VZCZCXRO4800
RR RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSK RUEHSL RUEHSR RUEHVK
RUEHYG
DE RUEHUP #0626/01 2431046
ZNR UUUUU ZZH
R 311046Z AUG 09
FM AMEMBASSY BUDAPEST
TO RUEHC/SECSTATE WASHDC 4447
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 BUDAPEST 000626 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR EUR/CE LAMORE, EEB/TPP/MTAA LANE, EUR/ERA 
PURL, COMMERCE FOR BWOODWARD, STATE PASS USTR FOR JGRIER 
 
E.O. 12958: N/A 
TAGS: ECON KTRD KTIA HU
SUBJECT: TRANSLUCENCY INTERNATIONAL: GOVERNMENT 
PROCUREMENT, HUNGARIAN STYLE 
 
REF: STATE 81678 
 
¶1. (SBU) Summary: Post attempts to gather data on procurement 
contracts won by U.S. companies reveal a surplus of 
regulations and lack of transparency that threaten the 
potential benefits of the WTO Agreement on Government 
Procurement (GPA).  Hungary's Public Procurement Council's 
(PPC) procurement data is poorly structured, often 
unresponsive, and nearly unsearchable.  Adding further 
complexity, a new decree effective August 24 mandates that 
all procurements over 250,000 USD be approved by a new 
cabinet agency, which is unlikely to add transparency.  U.S. 
firms' experiences and data from NGOs such as Transparency 
International reveal numerous obstacles lining the path to 
fair competition for tenders.  In some cases, Post has 
successfully intervened on behalf of U.S. companies.  We 
continue to engage the GOH on this issue, both directly and 
as part of an inter-embassy working group.  End Summary. 
 
------------------------- 
A REGULATORY RUBIK'S CUBE 
------------------------- 
 
¶2. (SBU) A recent Freedom House study states that just 10 
percent of total procurements in Hungary are conducted in a 
"professional manner."  While Hungary is party to the WTO 
Agreement on Government Procurement, many procurements do not 
meet the GPA's minimum thresholds and are consequently 
outside its scope.  Hungary's legal framework governing 
procurements, the Public Procurement Act (PPA), adopted in 
2003 as a condition for EU membership, is highly complex and 
frequently amended.  The ever-changing nature of the PPA 
increases the likelihood for competitive bids to be 
disqualified under questionable circumstances.  Understanding 
these laws, coupled with often disparate enforcement, poses 
significant barriers for U.S. firms. 
 
¶3. (SBU) Attempting to research procurement decisions, 
Transparency International's (TI) Hungary chapter has only 
come away frustrated.  Their director, Noemi Alexa, related 
to EconOff that the PPC complies with the letter but not the 
spirit of the law.  For example, most procurements must be 
published in a public Procurement Bulletin.  Alexa noted 
however that the bulletin itself is needlessly difficult to 
analyze.  Embassy attempts to download the bulletin were 
altogether unsuccessful, as the PPC's website is either too 
slow or altogether unresponsive.  According to Alexa, the 
website's search engine is unreliable, e.g. searching for 
procurement notices between 2005-6 returns results from 2004 
and 2007 as well.  There is effectively no accurate, 
efficient method to review decisions to determine 
transparency and compliance with procurement law. 
 
¶4. (SBU) The lack of effective controls on political party 
financing also undermines transparency.  According to a 
recent TI report, it is generally assumed that campaign 
contributions will be returned in kind as government orders. 
The report elaborates that many businesses in Hungary depend 
on state and local government orders, and some procurement 
award decisions are not made on the basis of the most 
competitive bid, but instead on which company makes the 
largest contribution to the political party in power. 
Addressing this concern, TI, Freedom House, as well as the 
Embassy have encouraged the GOH and Hungarian politicians to 
reform the system of campaign finance to help ensure a more 
competitive and non-discriminatory procurement process. 
 
¶5. (SBU) Effective August 24, a new Cabinet level regulatory 
body, unconnected to the PPC, must approve all public 
procurements valued over 250,000 USD.  The aim of this body 
is to reduce potentially unnecessary/wasteful procurements. 
As several thousand government tenders are issued each year, 
covering a wide range of economic sectors (often highly 
technical and at least one hundred pages long), we are 
doubtful that this agency will effectively determine which 
procurements are necessary and which are wasteful.  We 
believe instead that the procurement process is likely to get 
even more complicated. 
 
----------------------------- 
THE EXCEPTION PROVES THE RULE 
----------------------------- 
 
¶6. (SBU) All this bureaucracy leaves ample room to derail a 
competitive bid.  As U.S. companies are often averse to 
complain too loudly for fear of negative repercussions in 
future bidding, we believe that many cases of questionable 
 
BUDAPEST 00000626  002 OF 002 
 
 
procurement decisions never come to our attention.  As the 
case below indicates, having the most competitive bid is not 
always the deciding factor.  In fact, only substantial 
efforts by the Embassy's FCS ensured a non-discriminatory 
decision that in a more transparent culture might have 
occurred naturally. 
 
¶7. (SBU) In 2005, a U.S. auto company lost a large tender to 
supply a 3-year fleet rental of patrol cars to the national 
police, despite having the most competitive bid.  According 
to company executives, the bidding companies were not treated 
equally throughout the process, with extra demands for 
information placed only on the U.S. company that were outside 
the scope of the tender.  When the USD 25M tender came up for 
renewal in 2008, the U.S. company did win, with substantial 
assistance from FCS and our Ambassador, whose appeals to the 
Justice Minister resulted in a finding of 'irregularities' in 
the tendering process (similar irregularities to those the 
company noted in 2005) and a ruling in favor of the U.S. 
company. 
 
-------------------- 
TOWARDS TRANSPARENCY 
-------------------- 
 
¶8. (SBU) COMMENT: Reams and reams of well intentioned but 
ften misapplied regulations are the Hungarian answer to the 
question of transparency, yet this amounts to little against 
a cultural tendency towards opacity in procurement.  Although 
Hungary is a party to the WTO Agreement on Government 
Procurement, in practice this only impacts the largest 
tenders, which are a small portion of total procurement 
spending.  In order to address this issue, we continue our 
engagement with the GOH and Hungarian politicians, along with 
our participation in the inter-embassy transparency working 
group.  This group represents those countries who comprise 85 
percent of foreign direct investment, and presses GOH leaders 
to make procurement practices more transparent.  But much 
work remains to be done, both on a case by case basis as well 
as wider efforts to shift the government and business culture 
towards greater transparency. End comment. 
LEVINE