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:-

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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



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



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


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


2.Disagree 17 45.9


4.Agree 4 10.8


Total 37 100

B-4-3:Staff are dishonest and

corrupt


2.Disagree 1 2.7


4.Agree 18 48.6


Total 37 100

B-4-4:Staff are incompetent 1.Strongly disagree 7 18.9

2.Disagree 13 35.1


4.Agree 11 29.7


Total 37 100

B-4-5: Staff are de motivated 1.Strongly disagree 6 16.2

2.Disagree 8 21.6


4.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



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


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



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)

53

Table 17: Reasons for suppliers’ misconduct in public procurements

B-5-1: Suppliers take the advantage of

weak system



2.Disagree 3 8.1


4.Agree 10 27.0


Total 37 100

B-5-2: Suppliers by nature are dishonest 1.Strongly disagree 9 24.3

2.Disagree 7 18.9


4.Agree 11 29.7


Total 37 100

B-5-3: Government bureaucracy pushes

suppliers to act with illicit


2.Disagree 4 10.8


4.Agree 13 35.1


Total 37 100

B-5-4:Suppliers are encourages by

dishonest staff to act with illicit


2.Disagree 9 24.3


4.Agree 10 27.0


Total 37 100


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



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



2.Disagree 7 19.0


4.Agree 12 32.4


Total 37 100


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,

58

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

59

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


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


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


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



60

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.

67

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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