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Implementation of blockchain in public procurement to reduce corruption risk

The Office of the Inspector General of Colombia partnered with the Inter-American Development Bank and the World Economic Forum to lead a multidisciplinary team to develop the “Transparency Project” in which they jointly designed a blockchain-based software proof of concept- PoC that is intended to be implemented in the bidding processes that are carried out through the Colombian Public Procurement System, in order to increase transparency and reduce the risk of corruption.

This technology will be used mainly in the contractor selection phase (bidding processes), given that this was identified as the phase with the highest risk of corruption. With the introduction of this technology, the objective is to have permanent control of the activity of all the actors involved in the processes by automatically storing any modification, alteration, or intervention during public procurement processes.

How will blockchain work in the bidding processes?

Blockchain is a storage system that records information on transactions, processes, or operations, which, due to the technology it uses, is not susceptible to manipulation, so it makes it highly reliable. Its use has increased in recent years in different sector, mainly the financial, among others.

This technology will be implemented in the public procurement processes to improve three aspects: transparency, impartiality, and control over the bidding processes using the following tools.

First, the tender documents cannot be modified after its publication. Any modification must be made through the expedition of an addenda. Any attempt of introducing modifications will be immediately marked by the system as a red flag.

Second, the bidders will submit encrypted proposals that will be stored in a decentralized storage system so that, in case they are modified or manipulated, there is a record of what each of the bidders presented, modified or attempted to manipulate. No proposal will be submitted after the closing of the bidding process, and this term may not be modified or altered after its expiration by any of the parties involved in the process.

Third, the software will automatically evaluate bid offers to meet minimal evaluation and enabling requirements, and immediately will publish the results of the qualified bidders. Depending on the nature of the selection process, the evaluation of the scoring requirements will be carried out automatically by the system or manually. In any case, if it is done manually, the record of the scrutiny and assessment that is made of each of the proposals will remain in the system.

Any intervention, action and decision that take place during the procedure will be permanently and publicly recorded in indelible and unchangeable records.

However, as a result of the project, several challenges for the Government were also identified. The implementation of a blockchain-based public procurement system cannot ensure transparency by itself, without being accompanied of public policies, a solid regulatory framework and the commitment of authorities to eliminate corruption, given that there will always be activities that take place outside of the platforms and that are beyond the control and reach of technology.

Pilot test: Public School Meal Program (Plan de Alimentación Escolar- PAE)

The pilot test of the public purchasing system based on blockchain technology will be implemented within the framework of the Public School Meal Program (Plan de Alimentación Escolar- PAE), through which meals are provided to the country´s most vulnerable children enrolled in the public education system, in order to contribute to the permanence of students in the school system.

This program was chosen for the pilot test of this project because the purchasing processes of this program have presented irregularities associated with corruption, which have led, in the last 20 years according to the Office of the Comptroller General of Colombia, 405 liability processes for an amount of COP $ 131,374'059,698.

Therefore, if this pilot test presents positive results it is expected that it will be replicated in other public processes for the acquisition of goods and services to strengthen the E-Procurement Colombian System, which, due to Covid-19, has become in one of the priorities of the National Government.

Authors

Daniel Rodríguez
Daniel Rodríguez, LL.M.
Partner
Bogotá
María Lucía Amador
María Lucía Amador, LL.M.
Senior Associate
Bogotá
Paula Gutiérrez-CMS-Colombia
Paula Andrea Gutiérrez
Associate
Bogotá