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Digital tenders combat corruption

New procurement system helps Army to 'limit human impact'

By Riva Froymovich
Staff Writer, The Prague Post
May 16th, 2007 issue

VLADIMÍR WEISS/THE PRAGUE POST
About 25 percent of defense contracts will go through the SEPO system, says project leader Jiří Král.
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The director of the Defense Ministry’s Division of Assets Administration, Jiří Král, grabbed a miniature armored vehicle in an enclosed case from a top shelf of his Prague 6 office and gently placed it on a boardroom desk.
The green model was carefully crafted to show all the intricate elements that make up such a massive machine.
“This,” he said, “can’t clearly be defined. … It has 10,000 different pieces.”
And that is the Defense Ministry’s predicament.
Mired in scandal and seeking to streamline its procurement process, the ministry has charged Král with implementing a revamped electronic bidding system to prevent corruption in the military’s awarding of lucrative government contracts.
Even Král admits that the human element of awarding tenders — and the potential for fraud that comes with it — can never be fully eliminated. Large military contracts for armored vehicles, for instance, cannot be decided through simple online-bidding methods, he said.
Yet, SEPO — the Electronic Market of the Czech Defense Ministry — relaunched with new technology this month, and it is the first step toward reforming a tender process tangled in a web of bribes and more than one criminal investigation.
Last month, several former Army officials in the Military High Office of Housing and Construction Service were targeted in a bribery investigation for manipulating Army orders worth 482 million Kč ($23.1 million) between 1997 and 1999. The slew of data and files surrounding the orders will take months to sift through, said Veronika Dumková, spokeswoman for the police’s anti-corruption unit.
After all, it’s not the only ongoing corruption case against Army officials.
In March, police opened an inquiry into suspicious construction contracts the Army signed between 2002 and 2006, worth a total of 1 billion Kč. In response, the Defense Ministry has reportedly replaced employees caught up in the scandal and closed two of its five Military Housing and Construction Administrations.
The military is also at the center of an international investigation involving the acquisition of Gripen fighter jets from Saab and BAE Systems, with BAE suspected of bribing Czech officials to acquire the planes.
These allegations are hitting Defense Minister Vlasta Parkanová just months after coming into office with the new government. A step removed from frauds committed in the past, Parkanová has publicly pledged that tackling corruption is her top priority. Jiří Král and a revamped SEPO are part of that reform.
The goal of SEPO is to “limit human impact,” Král said, even if large contracts are beyond its scope.
“What’s most important is that the system enables us to conduct trade transparently,” he said.
Reconstructed from a defunct model developed in 2004 and used until last year, SEPO is an online platform where registered users can bid to supply goods or services the military needs. The ministry will post tenders on the system for goods worth between 5,000 and 2 million Kč, and for services valued between 15,000 and 6 million Kč, Král said.
SEPO currently has 900 items waiting for bids, each open to any supplier with an electronic signature that can be acquired at the post office. So far, 1,050 suppliers have registered with the program.
The ministry wants more.
It is hoping to create more competition among price offers with an advertising campaign this month in the Mladá fronta Dnes and Metro newspapers.
“Our goal is to have approximately 300 million to 400 million Kč worth of transactions per month through the system,” Král said.
Changes made to the new SEPO include a stronger search filter linked to bidder identification numbers, so that companies only see contracts for which they are eligible. Before, a company could see every military request.
There is also a clearer verification process that will commit bidders to the price and service offered. Companies were previously reneging on their bids or increasing their price, Král said.
The new meticulously codified version also allows for the ministry to monitor bids and collect information about amounts, bidders and frequency to gauge SEPO’s success.
About 25 percent of all defense contracts will go through the system, Král said. But the rest of the military’s procurement decisions — the ones that can’t be easily categorized in the SEPO computer — will continue to rely on the judgment of people.
Civil defense
The Justice Ministry is taking steps to ensure the integrity of that judgment.
It is preparing a proposal that will make the failure to report serious cases of corruption a criminal offense, even for witnesses not active in the fraud. The proposal also calls for an increase in penalties for offering or accepting bribes.
“It is necessary to create such an environment to curtail corrupt behavior,” said Kateřina Přecechtělová, spokeswoman for the Justice Ministry.
“Making certain steps electronic and making the Criminal Code stricter should go hand in hand in order to help eliminate this socially dangerous phenomenon,” she said.
The proposal follows guidelines set by the Organization for Economic Cooperation and Development (OECD), according to Přecechtělová.
Corruption in procurement proceedings often occurs because there is no significant recognition or promotion for employees in the sector, said Elodie Beth, the author of a new report from the OECD this month on integrity in public procurement. In addition, employees — the most likely to witness corruption — are reluctant to report any crimes for fear of retaliation, she said.
One solution is defense integrity pacts, a mutual commitment between a government, a civil-society organization and the private sector to not engage in any corruption, Beth said. The civil group then monitors the integrity of procurement proceedings.
Indeed, Defense Minister Parkanová has said she would like to cooperate with the Czech branch of Transparency International, a civil organization that monitors and combats corruption.
While the group’s Prague-based executive director, Adriana Krnáčová, confirmed that a Defense Ministry adviser discussed options with her, there has been no outcome thus far. She also said such three-party agreements are unlikely because of the sensitive information involved in contracts.
“[SEPO] is a very good attempt to have at least control over those [lower-budget] contracts,” Krnáčová said.
— Hela Balínová and Naďa Černá contributed to this report.

Riva Froymovich can be reached at rfroymovich@praguepost.com


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