A report: The prevention program against grey economy has a clear positive effect on the public procurements of the city of Helsinki

The city of Helsinki is one of the most remarkable contracting authorities in Finland with its service procurements worth 1.6 billion EUR. In April the Grey Economy Information Unit of the Tax Administration has published a report concerning public procurements of the city of Helsinki during years 2006-2013. The research group examined the economic situation and customer relationships of the supplier companies and studied how they took care of their legal obligations. As the city of Helsinki has launched a campaign program against grey economy, it was also studied how the prevention program has impacted on procurements. Moreover, the functionality of the Act of Public Contracts (348/2007) was studied, as well as the realization of the purpose of the act regarding the procurements of the city of Helsinki.

Public procurements are an important area in fighting against grey economy. The significance of public procurements has been growing constantly as an increasing amount of public services is provided together with private service producers. In the report, the key ratio comparison illustrates that getting a public contract clearly improves the financial status and the business result of companies. Therefore it is not justifiable if an entrepreneur who tries to avoid paying taxes or tramples upon the interests of employees is supported by public funds. It would also have a negative effect on fair competition.

The survey revealed that along with the prevention program against grey economy, the procurements of the city of Helsinki have clearly concentrated in such companies that have taken care of their authoritative obligations blamelessly. According to the report, the purpose of the Act on Public Contracts has fulfilled comparatively well in the procurements of Helsinki city. The public contracts have also spread out to a large number of service producers.

However, the city has not completely managed to avoid the cases of grey economy. Tax audits revealed that among the companies examined in the survey, 6 % were actors of underground economy. As a comparison, in all tax audits enforced by the Tax Administration, the share of the grey economy is approximately 20 %. According to the estimates of the city of Helsinki, the city loses approximately 50-60 million euros a year due to the underground economy.

From the city’s point of view, the access to information could also be improved in the future. In 2011, the city executive board of Helsinki mooted a law proposal to the Ministry of Finance, stating that the authorities making public procurements should be given an access to the taxation particulars of the producer companies. Now the Grey Economy Information Unit of the Tax Administration also states in the report that a law reform would improve the opportunities of the municipalities to refrain from making contracts with companies abdicating their responsibilities.