On the importance of open data in public procurement

Long time readers of the blog know where I sit in the divide of more or less data being made available about procurement processes (more, of course). Having said that, I’m not impervious to the competition law arguments regarding the impact more data has on cartel formation/stability. But overall, my gut feeling is that we would come ahead especially in systems where competition authorities are effective and can use that mountain of data effectively, something that should not be taken for granted.

But let’s look at what can be done with that mountain of data then, and a good example for it can be found in Chile, where the NGO Observatorio Fiscal has been collaborating with ChileCompra in developing a risk model for public procurement:

“Red flags” are indicators of elevated procurement risk at any stage of the procurement cycle  – though they alone do not establish impropriety. Widely-used red flags include unusually short tendering periods, relatively few bid submissions, unreasonable bid bond requirements, and wide gaps between estimated and awarded contract amounts. 

This approach goes in line with my view that making more contract data raises the probability of foul play being identified, even if well after the fact, even if it may not be possible to nail the practice in the bud (or it might as the process gets refined). In essence, it can work the same way as anti-doping samples which can be checked against new techniques/newly discovered agents well after the fact.

By increasing the likelihood of discovery of malpractice, such practices will become more difficult to pull off. They won’t go away and will force rogue agents to come up with news strategies. That should be expected and has always been part of the cat and mouse game of law enforcement in some sectors (money laundering anyone?). Arguing we should not make the data available as it will lead to ‘better malpractice’ is akin to saying we shouldn’t have mechanisms to spot counterfeit money for example, lest the fake banknotes become ‘better’.

The alternative of collating the data and not making it public is not great in my view either. Someone, somewhere will have access to it and with the reasonable likelihood of public sector staff moving to the sectors they’re regulating/overseeing, there’s the risk either the data itself or the enforcement strategies used to leak sooner or later. Making both public does not make the problem go away fully of course, but provides us with a couple of potential advantages. First, as we’re seeing in Chile it allows for some civil society NGOs to stay on top of the game and help on the discoverability of malpractice. Second, by recognising the inherent limitation of the approach it takes away the complacency blanket that regulators/overseeing bodies could hide under and forces them to up their game or face reputation damage. The downside is that it makes the work for malfeasants easier since they would have access to the data and the mechanisms used by enforcement, allowing for the easier development of countering strategies. That is true but leads us down the rabbit hole of “security through obscurity.” And it is well known how the culture of algorithmic secrecy adopted by Google regarding its search engine rankings has led to the creation of a burgeoning SEO industry

So my take is that, moving to more ex-post transparency will change the playing field and we will end up better off overall, even though in specific sectors/markets we will actually be worse off.