Blacklisting in Russian Public Procurement: How it Doesn't Work

Abstract

The main goal of public procurement reform in Russia, initiated in 2005, was to prevent corrupt deals between suppliers and procurers. That is why the public procurement law favors formal mechanisms to govern most of the stages of procurement: the procurer is not allowed to take into account the reputation of the supplier when he announces calls for bids and selects the supplier, and he is prescribed to use the legal system (courts) if he is not satisfied with the contract performance. Since the efficiency of formal institutions is not very high, these mechanisms are complemented by a “formalized informal instrument” - blacklisting opportunistic suppliers, which is believed to substitute for reputation mechanisms when formal mechanisms are weak. In this paper, we show how and why the institutional environment in Russia makes the blacklisting of opportunistic suppliers irrelevant. We explore how the percentage of contract breaches out of the total number of signed contracts is related to corruption and transparency measures for Russian regions. We also argue that such factors as measurement costs, verification costs, length of contracts and lawsuit amounts influence the probability of winning a legal action for a contract breach.

Keywords: public procurement, blacklist, corruption, measurement costs, court decisions

JEL Classification: H57