Responsible public procurement, please

A senior diplomat based in Ankara recently told me about how the team of trade negotiators at the Ministry of Economy has shied away from including government contracts and tenders in a possible free trade deal agreement proposed to the Turkish side. I was not surprised at all, as I’ve heard similar complaints from other diplomats serving in Ankara. Government contracts and tenders are considered a red line, and the ruling Justice and Development Party (AK Party) government is dragging its feet on opening these to more international competition. The issue has ramifications for the now-stalled talks at the World Trade Organization (WTO) as well as for the EU membership negotiations. If regional trade talks like the Transatlantic Trade and Investment Partnership (TTIP) between the US and the EU goes through, Turkey will have no choice but to harmonize its legislation by opening up the procurement process to competitive international bidding.

Here is the timeline on how the procurement regulations have evolved in Turkey. Public Procurement Law 4734 was first approved in Parliament in January 2002 during the three-party coalition government under the pressure of talks held at the time with the World Bank and the International Monetary Fund (IMF) and with some nudging from the EU. It was amended two times by the same coalition government before the AK Party was swept into power in the November 2002 elections that dealt a big blow to the corruption-riddled established parties. One of the main themes upon which a start-up political party, the AK Party, built its successful campaign was the acronym “AK” — also a word that means white, pure or clean in Turkish – and that hit the right note with voters who were fed up with rampant corruption that wasted some 36 percent of state revenues between 1999-2000, triggering a major, home-brewed economic crisis.

The AK Party scored some points battling corruption and embezzlement in government but was not successful in getting rid of it completely. In a speech he delivered in his home city of Rize in northeastern Turkey on Aug. 25, Prime Minister Recep Tayyip Erdoğan admitted that corruption does still exist in the government even though his administration has reduced it significantly. He pledged to overcome the lingering problem. However what Erdoğan said contradicted what his popular party — which has a clear dominance in shaping and leading the agenda in Parliament — has done to dilute the effectiveness of the procurement law. Since it first came to power in fall 2002, the AK Party government has introduced 28 amendments to the procurement law. The flurry of changes picked up speed after the 2011 parliamentary elections, with 11 changes since then. Most of them are exceptions severely limiting the authority of the Public Procurement Authority (KİK), the government watchdog agency that oversees tenders and contracts.

Numerous exemptions were added to the law, leaving a large portion of government tenders out of the scope of the procurement agency which include, but are not limited to, purchases related to defense, security, intelligence, technology, research and development and railways. For example, multi-billion dollar public tenders like the FATİH tablet-PC education project, bids on the renovation of historic palaces, railways, construction of the Marmaray tunnel, the third Bosporus bridge and high-speed train lines, procurements for the Turkish Pipeline Corporation (BOTAŞ), the National Intelligence Organization (MİT) and sports federations were all excluded from KİK oversight.

Given that public procurement often involves billions of dollars in tenders and contracts, it is paramount to maintain strict and transparent rules to make sure money is wisely spent. For example, in 2012, government contracts worth TL 94.4 billion ($46.2 billion), which included government contracts that are outside the mandate of KİK, as well as direct purchases were reported to KİK. In the first half of 2013, the figure was $49.7 billion ($24.3 billion). So we are talking about huge sums of money that must be scrupulously accounted for to make sure taxpayers’ money is going where it supposed to.

The main opposition Republican People’s Party (CHP) submitted a parliamentary motion in April to investigate controversies surrounding public tenders and contracts. The motion said that between 2003 and 2011, public tenders valued at TL 437 billion ($214 billion) were reported to KİK. It claimed that over 30 percent of these tenders were concluded without any competitive bidding and the remainder was done under the shadow of reported problems.

The EU also has its own criticism of Turkish procurement law. In last year’s progress report, the European Commission said exemptions from the procurement law exacerbated and distorted the consistency and effectiveness of the law. “Aligning the scope of the Public Procurement Law with the acquis is needed to ensure consistency of the legislative framework,” the EU underlined.

What happens when the watchdog agency itself is involved in tender-rigging scandals? That is exactly what happened last year, when teams from the Ankara Police Department’s Anti-smuggling and Organized Crime Bureau raided the KİK offices and detained 22 people on charges of tender rigging. The court case looking into suspicious tenders with an estimated value of TL 1 billion ($490 million) is still ongoing. Among the suspects are 20 well-known businessmen and three KİK officials, including former KİK Vice President Ali Kaya and two KİK officials in charge of preparing reports on companies before tenders begin. One suspect allegedly has close ties with a senior executive from the ruling AK Party. Some suspect this is only a tip of the iceberg.

In November 2012, Environment and Urban Planning Minister Erdoğan Bayraktar confessed in Parliament to a major scandal involving a rigged bidding process worth TL 106 million ($52 million at today’s rate). Faced with allegations from opposition deputies that claimed that the Housing Development Administration of Turkey (TOKİ), a government development agency Bayraktar headed before becoming a minister in 2011, used dishonest practices on seven separate projects worth a total of TL 773 million ($380 million) throughout Bayraktar’s time at TOKİ. Bayraktar admitted to the members of the Planning and Budget Commission that a realty company extorted some TL 60 million ($30 million), saying that “here there was a theft and fraud. This is my weakness. We should have seen as administrators what was going on. … Whoever is guilty, they should be punished, me.”

In April, two officials in Turkey’s public housing administration were formally charged with extorting bribes and abuse of power, marking the first time members of the housing agency have been subject to a formal government investigation. Considering that the government launched a 20-year, $400 billion urban renewal project that is largely directed by TOKİ authorities, making sure TOKİ stays clear of corruption and fraud claims is important.

Amazingly, it was an AK party-endorsed change approved by Parliament in June 2012 that dealt a huge blow to accountability for government spending when it removed special courts and trimmed the powers of prosecutors to go after corruption and fraud. Several amendments to the Turkish Code on Criminal Procedure (CMK) mandated that prosecutors obtain permission from relevant authorities to investigate senior officers at a number of top state institutions. Prosecutors were stripped of powers to investigate officers working at these institutions on suspicion of corruption, gang membership or drug smuggling if their superiors do not allow them to do so. This blanket immunity has provided cover for the government in case of a major scandal that involves fraud and corruption in public procurement.

Now it seems that the AK Party government has set its sights on trimming the powers of the Court of Accounts, with new revisions to its enabling legislation being contemplated. Last year, just before Parliament recessed for the summer, the government brought forward a last-minute change hidden in the omnibus bill that lumped together a great many unrelated changes in one package. The changes were so radical that they limited the court’s rights to audit a public institution both in terms of its spending and in terms of performance. As a result, for the first time in the republic’s history, the court could not send the auditing reports of state institutions to Parliament in the fall when the 2013 budget deliberations were held in the Planning and Budget Commission. The Constitutional Court ruled against curbing the court’s powers at the end of last year, reintroducing strong rules to preserve the transparency and accountability of expenditures made by state institutions. But rumor has it that the government is preparing another draft to bypass the decision of the top court.

The pattern we see in the last couple of years of AK Party government increasingly points to a concerted effort to distance the country from more transparency and better accountability in government spending. If that pattern holds, the AK Party may be the victim of the very idea that actually carried it into power in the first place.

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