Sri Lanka Country Profile

Public Procurement and Contracting

Business Corruption

The US Department of State 2008 reports that public procurement processes in Sri Lanka are plagued by corruption. The public tender process is hampered by corruption and nepotism at every phase of the process. The negotiation phase is hampered because politically appointed individuals or cronies of politicians are those who negotiate the terms of payment and the commissions of the public procurement contracts. Observers also report that a company will often be forced to pay a 'decision-level' bribe (i.e. a bribe to a minister or high-ranking officials) to obtain an infrastructure tender.

Business executives in the World Economic Forum Global Competitiveness Report 2008-2009 report that favouritism of government officials when deciding upon policies and contracts, as well as the diversion of public funds to companies, individuals or groups due to corruption are fairly common.

That the implementation phase is plagued by corruption is evident from the numerous examples where construction projects suffer from large amounts of building material being pilfered, implying that several people receive bribes to ignore the theft. Through bribes, contractors also ensure that substandard work is tolerated and violations overlooked.

See more on public procurement under 'Public Anti-Corruption Initiatives' in the Initiatives section.

Political Corruption

The government procurement process is frequently carried out in an irregular manner. There are examples of huge projects being awarded to companies outside the tender process. According to the US Department of State 2008 and the Transparency International Sri Lanka Sri Lanka Governance Report 2008, military procurement process is laden with corruption. It is common knowledge that weapons deals are rigged, with huge commissions at the highest levels. However, laws like Emergency Regulations and Official Secrets Acts prevent these irregularities from being investigated. It is a common feature that senior officials are in charge of public and semi-public companies, such as the Lanka Logistics and Technologies which the government set up in 2007 to be the sole procurer of all military equipment. In 2006, a deal was signed for the procurement of several MiG-27 aircrafts. It was the largest military deal in Sri Lanka but it was exposed that it was wrought with irregularities and fraud. It was supposed to be a government-to-government deal between Sri Lanka and a Ukrainian state-owned company, but the MiG-27s were to be delivered to a 'go-between' company registered in the UK. The Sri Lankan Air Force furthermore agreed to pay a much higher price than what they had paid for other MiG-27s. When irregularities were revealed the case was handed over to the Commission to Investigate Allegations of Bribery or Corruption for further investigation but investigations are still pending.

The privatisation process is also plagued by corruption. Politicians and high-ranking administrative officials are paid huge bribes by prospective buyers who want to ensure their purchase of a publicly-owned company.

See more on public procurement under 'Public Anti-Corruption Initiatives' in the Initiatives section.

Frequency

World Economic Forum: The Global Competitiveness Report 2009-2010:
- Business executives give the diversion of public funds to companies, individuals, or groups due to corruption a score of 3.3 on a 7-point scale (1 being 'very common' and 7 'never occurs').

- Business executives give the favouritism of government officials towards well-connected companies and individuals when deciding upon policies and contracts a score of 2.9 on a 7-point scale (1 being 'always show favouritism' and 7 'never show favouritism').

The World Bank & IFC: Enterprise Surveys 2004:
- Just over 2% of the companies surveyed claim that they are expected to give gifts to secure a government contract.

- The value of the gift expected to be paid to secure a government contract amounts to 0.03% of the value of the contract.