B2B Payments

Can Procurement Overhauls Fix Greece?

When the EU approved of proposed bailout measures for Greece on Monday (July 13), it was a sign of relief for some, and for others, only the beginning to a long, complicated and exhausting journey to getting the indebted nation back on its feet.

Among the slew of measures in the three-year, €86 billion bailout are measures to strengthen the nation’s public procurement methods. While all eyes are fixed on how the deal will impact businesses and individuals, the impact on procurement practices has the potential to remedy some of Greece’s most longstanding economic woes.

A Long History Of Corruption

While Greece remained in limbo over the last few weeks, experts largely took a look back at some of the causes for the nation’s debt crisis. Federal procurement practices were cited by many as one of the most deep-rooted problems.

A 2014 report by the European Commission found that amid Greece’s economic crisis, public procurement activity has declined, while businesses’ belief that government procurement practices were plagued by corruption went up. The EC found that 76 percent of business respondents to a 2013 survey said “corruption is widespread in public procurement managed by national authorities” — significantly higher than the EU average of 56 percent. Worse, 94 percent of local authorities were believed by Greek businesses to partake in corrupted procurement activities.

Specifically, Greek companies cited issues including tenders unfairly designed for a specific business, collusive bidding, the involvement of corporate bidders in the design of the tender and an unclear selection process of the winners.

“Greek public procurement law has in general been characterized by complexity, overlapping rules and a fragmentary approach,” the Commission concluded. “These deficiencies have increased the risk of ineffective implementation.” The report said that even with legislative efforts, more must be done to strengthen government procurement procedures and enforcement of those practices.

Corruption in Greece’s procurement practices doesn’t come without a cost. According to the Commission’s report, petty government corruption cost the nation an estimated €554 million in 2011 alone.

Last year the Organization for Economic Cooperation and Development released its own report on Greece’s procurement activities and provided a list of recommendations, including the adoption of electronic tender and bidding documents, the advertisement of public tender announcements on an electronic platform and the reduction of certain barriers for companies to participate in tenders.

Addressing Public Procurement In The Bailout

Within an ocean of measures planned by lawmakers in Greece’s bailout is a plan to adopt legislation that addresses some of these issues in public procurement.

In collaboration with the OECD, Greece said it plans to adopt legislation to “strengthen controls” in public procurement, to boost transparency and to “assess major risks in the public procurement cycle, taking in consideration the recent developments … and the need to have a clear government framework.”

By the beginning of next year, Greece aims to have a strategy to mitigate public procurement risks, though the bailout proposal did not elaborate specifically on how this will be achieved. The document does, however, specifically mention that by the end of the year, Greece will assess both the health and public works industries to understand how public procurement in these industries is burdened by waste risks and corruption and will propose remedies to these issues.

Both the European Commission and the OECD commended Greece’s previous efforts to tackle public procurement corruption and streamline procedures to make it easier for the public sector to participate fairly. But Greece’s bailout measures are only the beginning to solving some of the cost burdens associated with an inefficient, corrupted procurement procedure.

A Catalyst For Change

As Greece now weighs the bailout measures, there is still a mountain of concerns to address. Among them are the fear within the foreign supplier community over doing business with Greek businesses, as well as the question of whether the bailout measures will improve public procurement practices — and then spread those improved practices into the private sector.

Recent research published by Atradius found that Greece suffers from the EU’s highest rate of late payments in the domestic B2B sector, with 66.1 percent of companies making sales on credit. Credit terms were also among the highest, averaging 75 days outstanding.

The nation also took the top spot in the EU for the percentage of domestic invoices overdue, percentage of those invoices more than 90 days past due and the percentage of uncollectable domestic invoices — the latter being more than twice the average for the rest of the EU, researchers found.

Analysts agree that government procurement practices can positively impact procurement methods in the private sector. While only one step in a journey of economic recovery, improved public procurement practices may soon resolve some of the procurement issues seen in Greece’s entire B2B sector.

Indeed, according to some experts, including Spend Matters’ Peter Smith, public procurement can be a very good place to start for Greece to improve its economic situation overall.

“[Public procurement] might not be the number one priority or mechanism for recovery,” Smith wrote last week, “but making public procurement as efficient, fair and effective as possible would be one indicator to the external world and to the Greek citizen that things are changing.”

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New PYMNTS Report: The CFO’s Guide To Digitizing B2B Payments – August 2020 

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