.1. Tasks of the NGOs in combating corruption (direct, indirect)Tasks of the NGOs in combating corruption (direct, indirect)

2. Possibilities of cooperation (with state, media and other 2. Possibilities of cooperation (with state, media and other NGOs)NGOs)3. How to develop efficiency of NGOs’ trust-building and anti-3. How to develop efficiency of NGOs’ trust-building and anti-corruption strategiescorruption strategies

• V. Main conclusionsV. Main conclusions


I. Objectives and scope of I. Objectives and scope of FME researchFME research

A. Objectives of the research

• to review the different facts and opinions in connection of setting a limit to reducing corruption in the public procurement procedure;

• to value the chance of developing the anti-corruption practice in it;

• to examine how openness, equal opportunities, transparency, clarity and efficiency are enforced both by institutions inviting tenders and bidders,

• to survey the the role of think tank and NGOs in developing an anti-corruption policy



B. Scope of the researchIn public procurement survey 57 institutions and/or companies

were interviewed:• Institutions inviting bids: 47%, bidders: 53%; • 30% of the institutions inviting bids represented the central

budgetary organs and their respective institutions, whereas 37% and 33% represented local governments as well as public utility and state-owned companies;

• Roughly 45% of bidders were SMEs.• Breakdown of the sample was the following:

49%: investment/construction, 17%: products, 34%: services. In course of the survey of think tanks and NGOs 23 organisations and

some additional experts were interviewed (5 think tanks, 18 interest enforcing organisations and 5 experts + workshop with 15 participants)


I. Objectives and scope of I. Objectives and scope of FMEFME researchresearch

C. Growing importance of the public procurement market

in Hungary (2002):

• the value of public procurements has significantly raised from HUF 100

billion in 1996 to 800 billion (3,3 billion €);

• about 1/5 of the budget expenditure was realised by public procurement;

• nearly 80% of all 4,242 procedures were open bids and only 20% were contracted through negotiations;

• subject of tenders: 60% of them were construction investments, 25% were made as product purchase and 15% included services.



D. Importance of the NGO/NPO sector in Hungary:• The NGO sector is small in CEE countries - excluding

religious worship - the share of employment was 1.3% in Hungary in 1995 and 1.0% in Poland in 1997, compared with 7.8% in the United States and almost 5% in France and Germany in 1998.

• In Hungary, between 1990 and 1995, as a share of GDP the cash expenditures of the NGO sector more than doubled from 1.2% to 2.8% in five years. It is high for the region but below the 7.5% share of United States, 4%-4% of France and Germany and comparable to Austria’s 3%.

• Number of operating NPOs was about 47,000 in Hungary (2003) and that of civil organisations – apart from labour and interest organizations - about 6,000.


II. How do legislation and rule-making II. How do legislation and rule-making support anti-corruption measures?support anti-corruption measures?

• Hungary’s international embodying

• Legislation and rule-making 1

• Legislation and rule-making 2


Hungary’s international embodyingHungary’s international embodying

• Participation in UN General Anti-Corruption Program:– Memorandum of Understanding on Anti-corruption Policy, 1999– Project agreement to prevent, reveal and eliminate corruption, and

promote transparency and accountability in the framework of Global Program Against Corruption, 2000

• Membership in the Group of States Against Corruption (GRECO)

• Signing the OECD Convention on Combating Bribery of Foreign Public Officials, 1998

• Signing the Strasbourg Convention on Investigating Issues Resulting from Crimes and of Money Laundering, 1990

• Signing the Criminal Law Convention on Corruption, 1999 and the Civil Law Convention on Corruption, 2003 (Council of Europe)


Legislation and rule-making 1.Legislation and rule-making 1.

In the Accession Partnership signed in 1999 Hungarian government approved a decree concerning the national strategy against corruption in March 2001

Criminal Code was harmonized with the international

agreements and EU requirements

Regulations related to briberies were significantly modified in 2001

Act Against Money Laundering was passed, 2001

In 2002 the new government in power announced a program on transparency in public life and the Transparency law (the so called “glass pocket” legal package) was introduced in 2003.


Legislation and rule-making 2.Legislation and rule-making 2.

Main elements of modifying the Act on Public Procurement, (passed in December, 2003):

• reducing the circle of exemptions to a minimum level;• the option for subsequent legal remedy will be extended for

one-year period;• setting forth three public procurement value limits;• each organisation must publish an annual public procurement

plan until March of each year;• forcing to screen unrealistic, unsustainable bids;• training activities will be more pronounced and• introducing institutions of certification and conciliation as

new elements.


IIIIII. Findings of FME research on public . Findings of FME research on public procurement classified into 3 main groupsprocurement classified into 3 main groups

1. Non-implementation of the Act

2. Evaluation of ensuring equal opportunities, transparency and clarity

3. Efficiency of public procurement from the point of corruption and/or savings in public money


1. 1. Non-Non-iimplementation of the Actmplementation of the Act

• Preparedness of those applying the law, staff shortages, problems related to interpretation and approach (the Act does not provide a detailed list of the institutions subject to its scope, no organisation is in charge of monitoring the failure to conduct public procurements).

• Contradictions with other provisions affecting budget financing; special problems arising with practical solutions (e.g. lack of budgetary funds, mainly in case of local governments and healthcare furthermore contradictions among certain laws).

• Successful assertion of group interests in excluding the public and reducing transparency (several organisations were made subject to the scope of the Act on Public Procurements too late, e.g: State Privatisation and Holding Company; the Hungarian Development Bank and the State Motorway Management Company ).


2.2. Ensuring equal opportunities, Ensuring equal opportunities, transparency and claritytransparency and clarity in public in public

procurementprocurement

• Problems pertaining to the announcement of public procurement procedures (bids are not announced precisely, some companies receive preliminary information from their partners, change of a subcontractor at a later point in time).

• Problems in evaluation process (not reasonable formal requirements or undertaking disproportionate commitments may result in maximum partial points).

• Evaluation of audits and controls of the public procurement process (the role of :the State Audit Office and the Public Procurement Arbitration Committee).


3. 3. Efficiency of public procurementEfficiency of public procurement from the point of corruption and/or savings in public money

• The degree of savings that may be achieved through public procurement is a rather controversial issue (direct and indirect savings).

• Dangers of excessive bureaucracy, overburdened by administrative elements (unnecessary records).

• The inflexibility of the public procurement procedure for investments whose market is changing rapidly (e.g. IT services).

• Efficiency of public procurements conducted by local governments is also challenged (not real competition, price cartel-like co-operations).


IV. Findings of FME research on developing IV. Findings of FME research on developing of NGOs’ anti-corruption practice of NGOs’ anti-corruption practice

1.1. Tasks of the NGOs in combating corruption (direct, Tasks of the NGOs in combating corruption (direct, indirect)indirect)

2.2. Possibilities of cooperation (with state, media and Possibilities of cooperation (with state, media and other NGOs)other NGOs)

3.3. Efficiency of the NGOs’ trust-building strategyEfficiency of the NGOs’ trust-building strategy


1. Tasks of the NGOs in combating 1. Tasks of the NGOs in combating corruption (direct, indirectcorruption (direct, indirect))

• NGOs are mainly indirectly involvedNGOs are mainly indirectly involved in anti-corruptive actions in anti-corruptive actions and more or less they work on strenghtening transparency, and more or less they work on strenghtening transparency, accountability first of all through establishing their Codes and accountability first of all through establishing their Codes and Committees of Ethics.Committees of Ethics.

• Some think tanksSome think tanks (mainly foreign) (mainly foreign) can directly can directly finance research finance research and/or participate in international projects aiming at studying and/or participate in international projects aiming at studying corruptive phenomena of the given country. corruptive phenomena of the given country.

• NGOs – first of all interest enforcing organizations – are NGOs – first of all interest enforcing organizations – are combating corruption in two termscombating corruption in two terms: by giving recommendations : by giving recommendations to amendements of laws (e.g. of public procurement) and by to amendements of laws (e.g. of public procurement) and by asking for judgements in concrete cases falling under corruptive asking for judgements in concrete cases falling under corruptive suspicion.suspicion.

• Important role of NGOs isImportant role of NGOs is developing the market economy developing the market economy (services needed by firms and citizens), the equal chances and (services needed by firms and citizens), the equal chances and the business culture in order to minimizing the risk of corruption.the business culture in order to minimizing the risk of corruption.


2. Possibilities of cooperation (with state, 2. Possibilities of cooperation (with state, media and other NGOs)media and other NGOs)

• Important Important common action of NGOs with the statecommon action of NGOs with the state in Hungary - against in Hungary - against corruption – was the following : in February 2004 the State Secretariate corruption – was the following : in February 2004 the State Secretariate of Public Money at the Prime Minister Office established an Advisory of Public Money at the Prime Minister Office established an Advisory Board for Public Life without Corruption (30 people inc.the civil sphere) Board for Public Life without Corruption (30 people inc.the civil sphere) to develop a two-years action programme with concrete tasks and to develop a two-years action programme with concrete tasks and people in charge.people in charge.

• NGOs are cooperating with each other NGOs are cooperating with each other in their actions in two main in their actions in two main terms: developing simultaneously actions through their networks in the terms: developing simultaneously actions through their networks in the regions and abroad and/or advising solutions in the rule making process regions and abroad and/or advising solutions in the rule making process to minimize the chance of corruption.to minimize the chance of corruption.

• Possibilities for cooperating with the mediaPossibilities for cooperating with the media depend on the depend on the independece of the journalists which is financially not well establised.. independece of the journalists which is financially not well establised.. The fact-fiding journalism has not been developed yet in Hungary but the The fact-fiding journalism has not been developed yet in Hungary but the role of the strong parliamentary opposition could help in revealing some role of the strong parliamentary opposition could help in revealing some cases. The main problem is the lack of ability to relize and finalize the cases. The main problem is the lack of ability to relize and finalize the corruptive suspicions because of the very slow judicial proceedings. corruptive suspicions because of the very slow judicial proceedings.


3. How to develop efficiency of the NGOs trust-3. How to develop efficiency of the NGOs trust-building and anti-corruption strategiesbuilding and anti-corruption strategies

• There are different difficulties of NGOs to overcomeThere are different difficulties of NGOs to overcome in course of in course of the development of a market economy because of numerous badly or the development of a market economy because of numerous badly or partly functioning mechanisms strengthening the bureaucracy and partly functioning mechanisms strengthening the bureaucracy and corruption: lack of services, deformed wage-price structure, lack of corruption: lack of services, deformed wage-price structure, lack of social demand because of party-fightings etc.social demand because of party-fightings etc.

• The efficiency can be helped byThe efficiency can be helped by the following: education (with the following: education (with propoer moral content), managing to force relavant controls for propoer moral content), managing to force relavant controls for businesses in frame of corporate governance (code of ethics), businesses in frame of corporate governance (code of ethics), developing transparency and accountability by all possible means developing transparency and accountability by all possible means (media, electronic networks).(media, electronic networks).

• Developing trust-building strategyDeveloping trust-building strategy by strenghtening civil partnership by strenghtening civil partnership with relevant governmental (state) organisations and helping NGOs with relevant governmental (state) organisations and helping NGOs cooperative actions aiming at mental education of the younger cooperative actions aiming at mental education of the younger generation not to have a moral confusion of the transition period.generation not to have a moral confusion of the transition period.


V. V. Main conclusionsMain conclusions

• Moderating corruption risk by relevant amendment of the Act on Public Procurement and elaboration of an interest reconciliation and/or Lobby Act.

• Decreasing corruption risk during the creating and decision-making process of tenders and also by control and monitoring.

• Developing an anti-corruption culture by the help of forming effective cooperative actions among budgetary organisations, NGOs and businesses.

• Creating a trust-building climate by developing civil partnership with NGOs, elements of corporate governance and interest enforcing ability of businesses.


Foundation for Market EconomyFoundation for Market EconomyA small economic think tank (NGO) from Hungary

Executive Director:

Dr Mária Major Dezsériné Phone: (361) 204 2951 Fax: (361) 204 2953

Address: Dombóvári út 17/19

1117 Budapest, Hungary

Internet: www.fme.huE-mail: [email protected]

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