Bounded rationality, negligence or corruption: The effect of emergent malfeasance in procurement practice.

A recent European Commission (EC) report highlighted widespread perceptions of corruption in public sector procurement (Anon 2014). The report identified that given the level of financials flows generated, public sector procurement is an area prone to overt and covert corrupt practices which are exacerbated by “weak governance which hinders market competition and raises the price paid by the administration for goods and services, directly impacting public expenditure and therefore tax payers resources. The financial interests at stake and the close interaction between public and private sectors make public procurement a major risk” (p21). We report a specific investigation, which bears out that conclusion. In UK Public Sector procurement the acronym OJEU, strictly speaking the Official Journal of the European Union has become short hand for the overall legal framework governing public procurement. The framework and its processes aim to increase transparency and eliminate trade barriers arising from discriminatory procurement. Ex ante transaction costs are, it is assumed, justified by ex post benefits. We test that assumption in one market sector and find the opposite. In a silent conspiracy those who benefit from the ex ante stages of the process do not enhance the ex post value-in-use for the intended beneficiaries. While not corruption per se, the outcome can be seen as emergent, or complicit, malfeasance. The specific research sought to identify the real and possible impacts of short-term duration contracts on stakeholders engaged in a sector of the Facilities Management (FM) market place. It focused on the trading relationships between private sector “suppliers” and public sector “buyers” providing Repairs and Maintenance (R&M) services to the Social Housing sector. As this channel has specific operational traits, legal obligations and common social, political and cultural dimensions it provided a controlled opportunity to identify issues that potentially emerge out of short-term contracts. Our review of the market identified a number of trends that, whilst pertinent to the supplier organisations, were also a feature of the industry. These were related to the procurement process, and how it influenced the structure of the businesses operating within the industry; the contract, which defines and shapes the business relationships; and additionally the management of the procurement and award process . Short-termism in outsourced R&M contracting has a potential negative cost, for both “buyer” and “supplier”, in terms of increased ex ante and ex post transaction costs. The process operates to the benefit of those involved in doing or advising on the procurement and contract management to the detriment of the supposed beneficiaries; the tenants of the Social Housing stock We cannot call the process deliberate corruption. We do though argue that the term 'emergent malfeasance’ is justified. Bibliography. Ansari, Shahzad., Frank Wijen and Barbara Gray, 2009, “Averting the tragedy of the commons. An Institutional Perspective on the Construction and Governance of Transactional Commons”. .Academy of Management Proceedings. 1 1-6 Anon, 2014, EU ANTI-CORRUPTION REPORT, http://ec.europa.eu/dgs/home-affairs/e-library/documents/policies/organized-crime-and-human-trafficking/corruption/docs/acr_2014_en.pdf accessed 07 February 2014