Corruption and corruption risks can take place along the entire cycle of public procurement. The cycle includes the following most common phases:
The ultimate goal of public procurement is to satisfy the public interest. Like any government action should be. In this sense, good procurement should satisfy the needs of the people, should be fair to businesses, should save and avoid wastage of public funds. Good public procurement is a good tool to implement public policy in all areas, and should be an instrument for good governance and therefore good government. In this sense, good procurement will contribute to the government’s legitimacy and credibility. On the contrary, corrupt (bad) public procurement will increase poverty and inequality by diverting funds away from the attention of social needs; it will engender bad choices, encouraging competition in bribery rather than in quality or price. For companies, corrupt procurement will provide an unfair, unstable and risky competitive advantage and will create a sort of market-entry cost or non-tariff barrier, at least for those companies who do not wish, or cannot afford to bribe their way in. Some of the key impacts of corruption on procurement listed out by Transparency International are listed below.
Financial Impact: Financial impact or damage can consist of unnecessarily high cost of purchases, burdening a government with financial obligations for purchases or investments that are not needed and early repair costs to repair and maintain investments.
Economic Impact: Economic impact can consist in burdening a government with operational, maintenance and debt servicing liability for investments/purchases and when capital investment levels decrease because of corruption costs and threats to business operators.
Environmental Impact: It includes bad choices made that have adverse environmental impact. Non-compliance with the country’s (or international) environmental standards, can have environmental or health risks or long-term adverse impact on the environment.
Impact on Health and Human Safety: Damage can consist in human health and safety risks due to quality defects, environmentally unacceptable investments or noncompliance with environmental or health standards.
Impact on Innovation: Corruption inducted lack of competition leads to the neglect of innovation. Corrupt companies will not spend resources on innovation and non-corrupt companies will feel less inclined to make the necessary investments if they cannot access markets due to corruption.
Erosion of Values: When people observe lack of concern for integrity, common good and corrupt behaviour is not being sanctioned; officials in the government and economic operators easily reduce their own integrity standards, out of need and often out of greed.
Erosion of Trust in Government: When people observe that corrupt behaviour among government officials is not being sanctioned, they conclude quickly that government in general is not to be trusted and that cheating government is morally acceptable.
Damage to Honest Competitors: Corruption by corrupt bidders, if successful and not sanctioned, damages and possibly destroys the honest competitor and may well lead to job losses on the part of an economic operator who is better and more innovative.
Serious Danger to Economic Development: If a government commonly allows corruption in the context of purchases and investments, often projects are selected not on merit but by the amount of bribe payments made. Due to this a country may soon end up squandering investment opportunities and external development assistance and thus seriously retard the country’s economic development.