Before the First Stone is Laid Verifying the Integrity of Infrastructure Procurement

Published on: Wed Jan 12 2022 by Ivar Strand

Before the First Stone is Laid: Verifying the Integrity of Infrastructure Procurement

In the monitoring of large-scale infrastructure projects, assurance efforts are often concentrated on the construction phase. The focus is tangible and direct: verifying the quality of materials against the bill of quantities, assessing physical progress against engineering milestones, and auditing payments made for work completed.

While this downstream verification is essential, it is also insufficient. In our experience, the most significant financial and fiduciary risks in an infrastructure project are often irrevocably locked in long before the first stone is laid. These risks are hidden within the opacity of the procurement process. A truly strategic assurance framework must therefore begin with a rigorous, forensic analysis of the procurement itself.

The Locus of Risk in the Infrastructure Value Chain

An infrastructure project is a value chain that begins not with construction, but with procurement. The selection and contracting of the primary construction vendor is the point of maximum financial leverage and, therefore, of maximum risk. Once a multi-million-dollar contract is signed, the vast majority of the project’s financial parameters are set.

An engineering audit that later discovers the use of substandard concrete is, in fact, identifying a symptom. The root cause of that failure may lie in a procurement process that selected a non-qualified bidder, or one that was not subject to sufficient competitive pressure to ensure quality. Monitoring the physical execution is important, but it is a reactive measure. Verifying the integrity of the procurement is a proactive one.

A Framework for Forensic Procurement Analysis

A robust verification of procurement must go beyond a simple compliance check of whether the formal procedures were followed on paper. It requires a deep, data-driven forensic review of the entire competitive process to identify patterns and anomalies that may indicate a lack of integrity.

Our approach to this upstream due diligence is built on several key analytical pillars:

1. Analysis of the Bidder Pool. We conduct an analysis of all companies that participated in the bidding process, not just the winning firm. An unusually small number of bidders for a high-value contract can be a red flag. We also analyze for patterns of potential collusion, such as the same set of companies consistently submitting uncompetitive bids on contracts that are all won by a single, favored firm.

2. Scrutiny of Tender Specifications. The technical specifications and requirements in the tender documents are themselves a key source of data. We review these to determine if they are excessively narrow or contain proprietary specifications that appear designed to unfairly favor a single, pre-selected vendor over all other potential competitors.

3. Deep Due Diligence on Bidders. All bidding entities, including their key principals and ultimate beneficial owners, are screened against a comprehensive set of databases. This is to identify undisclosed related-party transactions, potential conflicts of interest with procurement officials, or the presence of a bidding company on international sanctions and debarment lists.

4. Statistical Analysis of Bidding Patterns. The pricing and structure of the submitted bids are analyzed for statistical anomalies. Are the losing bids consistently clustered at a price point far above the winning bid? Are there unusual similarities in the formatting, language, or even the file metadata of bid documents submitted by supposedly competing firms? These can be indicators of a rigged or coordinated tender.

From Upstream Verification to Downstream Value

This “front-loading” of the assurance effort is a more efficient and effective allocation of monitoring resources. By identifying and helping to mitigate procurement risks before a major contract is awarded, donors and their government partners can prevent significant financial leakage and ensure that qualified, reputable contractors are selected.

This upstream verification establishes a strong foundation for achieving value for money throughout the project lifecycle. It allows the subsequent downstream monitoring of the construction phase to focus on its proper function—assuring technical quality—rather than investigating the predictable and costly consequences of a flawed procurement. Verifying the integrity of the process that chose the builder is the most critical first step.