Exploring blockchain technology for government transparency: Blockchain-based public procurement to reduce corruption

Executive summary

Summary of findings

The project takes a three-pronged approach to blockchain experimentation in the anti-corruption context, focusing specifically on public procurement. It includes: 1) a software proof-of-concept (PoC); 2) the enumeration of complementary policy proposals to strengthen procurement integrity; and 3) a civic engagement strategy focused on encouraging and empowering citizen monitors to flag risky behaviour in the system. This report aims to communicate the findings of this novel and multifaceted project with the goal of identifying the value of blockchain technology for public procurement and laying the foundation for similar experimentation, innovation and adoption worldwide.

The project is anchored in a software PoC to uncover, using a bottom-up approach, key capabilities and limitations associated with blockchain for public procurement, as well as critical related policy considerations. The PoC is focused on the vendor bidding and bid evaluation phases of procurement. It is designed for a public, permissionless blockchain network (Ethereum) in order to also study the benefits of a permissionless blockchain for public procurement and anti-corruption use cases. Permissionless blockchains maximize decentralization and provide unparalleled security with respect to data permanence and process integrity – qualities that are particularly beneficial in the anti-corruption context.

The project’s findings reveal multiple challenges and unanticipated vulnerabilities with fully permissionless blockchain networks, despite their benefits. The most notable challenges relate to scalability and vendor anonymity (or more generally, privacy). However, future technological developments or alternative configurations may remedy these issues.

For example, permissioned or “hybrid” blockchain networks (which employ both a permissioned and a permissionless base-layer blockchain protocol) offer a potential solution. This report presents the trade-offs of each configuration for public procurement. The results suggest that a hybrid blockchain may be most attractive, as these mixed systems strike an ideal balance, given present technological limitations, between transparency, procedural integrity, scalability and security. They also highlight the importance of tracking innovations in cryptography and protocol scalability that may be able to address present technology challenges.

Furthermore, whether permissioned or permissionless, blockchain is not a panacea. This report highlights the importance of a multifaceted approach to blockchain implementation, complemented by policy reforms that can help realize the technology’s transparency- and accountability-enhancing capacities. In particular, multistakeholder and civic engagement in the development, deployment and monitoring of blockchain-based procurement systems are crucial to achieving impact. It is also important to note blockchain technology’s inability to reduce corruption risk in certain human activities that can occur outside any electronic procurement (e-procurement) system,2 most notably bribery or collusion among vendors or between vendors and tenderers.

Ultimately, blockchain technology provides several unparalleled qualities and capabilities towards combating procurement corruption. However, with today’s technology challenges and limitations, the argument for implementing a blockchain-based solution is equivocal. Policy-makers should ultimately identify their priorities and requirements given their specific social, political and economic conditions and the trade-offs associated with various blockchain technologies.

Report structure

The report begins with a discussion of the prevalence and diverse harms of public-procurement corruption globally and in Colombia specifically. It also maps the vulnerabilities within vendor bidding and bid evaluation that help facilitate the high incidence of corruption worldwide. It then describes the Transparency Project and its scope, highlighting blockchain technology’s hypothesized contributions.

Next, the report includes a technical summary of a blockchain-based e-procurement system that served as the model for the PoC. It then provides a downloadable model Request for Proposal (RFP), including sample functional specifications, which institutions can reference if they choose to develop blockchain-based systems of their own. Further, the report enumerates complementary policies for strengthening procurement integrity, as well as guidelines for deployment and successful civic engagement. It also describes roadblocks and challenges from the Colombian context that impacted the PoC’s outcomes.

The report then describes key technical findings and conclusions related to the PoC and to trade-offs between various blockchain permissioning configurations for public procurement. It subsequently lists suggestions for further experimentation and development. The report concludes with a link to the addendum, called the Supplementary Research Report. This downloadable document provides a framework for establishing success metrics for a new blockchain-based e-procurement system; background information on the Colombian public-school meal programme; a snapshot of the Colombian regulatory framework for blockchain and cryptocurrency; a discussion of existing efforts to curb procurement corruption; an exploration of additional use cases for blockchain in government transparency and accountability; and a “Further reading” section for additional coverage of the subject.