Transparent and fair public procurement: The North Macedonia experience

Sound public procurement systems are central to effective project implementation, good governance and efficient service delivery to the citizens. Government spending on public procurement transcends mere numbers; it’s where public services spring to life, infrastructure takes form, and taxpayers’ money finds purpose.  Consequently, resilient public procurement systems become the linchpin for successful project execution.

Countries have traditionally championed reforms to improve their public procurement systems, often entailing the enactment of appropriate legal and regulatory frameworks. Over time, the focus and perception of public procurement have shifted from being solely a compliance function to becoming a strategic and governance function. This ensures that public expenditure delivers value for money whilst controlling corrupt practices.

In December 2019, North Macedonia introduced the Red Flag System, harnessing real-time data and advanced analytics to achieve the same objective.

Development of Red Flags System:

The development of the Macedonian Red Flags System leveraged the Electronic System for Public Procurement (ESPP), which serves as the nation’s primary e-procurement platform, owned and managed by the Public Procurement Bureau (PPB). Behind the scenes, advanced business intelligence modeling and algorithms crafted 24 distinct red flag tools. But here is an interesting fact: while machines did some of the work, human input was vital, too. Real people ensured those tools were spot-on, accurate, and always relevant.

The Red Flags System identifies suspicious patterns in procurement data that may indicate collusion or tender manipulation. This is especially important as the World Bank spends around two billion dollars annually for procuring goods and services to meet its operational needs.

Proactive Risk Management:

The Red Flags System proactively identifies high-risk activities, allocating resources for monitoring and minimizing potential losses from mismanagement. These indicators provide a standardized framework for evaluating procurement activities and promoting data-driven decision-making. They also significantly improve oversight efficiency by guiding auditors to risky areas. The Public Procurement Bureau is additionally working on a new module that will mark and investigate risky procurement procedures based on past red flags, emphasizing prevention in government procurement. 

How the Red Flags System Operates:

It is crucial to note that these red flags do not provide conclusive evidence of fraud but serve as indicative signals for possible irregularities. The system issues alerts or red flags according to different phases of the procurement process.

For instance, during the planning and preparation phase, the system may flag contracting authorities who frequently alter procurement plans or employ restrictive terms that hinder competition. Similarly, in the procedure and evaluation phase, it can identify overreliance on single bids or instances where high-value contracts are awarded to newly registered bidders.

The system also scrutinizes the contract award and appeals phase to uncover anomalies, such as unusually high percentages of canceled or appealed procedures. Additionally, red flags related to collusion and auctions help expose patterns of favoritism or limited competition, which prompts further investigation.

“While we have made significant strides through the Electronic System for Public Procurement and the Red Flags tools, it is imperative to recognize that these tools provide vital warnings and signals, yet they do not offer conclusive evidence of fraud and corruption. Other institutions must take decisive actions to address these concerns effectively.” — Goran Davidovski, Public Procurement Bureau

The Impact of the Red Flags System:

The implementation of red flag indicators in public procurement aims to create a procurement environment that is characterized by integrity, fairness, and responsible use of public funds.

Since January 2023, 40 procedures in North Macedonia were identified and flagged as posing a considerable risk.  Nearly 90 percent of these procurement processes were terminated due to misuse and disproportionate use of selection and award criteria, resulting in discriminatory treatment of economic operators.

Furthermore, the PPB has published on its website two annual and one semi-annual report on the Red Flags System.  Institutions like the State Audit Office, State Anti-Corruption Commission, and Commission for Protection of Competition reviewed them for thorough investigations.

These actions have enhanced competition, ensuring a level playing field for suppliers. Early detection of red flags allows for timely interventions and more efficient auditing while positively impacting public perception through a stronger commitment to accountability. Improved compliance with legal and regulatory frameworks also minimizes the risk of legal disputes.

Red Flags System as a Blueprint:

In pursuit of tackling corruption and boosting transparency, the Red Flags Systems trailblazed by North Macedonia acts as an early warning mechanism in procurement. Do you think the Red Flags System can be used as a blueprint for upgrading public procurement in your country?