Hungary wasted $8-$12 billion on public procurement in 2009-2016 according to CRC Budapest

January 4, 2018 -

Hungary wasted $8-$12 billion on public procurement in 2009-2016 according to CRC Budapest
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“EU funding has had a perverse effect in Hungary in the public procurement by reducing the intensity of competition and increasing the level of corruption risk.”

Between 14 percent and 24 percent of total spending by Hungarian public procurement between 2009 and 2016, HUF 2,090-3,300 billion (EUR 6.7-10.6 billion), was squandered according to a 140-page study issued by Budapest’s Corruption Research Center at the end of 2017.  The English version of the report can be accessed here.

Using data from 151,457 contracts, the report examines public procurement in the period, with its authors estimating the magnitude of estimated direct social loss in Hungary due to corruption risk and weak completion. Using Bedford’s law to compare the price distortion between EU- and non-EU-funded projects, the report estimates the direct social loss at HUF 2,090-3,300 billion, or 15-24% of the total spending by public procurement.

The report concludes that EU funding has had a perverse effect in Hungary in the public procurement by reducing the intensity of competition and increasing the level of corruption risk.

According to the study’s authors, between 2009 and 2015 the intensity of competition tended to be lower for public procurements financed by the EU compared to public procurements financed from national sources, but that this difference disappeared by 2016. However, the level of TI (Transparency Index) in 2015-16 remained far below the level seen in 2009-2010. Since 2011, EU-funded tenders are characterised by significantly lower TI values in each year than the non-EU-funded ones.

Although the share of tenders with only a single bid, (i.e. tenders without competition) decreased between 2015 and 2016, their prevalence remained high (28% of all tenders), and the share of tenders with only a single bidder remained notably high in Hungary, varying between 25-33% in 2006-2015. During the same period, the share of tenders without competition did not exceed 12% in the old EU member states (for instance Denmark, France, the Netherlands, Germany or Sweden). According to the report, this is a clear sign that the Hungarian public procurement tenders are strongly affected by corruption risks.