Prototyping a Smart Contract Based Public Procurement to Fight Corruption

Abstract

Corruption in public procurement is a worldwide appearance that causes immense financial and reputational damages. Especially in developing countries, corruption is a widespread issue due to secrecy and lack of transparency. An important instrument for transparency and accountability assurance is the record which is managed and controlled by recordkeeping systems. Blockchain technology and more precisely blockchain-based smart contracts are emerging technological tools that can be used as recordkeeping systems and a tool to mitigate some of the fraud involving public procurement records. Immutability, transparency, distribution and automation are some of the features of smart contracts already implemented in several applications to avoid malicious human interference. In this paper, we discuss some of the frauds in public procurement, and we propose smart contracts to automatize different stages of the public procurement procedure attempting to fix their biggest current weaknesses. The processes we have focused on include the bidding process, supplier habilitation and delivery verification. In the three subprocesses, common irregularities include human fallibility, improper information disclosure and hidden agreements which concern not only governments but also civil society. To show the feasibility and usability of our proposal, we have implemented a prototype that demonstrates the process using sample data.

Blockchain and Recordkeeping: Editorial

“…Stančić and Bralić [8], for example, provide a data model of a record and model its relationship to a digital signature and an archival bond, as well as discussing the concept of the archival bond, which expresses the fact that records derive their meaning not just from their semantic content but also from their relationship to other records and the activities that give rise to them and in which they participate. Weingärtner et al [9] introduce the Generally Accepted Recordkeeping Principles and map this well-known records management model to features of blockchains.…”

“…Authenticity (i.e., in simple terms, that the record is what it purports to be) is a critical feature if distributed ledgers are to be relied upon as evidence and assets. Weingärtner et al [9] grapple with this issue in the context of public procurement documentation. In their solution design, a smart contract checks the authenticity of the records presented by the winning bidder to execute the next transaction through an external call to a public agency database (e.g., a call to the revenue agency database to verify the authenticity of a tax regularity certificate).…”

“…Weingärtner et al's [9] approach to establishing the authenticity of bid documentation highlights another common challenge in the design of DLT solutions for recordkeeping: the well-known 'oracle problem' [11]. Services that update a distributed ledger using data from outside of a DLT system-called 'oracles'-must be guaranteed to be trustworthy.…”

“…Questions about the trustworthiness of these services give rise to the oracle problem. Weingärtner et al [9] caution that, due to possible threats to system security, oracle services must be designed and implemented carefully. To retain the decentralized nature of a blockchain and avoid introducing single points of failure into the process, they advise using multiple, independent oracle services providing the same information, which allows a majority decision in case of contradictory information.…”

“…To overcome this tension, Weingärtner et al [9] suggest using a Self-Sovereign Identity (SSI) [12]-a decentralized identity that is managed by the entity that the identity distinguishes, or its representative, and that allows that entity to make cryptographically verifiable claims, typically using Verifiable Credentials, about its identity. Weingärtner et al [9] use the SSI identity layer in their public procurement DLT recordkeeping solution to ensure that suppliers participating in public procurements are compliant with legal prerequisites such as the correct payment of taxes or compliance with working conditions. These prerequisites can be tender-specific, such as quality seals or permission to manufacture medical devices or reused for multiple bids.…”