Ethics in Contracting

ethiCs in ContraCtinG Both contracting and outsourcing have become synonymous with globalization. However, they have also blurred the issues of ethics and accountability. The procedures that are followed in contracting can pose serious problems of ethics, especially in the awarding of the contract. Sometimes, a contract is awarded without competition to a company of the administrator’s choice. Corruption causes inefficiencies by reducing competition and favoring insiders with information, thereby bringing about additional transactions costs (Zekos 2004). The problem of bid-rigging is quite acute in developing nations, which are often characterized by patrimonialism. Under these regimes, government contracts are used as the primary means to satisfy the donors and supporters, relatives and the family. It is crucial, therefore, for the leadership to ensure ethical conduct in contracting.

To maximize their gains, the government officials favor an inefficient level, composition, and time path of investment (Zekos 2004). Corrupt officials are likely to select an inefficient contractor, who prefers to sacrifice the value of the project (Zekos 2004). In an environment of unethical bidding, reputed companies will be passed over for the inefficient contractors who do not emphasize the quality of the projects and thereby damaging public good. According to Klitgaard (1988, p. 26), “corruption thrives when monopoly power is combined with discretion and low accountability. Incentives to bribery do not arise in a society where all economic activities are carried out in a perfect competition setting and no single agent is able to affect the price or the quantity of the commodity he/she sells or buys. Conversely, corruption is more pervasive when the state is federal, when a country’s democratic basis is still young less than 20 years or when a country is less open to trade.”

The higher regulations for international investment encourage potential businesses to bribe the officials of the host countries to lower competition, which helps large rents increasing the number of bribes (Asongu 2014). However, with the advocacy of New Public Management and Reinventing Government programs, there is an emphasis on improving regulations. The advocates of good governance are emphasizing regularity quality. The easing of regulations may discourage the bribes, but it can cause other problems slackening the rules on business, labor, and environment-promoting abuses.

These examples show a variety of ways in which bribes and other types of corruption are tolerated in different countries. However, it is very