The Impact of Corruption on Public Procurement and Competition

Corruption and unlawful influence undermine fair competition in the market, discouraging legitimate companies from investing in business development. To combat these challenges, the Swedish Government has introduced the Action Plan Against Corruption and Unlawful Influence for 2024-2027 (Sw. Handlingsplan mot korruption och otillåten påverkan 2024–2027) (”the action plan”) earlier this year. The action plan defines several measures aimed to prevent corruption in the public sector. Furthermore, due to corruption’s impact on competition it is also listed as one of the Swedish Competition Authority’s priorities.

Public Procurement: Higher Exposure to Corruption Risk
According to the action plan, the public sector’s annual purchases of goods and services amount to almost SEK 900 billion (around EUR 82 billion). It is mainly municipalities and regions that purchase work, goods, and services and which they do through public procurement. Because of the large volume of purchases, officials are exposed to greater risks of corruption.

Public procurement regulations provide detailed guidelines for municipalities and regions (contracting authorities), requiring that purchases be made through open and competitive procedures. A core obligation is that municipalities and regions must treat companies equally, without discrimination and must conduct procurements in a transparent manner. The public procurement regulations contribute to the prevention of corruption.

The report New Challenges and Old Problems: On Corruption in Municipalities and Regions (Sw. Nya utmaningar och gamla problem: Om korruption i kommuner och regioner) from The Swedish Agency for Public Management (Sw. Statskontoret) includes statistics regarding corruption in Sweden. These statistics indicate a growing perception of corruption within the public sector. Only 17% of the respondents believe that their municipality is free from corruption. The numbers are concerning as corruption can have serious consequences where the public eventually lose trust in the state.

Corruption’s Impact on Competition
Although the work on anticorruption is not explicitly assigned to the Swedish Competition Authority (the “SCA”) there is a correlation between corruption and anticompetitive conduct. Approximately 15-20 percent of the SCA’s competition cases carried out in recent years have shown signs of corruption and the form of corruption varies. Most commonly when an actor is favoured it is because of a personal relation, which occurs in both the public and private sector.

In public procurement, a contracting authority shall award a contract to the company that has submitted the tender that is the most economically advantageous for the authority. This assessment is based on either best price-quality ratio, cost, or price. To be awarded a contract, the tender must also be compliant with all the requirements, conditions and criteria stated in the procurement documents.

Corruption can result in contracts being awarded to companies whose tenders are not the most economically advantageous, bypassing fair competition and compliance with procurement criteria. Due to corruption, an authority may also enter into a contract with a company directly, without first performing an advertised and competitive public procurement.

The SCA has previously expressed that corruption can lead to distortion of the competition and decreased incentives for companies to invest. Thus, it is important to consider the public procurement regulations as a tool to prevent the distortion of the market.

Because of corruption’s negative effect on competition, the SCA has raised attention to the issue as one of their priorities for supervision in public procurement.

The SCA also acknowledges the negative impact of corruption on cartels etc. It mentions this its prioritising policy for competition law cases and states that corruption may be an indication that a procedure may cause harm to competition and consumers.

Key Measures to Prevent Corruption and Unlawful Influence
Beside the measures in the recent action plan, the SCA has received extended responsibilities regarding public procurements since 1 January 2024. That includes acting as the first instance when deciding on the procurement fine. A procurement fine may be imposed on an actor in the public sector when there has been a breach of procurement regulations, for example when the procurement has not been performed in accordance with the basic principles. Moreover, the maximum fine has doubled from SEK 10 million (≈ EUR 880 000) to SEK 20 million (≈ EUR 1 770 000).

In the action plan, the Government has identified the following measures as the most important to implement:

• appropriate criminal legislation;
• increased transparency where there is a risk of conflict of interest;
• effective measures against unlawful influence;
• a good governance culture and strengthened anti-corruption measures in government agencies;
• strengthened anti-corruption measures in municipalities and regions; and
• effective tools to counter corruption in public procurement.

With these measures the Government aims to prevent and decrease corruption and unlawful influence in the public sector.

Compliance with both public procurement and anti-corruption regulations is important for both the public and private sectors to minimise the risk of corruption and to ensure both effective competition and effective use of public resources. Ways to ensure compliance include conducting workshops and adopting relevant policies and guidelines.

Contact Delphi for expert guidance on preventing corruption and ensuring compliance with public procurement regulations.