- _“Corrupt implementing firms always need corrupt consultants. And both are related to a corrupt official. Always!”_

CEO of a major Lebanese infrastructure development firm

# **1. Introduction**

Two broad observations motivate our study. First, public infrastructure procurement constitutes a major source of rents for elites, notably in countries with weak governance and control of corruption (Bosio _et al._ , 2022; Dávid-Barrett and Fazekas, 2020). As spending on procurement accounts for 12.6% of gross domestic product (GDP) in high-income countries and 13.6% in upper-middle-income countries on average (in 2015) (Djankov, Islam and Saliola, 2016), public procurement offers ample incentives for elites to interfere, even in countries with strong institutions and control of corruption (Goldman, Rocholl and So, 2013; Hessami, 2014). As such a high share of spending makes procurement a crucial part of government operations and for pursuing most development outcomes (Fazekas and Blum, 2021), even small improvements in procurement practices can have large welfare effects.

Second, an increasing body of research highlights the importance of networks, or cartels, to understand corruption in public procurement (Adam _et al._ , 2022; Fazekas, Sberna and Vannucci, 2022), including for infrastructure (Hudon and Garzón, 2016). While corruption was previously conceived mostly as a principal-agent problem (Ugur and Dasgupta, 2011), recent studies increasingly conceptualize corruption leveraging network theory (Marquette and Peiffer, 2018). Most of these studies, however, focus on the functionality of cartels, rather than their mechanisms (Fazekas, Sberna and Vannucci, 2022), even though analyzing the governance of such networks is crucial to understand their persistence and how to undermine them (Sberna, 2014).

In this paper, we explore the mechanisms of cartels in Lebanon’s infrastructure procurement sector. We analyze a data set of all 394 infrastructure procurement contracts awarded between 2008 and 2018 by Lebanon’s Council for Development and Reconstruction (CDR), by far the country’s most important infrastructure development agency and central pillar of the power-sharing arrangement by providing a major source of rents for sectarian elites (Leenders, 2012; Mahmalat, Atallah and Maktabi, 2021).<sup>1</sup> By identifying the political connections of both the contractor as well as the consultancy firms involved in the implementation of a procurement contract, we go beyond previous studies’ focus on contractors and analyze the interplay between the development agency (in this case CDR), the contractor, and consultants. Notably, we are not primarily interested in understanding _whether_ elites extract rents via CDR. As we have shown in previous work, politically connected contractors receive contracts that are inflated by almost 33 percent vis-à-vis the average contract (Mahmalat, Atallah and Maktabi, 2021). Instead, we examine _how_ cartels operate. More specifically, we leverage a series of expert interviews with politicians, officials, contractors, and consultants to generate and test hypotheses to identify the conditions under which the cartel succeeds in generating rents.

In doing so, we introduce two methodological novelties. First, we focus on procurement consultants, an immensely important player in the procurement process with a large degree of influence and discretion in different phases of a project cycle, earning them the label “masters of the game.”<sup>2</sup> Consultants are involved in the design of a project, the evaluation of bids, the supervision of project implementation, as well as the assessment of claims and variation orders of ongoing projects. Despite their importance, however, the role of consultants has, to our knowledge, not received systematic treatment in the

> 1 As a formally independent institution, CDR enjoys special prerogatives to plan and execute large public infrastructure projects of which it has handled the vast majority after Lebanon’s civil war (1975-1990). In the 394 contracts for infrastructure projects from 2008 to 2018, CDR has awarded projects totaling $3.98 billion that involved $1.76 billion in foreign funding, thereby vastly outspending other procurement institutions. In the absence of natural resources, CDR became a central pillar for Lebanon’s power-sharing arrangement.

> 2 To use the words of the director of a large consultancy firm interviewed for this project.

2