There are very high corruption risks in the public procurement sector. Companies indicate that irregular payments and bribes are very common in the process of awarding government contracts and licenses (GCR 2015-2016). More than half of companies expect to give gifts to procurement officials to secure government contracts (ES 2013). Diversion of public funds is perceived to be very common and favoritism in decisions of government officials is extremely common (GCR 2017-2018). The government has reportedly diverted significant public funds to people with close ties to the ruling elite, particularly in large infrastructural projects (BTI 2016). More than a third of business respondents believe that corruption has prevented their company from winning a public tender in Hungary (Eurobarometer 2014). Companies with strong connections to the government have an advantage over private parties in tenders, while companies operating in sectors where subsidies are available or where price controls are in place appear affected by insufficient transparency and responsiveness (ICS 2017).
The mechanisms overseeing public procurement are very weak (BTI 2016). Competition is limited, partly by a low number of tenders and partly because of the frequent use of direct awards (BTI 2016). Systematic corruption in procurement is found to add 20-25% to the costs of government procurement (ICS 2017). A study by Transparency International (TI) found indications of corruption and overpricing in up to 90% of EU-funded projects (TI 2015). Among the corrupt practices identified were tenders written for a specific party, price inflation, bribes and/or kickback schemes, among other corrupt practices (TI 2015). Local-level public procurement is particularly vulnerable to corruption due to lack of transparency and strong informal relations between local businesses and political actors (EUACR 2014).
A recent example of procurement fraud was uncovered by the EU’s anti-fraud office OLAF (ICS 2017). OLAF found that contracts for work on Budapest’s new EU-funded metro line worth over USD 1 billion had been affected by corruption, and determined that USD 240 million should be refunded to the EU (ICS 2017). Companies are highly recommended to implement special due diligence procedures to reduce the likelihood of encountering corruption in Hungary’s procurement process.