“Grand corruption” occurs at the highest levels of government and involves major government projects and programs (Moody-Stewart 1997). Governments frequently transfer large financial benefits to private firms through procurement contracts and the award of concessions. Bribes transfer monopoly rents to private investors with a share to the corrupted officials. Privatization processes are vulnerable to corrupt insider deals.

Payments to Obtain Major Contracts and Concessions

Corrupt payments to win major contracts and concessions are generally the preserve of large businesses and high-level officials. The important cases represent a substantial expenditure of funds and have a major impact on the government budget and the country's growth prospects. These deals are by definition the preserve of top officials and frequently involve multinational corporations operating alone or jointly with local partners.

If the government is a buyer or a contractor, there are several reasons to pay off officials. First, a firm may pay to be included in the list of prequalified bidders and to restrict the length of the list. Second, it may pay for inside information. Third, bribes may induce officials to structure the bidding specifications so that the corrupt firm is the only qualified supplier. Fourth, a firm may pay to be selected as the winning contractor.

Finally, once a firm wins the contract, it may pay to get inflated prices or to skimp on quality.

Corruption in contracting occurs in every country – even those at the high end of the honesty index such as the Scandinavian countries, Singapore, and New Zealand.