cost escalation in public procurements: what are the …
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COST ESCALATION IN PUBLIC PROCUREMENTS:
WHAT ARE THE CAUSES?
By
Deogratias Kirama
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A Dissertation Submitted in Fulfillment of the Requirements for the Degree of
Master of Science in Procurement and Supply Chain Management (MSC-PSCM)
of Mzumbe University
2013
CERTIFICATION
We, the undersigned, certify that we have read and hereby recommend for
acceptance by the Mzumbe University, a dissertation/thesis entitled: Cost
Escalation in the Public Procurements: What are the Causes?, in
partial/fulfillment of the requirements for the award of the degree of Master of
Science in Procurement and Supply Chain Management.
……………………………
Major Supervisor
…………………………….
Internal Examiner
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Accepted for the Board of ………………………………………………
SCHOOL DEAN/DIRECTOR
DECLARATION AND COPYRIGHT
I, Deogratias Kirama, declare that this thesis is my own original work and that it
has not been presented and will not be presented to any other University for a
similar or any other degree award.
Signature: ___________________________
Date: _______________________________
© 2013
This dissertation is a copyright material protected under the Berne Convention,
the Copyright Act 1999 and other international and national enactments, in that
behalf, on intellectual property. It may not be reproduced by any means in full or
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in part, except for short extracts in fair dealings, for research or private study,
critical scholarly review or discourse with an acknowledgement, without the
written permission of Mzumbe University, on behalf of the author.
ACKNOWLEDGEMENT
This study would not have been possible without assistance from a number of
people given the time constraints faced. I therefore wish to express my gratitude
to all who have taken part towards this end.
Special thanks are to my Supervisor, Ms Mary Rutenge whose guidance and
support encouraged me to this great result. Her consistent and constructive
challenges pushed me to achieve the best in the course of this study.
I would also like to acknowledge great cooperation from Public Procurement
Regulatory Authority (PPRA), National Audit Office of Tanzania (NAOT),
Procurement Professional Board (PSPT) and other Institutions visited for the
purpose of this study. A lot of thanks are also extended to respondents of
questionnaires and those who accepted to take part in the interview. Their
responses enabled me to achieve the objectives of this study.
I would like also to acknowledge the support received from my family
particularly my lovely wife Mrs Jacqueline Kirama, my kids and the study
colleagues who helped me at different stages of my studies.
The success of this study is due to the inputs of the people and entities
acknowledged above, however errors and shortcomings in this work remain solely
mine and should not be ascribed to any of the above acknowledged individuals
and Institutions.
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I say thank you very much.
DEDICATION
This research report is sincerely and entirely dedicated to my beloved wife
Jacqueline Kirama and my kids for their endless encouragement, concern and care
while I was working towards this end of MSC-PSCM qualification.
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CHAPTER ONE
INTRODUCTION
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1.1 Background to the Study
Strong procurement management in the public sector is a tool for achieving
political, economic and social goals. Strong procurement management is required
due to the fact that we are living in the era of diminishing resources and increased
demand for accountability and transparency in government where the
stakeholders of the public sector including the general public are demanding more
effective and efficient use of public resources (Nkinga, 2003). This becomes even
more important when the resources under discussion are related with the
developing country like Tanzania and also that procurement accounts for more
than 70% of the Government expenditures and also takes a substantial working
time of the professionals and leaders (Kambi, 2006)
Although procurement is an important function in the functioning of the
Government and other entities, the same has suffered badly with various frauds
including cost escalation. Cost escalation as defined by the free dictionary1 means
excess of cost over budget or originally approved cost, it is also referred to as the
cost which necessitate an additional allocation of funds in the budget
A report on procurement frauds and corruption noted that organizations, whether
big or small, are prone to the risk of fraud and corruption in their procurement
cycle2
Some of empirical evidences for the cost escalation include high cost of
infrastructure projects in India reported by Kumar & Narayan (2009). He reported
that delay in execution of 116 infrastructure projects in India had seen about Rs
38,000-crore jump in their original cost estimates and that as on January 1, 2009,
the cost escalation had gone up by 41% from Rs 91,841 crore to Rs 1,29,560 crore
and a an infrastructure project under ministry of health and family welfare in
which reported maximum cost escalation of over 500% while about 250 projects
of railways recording a cost escalation by about 88%.
1 Accessed at http://www.thefreedictionary.com/Cost+escalation on 1/3/20132
Areport by Delloitte on Procurement Fraud and Corruption A multi-faceted challenge from www.deloitte.com/in June2012
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In Tanzania cost escalation also prevails. Mkinga(2012) states that, the
government in year 2012 had saved TZS 56 billion as a result of reduction in road
construction costs that had earlier been inflated by corrupt officials colluding with
contractors. In further elaborating the fact, Mkinga gave some examples of the
roads that were allegedly built at inflated costs to include Vituka-Jet-Kona
(10.3km) within the Dar es Salaam city at a cost of Sh12.5 billion, Kanazi-Kizi-
Kibaoni (76.6km) at about Sh82.8 billion, Sumbawanga-Kanazi (75km) at Sh78.8
billion, Tanga-Horohoro (65km) at Sh69.8 billion and Handeni-Mkata (54km) at
Sh57.3 billion.
To cement on the existence of cost escalation in Tanzania, is the statement made
by the Controller and Auditor General of the United Republic of Tanzania (CAG)
that there is an increasing trend by public servants and contractors to steal
Government funds through inflated bills of quantities3. The CAG further stated
that you find a public servant deliberately inflating quantities in the bills, with a
purpose of sharing the illegal proceeds with unscrupulous contractors
Cost escalation affects the whole flow of the supply chain management and the
expectations of the public on the results of money spent in procurements. In
fighting cost escalation as a procurement fraud some solutions have been thought
including change of project operationalization style as stated by Bhardwaj &
Narayan (2008). They stated that India had decided to reconsider the mode of
operationalizing the construction projects since cost escalation renders many
projects unviable for the builders under the build, operate and transfer (BOT)
model. It is important also to note that the public funds available for a pool of
projects are limited and fails to match a backlog of critical infrastructure needs.
3 A comment by the CAG of Tanzania at annual auditors meeting for 2012 accessed with a title Stopstealing through inflated BoQs from http://www.ppra.go.tz/:stop-stealing-through-inflated-boqs-says-cag
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In this respect Shane (2009) stated that if any project exceeds its budget it means
that other projects are dropped from the program or the scope is reduced to
provide the funds necessary to cover the cost growth which exacerbate the
deterioration of a state’s development infrastructures.
Considering the importance of having a robust system of managing public
procurement in Tanzania, the Government has undertaken a number of
intervention measures in the name of reforms from the early 1990s after various
studies noting that public procurement system in Tanzania had serious
weaknesses and thus was in urgent need for reform (Nkinga,2003). All the
reforms made during this time targeted at ensuring that frauds in public
procurements are managed and the Government obtains goods, works and
services at the fair market prices which however has been a challenge to realize
since procurements in public entities have remained to be done at escalated prices
and therefore denying the Government a value for money spent.4.The reforms
embraced in the procedures the private sector through a strategy called the Public-
Private Partnership (PPP) whereby the Government started to procure goods,
works and services through competitive bidding/tendering from members of
private sector aiming at maximizing value for money (Ngwalo, 2004).
Although many reforms have been done with the intention of addressing various
procurement frauds including cost escalation and ensuring that the Government
realizes value for money spent, the same has remained a challenge as some
empirical evidences pointed above.
1.2 Statement of the Problem
Public procurement is an important function of any Government. The importance
of procurement as a function lies on the magnitude of funds used, a great impact
4 Auditor General’s Speech to a forum of Procurement professionals Sourced fromhttp://www.ppra.go.tz/ article stop-stealing-through-inflated-BOQs accesed on 2/2/2013
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on the economy and a need for it to be well managed (Mlinga,2007). It has been
estimated that financial activities of government procurement in all countries in
the world are of the order of 10% – 30 % of GNP (Calendar and Mathew, 2000).
To further explain the significance of the procurement function for goods, works
and services, Msanya (2007) states that it has been established for procurement to
account for between 70% and 80% of the Government budget yearly in Tanzania.
Because of the importance of procurement function, Government all over the
world devotes significant resources and time, to ensure the processes and the
procedures are sound, transparent, shared and followed.
Therefore efficient handling of procurement is always a challenge to many
countries, especially the developing countries with many developmental agendas
yet to be executed. Bent (2003) stated that despite the hundreds of billions of
dollars being spent on public procurement including infrastructure development
such as roads, rail , airports , energy extraction , power networks and the Internet,
surprisingly little reliable knowledge exists about the actual performance of these
investments in terms of actual costs, benefits and risks.
Studies have been undertaken in Tanzania to bring to light a number of factors
which affects procurement costs. Muro (2010) in the study titled assessment of
the causes of long lead time in procurement process using the Government
agencies as the case study noted that long lead time in the public procurement
caused by poor communication systems, bureaucracy, incompetence and poor
performance of the suppliers results into high costs of procurements.
Lukumay (2011) in the study for the factors causing corruption in tendering
process studying Arusha Municipal Council as the case study, concluded that
among others, corruption has economic impacts which acts as un-official tax
burden on tax payers (members of general public). Lukumay (ibid) added that,
corruption diverts government expenditure to the procurements which are priced
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higher with an intention of gaining by a way of corruption which negatively
affects some of social programs.
Chacha (2009) in the study titled corruption in public procurement, studying
practices at Chamwino district in Dodoma as the case study mentioned a famous
Warioba commission’s inquiry report of 1999 which underlined the fact that
public procurements are prone to corruption and frauds which contributes highly
into an increased procurement costs. Lukumay (ibid) mentioned the factors which
contributed to corruption and frauds to include collusion, lack of accountability,
favoritism, greediness, bureaucracy, monopoly of power, lack of transparency,
low remunerations among civil servants and inefficiencies and in conclusion there
was a direct link between corruption and escalated procurement costs.
Mkinga (2012) writing an article in the Daily Newspaper of The Citizen of 04
October 2012 on the title Government saves Sh56 billion in reduced road costs.
stated that, the government had saved TZS 56 billion that had earlier been inflated
by corrupt officials colluding with contractors in road construction. In elaborating
the fact, Mkinga gave some examples of the roads that were allegedly built at
inflated costs to include Vituka-Jet-Kona (10.3km) within the Dar es Salaam city
at a cost of Sh12.5 billion, Kanazi-Kizi-Kibaoni (76.6km) at about Sh82.8 billion,
Sumbawanga-Kanazi (75km) at Sh78.8 billion, Tanga-Horohoro (65km) at
Sh69.8 billion and Handeni-Mkata (54km) at Sh57.3 billion.
Chambo (2010) underscored that, as a result of the squandering of government
money in the name of cost escalation, the government and the general public gets
a concern about mismanagement of public procurements particularly major
infrastructure projects like roads and public utilities
With the evidence above, cost escalation has proved to be a stumbling block to
social developments of many countries including Tanzania. The gap has been
identified by the researcher that the addressing of the challenge has been
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challenging due to knowledge gap on what exactly grounds the cost escalation in
public procurements.
This study aimed at compiling and analyzing the factors responsible for cost
escalation in public procurements and the impacts there from that were to be
identified through various studies and through questionnaires obtaining the views
of the practitioners to reduce the impact of the same in advancing towards real
value for money procurements.
1.3 Objectives of the Study
This research aimed at achieving the following objectives:-
1.3.1 General Objective
The general objective of this study was is to find out the factors causing cost
escalation in the public procurements
1.3.2 Specific Objectives
The specific objectives of the research were:-
(i) To identify the factors causing cost escalation in public procurements
(ii) To find out the role played by the staff of procuring entities in cost
escalation
(iii) To determine the impacts befalling the public from escalated procurement
costs
1.4 Research Questions
To achieve the research objectives, this study was designed to answer the
following questions:-
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1.4.1 General Research Question
The general research question was, what are the factors causing cost escalation in
the public procurements?
1.4.2 Specific Research Questions
The specific questions of this study were:-
(i) What are the factors causing cost escalation in public procurements?
(ii) What is the role played by the staff of procuring entities in cost escalation
(iii) What are the impacts befalling the public from escalated procurement
costs
1.5 Significance of the Research
This research aimed at finding out the factors causing the cost escalation in the
public procurements. Uncovering of these factors contributes to the body of
knowledge by adding the analysis of the causes of cost escalation particularly
when the procurements with public funds are involved.
The study further shed light on the role of employees of public organizations
towards escalating of the procurement costs as well as the impacts befalling the
general public in that regard.
On the other hand, the result of this study assists researchers and academicians as
a base of literature review when handling the issues related with the topic under
study
1.6 Scope of the Study
This research was conducted at Dar es Salaam where by members of the
procurement profession and auditors were contacted for their inputs as the source
of primary data. Auditors for procurement were included in the sample as they
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have a substantial stock of experience and information due to the fact that they are
specialised in procurement audit in various public entities while the practitioners
gave a rich experience concerning the subject.
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CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction
This chapter examines the existing literature about cost escalation as part of
procurement frauds focusing on the public procurements. Through this review
various literature sources both hard copies and electronic sources were visited to
review what others have said about the topic in question locally and abroad. First
part of the review concentrates on the theoretical explanation of important
subtopics related with the topic of research and the second part reviewed the
existing empirical studies from Tanzania and abroad bringing to light the factors
responsible for cost escalation in public procurements.
2.1 Theoretical Basis of the Study
2.1.1 Overview of Public Procurement
Mlinga (2006) defines procurement as the whole process of acquisition from third
parties and covers goods, services and construction projects5. In the definition
given by Public Procurement Act (PPA) No 21 of 2004, the key words in the
definition for Public procurements include acquisition from the third parties of
goods, works and services but more specifically using the public funds. Ngwalo
(2004) definition seems to summarize the definition of PPA and Mlinga by simply
defining procurement as the acquisition of goods, works and services by public
procuring entity using public funds.
This study adopts the definition given by Ngwalo (2004) which states Public
Procurement as the procurement which entails the acquisition of goods, works and
services by Public Procuring Entity using public funds.
5 National Audit office, U.K., Getting Value for Money from Procurement – How Auditors can help, seewww.ogc.gov.uk/documents/Value_for_Money_(VFM)_in_Procurement_-_The_Role_of_Auditors.pdfaccessed on 17th June 2007
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It is important to note here that procurement encompasses acquisition of goods,
works, non consultancy services like security ,cleaning, maintenance and repair
services and consultancy services including but not limited to engineering design
or supervision, architecture, quantity surveying, accountancy, auditing, financial
services and training and capacity building services (Public Procurement
Regulations,2005 GN 98);. When public funds are used to procure various items,
the motives that are behind the procurement includes meeting of political,
economic and social developments.
The extent of demand for accountability in the use of public resources increases
when there is a competing needs for limited resources (Nkinga, 2003). To ensure
that public procurements are undertaken in a manner that maximize transparency
and a consideration for value for money realization, Public Procurement Act, no
21 of 2004 (PPA,2006) compel all public entities to invite the world to participate
in tender so as to increase competitiveness in anticipating a reduction in public
spending (Kachru, 2011). Kachru note that management sciences however have
challenged this legal requirement that the enactors have failed to take into account
all costs associated with bidding procedures which thereafter increase
procurement costs.
2.1.2 Types of Procurements
Based on the consumption purposes of the acquired goods and services,
procurement activities are often split into two distinct categories6. The first
category being direct (production-related procurement) and the second being
indirect (non-production-related procurement). The features of every category of
procurement are given in table 1 below:
6See: http://en.wikipedia.org/wiki/Procurement accessed on 20th February 2013
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Table 1: types of procurements and their features
Direct Procurement Indirect ProcurementRaw Material andProduction Goods
Maintenance, Repair andOperating (MRO) Supplies
Capital Goodand Services
FEATURE
Quantity Large Low LowFrequency High Relatively high LowValue Industry specific Low HighNature Operational Clerical Strategic
ExamplesCrude oil in petroleumindustry
Lubricants, spare partsMachinery,computers
Source: http://en.wikipedia.org/wiki/Procurement accessed on 20/2/2013
2.1.3 Principles of Efficient Public Procurement
According to Mlinga (2006), the general principles of public procurement system
include fairness, openness, and transparency. He continues that, it should also
provide a means to obtain needed goods, works and services timely, in an
effective manner and efficient prices that are competitive.
Mlinga also concludes that unlike the private sector procurement where the
concern may be to obtain needed goods, works and services in a timely and
effective manner at efficient prices that are competitive, a public procurement
system should also be fair, open and transparent. From this conclusion, it is
obvious therefore that Public Procurement must be transacted with other
considerations in mind, besides the economy which include accountability, non-
discrimination among potential suppliers and respect for international obligations,
in order to protect the public interests. Public procurement is a business process
within a political system and therefore, has significant consideration of integrity,
accountability, national interest and effectiveness.
Another writer, Ngwalo (2004) states that procurement requires a knowledge of
business environment ,tendering process and procedures, Professional ethics and
integrity, legal aspects of Procurement and organizational culture. He further
confirms that, those features are embedded in Procurement Professional trained in
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procurement management and lack of these skills may result into mismanagement
of procurement process.
Section 59 of PPA directs that the successful bidder where competitive bidding is
in use is the one offering the lowest evaluated cost. Although the lowest evaluated
bid does not mean the lowest cost but that remains the position of public
procurement.
However, Herbsman and Ellis (1992) qualifies this position that low bid price as
the sole award criterion encourages unqualified contractors to submit bids along
with bidders that submit a very low bid with the intent of recovering their losses
through change orders and claims, also known as predatory bidding as named by
Crowley and Hancher (1995). Therefore, low bid is not necessarily the best value.
In this regard, Capen et al., (1971) states that the contractor with the lowest bid is
the one most likely to have underestimated the cost of the project and therefore
need a thorough attention during evaluation process.
2.1.4 Public Procurement Reforms to Eliminate Inefficiencies
Tanzania after experiencing an inefficient procurement system cost escalation
inclusive in the early 1990s embarked on various reforms to eliminate waste in
the procurement system (Nkinga,2003). He states that, the implication of the
inefficiencies included encouragement of corruption and malpractice which lead
to delays in delivery of essential public services; resulted into de-motivation of
private sector suppliers leading to lack of competition; and resulted into an
increase in the cost of items
Following the weaknesses in the earlier system of Purchases and Supplies, the
Government from 1997 undertook reforms in public procurement legislation and
the related systems (Kitalala, 2005). The reforms included enactment of new Act
no 6 of 2001 which was later repealed by Act no 21 of 2004 to address the earlier
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procurement inefficiencies. Some improvements brought up by the reforms
includes the replacement of Central Tender Board (CTB) with a Regulatory body
called Public Procurement Regulatory Authority (PPRA), full devolution of
procurement operations to Procuring Entities themselves; and establishment of an
Appeal Authority called Public Procurement Appeal Authority (PPAA). Of
interest for this study is Section 58(2) of PPA, No 21 of 2004 which requires all
public procurements and disposal to be conducted in a manner to maximize
competition and achieve economy, efficiency, transparency and value for money.
2.1.5 Value for Money in Public Procurements
According to annual report of Organization for Economic Co-operation and
Development, 2006, the fundamental purpose of public procurement is to obtain
goods and services at the lowest possible price or, more generally, achieve the
best value for money (OECD, 2006)
Regulation 5 of Public Procurement Regulations (PPR), 2005 emphazes that there
is a need of ensuring that all Public Procurements are undertaken with regard to
economy, efficiency and effectiveness which are the pillars of value for money
concept. In this regard, Ishobeza (2006) identified 8 factors that can promote
value for money (VFM) procurement as shown in figure 1 below. The figure
represents key factors which have to be considered when undertaking
procurement with the intention of achieving the VFM.
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Fig 1: Applicability and promotion of VFM in procurement
Source: Ishobeza, 2006
Ishobeza from the figure above says that in order to achieve VFM in public
procurement, the process has to be approached strategically, the procurement risks
have to managed, more attention has to be dedicated on major procurements and
there should be partnering and long term collaboration with suppliers as these will
give a procuring entity a room for procuring at better costs
2.1.6 Cost Escalation in Public Procurements
Cost escalation in public Procurements is a part of a wide term of procurement
frauds. Procurement fraud (defined by Wise greek.com)7 refers to violations of the
bidding process when private companies solicit contracts from public entities. The
source further gives examples of procurement frauds to include overcharging for
materials or labor, noncompetitive bidding processes, conflicts of interest, and
7 This website was visited on 25/2/2013
Strategic Approach
Partnering and long termcollaboration with suppliers
Management of procurement risks
Electronic procurement
Appropriate contract strategiesactively managed
Measurement and evaluation ofprocurement performance
Careful management of majorprocurement projects
Reliable procurement, financialand management of information
BetterVFM
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supplying of defective materials. Procurement fraud in its broad picture prohibits
public entities from obtaining goods or services at the lowest possible cost.
According to Lander (et all) (2008)8, Cost escalation in the public procurements is
among the white collar crime that is extremely costly yet hard to discover without
thorough investigation. Lander emphasizes that this crime can be easily hidden
behind millions of dollars of false transactions and theoretical contracts the
impacts of which includes squandering of limited funds, threatening of public
safety and national defense by obtaining low quality goods and services, cheating
of taxpayers and harming government efforts to obtain needed goods and services
for social developments.
Waters (2007) indicates that, typically in the past, supply management has been
paid scant attention in many companies. He further says that even though the
costs of purchases for most businesses are the largest single cost, procurement has
not been seen as a strategic task which contributed to high costs of materials and
losses.
Porter (1980) identified traditional keys to a company’s success including high
barriers to entry, non-substitutable products, large market share, low level of
bargaining power for buyers, low levels of bargaining power for suppliers and
rivalry among competitors. Porter stated that while some fails to perform better in
an over saturated market, yet some highly successful companies are able to
perform exceedingly well (e.g. Wal-Mart and Southwest Airlines). Cameron and
Quinn (2002), states that, often these companies that are highly successful in
difficult markets attribute a large part of their success to their organizational
culture.
The importance of culture does not only affect the success of private sector
companies, but also the effectiveness of public sector organizational activities
8 Sourced from http://www.nysscpa.org/cpajournal/2008/208/infocus/p16.htm on 30/1/2013
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including procurements. According to research by Bedford (2009) on analysis of
the low-bid award system in public sector construction procurement, it became
vivid that a public sector construction client experiences less cost escalation if
their culture is similar to the culture of the construction industry. Specifically
Bedford underscored that a strong results-oriented culture possessed by the
private sector companies is correlated with less cost escalation than the public
sector which is about compliance with procedures and bureaucracy.
Linking with the finding of the study by Bedford (2009) on analysis of the low-
bid award system in public sector construction procurement, the Government of
Tanzania by operationalizing the Public Procurement Partnership policy (PPP)
stated under Reg.74 of PPR (2005) GN 98, it has opened itself to the risk of loss
as with its organization culture dominated by rule and procedure oriented, it now
works with a highly results-oriented industry of the private sector
2.1.7 Avenues of Public Procurement Cost Escalation
(i) Cost Inflation at bid preparation process
Cost escalation as fraud might occur during the bid preparation process if costs
are inflated in the bills of quantities or when a request for bids gives advantage to
a certain firm to overcharge the price. Public entities typically place
advertisements to solicit bids from competing suppliers, contractors or service
providers. Cost escalation at this stage can happen when a government employee
gives confidential information to a particular supplier which might result into
overcharged prices9.
(ii) Supplier and Staff Collusion
According to Mwenda (2008) cost escalation at the stage of tender evaluation, can
take place where by the suppliers can collude with dishonest staff to dismiss the
9 http://www.wisegeek.com/what-is-procurement-fraud.htm visited on 24/2/2013
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lowest qualified bidder and recommend and award the tender to the highest priced
bid. This is typically when bribes or kickbacks are offered in exchange for
awarding the contract to a certain company. It is the common practice in Tanzania
for members of evaluation committee to rank submitted bids in respect of which
firm can supply goods, undertake works or provide the service at the best price.
To ensure the fairness in evaluation of the bids, Sect 37 (3) of PPA,2004 and
Regulation 90 (1) of GN 97 (2005) requires number of members to form the
evaluation committee to be a minimum of three and maximum of five for goods,
works and non consultancy services. In case of consultancy service the evaluation
of proposal is to be evaluated by using an evaluation committee of five or more
specialists as per Regulation 58(2) GN 98 of 2005. All these were put in place as
the mechanisms to mitigate frauds that could take place.
(iii) Employees’ Deception
Employees’ deception also can cause cost escalation. This can be committed by
splitting goods or services into separate contracts to avoid going through a formal
approval process. Splitting of procurement lots leads the procuring entities in
obtaining the goods, works or services at the higher prices than the fair market
prices10. First schedule of the PPR, 2005 GN 97 has set a threshold for
procurement approvals in Tanzania according to a certain monetary amount. If an
employee deliberately splits the order to avoid scrutiny and approval levels, he or
she is considered to have committed offense under section 87 of PPA, 2004 which
implies procurement fraud
(iv) Bid Rigging
Suppliers might also cheat the public entities during the bidding process or after a
contract is awarded through the technique called a bid rigging. Bid rigging11 is a
form of fraud in which a commercial contract is promised to one party even
10 http://www.wisegeek.com/what-is-procurement-fraud.htm on 24/2/201311 Sourced from http://en.wikipedia.org/wiki/Bid_rigging on 22/2/2013
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though for the sake of appearance several other parties also present a bid.
Companies conspire to submit high bids that give one firm an advantage and a
contractor that wins the bid might agree to send subcontracting work to a
competitor who submits a high or unacceptable bid. These conspiracies give the
appearance of competitive bidding when none exists. In this situation the
procuring entity finds itself faced with only higher prices without an alternative.
(v) Inflated costs of materials and falsified Supporting documents
Another avenue through which procurement costs can be escalated is when a
contractor inflates costs of materials or falsifies documents submitted to support
these costs12. When a firm charges for work that was not performed or materials
not provided, it represents fraud in which the procuring entity pays more than the
fair price in the market.
In some cases, a contractor might substitute defective or inferior products instead
of the one indicated in the bid documents with the aim of increasing profits. To be
sure of the quality of the required products, it is a practice that the procuring
entities asks for documentation to confirm origin and quality of certain
materials13.
2.1.8 Rationalisation of Procurement Frauds which Escalate Costs
Hansen,R (et al),(2005) stated that an employee may commit fraud but still invent
a rational explanation as to why the fraud has been committed. This
“rationalisation factor” encourages the perpetrator to continue committing the
frauds. Hansen says that these are some ways in which individuals may
rationalize their actions:-
(i) “Some people do it, so why should I not do it too.”
(ii) “I will pay back the organisation later or I will stop soon since this is only
temporary.”
12 See the comments by CAG when addressing the auditors in 2012 at www.ppra.go.tz/:stop –steeling-through-inflated-boqs-says cag accessed on 2/2/201313 This is included in the Tender document depending on the need to confirm manufacture’s authorization
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(iii) “I get so little, but I work so hard, this organisation owes me.”
On purchasing, Hansen (ibid) continues that it is possible for an employee not to
disclose a conflict of interest concerning a certain service provider or supplier and
gives an example that the employee might award a contract to a relative’s
company. This hidden interest is not in the interests of the organization but
employee might receive kickbacks from suppliers in exchange for approval to
either order from or make a payment to them, when goods have not been fully
supplied or are charged at a higher price.
2.2 Empirical Studies
2.2.1 Tanzanian Cases
Nkinga (2003) on a paper titled public procurement reform - the Tanzanian
experience which was presented at the Joint WTO – World Bank Regional
Workshop on Procurement Reforms and Public Procurement for the English –
Speaking African Countries held at the Royal Palm Hotel, Dar Es Salaam,
Tanzania from 14 – 17th January, 2003 writes that significant measures to curb
and control illicit behavior in the procurement and other processes have been
initiated by the Government. He further says that over the last thirty five years,
the Government has developed various strategies, initiatives and organizations to
combat corruption, unethical behavior and abuse of power.
However, as evidenced by independent reports such as those produced by the
Prevention of Combating of Corruption Bureau (PCCB) as well as the report by
Public Procurement Regulatory Authority (PPRA), corruption in procurement is
still a problem in Tanzanian public procurements. He however notes that, until the
potential cost of participating in corrupt or fraudulent practices (eg loss of job,
fines, imprisonment, confiscation of illicit property, etc) is greater than the benefit
gained from participation, the mitigation of risk will remain an uphill battle.
26
The Controller and Auditor General of the United Republic of Tanzania (CAG)14
said at the Annual auditors’ conference in July 2012 that there is an increasing
trend by public servants and contractors to steal Government funds through
inflated bills of quantities. He said that public servants deliberately inflate
quantities in the bills, with a purpose of sharing the illegal proceeds with
unscrupulous contractors. The CAG insisted that there are many cases where
payment is made based on what is included in the bills of quantities and not on
what has actually been executed thus benefiting contractors and the dishonest
public officials.
The CAG words are in line with what the President Jakaya Kikwete of Tanzania
said on July 9th 2009 (reported in the Citizen Newspaper of 04 October 2012 by
Mkinga). He lamented that over 33percent of government budget gets into the
pockets of unscrupulous public officials and their accomplices through dubious
public procurement deals.
Mlinga (2013) Presenting a paper during a one-day workshop on Understanding
Public Procurement process in Tanzania to Members of Parliament in Dar es
Salaam on 15 January 2013, noted that, the trend of adding 10 % on commodity
prices during procurement is widespread in the country. Mlinga who is the Chief
Executive Officer (CEO) of the Public Procurement Regulatory Authority
(PPRA) said that instead of negotiating for the prices to go down, public officials
add a 10 per cent on the original price which goes into their pockets.
He emphasized further that there is a lot of taxpayers' money getting lost through
procurement and without proper strategies to control and monitoring systems;
procurement could easily turn into a bottomless pit for national resources to the
detriment of the nation's economy. Mlinga further noted that the procurement is
14 Sourced from http://www.ppra.go.tz/:stop-stealing-through-inflated-boqs-says cag accessed on2/2/2013
27
one of the sensitive sectors of the Government with challenges of grand
corruption.
2.2.2 Abroad Cases
(i) United States of America (USA)15
The city of Palo Alto in California says it may have been overcharged by as much
as $390,000 by MS OfficeMax who was their supplier for office supplies. This
was stated in a published contract oversight audit conducted by Palo Alto’s
auditors which concluded that the city could have saved up to $389,426 on its
office supplies contract with OfficeMax’s America Saves cooperative programme
between November 2007 and June 2011.According to the audit’s findings around
$47,500 of that amount came from un-authorised price increases while between
$149,000 and $341,900 could have been saved from additional discounts on non-
contract items.
(ii) England16
In England during year 2009, the Office of Fair Trading (OFT) imposed fines
totalling £129m on 103 construction firms in England .for having colluded among
them to agree over-inflated bids for building contracts. This activity is known as
‘cover pricing’. Cover pricing is where one or more bidders in a tender process
obtain an artificially high price from a competitor. Cover bids are priced so as not
to win the contract but are submitted as genuine bids, which give a misleading
impression to clients as to the real extent of competition. This distorts the tender
process and makes it less likely that other potentially cheaper firms are invited to
tender.
The office of fair trading also found six instances where successful bidders had
paid an agreed sum of money to the unsuccessful bidder (known as a
15 Extracted from document comprising proceedings of a Roundtable on Collusion and Corruption in PublicProcurement, held by the Global Forum on Competition in February 2010. Published by OECD16 As for no i above
28
'compensation payment'). These payments of between £2,500 and £60,000 were
facilitated by the raising of false invoices
(iii) Hungary17:
Hungarian road construction market has witnessed a series of bid rigging cases.
So far, the biggest antitrust fine (approximately EUR 27.7 million) was imposed
in a bid rigging case involving highway construction. The Hungarian competition
authority found that the bidders had previously agreed among them on who was
going to win the tender valued at EUR 630 million and also on the competing
bidder to which the general contractor would offer a subcontract in the
construction works.
(iv) Japan18
During year 2005, the Japanese Fair Trade Commission (JFTC) ordered 45
Japanese steel bridge builders to stop rigging bids for government contracts. More
than 70% of the steel projects for steel bridges given out between 1999 and 2004
by the Japan Highway Public Corporation were won by 47 companies which
belonged to two bid-rigging associations. Their bids were almost exactly the same
as the public corporation estimates.
In one of the largest bid rigging cases in Japanese history, the JFTC also ordered
the Japan Highway Public Corporation to improve its bridge contract procurement
practices, alleging that some 20 former public officials had been involved in bid-
rigging practices to secure future jobs with the 45 companies. According to one
tally nearly 60% of former bureaucrats involved in road work got jobs after they
retired with one of the top 10 corporate bodies that do road work.
17 As for no i18 As above
29
(v) France
Another example is the case of three major French construction companies,
Bouygues, Suez-Lyonnaise and Vivendi which were the subject of a major
investigation for a scandal which was described as “an agreed system for
misappropriation of public funds” (Le Monde, 10 Dec 1998). The three
companies participated in a corrupt cartel over building work for schools in the
Ile-de-France (the region around Paris) between 1989 and 1996. Contracts worth
over four billion Euros were shared out by the three major French building
companies. The system also involved political corruption: a levy of 2% on all
contracts was paid to finance the major political parties in the region.
(vi) Sierra Leone
According to Transparency International report of 2011 Ministry of Health and
Sanitation fund alleged corruption scam hinges on irregularities including among
others overcharged procurement cost leading to the freezing of the last
disbursement by the Bill and Melinda Gate Foundation of a grant of five hundred
and thirty thousand seven hundred and fifty United States Dollars.
2.3 Conceptual FrameworkFrom the literature review, it became apparent that cost escalation is grounded by
corruption, organization culture, staff conduct, suppliers conduct and the time
involved in the procurement. In this regard, the following conceptual framework
guided the study
30
Fig 2: Conceptual Framework for the Study
Independent
Variables Process
Dependent
variable
Corruption
Organization Culture
Staff Conduct
Mismanagement of
public Procurement
Escalated
Costs
Suppliers Conduct
Procurement Time
Source: Developed by the researcher to guide the study,2013
31
CHAPTER THREE
RESEARCH METHODOLOGY
3.0 Introduction
This chapter explains the research strategy, techniques, methods and resources
that were used in data collection, the various sources of data, types of data
collected as well as description of the technique used in data analysis. This section
also describes the general way in which the researcher carried out the research. It
describes the sampling procedures and states the main instruments used in data
collection from the field.
3.1 Research Paradigms (Philosophy)
The proposed study followed an interpretive-positivist paradigm with a combined
qualitative and quantitative approach. Although the main approach was
interpretivism, positivist components were present due to the use of a
questionnaire. The researcher firstly utilised a quantitative paradigm, based on
positivism, which aimed at evaluating the social world objectively and uncover
the factors grounding the cost escalation in public procurements. Secondly, the
researcher used a qualitative paradigm, based on interpretivism, which strives to
comprehend how individuals in everyday setting construct meaning and explain
the events explaining the cost escalation in public procurements (Fouché &
Delport, 2002).
3.2 Overall Research Design
In this descriptive study, qualitative and quantitative data collection techniques
were used including; semi-structured interviews, questionnaires, focus group
interviews, and the researcher’s field notes of personal observations. After the
data collection, the primary data results were synthesized with secondary data
obtained from various literatures to construct an explainable pattern.
32
3.3 Type of Data and Data Collection Procedures
The research used both primary and secondary data.
3.3.1 Primary Data
Primary data were obtained by a way of questionnaires that were distributed
among the selected specialized procurement auditors from the National Audit
Office of Tanzania (NAOT), the procurement practitioners from NAOT, Public
Procurement Regulatory Authority (PPRA) and the practitioners from the
Procurement and Supplies Professional and Technicians Board (PSPTB)
Interviews were administered to 5 selected Officers from the Public Procurement
Policy Unit at the Ministry of Finance to get their technical analysis of the
situation. The natures of interviews were structured interviews following a set of
questions.
3.3.2 Secondary Data
The secondary data for this research were collected from the review of various
writings, studies, papers and other documents regarding public procurement cost
escalation as part of procurement frauds. These data enabled the researcher to
analyse the situation, factors responsible and other theoretical implications of the
circumstance in connection with the primary data.
3.4 Type of Measurement
For the purpose of this study, the researcher used Non-Parametric statistics being
Nominal and ordinal ways of interpreting data. A nominal scale, as the name
implies, is simply some placing of data into categories, without any order or
structure while an ordinal scale allows an interpretation of gross order and not the
relative positional distances such as a ranking.
33
3.5 Population and Sample
The Research population is made up of all auditors in the office of the CAG
(National Audit Office) currently amounting to 600, the entire population of
Public procurement practitioners and regulators in the Country.
The researcher selected a sample of 40 respondents from the said population in a
purposive sampling technique as shown in the Table 1 below. The objective was
to get representative respondents in terms of experience, qualifications and
exposure in public audit and the public procurement processes.
Table 2: The Sample for the Research
Entity/Group Represented No. of QuestionnairesAuditors from NAOT 15Public Procurement Practitioners 10Officers from PPRA and PSPTB 10Officers from Public Procurement Policy Unit 5TOTAL 40
Source: Developed by the researcher
3.6 Data Collection Procedures and Instrument
Both primary and secondary data were used in this research. Primary data were
collected from the field using questionnaire and by means of personal interview.
Both structured and open-ended questions were included in the questionnaire.
The researcher visited the respondents personally for clarification of questions
where necessary. The presence of a researcher during filing of questionnaires
enhanced the responses rate and improved the quality of data that were obtained.
Furthermore the questionnaires were put in a pilot test to ensure that it can serve
the purpose. The Pilot test helped the researcher to refine the instrument where it
failed to measure to the researcher’s expectations. The collected primary data
analysed together with the available literatures gave practical answers to the
research questions.
34
The secondary data were gathered from various literatures from library of PPRA,
PSPTB and NAOT library regarding various aspects of public procurement cost
escalation as part of procurement fraud.
The access to this information had earlier on negotiated since the researcher is a
member in Procurement Professional Board and so assures the successful
completion of the study. Other sources of literature including internet were used
to search for the relevant data. The gathered data analysed together with primary
data helped the researcher to uncover factors grounding the escalation of the costs
in the public procurement.
3.7 Reliability and Validity of Data
Considering that, the researcher used sample in data collection, then ensuring
reliability and validity of the data was an important aspect. This was assured by a
close supervision of the data collection although the data collection assistant was
employed.
3.7.1 Reliability
The research instrument is considered to be reliable if it can produce the results
which are consistent over time and an accurate representation of the total
population under study and also if the results of a study can be reproduced under a
similar methodology. To ensure this is successful, the researcher had designed a
study to capture respondents who are experienced in public procurement and the
concepts of procurement frauds such that their response can be a true view of the
population.
3.7.2 Validity
Data Validity refers to the assurance on how truthful the research results are. To
ensure that the data collected measures what is intended to measure, the
researcher developed simple and straight questions to attract the common
35
understanding among the respondents. The questions developed were in such a
way that they measure a respondent’s knowledge on the challenges under the
study. The researcher supervised the distribution and collection of questionnaires
and cleaned the data to ensure them valid.
3.8 Management and Analysis of Data
The management and analysis of the data was as hereunder described:-
3.8.1 Data Management
The data so collected from the field were checked for the accuracy and corrected
where some errors were observed. The researcher organised the data in coding
form so that they can be easily processed using the computer application
programs.
3.8.2 Data analysis
The researcher analysed the data using the computer program called Microsoft
Excel which assisted in computing some useful totals, ratios and draw some
useful graphs. The objective was to test how the respondents have reacted to the
questions.
The response given by respondents were analysed to group their common
positions and their conclusions were harmonized against the position of the
literature review to see whether there was an agreement or departure. Most of the
analysis of data was qualitative except for some quantitative sums that appeared
necessary under circumstance.
36
CHAPTER FOUR
PRESENTATION OF FINDINGS
4.1. Introduction
This chapter provides a presentations of qualitative and quantitative data as well
as presentations of results to research questions and interview. The main objective
of the chapter is to present the research findings from the analysis done. Initial
analysis was done to address specific research questions and thereafter discussed
the general findings of study.
Data were collected through documentary review and standardized questionnaire
to procurement experts in a sampled Procuring Entities, procurement auditors,
public procurement policy developers and members from the professional board.
The questionnaire was subdivided in three major parts for demographic data,
factors for cost escalation and the open ended questions to mobilize opinions of
respondents on key research variables and indicators.
The statistical analysis was done using MS-Excel computer program which
generated tables of data, computed key ratios and pictorial presentation of the
research findings. The research data included both qualitative and quantitative
which were analyzed concurrently.
The factors which cause the escalation of the costs in the Government
procurements were tested around 5 main criteria being supplier role on the
escalation, employees’ role, Government systems and culture, bribes and
corruption as well as delivery time. The respondents were asked to express their
agreement or disagreement at the 5 level likert scale measurement as follows:
1=strong disagree, 2=Disagree,3= Don’t know,4= Agree and 5=Strong disagree.
On the other instance, employees were asked to rank the effects of these factors
on the aspect of cost escalation into the range of very low, low, average, high and
37
very high. Furthermore, from other tools used in this research, the respondents
were expressing their feelings and sharing of experiences whereby the researcher
recorded the same and were analyzed in harmony with findings from other tools
4.2 Characteristic of Respondents
In this section, the biographic and background information of the respondents is
presented and analysed in order to show the distribution of the respondents by
age, experience and qualifications. This information is important to the study
because it helps the reader to understand some pertinent issues that may have
bearing on the analysis.
4.2.1 Population and sample of the Study
The population of the study was made up by all the auditors auditing the
procurement processes, procurement practitioners and members from the
procurement regulatory organs like PPRA, PSPTB and PPPU. Out of the
population, 40 respondents were sampled and their response rate was 37 which is
translated as a 93% of the target sample as shown in table 3 below:-
Table 3: The respondents’ distributionEntity/Group Represented Target Response
Auditors from NAOT 15 14Public Procurement Practitioners 10 10Officers from PPRA and PSPTB 10 9Officers from Public Procurement Policy Unit 5 4TOTAL 40 37
Source: Data extracted from the questionnaires
4.2.2 Analysis of the characteristic features of the respondents
The respondents that responded to the questionnaires were of the following
demographic characteristics.
38
Table 4: characteristic features of the respondents
Criterion Options Frequency %
gender of the respondents Male 21 56.8Female 16 43.2
age class of respondents below 25years 0 0.025-30 years 2 5.431-45 years 28 75.7above 45years 7 18.9
area of duty/specialization procurement 10 27.0Audit 18 48.6accounting 6 16.2Others 3 8.1
level of expertise for respondentsProfessional level 12 32.4Degree level 18 48.6Diploma level 3 8.1Certificate level 0 0.0Other levels 4 10.8
Frequency of participation inprocurement activities
Never participated 2 5.4Rarely participate 4 10.81-2 times 9 24.33-5 times 12 32.4more than 5 times 10 27.0
Source: Extraction from the questionnaires
4.2.3 Distribution of Respondents by Gender
Out of 37 who filled their gender, 21(56.8%) were males and 16 (43.2%) were
females. The fact that there were more male in the sample than female is not by
design but an indicator that more male are practicing in procurement profession
and auditing than their female counterparts.
4.2.4 Distribution of Respondents by Age
As shown in the table 4 of this report, the age of respondents were grouped into
four groups being a group of age below 25 years, age group between 25-30 years,
age group between 31-45 years and a group of years above 45. Out of 37
respondents identified none had the age below 25 years while 2 respondents
(5.4%) had the age between 25-30 years, 28 respondents (75.7%) had the age
between 31-45 years and lastly there were 7 respondents with the age above 45
years.
39
This scenario shows that the results of the study are a representative of ideas from
the matured people with enough working experience than the young generation in
the field which makes the opinions gathered more reliable.
4.2.5 Distribution of Respondents by the academic and level of expertise in the field
The extracted data from questionnaires shows that 12(32.4%)respondents have
attained a professional certification in their areas of expertise, 18 respondents
(48.6%) have a degree level of education, 3 respondents (8.1%) holds a diploma
level education, 4 holds other qualification being the masters degree while none
holds a certificate level.
From the distribution of the education and professional levels within the
respondents, the opinions given are considered reliable and valid as they come
from the people with authorities in knowledge.
4.2.6 Distribution of Respondents by the areas of specialization
This section provides information on the distribution of respondents by areas of
specialization. From 37 respondents, the data shows that procurement
practitioners were 10(27%); auditors were 18(48.6%), accountants were 6(16.2%)
and other fields including administration were 3 representing an 8.1%.
4.2.7 Distribution of Respondents by the extent of participation in procurement
activities per year
The test for the frequency of respondents participation in the procurement
activities aimed at getting to know the knowledge and experience of the
respondents with the procurement activities so that to weigh the reliability of their
response. Table 5 below indicates the response as follows:-
40
Table 5: Frequency of respondents’ involvements in procurement activities
Response Frequency %Never 2 5.4Rarely 4 10.81-2 times 9 24.33-5 times 12 32.5more than 5 10 27.0Total 37 100
Source: extraction from questionnaires
From the data, 22(59.5%) respondents have indicated to be participating in
procurement activities between 3 and above times a year. The message that can be
gained from this information is that, more than half of the sample of respondents
selected has enough experience in procurement activities and therefore their
response represents the true picture of the field. This results therefore promises
that the sample used in this study is a good representatives of the population.
The composition of response represents key groups involved in procurement
activities and management and therefore their views represent the opinion of the
population particularly those with enough knowledge. The researcher also
purposely included 2 respondents (5.4% of the respondents) to represent unbiased
concerns of commoners in as far as procurement is concerned.
This section has provided a clear picture of the kind of the sample the researcher
used for the study. It has given clear information on the gender, age, academic
qualification and level of expertise as well as areas of specialization. Such data
becomes very useful during the analysis of research findings as it communicates
the calibre of respondents.
4.3 Factors Causing Cost EscalationProcurement costs are escalated with various factors either directly or indirectly
as hereunder established by the research:-
41
4.3.1 Corruption
Corruption is among the factor that dominates the outcry of the society in most of
the African countries. This research made a test to get the respondents feelings on
how they perceive the relationship of corruption and cost escalation in the public
procurement processes. The respondents were asked to rank the contribution of
corruption in escalation of costs in public procurements.
From the data in table 6, there is no a single respondent who said that the
contribution of corruption in escalating procurement costs is very low. On the
other hand 33 respondents representing 89% of the sample indicated corruption to
have a higher contribution on the escalation of procurement costs in the public
procurements.
Table 6: impact of corruption to escalation of public procurement costs
Response Frequency %very low 0 0.0Low 1 2.7Average 3 8.1High 18 48.7very high 15 40.5TOTAL 37 100
Source: extraction from the questionnaires
When asked to show their agreement with the fact that Corruption influence
members of tender board to award tenders to unfavorable prices, the respondents
agreed by 37.8% (14 respondents) and strongly agreed by 19% (7 respondents)
making a total of those in agreement with the fact that corruption contributes to
escalation of costs in public procurements to be 56.8% against 35.1 not in
agreement with this fact as shown in the table 7:-
42
Table 7: Influence of corruption to tender board decisions
Frequency Response %1.Strongly disagree 5 13.52.Disagree 8 21.63.I don’t know 3 8.14.Agree 14 37.85.Strongly agree 7 19.0Total 37 100
Source: extraction from questions
Effects of corruption were further tested to seek the respondents’ agreement or
disagreement on the assertion that most of contract variations are approved with
an influence of corruption. Interpretation of the data in the table above indicates
that, 78% (29 respondents) generally agreed with the assertion that most of
contract variations are approved with an influence of corruption.
From the position in table 7 therefore, it can be seen that when fairness and
consideration of value for money are not among the driving motives of the
decision makers, the costs of public procurements are likely to be on the higher
side. The responses are as presented in table 8.
Table 8: influence of corruption on contract variations
Response Frequency %1.Strongly disagree 4 10.82.Disagree 4 10.83.I don’t know 0 0.04.Agree 12 32.45.Strongly agree 17 46.0Total 37 100
Source: questionnaires
From interview response, the interviewees did not show readiness in supporting
and talking about corruption among the procurement staff. However, a respondent
from PSPTB and PPRA had opinions on this. An interviewee from PPRA agreed
to the existence of corruption in public procurements especially major
construction, energy and other infrastructural projects. He also mentioned the
43
procurement under exigency to be one of the procurements attracting grand
corruption. The respondents stated that “when substantial moneys are committed
in public projects sometimes under exigency, Government employees from
different levels of authority looks at them in ways of gaining personal benefits”
The expert further stated that, it is from all the monies taken in form of corruption
that increases the costs of the projects, compromise the quality of the project
which will need major maintenance in the short period or results into delays of the
project for which the money set aside for the same will not be sufficient and it
will either minimize the scope of project or other monies sourced to finalize the
project. The interviewees conclude that all these are costs which translate to high
costs of Public procurements.
The documentary evidence for the impact of corruption on the costs of
procurements is explained in the study by Auriol Emanuel in year 2004.
According to Auriol (2004), on the research on the Cost of Corruption in
Procurement and Public Purchase, the amounts of bribery for public procurement
can be estimated in the vicinity of USD 200 billion per year. That is, something
like 3.5% of the world procurement spending which totals to USD 5.8 trillion or
18% of the World GDP in Year 2002.
From the study by Auriol, it was indicated that the two business sectors which are
more prone to corruption are public works/construction as well as arms and
defense and these are also the sectors where the biggest bribes are likely to be
paid. Auriol further stated that the capture method obstructs allocative efficiency
and increases the final purchase cost as opposed to distortion method of
corruption which shares the profit of the bidding company.
4.3.2 Government Systems and Culture
Government operations are dominated by a culture of bureaucracy and rule of
procedures. Although this may be useful in the conduct of the Government
44
operations, the same becomes a stumbling block when the Government trades
with the private business companies.
The researcher sought the respondents’ position on the fact that the bureaucracy
as the dominant culture in Government operations contributes to escalation of
procurement costs. The responses given are as presented in table 9 which
indicates 86.5% of respondents agreeing to the fact that Government bureaucracy
contribute in escalating the costs of public procurements.
Table 9: Government bureaucracy and culture impacts procurement costs
Response Frequency %1.Strongly disagree 2 5.42.Disagree 3 8.13.I don’t know 0 0.04.Agree 10 27.05.Strongly agree 22 59.5Total 37 100
Source: questionnaires
Another culture that dominates the Government operations is a lack of result
oriented business culture. An organization’s culture plays a significant role in the
degree of success that is achieved. A results-oriented culture equates to a high
performance organization. The ability to define performance and establish
specific standards of performance for all levels of the organization, for groups as
well as individuals, contributes to the ability of the organization to ask for and get
the desired level of results. In the Government, the operations are dominated by
the policies, regulations and procedures where the officers will always struggle to
fulfill the requirements of compliance with those frameworks rather than
measuring the results of their decisions.
When, asked about their feelings on this fact of lacking the result oriented
business culture in Government operations the contributing factor of escalated
costs of procurement in the public sector, the response indicated that 94.6% of
45
respondents agrees with the fact that lack of enterprising culture contributes in
escalating the costs of procurements as shown in table 10:-
Table 10: Impact of non enterprising culture on procurement costs
Response Frequency %1.Strongly disagree 0 0.02.Disagree 2 5.43.I don’t know 0 0.04.Agree 17 46.05.Strongly agree 18 48.6Total 37 100
Source: questionnaires
From the interviews, Mr. Mpota from one of the Government institutions
explained that, “the culture that the Government operates with is very challenging
when it contacts the business community”. He emphasized that in Government
even when auditors comes, the focus is placed on how much procurement experts
have observed the requirements of the law.
Mr. Sospeter another interviewee from the Government Ministry stated that “in
Government procurement you will not get credit for the saving that you have done
if you did not comply with what is written in the law”. In this case, an expert of
procurement will be forced to leave a an attractive price for higher price simply
because the bidder with low price failed to fulfill one of the bidding criteria.
4.3.3 Government Employees
Employees in any organization, determines the shape and conduct of the
organization. It is prudent therefore when testing the factors causing the escalation
of costs in the public sector procurements to test the role of the employees. The
researcher asked the respondents to show the extent they agree or disagree on the
fact that the behaviour and conducts of Government employees has the
consequence on the costs of procurements. The response given in this regard
shows that 73% of the respondents agree with the fact that employees contributes
in escalating the costs of public procurements as shown in table 11.
46
Table 11: Role of employees on procurement cost escalation
Response Frequency %1.Strongly disagree 1 2.72.Disagree 8 21.63.I don’t know 1 2.74.Agree 12 32.45.Strongly agree 15 41.0Total 37 100
Source: Questionnaires
The data in table 11 shows that 73.4% (27 respondents) against 24.3% (9
respondents) generally agrees to the fact that Government employees contributes
to the escalation of procurement costs. From the response, it is apparent that the
role of employees on escalating the costs of procurements is higher looking at the
percentage of strong agreement which turned out to be 41% (15 respondents)
which is higher of all the five response.
Further questions were asked just to get the way staffs do take part in escalating
the costs for public procurements. The data in the table 12 indicates that
respondents agree to a great extent that behaviors of the Government employees
have a bearing on the aspect of higher prices of Government procurements.
According to the data collected in the table 12 below, 83.7% (31 respondents)
agrees to the fact that staff are involved in collusion with the suppliers to push up
the prices of the procurements against 5.4% (2 respondents) who disagreed to this
affirmation
The respondents did not show agreement on the aspect that staff fails in planning
of the procurement. Only 13.5% agrees to this statement but 70.2% (26
respondents) disagreed to this and 6 respondents representing 16.2% denied
knowing about this fact.
On the staff involvement, respondents also stated their agreement that staffs are
dishonest and corrupt by 86.4% (32 respondents) against 8.1% (3 respondents)
47
who disagreed to this statement. This parameter therefore gives an indication that
staff dishonesty is among the major criteria driving at cost escalation in public
procurements.
Another factor that was indicated in staff involvement in escalation of costs of
Government procurements includes staff competency and the motivation aspect
that they have in their work. The fact that staffs are not competent therefore
causing the escalation in costs of public procurements, was not given a support by
the response. Only 40.5% (15 respondents) agreed to the assertion against 54%
(20 respondents) who disagreed. From this angle, it is evident that, the issues of
competency are not among the major factors that drive into cost escalation of
Government procurements costs but other factors.
Respondents also indicated the similar situation on the aspect of staff de-
motivation being a cause of cost escalation in the Government procurements. The
response rate of 37.8% (14 respondents) agreed to this fact that de motivation of
the staff contributes to this situation, however, 37.8% (14 respondents) disagreed
to the assertion and 24.3% (9 respondents) stated to be un-aware of the impact of
staff de-motivation on the escalation of costs in Government procurements. From
this response rate, this factor seems not to bear an important impact on escalating
but other factors although there some elements of agreement.
48
Table 12: How staffs contribute to cost escalation in public procurements
B-4-1: Staff collude with
suppliers to escalate costs
Response Frequency %
1.Strongly disagree 1 2.7
2.Disagree 1 2.7
3.I don’t know 4 10.8
4.Agree 13 35.1
5.Strongly agree 18 48.6
Total 37 100
B-4-2:Staff fail in procurement
planning
1.Strongly disagree 9 24.3
2.Disagree 17 45.9
3.I don’t know 6 16.2
4.Agree 4 10.8
5.Strongly agree 1 2.7
Total 37 100
B-4-3:Staff are dishonest and
corrupt
1.Strongly disagree 2 5.4
2.Disagree 1 2.7
3.I don’t know 2 5.4
4.Agree 18 48.6
5.Strongly agree 14 37.8
Total 37 100
B-4-4:Staff are incompetent 1.Strongly disagree 7 18.9
2.Disagree 13 35.1
3.I don’t know 1 2.7
4.Agree 11 29.7
5.Strongly agree 4 10.8
Total 37 100
B-4-5: Staff are de motivated 1.Strongly disagree 6 16.2
2.Disagree 8 21.6
3.I don’t know 9 24.3
4.Agree 7 18.9
5.Strongly agree 7 18.9
Total 37 100
Source: questionnaire
The documentary review on the involvements of Government employees on
escalation of the procurement costs, shows that costs of procurements which
49
comes at the procurement stage or contract management stage, has been
mismanaged and resulting into escalated procurement costs. The areas that have
been noted to be sources of cost escalation due to employees conduct includes
overpayments of suppliers/contractors invoices, mismanagement of contracts
resulting into increased contract price on the advantage of the contractor, failure
to observe the contract obligations resulting into imposed charges or liquidated
damages. The extract from the reports of the Controller and Auditor General
(CAG) in various years are presented below to support the argument.
Table 13: Procurement costs escalated due to employee’s conduct
project /Entity Irregularity original price increaseReview of scheme ofservice and Salarystructure Minimum supervision 67,881,125 36, 321,356
Maintenance anddredging at TanzaniaPorts Authority
mismanagement of contract due to delaysin management handing over the site asper CAG report for FY ended 30/6/2012 2,181,815,390.56 USD 753,807.60termination charges due to the fact thatworks could not take place until futuretime but after the contractor hadassembled as per CAG report for FYended 30/6/2012 1,656,951,882.96additional charges on the delays inpayment of the termination charges 584,634,002.20
National Assembly
Overpayment to contractor as per CAGreport for FY ended 30/6/2006 255,019,501Overpayment to buy a vehicle as per CAGreport for FY ended 30/6/2006 77,669,264
Rehabilitation of RC’sOffice at Singida
overpayment to contractor per CAGreport for FY ended 30/6/2006 46,677,448
Ministry of Energy andMinerals
Overpayment to MS Toyota LTD as perCAG report for FY ended 30/6/2006 45,900,267
remodeling of gate No.2 & 3 at TPA DSMPort and its Headquarters
Lack of proper planning andmismanagement of contract resulting intoextra procurement cost as per CAG reportfor FY ended 30/6/2012 214,698,80 239,864,723
Source: CAG Reports
4.3.4 Poor Planning for Procurement
Planning of procurement is the requirement of the procurement law. It is a
requirement of Section 45 of the PPA, 2004 that a Procuring Entity plans its
50
procurement in a rational manner to avoid emergency procurement wherever
possible and aggregate its requirements wherever possible, both within the
procuring entity and between Procuring Entities, to obtain value for money and to
reduce procurement costs. The response obtained on the fact that poor
procurements planning contributes to cost escalation in public procurements
supports this fact with little margin as in table 14:-
Table 14: effects of poor procurement planning on cost escalation
Response Frequency %1.Strongly disagree 5 13.52.Disagree 6 16.23.I don’t know 7 19.04.Agree 9 24.35.Strongly agree 10 27.0Total 37 100
Source: Questionnaires
The data above indicates that 51.3% (19 respondents) agrees to the assertion
while 29.7% (11 respondents) disagrees to it. In this question 7 respondents
representing 19% do not know the impact of poor procurement planning in
escalating procurement costs. The way the response reads, this factor seems not to
be the major factor which contributes to procurement costs escalation.
4.3.5 Suppliers’ Dishonesty
The Government now through the Public Private Partnership strategy trades with
the business from the private sector. It is through this avenue the Government
procures items from privately owned business ventures. Since trading with the
Government is considered as the fruitful transactions, suppliers have been
struggling to get the business opportunities to the extent of entering into unfair
competition.
When asked on how they perceive as the contribution of the suppliers in the
escalation of the procurement costs in the public procurement, the respondents
recorded stated that Suppliers’ dishonest and misconducts in implementing the
51
procurement contracts contributes to escalation of procurement costs as presented
in table 15.
Table 15: Role of suppliers’ misconduct on procurement cost
Response Frequency %1.Strongly disagree 1 3.02.Disagree 5 13.53.I don’t know 2 5.44.Agree 16 43.25.Strongly agree 13 35.1Total 37 100
Source: Questionnaire
The response in the table above indicates that 78.3% (29 respondents) agrees to
the assertion against 16.5% (6 respondents) who disagrees. Considering the
percentage of agreement to the assertion, it is evident that ssuppliers’ dishonest
and misconducts in implementing the procurement contracts contributes to
escalation of procurement costs
Further, suppliers’ role in escalating procurement costs is noted in the collusion
that is forged between them and Government employees to defraud the Procuring
Entities. The respondents were asked to express their feelings to this assertion that
Suppliers collusion with employees with intentions of defrauding the Government
contributes into escalating the procurement costs. The results indicate that 78.4%
(29 respondents) agrees to this assertion against 21.6 % (8 respondents) who
disagrees to this fact. The table 16 summarizes the response.
Table 16: impact of suppliers and staff collusion on procurement costs
Response Frequency %1.Strongly disagree 1 2.72.Disagree 7 18.93.I don’t know 0 0.04.Agree 9 24.35.Strongly agree 20 54.1Total 37 100
Source: Questionnaires
52
Looking at the reasons why suppliers act with the ill will in defrauding the
Government by escalating the costs of procurements, the respondents were asked
to express their feelings on four facts whether Suppliers take the advantage of
weak system of the Government, whether suppliers are by nature dishonest,
whether Government bureaucracy pushes them to act with illicit or it is dishonest
staff who encourage them to act with illicit .The recorded response shows that
suppliers take the advantage of the weak system of the Government processes to
get more profit, this was supported by 86.5% (32 respondents) against 8.1 (3
respondents).
On the aspect that suppliers are dishonest by nature, no strong support of response
was obtained as the response rate appeared almost similar on the agreement and
disagreement being 45.9% (17 respondents) agreeing to the assertion while 43.2%
(16 respondents) disagreeing to the assertion and 13.5% (5 respondents) claiming
to be un-aware on this fact. This response rate gives the indication that suppliers
might not be having the nature of being dishonest but may be acting according to
the circumstances.
The other factors that were supported to push suppliers into the illicit conduct,
includes the Government bureaucracy and the inducement that they get from the
Government employees. The Government bureaucracy as the cause of suppliers
pushing up their prices was supported by 64.8 % (24 respondents) against 16.2%
(6 respondents) and the inducement from Government employees was supported
by 72.9 (27 respondents) against 10% (10 respondents)
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Table 17: Reasons for suppliers’ misconduct in public procurements
B-5-1: Suppliers take the advantage of
weak system
Response Frequency %
1.Strongly disagree 0 0.0
2.Disagree 3 8.1
3.I don’t know 2 5.4
4.Agree 10 27.0
5.Strongly agree 22 59.5
Total 37 100
B-5-2: Suppliers by nature are dishonest 1.Strongly disagree 9 24.3
2.Disagree 7 18.9
3.I don’t know 5 13.5
4.Agree 11 29.7
5.Strongly agree 6 16.2
Total 37 100
B-5-3: Government bureaucracy pushes
suppliers to act with illicit
1.Strongly disagree 2 5.4
2.Disagree 4 10.8
3.I don’t know 7 18.9
4.Agree 13 35.1
5.Strongly agree 11 29.7
Total 37 100
B-5-4:Suppliers are encourages by
dishonest staff to act with illicit
1.Strongly disagree 1 2.7
2.Disagree 9 24.3
3.I don’t know 0 0.0
4.Agree 10 27.0
5.Strongly agree 17 45.9
Total 37 100
Source: Questionnaires
To respond on the question about the role of suppliers in escalating procurement
costs in public, the interviewees agreed that in many circumstances suppliers play
trick games in bidding for supply opportunities. Interviewee from PSPTB stated
that suppliers may be influenced to enter into fraudulent practices but also may be
the source of fraudulent conduct. He gave an example that fraud during bidding
phase can be complex and difficult to detect. He gave an example of .price fixing
between suppliers to secure business and maximise profit margins and bid -
54
rigging, and ‘cover pricing’ where suppliers submit false bids to secure who gets
business. The respondents referred to the case which occurred in 1990 in United
Kingdom. The extracts of the case are presented below.
Supplier ‘cartels’ and ‘cover pricing’In 2009, the Office of Fair Trading (OFT) imposed fines totaling £129m on 103construction firms in England. These firms were found to have colluded withcompetitors to agree over-inflated bids for building contracts with, amongst otherorganisations, the NHS and schools. This activity is known as ‘cover pricing’.Cover pricing is where one or more bidders in a tender process obtain anartificially high price from a competitor. Cover bids are priced so as not to winthe contract but are submitted as genuine bids, which give a misleadingimpression to clients as to the real extent of competition. This distorts the tenderprocess and makes it less likely that other potentially cheaper firms are invited totender.The OFT also found six instances where successful bidders had paid anagreed sum of money to the unsuccessful bidder (known as a 'compensationpayment'). These payments of between £2,500 and £60,000 were facilitated by theraising of false invoicesSource: https://www.gov.uk/government/uploads on 3/8/2013
The interviewee from Ministry of water stated that dealing with suppliers needs a
lot of techniques as they have various ways of ensuring they overcharge supplies
or work. He further emphasized that dealing with certain category of suppliers,
the procurement officers need to be even more skeptical since some of them have
back up of the top officials from within the entity or the Government systems.
The general view of these interviewees is that, suppliers can be as good as
possible depending on the existence and functioning of the controls. If the system
of the procuring entity or the Government at large is weak and not cost conscious
then the suppliers are likely to take the advantage and overcharge the supplies.
4.3.6 Other Factors
Respondents mentioned other factors that cause the cost escalation as follows:-
(i) High Lead/ Delivery Time
Among other factors that are considered to contribute to the escalation to the costs
of procurements includes the high lead or delivery time. When the time for
55
delivery is delayed, the prices are hit by the inflation and force the Government to
pay more for goods, works and services. The respondents’ position on the fact
that high lead/delivery time in public procurements contributes to higher
procurement costs are as in table 18:-
Table 18: impact of delivery/lead time on procurement costs
Response Frequency %1.Strongly disagree 6 16.22.Disagree 8 21.63.I don’t know 7 19.04.Agree 11 29.75.Strongly agree 5 13.5Total 37 100
Source: Questionnaires
On the delivery time, the respondents had the feelings that delivery time is the
cause of the cost escalation but had the reservation that in most cases delivery is
delayed and frustrated by the conduct of the suppliers and staff due to corruptive
practices. To present their positions, the respondents argued their positions with
an agreement by 43.2 %( 16 respondents) against 37.8 %( 14 respondents)
disagreement and 7 respondents representing 19% of respondents indicating to be
un-aware on the impact of high lead time.
(ii) Unjustifiable Contract extensions
Contract extension is not an anomaly in itself. The questions start when the
factors causing the extension do not warrant such extension. The researcher asked
the question for the respondents to indicate their agreement or disagreement on
the fact that contract extensions and variations due to unjustifiable causes
contributes to escalation of costs. The responses to this question are as presented
in table 19:
56
Table19: Respondents feelings on unjustifiable contract extensions
Response Frequency %
1.Strongly disagree 2 5.4
2.Disagree 7 19.0
3.I don’t know 2 5.4
4.Agree 12 32.4
5.Strongly agree 14 37.8
Total 37 100
Source: Questionnaires
4.4 Role of Employees in escalating Procurement CostsThere are many types of fraud that fall under the definition of employee role. A
basic version can be an employee who charges out work as if to a third party
contractor when in fact he or she is doing the work himself or getting a friend to
do it in exchange for a slice of the proceeds. The more complex end of the scale
includes situations where a consultant or employee of a large organisation such as
a government entity is involved in the outsourcing of work to a company in which
he/she has an interest, or to people who will provide a kickback. Either way, the
principle is that a person with a duty to the organisation he or she is working for
dishonestly and for personal gain refers business in conflict with that person’s
duties.
As it has been explained well by the respondents and analysed under para 4.3.3 of
this report, employees have been a major cause of the irregularities facing the
public procurements including escalation of costs. From the interview that was
conducted as part of the research method of data collection, most of interviewees
indicated their sympathy on the remuneration that the Government employees
receive. One of the interviewees Mr.Jimmy, the head of procurement at one of the
Government department stated that “how do you expect the officer handling
procurements of billions of money to behave while the salary receiving can not
even suffice for half a Month?”
57
With the comments such as that given by the interviewee and him being the
officers responsible for procurement, it is evident that the working environment is
very volatile for corruption and employees involvement in assisting the suppliers
who watches after their affairs later on.
On the other aspect, Mr Sospeter a Principal Procurement Officer in one of the
Government Ministry, pointed out that “ the procurement law imposes a lot to be
done by the procurement officers in ensuring compliance but no consideration
has been made on remunerating them for big task they have been assigned”. From
this scenario, Mr.Sospeter added that, it is only the inborn character for proper
conduct that will prevent someone from involvement in procurement
irregularities.
All five interviewed procurement professionals from National Audit Office,
Ministry of water, Public Procurement Regulatory Authority (PPRA),
Procurement and Supplies Professionals and Technicians Board (PSPTB) and Dar
es salaam University College of Education (DUCE) agreed on the fact that the
conduct of Government employees plays a vital part in the procurement
irregularities some of which escalates the costs of procurements. On this, one
interviewee from PPRA explained and shared the experience they have obtained
in the audit of public procurements from various procuring entities that “the
bribes asked by the Government officials in the procurement process from the
suppliers, are not free lunch as the suppliers embed them in the quoted prices”
Government employees’ involvement from the literature point of view is
explained by Lepamaki (2000). Explaining the involvement of employees in
procurement corruption, Lepamaki considers two ways of capture and extortion
being used by Government employees. He states that capture occurs when a firm
bribes a Government official to obtain a trading advantage. This corresponds to
`active bribery' as termed in the OECD Convention. On the other hand, extortion,
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which corresponds to `passive bribery', occurs when a firm complies with a
demand for a bribe to avoid being excluded from trade.
The study by Lepamaki shows that these two forms of employee involvement in
corruption are not equivalent in terms of the cost they impose on the taxpayers.
That is, extortion occurs when, the acquisition strategy being limited tendering
where the employees threatens a legitimate supplier with exclusion. In that
respect, the firm prefers to pay a bribe rather than to lose the market. Extortion
thus means a change in the distribution of the firm profit where by a portion goes
to the employee’s pocket but not in the total amount paid by the tax-payers. This
is different with capture which obstructs allocative efficiency and increases the
final purchase cost. It occurs when the delegate favors a producer in exchange of
a bribe rather than to look for the most efficient supplier.
According to the literatures, respondents and different views obtained from the
interviews held, the issues of employee involvement in procurement misconduct,
is multifaceted and if not analysed in details is likely to persist as the mechanisms
proposed to address the same may not be targeting the cause.
4.5 Impacts of Cost Escalation in Public ProcurementsThe response on the impact of procurement cost escalation in the public sector
indicates that, 89.2% (33 respondents) ranks higher the impact of escalation of
procurement costs on the total costs of procurements. On the other hand, only
2.7% (1 respondent ranks low this impact. Another impacted item with cost
escalation is the ability of the Government to further its development project
which includes social development infrastructures like schools, hospitals, roads,
energy and water projects and others. On this item, 73% (27 respondents) against
5.4% (2 respondents) agreed to the assertion.
Respondents also agreed to other areas impacted by the escalation to include
obstruction of social development supported by 73% (27 respondents against
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2.7%( 1 respondent), compromise of the supplies and project quality was
supported by 70.4% (26 respondents) against 5.4%(2 respondents) who did not
support and causing of contractual disputes was supported by 67.5% (25
respondents) against 5.4% (3 respondents) who did not. The summary of the
response is as shown in the table 20 below:-
Table 20: Impacts of the cost escalation in the public procurements
Criterion Response Frequency %B-3-1: Higher costs of procurements 1.Very low 0 0.0
2.Low 1 2.7
3.Average 2 5.4
4.High 13 35.1
5.Vey high 20 54.1Total 37 100
B-3-2:Hinder furtherance of the Governmentprojects
1.Very low 0 0.0
2.Low 2 5.4
3.Average 8 21.6
4.High 18 48.6
5.Vey high 9 24.3Total 37 100
B-3-3: Obstruct social development1.Very low 0 0.0
2.Low 1 2.7
3.Average 7 18.9
4.High 20 54.1
5.Vey high 7 18.9Total 37 100
B-3-4: Compromise quality of supplies or theGovernment projects
1.Very low 1 2.7
2.Low 1 2.7
3.Average 9 24.3
4.High 15 40.5
5.Vey high 11 29.7Total 37 100
B-3-5: Results into contract disputes1.Very low 2 5.4
2.Low 1 2.7
3.Average 9 24.3
4.High 8 21.6
5.Vey high 17 45.9Total 37 100
Source: Questionnaires
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4.6 SummationFrom the findings of the study presented in this chapter, the following summationis drawn:-
4.6.1 Factors causing cost escalation in public procurements
(i) Corruption
Procurements particularly those financed from the public funds are prone to
malpractices which contribute to cost escalation. From the primary data collected
by way of research questionnaires, respondents supported the fact that
procurement in public sector is prone to corruption. They indicated that their
irregularities are organized through collusion among themselves and dishonesty
suppliers for illegal compensation (corruption). From the data 89% of the sample
indicated corruption to have a higher contribution on the escalation of
procurement costs in the public procurements.
The interview made with practitioners and professionals indicated that most of
them were not ready to talk about that with two reasons one being that corruption
is hidden engagements and not easy to get evidence but two, the fact that they are
in the field so cannot talk of themselves. Corruption was supported by an
interviewee from PPRA, the procurement regulatory authority, who agreed on the
existence of corruption in public procurements especially major construction,
energy and other infrastructural projects. He also mentioned procurement under
exigency to be one of the procurements attracting grand corruption. In his words,
the interviewee said that
“When substantial moneys are committed in public projects sometimes
under exigency, Government employees from different levels of authority
looks at them in ways of gaining personal benefits”
The expert further stated that, it is from all the monies taken in form of corruption
that increases the costs of the projects, compromise the quality of the project
which will need major maintenance in the short period of time or result into
61
delays of the project for which the money set aside for the same will not be
sufficient and it will either minimize the scope of project or other monies sourced
to finalize the project. The interviewees concluded that all these are costs which
translate to high costs of Public procurements.
Corruption in public procurements was supported by the study done by Auriol
Emanuel in year 2004. According to his study on the Cost of Corruption in
Procurement and Public Purchase, he stated that the amounts of bribery for public
procurement can be estimated in the vicinity of USD 200 billion per year. That is,
something like 3.5% of the world procurement spending which totals to USD 5.8
trillion or 18% of the World GDP in Year 2002.
(ii) Government systems and culture
On other factors contributing to cost escalation in the public procurements,
interviewees mentioned organization culture that dominates the operations of the
Government which is full of bureaucracy and rule of procedures as failing against
the result oriented culture demonstrated by private sector businessmen. They said,
the culture in the private sector is flexible and accommodative focusing on the
realization of business profit which is not the case in the Government operations.
From the data collected, respondents indicated the position which tallies with the
interviewees’ position. Respondents indicated 86.5% agreement to the fact that
Government bureaucracy contribute in escalating the costs of public
procurements.
It was noted from documentary review, interview and response in questionnaires
that a results-oriented culture equates to a high performance organization and
therefore Government excluded. The ability to define performance and establish
specific standards of performance for all levels of the organization, for groups as
well as individuals, contributes to the ability of the organization to ask for and get
the desired level of results. The interviewees had the opinion that this is what the
Government need to develop in order to realize true value for money.
62
(iii)Government employees
Employees have been mentioned to be a major cause of the irregularities
facing the public procurements including escalation of costs. From the data
collected respondents generally agreed to the fact that Government employees
contributes to the escalation of procurement costs. They mentioned
motivational aspects and corruption to be the driving forces in misconduct
while indicating a little support on the aspect of competency.
From the interview that was conducted, most interviewees supported this
position. They mentioned that the remuneration that the Government
employees receive may be a pushing factor into a misconduct. One of the
interviewees Mr.Jimmy, the head of procurement at one of the Government
department asked a question that
“How do you expect the officer handling procurements of billions of
money to behave while the salary receiving can not even suffice for half a
Month cost of living?”
Interviewees drew a conclusion that staffs of the procuring entities have a
significant role to play in ensuring that the Government gets value for money in
the procurements undertaken. To that end, they suggested disciplinary measures
to be taken as proposed in laws so that procurements in the public sector becomes
as competitive as that of the private sector.
The cases of costs escalation in public procurements were also supported by the
evidence from the report of the Controller and Auditor General of the United
Republic of Tanzania (2012) whereby he reported among others as follows:-
63
Overpayment on four 4WD motor vehicles by Shs.56,520,305
During the year under audit, four 4WD Toyota Land Cruisers were
procured from M/S Toyota Tanzania Ltd under emergency
procurement arrangement at a price of TZS.1,036,634,019. However,
tax invoices supporting the payments were in the tune of
Shs.979,479,695.20 thus causing an unexplained difference of
Shs.56,520,305 which could not be justified by management of Prime
Minister’s Office regional Administration and Local Government
(PMO-RALG).
This authority information stands as evidence that the escalation of procurement
costs caused by the employees acts are dominant in public sector including offices
that were supposed to enforce accountability as the case above suggests.
(iv)Suppliers’ dishonesty
Suppliers’ dishonesty has appeared as another factor that contributes in the
escalation of the public procurement costs. On the response given by respondents,
suppliers were explained to spearhead forging of collusion between them and
Government employees to defraud the Procuring Entities. It is from this collusion
that suppliers can supply goods with poor quality, can present inflated invoices
for claims and even can present a claim without any supply or service done. This
fact was both supported by interview and documentary review. Explaining the
causes of these illicit conducts by suppliers, one interviewee from National audit
Office stated that:-
“Employees find themselves trapped with the monies presented by suppliers
as corruption asking for favour in the bidding process. Now considering the
salaries of these Government officials, it becomes very challenging for them to
deny”.
64
It was further stated from interview by an interviewee from Ministry of water that
“Dealing with suppliers needs a lot of techniques as they have various
ways of ensuring overcharge to supplies or work”.
The interviewee further emphasized that in dealing with certain category of
suppliers, procurement officers need to be even more skeptical since some of
them have back up of the top officials from within the entity or the Government
systems.
Documentary evidence supported this aspect by referring to the “cartels” and
“overpricing” as per the case of that happened in year 2009 in England whereby
the Office of Fair Trading (OFT) imposed fines totaling £129m on 103
construction firms. These firms were found to have colluded with competitors to
agree over-inflated bids for building contracts with, amongst other organizations,
the schools. From this evidence, it expands the knowledge that not only suppliers
dishonesty is done through employees of Government but also among themselves
as suppliers.
(v) Other factors
Apart from the above factors, the study has also rooted up high lead time and
unjustifiable extension of procurement contracts as other factors contributing to
cost escalation. Most of interviewees stated that a shilling today is not a shilling
tomorrow and therefore as projects keep on a push to future days, the costs
involved rises as well. Mr. Jimmy one of interviewees gave an example that:-
“Most of the Government infrastructural projects such as energy roads,
and other public buildings that delays in completion, mostly pushes for
increased costs. The factors pushing up costs may be due to inflation or
rise in the prices of materials.
65
From the data, respondents had the feelings that high delivery time is the cause of
the cost escalation but had the reservation that in most cases delivery is delayed
and frustrated by the conduct of the suppliers and staff due to corruptive practices.
The research also established the documentary evidence in support of this aspect
and found out from the report of the Controller and Auditor General (CAG) of
year 2011/12 that Tanzania Ports Authority had escalated costs of a contract on
Maintenance and dredging due to extended delivery time by around TZS
2,241,585,885.16 and USD 753,807.60
4.6.2 Role of employees in escalating procurement costs
As it has been explained well by the respondents, employees have been a major
cause of the irregularities facing the public procurements including escalation of
costs. The data collected which shows great agreement among the respondents for
employees’ role are well supported by the results of interviews together with the
documentary evidence available. From the interview, most of interviewees
indicated their sympathy on the remuneration that the Government employees
receive to extent of pushing employees in misconduct. One of the interviewees
Mr.Jimmy, the head of procurement at one of the Government department stated
that
“How do you expect the officer handling procurements of billions of
money to behave while the salary receiving can not even suffice for half a
Month living costs?”
With the comments such as that given by the interviewee and him being the
officers responsible for procurement, it is evident that the working environment is
very volatile for corruption and employees involvement in assisting the suppliers
who watches after their affairs later on.
From the documentary evidence available, Lepamaki (2000) pointed out that the
two ways of capture and extortion are considered being used by suppliers and
66
Government employees. The study stated that capture occurs when a firm bribes a
Government official to obtain a trading advantage and it corresponds to `active
bribery' while on the other hand, extortion, which corresponds to `passive
bribery', occurs when a firm complies with a demand for a bribe to avoid being
excluded from trade. Existence of these practices in Tanzanian procurements was
also agreed by the interviewees Mr. Sospeter and Mr.Jimmy.
4.6.3 Impacts befalling the public due to escalated costs
The study from the findings noted that, the impacts befalling the public from
escalation of public procurements costs among others include depletion of the
ability of the Government to further development project which includes social
development infrastructures like schools, hospitals, roads, energy and water
projects. Respondents of the questionnaires ranked impacts as high and the fact
was equally supported by the interviewee results. From the documentary
evidence, the fact is very clear as it can be noted from the extensions and
mismanagement of contract at TPA resulting into extra costs that would otherwise
be available for other project of TZS 2,241,585,885.16 and USD 753,807.60
Other impacts that are experienced from the escalation of public procurement
costs, is the compromise of project quality like roads which are built at sub
standard and using input materials of poor quality also resulting to contractual
disputes caused by claims by contractors beyond the budget or failure of the
employer to settle contractors’ invoices.
This part of the report i.e chapter four has presented the findings of the study as
rooted up by the way of the primary data collected through the questionnaires and
interviews held with the practitioners in procurements as well as audit and some
members from professional development organs as well as the documentary
review including the Controller and Auditor General Reports. The next part of
this report presents the discussion of the findings.
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CHAPTER FIVE
DISCUSSION OF THE FINDINGS
5.1 IntroductionThis chapter provides a researcher discussion of the findings that emanates from
the data presented in chapter four of this study. The main objective of the chapter
is to discuss research findings from the analysis done while reflecting on the
positions that were provided from the literature review in chapter two. Initial
analysis was done to address specific research questions and thereafter discussed
the general findings of study.
5.2 Factors Causing Escalation on the Costs in the Public Procurements
The study has noted that the factors causing the costs of procurements in the
public sector can be mainly classified into two namely the human factors and non
human factors. Human factors are those factors that exist with the conducts of the
human as opposed to those non human factors that are system factors. From this
study it has emerged clearly that the aspects of escalation of public procurements
are those contributed by human actions and there are those affecting procurement
but not a result of human actions as analyzed in para 5.2.1
5.2.1 Human Factors Causing Procurement cost Escalation
(i) Corruption and Collusion
Corruption is a common problem within public procurement practice which poses
a high threat. They are best viewed, therefore, as concomitant threats to the
integrity of public procurement. The distinctiveness of public procurement and its
context makes the process particularly vulnerable to collusion and corruption,
while also increasing the magnitude of harm that these offences cause. Tackling
collusion and corruption are not mutually exclusive goals, so there is a need to
accommodate both in order to better protect the public procurement process.
68
The potential for corruption in public procurement exists in all economies and no
sector is free from risks of corruption. However, some sectors are considered
being particularly exposed to corruption in public procurement, due to the
complex nature of the works, the amounts of the contracts involved and
sometimes applicable national security provisions as it became vivid from the
literature review in chapter two. International public procurement is an especially
lucrative target, given the amount of money to be earned in winning a contract
and the ability to conceal bribes across borders. Opportunities for corruption also
arise in the delivery of development assistance, threatening the integrity of aid-
funded public procurement projects as well as their efficiency.
Nkinga (2003), pointed out that the inefficiencies that existed in procurement
system resulted in encouragement of corruption and malpractice causing delays in
delivery of essential public services; de-motivation of private sector suppliers
leading to lack of competition; and resulting into an increase in the cost of items.
These aspects of inefficiencies are still persistent today, as the review of
literatures and interviews with practitioners has indicated.
Mwenda (2008) emphasized that corruption in the names of bribes or kickbacks
makes the staff and suppliers to forge informal relations i.e collusion whereby the
lowest and qualified bidder can be dismissed and the recommendation and award
made to the highest priced bid. Corruption in Tanzania is still persisting as
recorded by the Transparency International report on Corruption (2012) where
Tanzania scored 35 out of 100 (1 being least corrupt country ) CPI indicating that,
the country is still high corrupt. Unfortunately this corruption is in the area of
procurements.
The impact of corruption on escalating was tested on impact of corruption on
escalation of public procurements, influence of corruption to tender board
decisions and influence of corruption on contract variations. The results of the
response presented in table 6, 7 and 8 of this report, shows that 89.2% ranks
69
corruption as a high contributing factor, 56.8% agrees to the fact that corruption
influences the tender board decisions and also 78.4% of respondents believed in
influence of corruption in contract variations. Corruption appears to be the major
cause of the fact that prices for the public procurements are pushed up than the
real market prices However, this does not rule out the possibility that other
reasons may exist for the costs of public procurements to go up.
(ii) Role of Staff and Suppliers on escalating the Cost for Procurement
Staffs in the Government entities have their role in managing the processes of the
public procurements. It is unfortunate that various audits including that of the
Controller and Auditor General(CAG) and the Public Procurement Regulatory
Authority (PPRA) indicates persisting irregularities despite several
recommendations issued in that regard. PPRA audit report for the financial year
2011/12 reported that 18% [22 PEs] of the audited PEs had recorded poor
performance, 44% [53 PEs] fair performance and 38% [46 PEs] good
performance.
It further stated that the assessment of the poorly performed PEs indicated that the
main reason for poor performance was lack of or poorly established Procurement
Management Units (PMUs). From this angle it becomes evident that, the role of
establishing PMU which is clearly stated in the Public Procurement Act Number
21 of 2004 rests with the staff of the entity particularly the head of the procuring
entity named as the Chief Executive Officer (CEO) or the Accounting Office
(AO). Apart from this factor, staffs have been contributing in not observing the
requirement of the procurement law which at later stages attracts appeals and
increased costs to the processes.
The literatures in chapter two indicated that there are instances where the staff
deliberately decides to override the controls laid down by the procurement laws
with an intention of gaining personal benefits. Mwenda (2008) indicates that
suppliers can collude with dishonest staff to dismiss the lowest qualified bidder
70
and recommend and award the tender to the highest priced bid. This is typically
when bribes or kickbacks are offered in exchange for awarding the contract to a
certain company. From these two benchmarks of literature review and the result
of primary date, it is apparent that staff and suppliers collusion escalates the
procurement costs.
From the data collected, the respondents supported the fact that staffs are
dishonest and corrupt by the response rate of 86.5% (32 respondents). On the fact
that staff are not competent that is why their conduct results into high
procurement costs in the public sector, the respondents denied this assertion by
response rate of 54.1% (20 respondents) while those who supported were only 15
respondents representing a 40.5%. From this response rate, it is evident that
competence of the staff in the Government Offices is not put to doubt but the
causes of escalation in public procurement costs, is influenced by other factors
than competence.
Also on the aspect of the staff motivation, the response recorded a tie of 37.8%
(14 respondents) supporting and denying the fact that staff in the public sector are
de motivated that is why they are engaged in the conducts that escalates the public
procurement costs. Although this factor did not come vividly in the response from
the questionnaires, this fact still has some supports from the literature review
analysed in chapter two.
According to the findings of the study, the respondents indicated the support to
the fact that among the factors that contributes to the public procurement cost
escalation, the collusion between the suppliers and Government employees is
included. Collusion refers to an agreement between two or more parties,
sometimes illegal and therefore secretive, to limit open competition by deceiving,
misleading, or defrauding others of their legal rights, or to obtain an objective
71
forbidden by law typically by defrauding or gaining an unfair personal advantage
as opposed to the public19 .
Collusion is formed due to the number of reasons including existence of the
opportunity like loose systems of controls and punishment as well as the higher
prevalence rate of corruption and bribes. Another major factor that can be
attributed to the prevalence of collusion between the suppliers and Government
employees is the complex Government bureaucracy that forces the suppliers to
look for the easy ways of winning Government tenders.
While testing the fact of staff and suppliers collusion, the respondents of the
questionnaires and response recorded from the interviews, indicated that apart
from collusion employees have other conducts that escalates costs of
procurements including deception by fake documents, double payments and
splitting of procurement lots to infringe the competition that would have ensured
the right price which is named as an offence under section 87 of PPA, 2004.
Respondents further pointed that suppliers on their part can commit the bid
rigging, Inflated costs of materials and falsified claims using fake supporting
documents among others.
5.2.2 Non Human Factors Contributing to Public Procurement Cost Escalation
(i) Government Bureaucracy and Business Culture
A bureaucracy is a way of administratively organizing large numbers of people
who need to work together. Organizations mostly in the public sector rely on
bureaucracies to function. The term bureaucracy literally means rule by desks or
offices a definition that highlights the often impersonal character of
bureaucracies. Even though bureaucracies sometimes seem inefficient or wasteful,
19 Extracted from http://en.wikipedia.org/wiki/Collusion on 18/6/2013
72
setting up a bureaucracy helps ensure that thousands of people work together in
compatible ways by defining everyone’s roles within a hierarchy20
Government is known for cumbersome and often slow work processes such that
there are some perceptions that the wheels of Government grind slowly. This
belief combined with working in the openness where every misstep is subject to
public scrutiny leads the public to believe that the Government is inefficient and
its officials and employees are corrupt.
Mlinga (2006) underlined that unlike the private sector procurement, where the
concern may be to obtain needed goods, works and services in a timely and
effective manner at efficient prices that are competitive, a public procurement
system should also be fair, open and transparent. Ngwalo (2004) added that
among other requirements of procurement practices is to understand the business
environment and organizational culture of how procurements are undertaken.
The issue of organization culture was further cemented by Cameron and Quinn
(2002), who stated that the companies that are highly successful in difficult
markets attribute a large part of their success to their organizational culture. This
conclusion from the mentioned authors would suggest that the Government being
with a dominating culture of bureaucracy and need of compliance, is not standing
a chance of gaining the trade benefits and enjoyment of value for money when
trading with the private sector.
The coming of the Public Private Partnership created a platform where the
Government came in business transactions with the business fellows from the
private enterprising entities. By the very nature of the Government operations,
bureaucracy is a part and parcel of the system.
20 Accessed from http://www.sparknotes.com/us-government-and-politics/american-government/the-bureaucracy/section1.rhtml on 13/7/2013
73
On the other hand, business enterprises have their own culture that dominates
their operations, putting together these two business culture that are on two
different angles, indeed is a great challenge. It is from this end that many aspects
of irregularities came on board. Irregularities in public procurement stems from
two dimension one being those that happens due to lack of knowledge, expertise
and experience (un-intended irregularities) and two being those that happens
deliberately.
Government culture is dominated by bureaucracy which means a management or
administration marked by hierarchical authority among numerous offices and by
fixed procedures21. With this system of administration, Government is dominated
by the culture which focuses on compliance with laws, policies and procedures
that result focused culture. On the other hand, business enterprises are dominated
by the culture of result based which focuses on profit rather than compliance with
procedures.
With the difference in their very nature of business operations, the Government
and the business enterprises, the likelihood of resulting into incongruity is
recorded. The respondents by way of their response indicated the agreement to the
fact that Government suffers the disadvantage when trading with the private
business enterprises due to the difference in their business culture. While the
Government officers concentrate on ensuring that laws and all the required
procedures are complied with, the counterpart officers from the business
community will be focusing on the generation of business profit and therefore
they will accommodate any required flexibility just for that purpose.
As presented in table 9 and 10 in this report, the respondents supported the fact
that bureaucracy and lack of result oriented culture in Government operations
highly affects the costs of procurements. This position also concurs with the
position drawn by Bedford (2009) when analyzing the low bid award system in
21 Sourced from www.thefreedictionary.com/bureaucracy on 16/6/2013)
74
the public sector construction procurements where it became apparent that public
sector construction clients experience less cost escalation where there is a culture
similar to construction industry. Bedford further stated that the result oriented
culture possessed by private sector companies is correlated with less cost
escalation that the public sector entities which focus mainly in compliance and
observing of procedures.
It is also important to recognize the aspect that, unlike private sector buyers, the
public sector may pursue other policy objectives through its procurement. Such
objectives could potentially lead to (or perhaps even require) a restriction or
distortion of competition amongst suppliers. In some instances, these policy
objectives are embodied in regulations governing the supply of goods or services
(e.g. the Drug Tariff or the Pharmaceutical Price Regulation Scheme), which
arguably have an impact on the way this procurement will be approached.
(ii) High Lead/ Delivery Time
Lead time refers to the time taken from when the order is placed to when the
delivery is done. Among other factors that are considered to contribute to the
escalation to the costs of procurements includes the high lead or delivery time. In
the Government procurements, the aspect of timely completion of the contracts
has been as a problem which renders hiking of procurement prices.
When the time for delivery is delayed, the prices are hit by the inflation and force
the Government to pay more for goods, works and services. The respondents’
position indicated that high lead/delivery time in public procurements contributes
to higher procurement costs. The data in table 17 beef up the position of the
literatures in chapter two in this report.
Respondents had the feelings that delivery time is the cause of the cost escalation
but had the reservation that in most cases delivery is delayed and frustrated by the
conduct of the suppliers and staff due to corruptive practices. Some of empirical
75
evidences for the cost escalation mentioned by Kumar & Narayan (2009) shows
that the delay in execution of 116 infrastructure projects in India had noted about
Rs 38,000-crore jump in their original cost estimates, the cost escalation had gone
up by 41% from Rs 91,841 crore to Rs 1,29,560 crore and a an infrastructure
project under ministry of health and family welfare in which reported maximum
cost escalation of over 500% while about 250 projects of railways recording a
cost escalation by about 88%.
From this empirical evidence and the response from the primary data, it can be
concluded that time factor is also among the factors contributing to cost escalation
in public procurement costs. Although on delivery time, the respondents had the
feelings that in most cases delivery of goods, works or services is delayed and
frustrated by the conduct of the suppliers and staff due to corruptive practices.
(iii) Difficulties in implementing Annual Procurement Plans
Procurement planning is the process of deciding what to buy, when, how and
from what source. During the procurement planning process the procurement
method is assigned and the expectations for fulfillment of procurement
requirements determined22.Procurement Planning is important because:
(i) It helps to decide what to buy, when and from what sources.
(ii) It allows planners to determine if expectations are realistic; particularly the
expectations of the requesting sections, which usually expect their
requirements met on short notice and over a shorter period than the
application of the corresponding procurement method allows.
(iii)It is an opportunity for all stakeholders involved in the processes to meet in
order to discuss particular procurement requirements. These stakeholders
could be the user departments, procurement department and technical experts.
(iv)Planners can estimate the time required to complete the procurement process
and award contract for each requirement. This is valuable information as it
22 From http://www.procurementclassroom.com/procurement-planning-and-the-procurement-plan-why-are-they-important on 11/7/2013
76
serves to confirm if the requirement can be fulfilled within the period
expected, or required, by the user departments.
(v) The need for technical expertise to develop technical specifications and/or
scope of work for certain requirements can be assessed, especially where in-
house technical capacity is not available or is non-existent.
(vi)Planners can assess feasibility of combining or dividing procurement
requirements into different contract packages.
The Procurement Plan is the product of the procurement planning process. The
Procurement Plan is important because:
(i) It lists all requirements expected to be procured over a period of time.
(ii) From it the procurement schedule is developed, which establishes the
timelines for carrying out each step in the procurement process up to contract
award and the fulfillment of the requirement.
(iii)It allows for the consolidation of similar requirements under one contract or
the division of a requirement into several contract packages for economies of
scale.
(iv)From the number of requirements on the procurement plan, the procuring
entity can determine beforehand any need for additional staffing, including
external assistance for the purpose of completing all procurement
requirements listed on the procurement plan.
(v) It allows for the monitoring of the procuring process to determine how actual
performance compares with planned activities, and thus to alert the pertinent
departments and adjust the procurement plan accordingly.
(vi)It enhances the transparency and predictability of the procurement process
Planning of procurement annually is the requirement of PPA, 2004 under section
45. The main reason for this requirement is for the Procuring Entities to push for
saving, foresee factors that could lead into higher prices and get the entity in the
bester position to procure goods, works and services in the efficient ways.
77
The procurement although is required by law, has been an area that has been
receiving the low performance mark in the audits done by PPRA and NAOT.
There are some reasons that have been forwarded that are beyond the staff
controls and therefore render it un-implementable and attract reviews. The causes
for several reviews may be due to lack of funds that were projected or coming up
of ad hock activities that comes following Government directives although not
planned.
5.3 Impacts of the Escalated Public Procurement Costs
The ultimate goal of public procurement is to satisfy the public interest. Like any
other government action should be. In this sense, good procurement that is done
within the acceptable cost ranges to 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 which escalates the costs from
the factors discussed above 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 Suppliers,
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.
i. Financial Impact: escalation of the costs in public procurement is no doubt
eroding the financial resources available for furtherance of the social services.
Government incurring unnecessarily high cost of purchases, burdens a
78
Government with financial obligations for purchases or investments that are
not needed and early repair costs to repair and maintain investments when
procurement is mismanaged.
ii. Economic Impact: economically, the Government is suffering from investing
the limited resources into the avenues that does not live longer because of the
procurement irregularities. It is the Government which suffers the impact of
poor quality of projects which needs severe maintenance. The severe
maintenance erodes the funds that otherwise would have been available to
improve other economic sectors.
iii. Environmental Impact: It includes bad choices made that have adverse
environmental impact. Bad choices in procurement which might be pushed by
the corruptive practices of the Government staff may skip the key aspects of
the environmental laws when signing procurement contracts. Non-compliance
with the country’s (or international) environmental standards, can have
environmental or health risks or long-term adverse impact on the environment
which in turns consumes the limited financial resources.
iv. 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. On the procurement aspects, cost
escalation has driven people into believing that items procured using the
public funds are always costed higher than the market prevailing prices
because of the commonly known practice of the ten percent (10%) as the
corruption nick name.
v. Obstruction to Social Development: the escalation of the public
procurement costs impedes the implementation of the social development
infrastructures including schools, roads, heath centres, energy and water
79
projects as well as the higher level technological development projects. Cost
escalation in this area either erodes the funds available for the projects so to
reduce the scope of projects and in other ways compromises the quality of the
projects so desired
Referring to literatures, impacts of cost found in the construction industry which
is the main area of public procurements includes a study by Aibinu and Jagboro,
(2002) which revealed effects/impacts of cost escalation in Nigerian construction
industry to include: time overrun, dispute among the procuring entity and
suppliers, arbitration, total abandonment and litigation.
Sambasivan and Soon (2007) disclose the same effects of of cost escalation in
Malaysian construction industry while Haseebet al (2011) identifies effects of
cost escalation in Pakistan construction industry as clash between the contracting
parties, unsettled/unjustifiable claims, total desertion and slowing down the
growth of the construction sector.
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CHAPTER SIX
SUMMARY, CONCLUSIONS AND POLICY IMPLICATIONS
6.1 Introduction
This study has evaluated the factors causing the cost escalation in the public
procurements. The study was done with the reference to the objectives of the
study as stated in section 1.3 which were to:-
i. Identify the factors causing cost escalation in the public procurements
ii. Find out the role played by the staff of procuring entities in escalating the
procurement costs.
iii. Determine the impacts befalling the public from the escalated procurement
costs
On the basis of the theoretical and literature review in chapter two, presentation of
the findings in chapter four and a discussion of the findings in chapter five, the
following summary and conclusions are drawn.
6.2 Summary
This research report is organized in six chapters. Chapter one of the report sets
background of the study while chapter two reviewed related local and global
theoretical and empirical literatures on the causes for public procurement costs
escalation. Chapter three of this report provid the research design and
methodology used in conducting the study, the data collection procedures and
data quality assuarance, chapter four presented the findings, chapter five
presented the discussion of the findings and lastly chapter six presented the
summary, conclusions and policy implications of the research conclusions.
Public procurement is an important function of any Government. The importance
of procurement as a function lies on the magnitude of funds used, a great impact
on the economy and a need for it to be well managed .To explain the significance
81
of the procurement function for goods, works and services, literature shows that it
has been established for procurement to account for between 70% and 80% of the
Government budget yearly in Tanzania.
Although procurement has all the attributes of the importance in the performance
of the Government in furtherance of the social development, cost escalation has
proved to be a stumbling block in Tanzania. The research established the
knowledge gap that exists in explaining the factors that causes the escalation in
the costs of public procurements.. This study aimed at addressing three research
questions in as far as the research problem is concerned. The questions were 1)
what are the factors that cause the escalation of costs in public procurement, 2)
what are the impacts befalling the public due to escalation of costs for public
procurements and 3) how does the staff participate in escalating the costs of the
public procurements.
Initially factors responsible for cost escalation in public procurements and the
impacts there from were reviewed from the existing literatures and thereafter
primary data were collected through questionnaires and the interviews to obtain
views of the practitioners regarding the subject. From the data analysis whereby
the primary and secondary data were synchronized, findings show that mainly
procurement cost is affected by human conducts which are driven by the
corruption attitude. This is done through collusion that is forged between the staff
and suppliers with intentions of defrauding the Government and creates the
personal wealth.
It was made clear also that the Government bureaucratic systems and lack of the
enterprising culture in its processes makes the Government to stand a negative
chance of making a saving out of the procurement transactions when dealing with
the businessmen from the private sector. The reason is that, when the staff from
the Government will be keen in observing laws, procedures and directives, the
82
suppliers from the business community will be negotiating the prices upwards
taking into account all bureaucratic costs.
Other factors that were examined include poor planning, suppliers’ conducts
including corruptive practices and high lead/delivery time. Out of these, high
lead/delivery time got the support to have a contribution in escalating
procurement costs. However, the respondents urged that poor planning of
procurement and suppliers conduct are the factors whose controllability is vivid
but influenced by some other primary factors some of which are beyond the
control. Example of this is when the Government procuring entity is forced to
enter into emergency procurement to meet the ad hock project directed by the
Government out of political ambitions.
On the aspect of impacts, the study has made clear that public procurement cost
escalation impedes the Government efforts in furthering of social infrastructural
development including schools, hospitals, roads and other development projects
like energy and water. Apart from these social development infrastructures, the
Government suffers the lack of trust from citizens and donors also economically;
the Government is suffering from investing the limited resources into the avenues
that does not live longer because of the procurement irregularities. It is the
Government which suffers the impact of poor quality of projects which needs
severe maintenance which keeps on eroding the funds that otherwise would have
been available to improve other economic sectors.
6.3 Conclusions
From the summary in 6.2 above, the researcher makes the following conclusions:-
(i) The procurement is a significant economic activity in the operation of any
organization whether it is public or private. This conclusion is reached at
considering the magnitude of funds that goes into it and its importance for the
day to day operation as indicated in the literature review chapter two.
83
(ii) However, control framework has been enhanced on the use of the public
money in procurements, the deliberate irregularities which contributes in
escalating the costs have been persisting.
(iii) Staffs have been identified as the major stumbling block in ensuring value for
money procurements in the public sector. This is due to the fact that staff
engages themselves in collusion with suppliers under the influence of
corruption to realize their personal gain.
(iv)The Government bureaucracy and its dominance culture of a lack for
enterprising culture denies it the opportunities to have an efficient
procurement processes. This is because, the procurement staff in the public
sector while exercising their procurement role, they have to comply with the
requirements of the law, regulations, policies and circulars which block the
room for flexibility in procurement tactics.
(v) The procurement legal framework has put forward the provisions which
shows the prohibitions and clearly stated that whoever fails to comply with the
requirements of the law, commits an offence. The research rooted up and
concludes that failure of the Government to take disciplinary measures to
deter the staff from engaging themselves in corruptive practices stimulates
staff to take part.
6.4 Policy Implications
From the summary of the study results presented in chapter five, the escalation in
the costs of the public procurements is mainly caused by 1) human factors
including staff collusion with suppliers, dishonesty in the processes and
corruption and 2) lack of enterprising culture and existence of bureaucratic
procedures in the Government operations. The following are policy implications
of the findings and conclusions
84
6.4.1 Coordination of procurement activities
There is a need for a co-ordinated approach to procurement if the Government is
to achieve best value in its use of public funds. This co-ordination could be
provided within a public procurement regulatory Authority indicating the
recommended procurement does and don’ts, Develop a “code of procurement
professional ethics; Provide professional advice and support to the individual
procuring entities which are seen to need the support; issue a good practice guides
in relation to procurement and undertake research into the needs of procuring
entities;
6.4.2 Aggregation of the procurements:
Within the public sector, many individual procuring entities purchases similar
goods and services. It is with very few exceptions that those procurements appear
to be procured independently with contract notices appearing in the national press
on the same day for the same items from different procuring entities. If these
purchases could have been aggregated, it would result in prices that are more
competitive, lower operating and maintenance costs and improved service for the
procuring entities. It would also encourage domestic manufacturers to invest in
plant and equipment to further sources of supplies.
Although this is recommended, procurement responsibilities should remain within
the procuring entities but joint contracting should take place where appropriate
and beneficial to the parties involved. Experience in other countries has shown
that for joint contracting to be successful, procuring entities must work together to
rationalize requirements, agrees on contract specifications and determines who
will be responsible for the contracting process.
6.4.3 Addressing Human Deliberate Inefficiencies
The aspects of human inefficiencies in escalation of public procurement costs
register a big contribution in the causing factors. There are both factors on the
deliberately caused and non-deliberately caused inefficiencies. The Government
85
has to ensure that the deterrent measures are taken to ensure that staffs do not get
involved in the corrupt practices and other factors which push higher the
procurement costs. On the aspects that are not the deliberate human inefficiencies,
the assessment has to be done to identify the appropriate course of action
including intensive training and workshops for capacity building.
6.5 Recommendations for Further Research
This study has evaluated the factors causing the escalation of the costs in the
public procurements. Although the study has attempted to uncover the factors
grounding the escalation in the public procurement costs, some issues came up
but could not be looked into in detail. It is therefore felt that future research can
take into the considerations more areas including the following:-
(i) The reasons which makes the public officers vulnerable to corruptive practices
to the extent of compromising public funds.
(ii) What can be the appropriate mode of operation in the Government operations
considering the importance of bureaucracy, transparency and the need of
enterprising culture when implementing the PPP?
(iii) What are the reasons for persisting acts of officers engaging in corruptive
practices despite the existence of robust legal framework with the relevant
provisions?
86
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