Public procurement is one of the most significant areas of government spending worldwide, estimated at up to US$13 trillion annually, and $51.5 billion in New Zealand. With high financial stakes and complex processes, it is also one of the most corruption-prone areas. Corruption in procurement inflates costs, reduces the quality of public goods and services, erodes public trust, and discourages fair competition.
To tackle this challenge, the United Nations Office on Drugs and Crime (UNODC) has released a new paper: “Using Incentives to Strengthen Business Integrity in Public Procurement”. This guidance offers governments a practical framework to encourage ethical practices among companies bidding for public contracts, addressing corruption risks before they occur. It has been developed in close consultation with civil society (e.g., Open Contracting Partnership) and noted experts (e.g., Basel Institute, OECD). It follows increased global commitments towards business integrity made at the Council of State Parties in Doha in December 2025.
Risks in public procurement are identified in the guidance. They include risks inherent in pre-tender and planning stages, and in the tendering and bidding process**, with many of these risks having been realised in New Zealand prosecutions**.
There are many effective practices to counter corruption in public procurement. This latest guidance focuses on incentives (and provides country examples):
- Exemptions from prosecution and penalty mitigation for individuals and companies who report corruption, cooperate with investigations, and/or take proactive measures to address any wrongdoing.
- Preferential procurement treatment through easier access to contracts or advantages in competitive tenders**. This** can include eligibility requirements, preferred supplier status, reduced scrutiny, preferential treatment for beneficial ownership transparency, and specific criteria for awarding contracts.
- Performance-based contracting**, which** introduces contracts with performance-based incentives linked to ethical conduct and compliance outcomes.
- Reward and recognition programmes and integrity certifications (that are temporary or reassessed periodically).
- Integrity pacts**, which are** formal agreements between contracting authorities (such as governments and public agencies) and bidders for public contracts aimed at promoting transparency and ethical behaviour throughout the procurement process (often monitored by an independent third party).
Incentives do carry risks, which include a potential reduction in market competition; the risk of bribery or favouritism in the allocation of incentives; and gaming or exploitation of the incentives system if there are not robust monitoring, oversight, and support systems in place.
Incentives also do not replace the need for sanctions. Sanctions deter misconduct by penalizing non-compliance and establishing clear consequences for unethical behaviour by companies. Sanctions also help level the playing field and, in turn, create fairer market conditions.
In order to have an effective regulatory system that incentivises good behaviour, the report recommends a three-pillar approach:
(a) standards: establishing clear and relevant integrity standards and legal requirements as the foundation for granting incentives;
(b) assessments: assessing companies’ anti-corruption, ethics, and compliance programmes to verify alignment with those standards; and
(c) incentives: granting meaningful incentives to companies that meet or exceed these expectations.
