Manipulating the specification for procurement fraud
One of the more creative ways of committing procurement-related fraud is by the manipulation of specifications. It requires a little more skill than simply bribing a decision maker to choose your firm or over-invoicing a client and hoping no-one notices, but it can be very effective. The basic approach is that during the process to select a supplier or suppliers, a key person or people in the buying organisation make sure the specification favours strongly one particular supplier that they want to win the contract.
It is by definition a fraud that requires internal involvement, although often the supplier that wins the contract will be aware of it. Indeed, usually the supplier will be paying some sort of bribe or ‘thankyou’ to their internal accomplice(s). But sometimes, the supplier who benefits is not aware of what is going on, and sometimes the internal protagonist might not even get anything personally out of it. They may even feel they are doing the right thing for the organisation – “I know that Smith and Co are the best firm to do this consulting work, so I just want to make sure nothing goes wrong in the procurement process and they do win it”.
But I would argue this is still corruption if the specification is maniplated away from what would be the ‘best’ for the buying organistion, even if that is ‘just’ corruption of the process rather than corruption for personal gain. Bidding firms often spot this. They will read a specification and think “that has been written to favour our main competitor”. Often they don’t bid on that basis, and the level of competition is reduced. There have been many allegations of this practice in the defence sector for example over the years, and this is from the Bad Buying book.
‘One case where corruption was allegedly involved is the long-running saga of the Indian government helicopter contract with AgustaWestland, worth some $466 million. India terminated the contract after accusations that the firm – owned by Finmeccanica of Italy – bribed officials. The Indian government said in 2014 they “terminated with immediate effect the agreement that was signed with AgustaWestland International Ltd (AWIL) on 8 February 2010 for the supply of 12 VVIP/VIP helicopters on grounds of breach of the pre-contract integrity pact and the agreement by AWIL.”
The allegations surrounded manipulation of the specifications, with suggestions that the company had used middle-men to bribe Indian officials to win the 2010 contract. The allegation was that a defence ministry specification insisting its new helicopters should be capable of flying at 6,000 metres altitude was cut to benefit AgustaWestland’.
Actually one of the worst examples I saw of this was when a consultant was repeatedly used by local authorities to help develop the specification for a particular fairly specialist service – he often worked on the procurement as well. Oddly enough, his specifications always seemed to favour one particular supplier, the same one that the consultant regularly worked for in the periods between his work on the buy-side! All the other suppliers knew this and generally didn’t bother bidding if they saw he was involved with the procurement.
Another interesting example popped up recently. The State of Oklahoma in the USA decided to give all its schoolkids a copy of the Bible. But rather oddly, the specification included the requirement that the bible must also include certain US historical documents, such as the Constitution and the Declaration of Independence. Funnily enough, the only version of the Bible that has these additions is what is known as the “God bless the USA bible”, produced with the endorsement of Donald Trump for which he gets a cut of the revenue. It’s a luxury item, bound in leather and sells for the ridiculous amount of $60. A standard bible can be acquired for a fraction of that.
Critics alleged that Oklahoma leaders are keen Trump supporters and deliberately manipulated the specification. However, whether or not that was true, there was good news this week. The state amended its request for 55,000 school Bibles, so other versions can be state approved. The request was altered, removing some of those onerous requirements, a victory for “good buying”!
So remember how important a good and fair specification is, and if you want a strong competition, try and make sure it isn’t too obviously tilted in favour of one bidder. Unless you want it to be, of course …
(Footnote – you might expect me as a Humanist to be against forcing kids to read the Bible. But actually, I cannot think of anything more likely to make young people feel negative about religion and maybe help them make up their own minds about their beliefs and how they want to live their lives!)
