Corruption alarm, report warns.....

UK coronavirus contracts raise corruption alarm, report warns

A probe of nearly 1,000 contracts in response to the crisis found a bias towards politically connected companies.

BY HELEN COLLIS

The U.K. government is facing tough questions over its approach to procurement during the pandemic after an investigation found over 20 percent of the £18 billion spent in response to the crisis was linked to at least one red flag indicating corruption.

Between February and November last year, 73 COVID-19 contracts, amounting to more than £3.7 billion in public spending, triggered at least one of six standard measures warranting closer scrutiny for corruption, according to a Transparency International report released Thursday.

Of particular concern is the “VIP” or “high priority” lane used by the government to fast-track offers of personal protective equipment (PPE) from companies referred by MPs, peers and senior officials.

The report found that 24 PPE contracts, totaling £1.6 billion, were awarded to those with known political connections to the Conservative Party, and three contracts, worth £536 million, went to politically connected companies for coronavirus testing services.

"Given it appears only a select group knew about the 'VIP' lane, with those politicians in the know confined to one side of the House [of Commons], it is our conclusion that the system for handling PPE offers was preloaded with bias," said Daniel Bruce, chief executive of Transparency International U.K. "Months after the VIP lane came to light, the government has still failed to answer basic questions about its functioning and existence."

In addition, a larger share of contracts awarded to politically connected companies were published late (93 percent), versus contracts without political connections (70 percent).

In total, each of the concerning contracts was linked to one or a combination of red flags: Uncompetitive tendering; a vague or improper rationale for contact awards; opaque contracting; a failure to maintain adequate documentation; the use of unsuitable companies; or abnormally high pricing.

"The frequency with which COVID-related contracts were awarded to those with political connections is deeply concerning and is at such a level that it cannot be explained away as coincidence," said Bruce, adding that there are now “very serious questions for the government to answer” over these contracts.

The investigation comes amid an ongoing focus on lobbying and political access in Westminster, with Prime Minister Boris Johnson coming under scrutiny this week over his own interactions with a ventilator manufacturer.

Labour’s Shadow Cabinet Office Minister Rachel Reeves told POLITICO the scale of the risk to taxpayer money revealed in the report was “shocking” and evidence of “endemic cronyism flowing through the government's contracting.”

A government spokesperson said: "During the pandemic, our priority has always been to protect the public and save lives, and we have used existing rules to buy life-saving equipment and supplies, such as PPE for the NHS front line.”

The spokesperson said that all PPE procurement went through the same assurance process, and in addition due diligence is carried out on every contract — “ministers have no role in awarding them.”

Regarding the VIP lanes for contracts referred by MPs, the government pointed out that only 10 percent of the high priority offers resulted in orders of PPE. The spokesperson said the priority list “was widely advertised across government as a way of more quickly triaging offers of support."

Around the bloc

The issue isn't confined to the U.K. Faced with an unprecedented health crisis, public pressure and urgent need for pandemic equipment, governments and contracted buyers across Europe have fallen afoul of fair contracting.

In Germany, three MPs and a Bavarian state MP — who was formerly the state’s justice minister — resigned and are being investigated in connection with alleged kickbacks for brokering face mask deals.

In Italy, meanwhile, a former commissioner for the COVID emergency stands accused of misappropriation of funds in connection with at €1.25 billion deal for face masks from Chinese sellers. According to prosecutors, Domenico Arcuri illegally diverted funds from the contract to friends and personal acquaintances who acted as brokers for the deal. Italian authorities have seized around €70 million worth of assets that is suspected to have been illegally obtained through the procurement contract.

With such sizable rewards, the market is ripe for fraudsters and opportunists, especially since anti-corruption nets have been down during the crisis — allowing companies and politically connected individuals to bypass the stringent contracting controls of normal times.

"There have been many procurement failures, costing money and lives" during the pandemic, wrote Martin McKee, professor of European public health at the London School of Hygiene & Tropical Medicine, in a report for the European Commission to be published soon. "While some mistakes were inevitable given the urgency at the onset of the crisis, many could have been avoided."

The report, seen by POLITICO, lists scores of contracts across the EU in which criminal outfits as well as politically connected individuals have undermined public procurement systems. Examples include pocketing millions of euros without providing equipment; delivering sub-standard and unsuitable equipment; significantly overcharging; and embezzlement, cronyism and bribery.

"Given that one of the purposes of the usual procedures is to increase transparency and reduce the risk of corruption, it would be expected that their suspension would pose a risk," wrote McKee.

Why now?

Corruption in public procurement isn't new. Previous studies have estimated that between 5 and 10 percent of the value of public contracts may be lost to corruption, said Rafael García Aceves, policy coordinator on public contracting at Transparency International.

In normal times, EU governments and their procurement agencies put contracts out to tender, receive multiple bids and publish their decisions based on strictly regulated criteria. The rules are designed to promote transparent and fair competition, and they continue to apply in the U.K., which has not yet diverged from the EU's public procurement directive post-Brexit.

During a crisis like the pandemic, these rules still allow for speedier, direct contracts, bypassing advertising and tendering processes. Once a deal is done, however, a contract award notice must still be published within 90 days.

"The law was there already to allow contracts to be awarded in extreme urgency," said Sharon Lamb, partner at McDermott Will & Emery. "But the test for that applies on a case-by-case basis, and this urgency must not in any way be attributable to the contracting authority. In each case, there must be a clear justification."

According to Transparency International’s U.K. report, 98.9 percent of U.K. COVID-19 related contracts (by value) were awarded without any form of competition, "many without adequate justification."

The group is calling on the British government to immediately return all public sector procurement to open, competitive contracting as a default.

In Lamb's view, the law as it stands is flexible enough to adjust for emergencies. But she notes that changes proposed by U.K. government in its recent Transforming Public Procurement green paper will introduce an even greater degree of latitude.

For example, the government has proposed new grounds for allowing direct awards without tendering when there is a crisis. These proposals also allow the U.K.'s Cabinet Office minister to declare a crisis.

“It’s difficult to be prescriptive about what is and isn’t urgent – because by their nature, urgent situations can’t be foreseen," she said.

She floats the example of an "urgent" and unexpected disaster.

"That urgency didn't arise because of sitting on hands ... then it’s feasible that the urgency exception may apply,” Lamb said. “But importantly, this is not a blanket principle; it's always a case-by-case principle.”

Transparency International is also calling for an urgent audit of all 73 contracts with a corruption red flag and recommends that the fast-track lane for PPE contracts be shut down if it's still operating. More broadly, it's seeking full transparency over the names of companies that were awarded contracts via this channel or who made referrals through it, so that the public can know whether any conflicts of interest were identified and addressed.

Another issue the report flags is that only 10 percent of suppliers were identifiable by company numbers in COVID-19 procurement data — basic information that allows far greater transparency over contracts. The group is calling on the U.K. government to implement a set of proposals in its procurement reform plan, to require this information be made publicly available.

Among the group's other asks: A formal statement from minister to parliament setting out where the U.K. government hasn't complied with its legal transparency obligations; how these are being rectified; and how these issues will be prevented in the future.

While the campaign group welcomes the government's procurement green paper, it "cannot be used to brush the urgent need for transparency and accountability for decisions taken over the last year under the carpet," said Bruce.

"With more spent on PPE than the annual budget of the Home Office, the public have a right to know if their money was spent wisely and properly," he added.