The Hungarian Parliament has recently voted the amendment of the public procurement act (PPA). According to Transparency International Hungary, the law could have been modified in many different ways to reduce corruption risks in public procurement; however, this is not what happened. In TI’s opinion, the current amendment neither helps us to be able to monitor the spending of public funds better, nor does it make competition for tenders fairer. The amended law came into effect on the 1st of July.

Lack of transparency continues – still without consequences

Public procurements are often non-transparent, lacking publicity. Moreover, authorities spending public money often do not even try to preserve the appearance of fairness. The new PPA is not strict enough and it contains many loopholes.

However, as contracting authorities spend a lot, it could be required that public procurements are totally transparent and easy to follow for everyone. In practice, this would mean that the public procurement procedure can entirely be followed on the website of the Public Procurement Authority, from the release of the first official document, starting the procedure, to the accomplishment of the contract and the conclusion of eventual procedures of legal remedy. On the contractors’ website it should be made evident what the authority wants to procure and how the procurement procedure evolves. In reality, the practice has not been following these rules until now – and unfortunately, it does not look like it will in the future.

Although the amended PPA provides deadlines as to when authorities conducting procurement procedures should release public data, one essential element is still missing, that is: legal sanctions. In other words, if someone does not release immediately the contract which is considered as the achievement of the public procurement procedure, this does not have any consequence, no legal sanctions will follow. Let’s put this theory into practice in a parking lot, for instance. Let’s imagine that according to the parking rules, the first two hours are free, but after two hours one needs to pay, however, if one does not to pay, nothing happens – would car drivers pay, given such circumstances?

In other words, control and sanctioning of failed disclosure of public data, as well as enforcement of such obligations is still not resolved. There is a pressing need to strengthen these rules. According to the freshly published research conducted by TI, for instance, 40% of examined Hungarian municipalities do not publish any data on their website concerning their 2012 public procurements.

Confidential business information vs. public interest

According to the new Act, if a company takes part in a public procurement procedure, it has the right to prohibit that its trade secrets are published. The prohibition, however, is still considered as effectual, if contracting authorities receive a tender containing an unreal component and the trade secret pertains to the relevant justification made by the bidder. The tender can be low-priced, expensive, professional or inefficient, information as to what the state is spending our money on can remain in obscurity, with an allusion to a trade secret.

The amendment refers to the above problem in half a sentence, which specifies that the disclosed documents can only contain information which does not cause disproportionate detriment in the business activity. This phrase hardly solves the problem: the amendment should have defined more clearly what confidential business information is. (The study on Public Procurement in Hungary published by Transparency International Hungary in May 2013 deals with this issue in detail.)

Fake competition with three tenders

The PPA allows for state enterprises or organizations to run procurement procedures without a public announcement for up to 25 million forints (approximately 8,500 Euros) in case of purchase of goods or services, and up to 150 million forints (512.000 Euros) in case of construction investments. The three chosen companies are to make an offer, and theoretically, the best one will win. The advantage of this solution is its simplicity, namely the procedure may be quicker, and the fact that it provides a great possibility to smaller companies as well. Competition, however, is often only an appearance, since there is a threat that contracting authorities might invite spurious bidders to participate in the procurement procedure.

The original amendment to the PPA would have tackled fake competition since according to the first version contracting authorities would have been obliged to provide information on their website regarding the proposed public procurement, 5 days before the beginning of the procedure. They also would have been obliged to send a call for tenders to those who indicate their interest to take part in the contest. However, without sufficient sanctions or clear options for legal remedy, observation of the rules would have been equally difficult. Unfortunately, these provisions have been left out from the final text, instead of integrating appropriate regulations in the law. Thus, the fake competition based on “invitations” remains.

Moreover, as the amendment entered into force, the contractor can initiate a procurement process without a negotiation, with the direct call to three bidders. This practice represents a further, large corruption risk.