This article begins with a grim outlook: In corruption prone environments, such as Nigeria and other African countries, when a new law, which is designed to promote efficiency and transparency, is passed, its implementation is hampered by powerful bad actors—institutions and individuals—who see the new law as a serious threat to their arbitrary and corrupt ways of doing things; hence, they slow-walk the implementation of certain provisions in the law.
Furthermore, on paper, the law satisfies the minimum requirements under the global best practices but, because of certain factors, including the above-stated encumbrance and a pervasive culture of bribery/kickbacks, the practical implementation of certain provisions of the law collide with a grim reality—of a tripartite system (legislative, executive, and judiciary), historically entrenched in corruption, fighting back.
While this article focuses mainly on mitigating the risks of frauds, bribery and corruption in the Nigerian public procurement process, it also critiques certain loopholes in the Public Procurement Act 2007 (hereinafter – “the Public Procurement Act”), the enabling statute that created the Bureau of Public Procurement (hereinafter – “the Bureau”), a federal parastatal tasked with “providing legal and institutional framework and professional capacity for public procurement in Nigeria,” recommending practical solutions on how to bring the process into compliance with the global best practices.
This article embraces this grim outlook, not as an indictment of this administration, or any officials for that matter, but to further remind reform-minded government officials, stakeholders, and policymakers that much work needed to be done in this particular area of governance.
Furthermore, since fighting corruption is a central theme of the Buhari administration, I hope that my common-sense recommendations will be given a serious consideration.
Without further ado, my summarized recommendations are as follow:
- To spur a significant growth in our communities, the Bureau should award a percentage of its annual contracts to small businesses.
- The creation of an independent tribunal (in this case, a court of first instance) to adjudicate contractual disputes amongst parties (the Bureau and aggrieved contractors).
- Create a robust information sharing and access agreement between the Bureau and the Economic and Financial Crimes Commission (hereinafter – “the Commission”).
- The creation of a special office within the Bureau to perform due diligence investigations on certain contractors.
Throughout this article, I will duel more on each recommendation, providing a fillip of supporting argument for each recommendation.
Beginning with the first recommendation, and in order to spur a significant growth in our communities, the Bureau must award a percentage of its annual contracts to small businesses; additionally, it should hold seminars that sensitize and enlighten the general public on how small businesses can participate/benefit from government contracts, without jeopardizing efficiencies and its overall goals.
If the Public Procurement Act doesn’t grant the Bureau the power to award a percentage of its contracts to small businesses, then the National Assembly will have to grant it such power, but I reasonably believe that the Bureau can administratively resolve that (by so doing, the Board will be reasonably acting within the scope of its enabling statute).
In the United States of America, for instance, we have a “small business set-aside clause,” which statutorily requires a contracting official to include small businesses in its list of prospective contractors. Of course, this won’t be a guessing game, for it requires drafting officers to standardize necessary procedures.
For that reason, our standardization system must mirror the global best practices – the North American Industry Classification System (NAICS) is the gold standard in this area. Under the NAICS codes, for instance, “every federal solicitation is assigned an NAICS code, ensuring the government-wide goal for participation of small businesses is established annually at the statutory levels.”
This government-wide goal is consistent with what the drafters envisaged when they drafted the Small Business Act (15 U.S.C. 631 et seq.) and the Small Business Investment Act of 1958 (15 U.S.C. 661), which created the U.S. Small Business Administration.
In the United States, when designated federal agencies are awarding contracts, they must comply with the overall objectives of the Small Business Administration: “The Small Business Administration aids, counsels, assists, and protects the interests of small business; ensures that small business concerns receive a fair portion of Government purchases, contracts, and subcontracts, as well as of the sales of Government property; makes loans to small business concerns.”
And to ensure that those designated federal agencies comply with the aforementioned statutes, their own enabling statutes, say, the Chief Financial Officers (CFO) Act, are in sync with the government-wide goal. It means that chief financial officers at those federal agencies must submit annual reports on how their agencies are complying with relevant applicable statutes.
In Nigeria, I reasonably believe that big businesses always bully small businesses, so the system cannot correct itself, which is why we need to codify an amendment to the Public Procurement Act that will grant more sweeping powers to the Bureau, helping it to better “aid, counsel, assist, and protect the interests of small business; and to ensure that small business concerns receive a fair portion of government purchases, contracts, and subcontracts, as well as of the sales of government property.”
Already, under the Public Procurement Act, there is a zonal arrangement guideline, which accounts for our unique geography and diversity, but we can also create other exceptions, too, which will allow us to include historically marginalized groups (companies led by young people/women) in the mix. It is not a crazy idea, for we do something similar in the United States, ensuring that our economic prosperity is widely shared by all.
Right now, some Nigerian entrepreneurs, who have technical capabilities that can be beneficial to the government, strongly believe that, if they don’t know top politicians/officials, they can never win a government contract—sentiments that should have been completely cured with the enactment of the Public Procurement Act. Their concerns are legitimate. I strongly believe that the government can do better, if these recommendations are incorporated into its existing legal and regulatory framework.
Now, I switch gears to the next recommendation: The creation of an independent tribunal (in this case, a court of first instance) to adjudicate contractual disputes amongst parties (the Bureau and aggrieved contractors).
Right now, the Bureau is self-policing itself, and contractors, particularly those who have grievances against the Bureau, are at the mercy of the same awarding agency.
Historically speaking, the same arbitrary process was in place before the introduction of the Public Procurement Act, and this type of arbitrariness does not alleviate contractors’ worries that the cards are stacked against them. This is a serious compliance issue that the Buhari administration/Bureau can swiftly address in order to bring transparency and due process into the procurement process.
Because it is a given that contractual disputes will always arise between parties, it is important that we have a separate, independent tribunal to objectively review these contractual disputes amongst parties.
My experience in the United States is quite different from what is being practiced in Nigeria, for there is a separate tribunal that reviews rejected bids and other disputes arising from government contracts, including in the United States military, which I experienced firsthand when I clerked for the General Counsel of the Michigan National Guard.
Furthermore, we should continue to bring our laws and regulations in sync with the global best practices, and that will go a long way in cementing the rule of law in Nigeria, assuring our global partners that we are following the core principles of the public procurement, which are as follows: “The principle of efficiency of funds spending; the principle of equality and nondiscrimination; the principle of free and fair competition; the principle of proportionality; and the principle of publicity and transparency.”
If I may duel more on the fifth principle, I strongly believe that the Bureau must create a standalone tribunal, which will be inferior to a conventional court, to first hear cases arising from contractual and bidding disputes, bringing before a neutral panel all the parties involved, including contracting officers and prospective/current contractors who have grievances against the Bureau.
My recommendation is consistent with the due process rationale behind the creation of the Public Procurement Act (let us not forget that, prior to the enactment of the Public Procurement Act, arbitrariness characterized our procurement process), so we should be strengthening the law, not weakening it.
As I wrote in a different piece, we must continue to strengthen our institutions, and that can be done by embracing transparency and accountability, ensuring that no institution should be given carte blanche to violate our due process and equal protection rights under the Constitution of the Federal Republic of Nigeria.
Additionally, because taxpayers fund the activities of the Bureau, they expect their activities to be conducted in compliance with the global best practices.
In the United States, for example, if a contracting agency rejects a prospective contractor’s bid, and s/he believes that the agency erroneously reached that conclusion, s/he can appeal to the Civilian Board of Contract Appeals (hereinafter – “the Board”), an independent tribunal that was established under the Contract Disputes Act of 1978, and this independent body can adjudicate any disputes between both parties. Obviously, the Board adjudicates contract-related disputes amongst parties, too, making it the court of first instance.
As required by the due process clause, of course, cases decided by the Board can be appealed to an Article I court (in Nigeria, a corresponding Article I court will be the Federal High Court, the final arbiter under step 9 of the 9-step complaint procedure issued by the Bureau).
When I cross-referenced the current complaint procedure in place—“the 9-step complaint procedure under the Public Procurement Act, Part IX, section 54—with the global best practices, I reached this conclusion: The current system under the above-cited provision, which does not include an independent review board, is fatally flawed.
This recommendation cures those unacceptable deficiencies contained in the 9-step complaint procedure, administratively separating agents (“accounting officers”) of the Bureau from reviewing complaints against the Bureau—a procedure that, on its face, prejudices the complainant.
I reasonably opine that a reviewing tribunal, which mirrors the Board can be created, and its decisions will also be appealable to the Federal High Court.
To reiterate, I am calling for a new framework that replaces steps 1- 8, but still retains step 9, as highlighted above.
Now, I switch gears to the next recommendation: Creation of a robust information sharing and access agreement between the Bureau and the Commission.
Because the Bureau deals with thousands of contractors vying for billions of naira in government contracts, I reasonably believe that some bad actors are likely to abuse the system, increasing the likelihood of frauds and corruption within the Bureau and its third-party contractors.
To mitigate against this known risk, officials at the Bureau must take proactive steps, ensuring that bad actors are quickly weeded out of the system. In addition to the Bureau’s own internal procedures, I am recommending a more robust interagency agreement between the Bureau and the Commission.
This type of arrangement will serve as a strong deterrence to bad actors. The Bureau, through its initial due diligence findings (more on that later), can refer contractors, who present false documents in their bids or/and commit inchoate crimes, to the Commission for further investigations and prosecution.
As a preemptive measure, and while further investigations are being conducted, such questionable contractors should be placed on an administrative suspension. The Bureau will have to work collaboratively with the Commission to draft an easily implementable memorandum of understanding between the Bureau and the Commission.
Because financial crimes are best tackled before they materialize, the memorandum of understanding must create an alert system that flags inchoate crimes—attempts, conspiracy, and solicitation—as worthy of further investigations.
While some contractors will ignore these provisions, law enforcement officers will be harmed with sufficient tools to go after them (already, “under section 58 of the Public Procurement Act, any false declaration and submission could lead to prosecution, debarment and disqualification for 10 years from public procurement”), but bad actors will always test the limits of the system.
Since the goal is to mitigate the risks of frauds and bribery (which can take a long time to materialize) from the get-go, why not interrupt the commission of these crimes—the goal of section 58? A timely sharing of actionable information with the appropriate authorities can serve as a form of deterrence.
If a new contractor attempts to bribe a procurement officer/submit false documents to obtain a government contract, I reasonably believe that the contractor will be willing to perpetuate more unconscionable crimes once in the system.
If a new contractor solicits the help of a low-ranking procurement officer to fraudulently commit a crime, say, a concealment of a material fact, their illegal relationship will eventually rise to the level of more serious crimes.
If a new contractor conspires with an official to illegally obtain a government contract, this conspiracy might rise to a complex criminal enterprise. You get the drift, right?
The message to contractors is simple (and this message should be reflected in the tone at the top, not just among low-ranking employees): The Bureau shall: 1. Investigate and prosecute a contractor who knowingly overcharges it. 2. Investigate and prosecute a contractor who knowingly inflates contracts. 3. Investigate and prosecute a contractor who improperly attempts/solicits/conspires to violate its rules and procedures. 4. Investigate and prosecute contractors who knowingly make false statements and claims in the negotiation and administration of a Bureau contract.
In principle, if there is a robust information sharing and access agreement between these two agencies, they will be able to disrupt these aforementioned inchoate crimes before they materialize into complex financial crimes. And this will be consistent with the global best practices.
This type of agreement can be equally applied between the Commission and the financial sector, particularly banks, since they facilitate the movement of money within and outside Nigeria. If authorities need some guidance, I hereby recommend this American statute: “31 CFR § 1010.520 – Information sharing between government agencies and financial institutions.”
Even though the Nigerian Financial Intelligence Unit (NFIU) already has a similar agreement with our financial institutions, perusing the above-cited statute and recommendation can further strengthen its strategic mission, too.
The ultimate goal is to fence out/deter bad actors, which is why I am also recommending comprehensive due diligence investigations on new contractors.
Now, I switch gears to the last recommendation: The creation of a special office to perform comprehensive due diligence investigations on new contractors.
Based on my experience in the corporate world, including investigating corporate frauds/bribery, I have come to realize that contractors and third-party vendors do not always disclose adverse material information that contracting/procurement officers can use in their overall risk assessments, so it behooves the Bureau to have its own special due diligence team. It takes a disinterested investigator/diligent forensic investigator to uncover adverse information that might reveal outright disqualifying factors.
Additionally, a blanket statement, or even an ironclad legal statement, such as the one contained in section 58 of the Public Procurement Act, doesn’t necessarily deter bad actors from presenting fraudulent documents to, or from perpetuating crimes against, the Bureau.
With that understanding, I hereby recommend the creation of a special office to perform due diligence investigations on certain contractors. Here is a general definition of due diligence: “Due diligence is the investigation or exercise of care that a reasonable business or person is expected to take before entering into an agreement or contract with another party, or an act with a certain standard of care.”
For instance, if the Bureau, or the federal agency, which conducted the sale of the controversial Malabu Oil Block (OPL 245), had performed an enhanced due diligence investigation, it would have been revealed that Dan Etete, then Nigerian petroleum minister, was the major shareholder in Malabu Oil and Gas Limited, and that would have posed a serious conflict of interest question, which could have forced Royal Dutch Shell Plc (“Shell”) and Eni SpA (“Eni”) to back out of the controversial 2011 deal, and Etete, et al wouldn’t have illegally being paid $1.3 billion by Shell and Eni.
The illegal acquisition of Malabu’s Oil Prospecting License 245, I reasonably believe, could have been avoided if the transaction had been properly vetted.
In the corporate world, particularly in the United States, most, if not all, companies perform due diligence investigations when they are onboarding new third-party vendors, or when they are preparing for mergers and acquisitions, just to gather critical facts about the backgrounds of their targets.
From my own experience in the corporate world, due diligence investigations can uncover adverse information in targets’ (in this case, contractors’) backgrounds, so it is mandatory for most multinational companies to conduct due diligence investigations, as required under American laws (the Securities Act of 1933 and the Foreign Corrupt Practices Act of 1977).
Furthermore, a well-conducted due diligence investigation does not only protect a company’s reputation, for it can also be used to fend off civil liabilities down the road; if regulators allege that something is amiss, the company can supports its case by presenting the results of its due diligence investigation (see the due diligence defense under Section 11 of the Securities Act of 1933).
It is why it is so imperative to conduct an enhanced due diligence investigation before awarding a billion-naira contract to a contractor, helping to answer these non-exclusive questions: Does a conflict of interest exist (is there a relationship between a member of the Bureau and the contractor)? Who are the shareholders of the contractor’s entity (identify likely Politically Exposed Persons)? Does the contractor have financial difficulties?
Additionally, an enhanced due diligence investigation will look into whether the contractor previously abandoned government contracts. These are some of the questions that an enhanced due diligence investigation will uncover, helping the government to understand the risks of doing business with questionable contractors/exposing other hidden risks.
Because the Bureau oversees hundreds of contractors, I reasonably understand that performing enhanced due diligence investigations on all contractors will be too burdensome; for that reason, I am recommending that certain contractors, particularly contractors vying for high-volume contracts, should be subjected to enhanced due diligence investigations. If possible, the Bureau should also conduct a thorough financial stress test on certain contractors, particularly on contractors that are granted large-volume contracts, ascertaining their financial capabilities and other hidden risks.
For other contractors, however, I hereby advise the Bureau to conduct a regular due diligence investigation, sort of a quick scan investigation.
Again, this should be conducted prior to onboarding new contractors. If the scanned results produce red flags (if a Politically Exposed Person is identified, for instance, or conflicts of interest issues among major shareholders of the contractor’s entity/subsidiary), then an enhanced due diligence investigation should be conducted.
Operationally, a risk level assessment methodology will be developed, and that will help to rank contractors as low risk, low-medium risk, medium-high risk, and highest risk. Since the agency already has a database that consists of prospective contractors, performing due diligence investigations on those being considered should not be too difficult to implement.
What I am recommending here can be simply stated as: Know Your Contractors (KYC). As a component of these risk-mitigation strategies, I am calling for an introduction of a threshold clause. The threshold clause will spell out certain factors that might necessitate additional due diligence investigations, eliminating avoidable risks.
Within the Bureau, there are other areas that due diligence can be applied, too, and that requires the Bureau to provide more training to its contracting officers, in addition to hiring more contracting officers.
Furthermore, this will allow the Bureau to adequately review payments submitted by contractors before they are paid. A systematic forensic auditing, a component of a due diligence investigation, can expose questionable payments, and the Bureau can disallow those payments.
In other words, we must bring our disallowance procedures in sync with the global best practices. When a contractor submits a questionable payment, for instance, a reviewing contracting officer can challenge the allowability of costs that a contractor includes in an invoice.
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Of course, I don’t want this process to be burdensome, so I am recommending that certain contractors, particularly contractors who had previously submitted incorrect invoices, should be subjected to additional/enhanced disallowance scrutiny by a reviewing officer. In the United States, we follow “48 CFR § 42.801 – Notice of intent to disallow costs,” perusing this statute will help our policymakers.
The ultimate goal is to mitigate the risks of frauds, briber, and corruption, and the Bureau must take proactive steps to prevent contractors/vendors from defrauding the federal government, for their egregious and unconscionable actions inflict a significant damage to our overall economy.
If proper mechanisms are put in place, however, and understanding that bad actors will always try to submit fraudulent claims/pierce the system, the Bureau can at least mitigate the risks of frauds, bribery, and corruption in the procurement process.
Throughout this article, I have offered some common-sense solutions to some of the deficiencies that I objectively believe hamper the operations of the Bureau, and I reasonably expect the appropriate authorities to study these recommendations, weaving them into our existing legal and regulatory framework.
That being said, there are two ways to action upon my recommendations: 1. The legislative option, which will require the National Assembly to pass an amendment that includes my recommendations. 2. The administrative option, which will require the Bureau to issue additional regulations in line with my recommendations, and that will be consistent with the Public Procurement Act.
In principle, though, I reasonably believe that the administrative option won’t assuredly solve these problems, for those opposed to these recommendations might accuse the Bureau of arrogating to itself powers not delegated to it in the enabling statute. For that reason, I am recommending a long-term fix, the legislative option, which will ensure that these recommendations are codified.
That being said, I hereby further opine that, if introducing amendments to the Public Procurement Act will create a political quagmire, the Director-General of the Bureau, Mamman Ahmadu, who is also the Secretary of the National Council on Public Procurement (hereinafter – “Council”), can exercise his power to make policy recommendations, and the Council has a discretionary power to give, or refuse, assent to such recommendations, per Section 2(e-f) of the Public Procurement Act.
Of course, as previously stated, codifying these recommendations is my most preferred option, cementing the rule of law in the process and helping to mitigate the risks of frauds, bribery, and corruption in the Nigerian public procurement process. I hope that our policymakers will choose this option.
For now, I rest my case. If you have any questions about this article, I can be reached at activeaffiliation@gmail.com
Akintunde F. Adeyemo (JD)
