Transparency International

1
CURBING CORRUPTION IN PUBLIC CONTRACTING THE
INTEGRITY PACT overview Training the Trainers
Workshop Karachi, September 18-21, 2005 Juanita
Olaya Programme Manager Integrity Pact and
Public Contracting Programme Transparency
International jolaya_at_transparency.org
www.transparency.org
2
Contents

• Corruption in Public Contracting
• Why so important?
• How it happens?
• TIs Approach
• Strategies to Prevent Corruption in Public
  Contracting
• The Integrity Pact
• What it is
• Applications
• Results/ Benefits

3
Public Contractingwhy so important?

• Corruption in Pub. Contracting will
• Increase poverty and inequality Provide an
  unfair, unstable and risky competitive advantage.
• Engender bad choices encouraging competition in
  bribery rather than in quality or price.
• Undermine competition
• Distort and undermine development.
• Is a non-tariff barrier for those who cannot
  pay for it

• Good contracting will
• Satisfy the needs of the people better quality
  of life
• Be fair to businesses
• Save (waste of?) public funds
• Good policy good governance good government
• Save (create?) Governments credibility and
  legitimacy

4
Why is Public Contracting so important?

• Experts estimate that corruption can add up to
  25 to the costs of contracting.
• Mexico On a yearly basis, the Federal Mexican
  government participates in more than 15,000
  20,000 public procurement processes
• Mexico On aggregated figures, US 2.3 billions
  (23,400 millions of pesos) are lost in petty
  corruption
• Households use 6.9 of their income just for
  bribes
• Households under one minimum wage use 13.9
• Germany 11 million EUR in bribes for a trash
  burner that was not needed in the city of Köln

5
How Does Corruption Happen in Public Contracting ?
Contracting Decision
Contract Implementation
Contracting Process/Bid Evaluation
Contract design
6
How Does Corruption Happen in Public Contracting
?
Contracting Decision
Contract Implementation
Contracting Process/Bid Evaluation
Contract design

• Decision makers are biased
• Selection procedures are non-transparent, or not
  objective
• Clarifications are not shared with other bidders
• Confidentiality durign the process
• Award decisions are not made public or are not
  justified

• Unnecessary
• Tagged
• Conflicts of interest

• Poor quality, deffective, different
  specifications
• Contract renegotiation
• Claim non-existent damages
• Supervisors are biased

• Tagged
• Over-designed, under-designed
• Documents are confusing

7
Corruption in Public Contracting

• RISKS
• Appear right from the earlier stages (design and
  planning)
• Remain after the contracting process is finished
• Include various forms bid rigging, collusion,
  bribery, deception, unexposed conflicts of
  interest etc.
• Exacerbated by process opacity
• As relevant through sub-contracting, and the
  engagement of agents/intermediaries
• Can hide under the appearance of legality

8
The risk petry dish

• Obscurity
• Unnecessary complexity
• The speed of crime and the speed of control
  patience, contract enforcement, etc.
• Institutional environment
• Social norms ( for example..)
• Law of silence
• Uncertainty what will the others do? Is there a
  chance to get money out of it?
• Favours pay off the reciprocity principle

9
TIs Approach

• 3 basic elements of TIs approach
• Prevention
• Collaboration
• Role of Civil Society

10
TIs Approach

• Prevention
• TI has demonstrated it is possible
• Control is necessary but can be expensive and may
  come too late
• Transparency
• Facilitates monitoring
• Encourages accountability
• Helps/strengthens law enforcement institution
  building
• Role for Civil Society
• Even in a highly technical matter
• Multifaceted facilitator, independent monitor,
  etc.

11
Preventing Corruption in Public Contracting
Corruption is neither natural nor
unavoidable. Prevention is more effective than
control.
12
Preventing Corruption in Public Contracting

• Aprox 75 of respondants Bribes do help solve
  the problems
• (Map of Corruption in Lithuania, 2002)
• Aprox in 67 (avg) of the cases the initiative
  or the reasons to payoff was indirectly
  mentioned, was heard from others or was decided
  by own initiative. (Map of Corruption in
  Lithuania, 2002)
• Only in 5 (avg) of the cases it was directly
  asked (Map of Corruption in Lithuania, 2002)

CORRUPTION
INEFFICIENCY
CAPACITY-ERROR
13
Preventing Corruption in Public Contracting

• Good rules ( institutions) minimum standards
• Good practices good rules are not enough (IP,
  monitoring, oversight)
• Monitoring an important ingredient for the
  accountability recipe
• Transparency (Public hearings, info
  publication, etc.)
• Access to information (Price comparisons)
• Information and Knowledge
• Ethics payoff

14
Preventing Corruption in Public Contracting,
what can I do?

• Bring light into the process GIVE ACCESS TO
  INFORMATION and BE OPEN TO INFORMATION
• Follow the law
• Get help
• Independent monitoring, auditing and control
• Role of Civil Society is key
• All institutions need to respond
• Think
• Where/what are the stages, areas, sectors of
  highest risk and exposure to corruption in public
  contracting?
• How can they be addressed? How to give the
  positive aspects more potential?

15
Anti-corruption measures inmultilateral
agreements and organizations

• 1996 OAS Inter American Convention Against
  Corruption.
• 1997 European Union penalizes active and
  passive corruption.
• 1997 OECD Convention Forbids bribery of
  foreign officials, had forbidden tax deduction
• 1999. Council of Europe Criminal Law Convention
  on Corruption.
• 2000 OECD - ECG Action Statement on Export
  Credit Insurance and Guarantees.

16
Anti-corruption measures inmultilateral
agreements and organizations

• 2003 UN Convention. A valuable global framework
  now signed by a 100 countries and as of the day
  before yesterday ENFORCEABLE!. Mandatory!
• 2003 African Union Convention mandatory to
  maintain and strengthen procedures. Mandatory!

17
Strategies to Prevent Corruption in Public
Contracting changing practices

• With the use of public (civil society)
  participation
• Integrity Pact
• Public Hearings ( Panama, Argentina)
• Price Comparisons (Colombia, Argentina, WTO..)
• Simple monitoring ( Bulgaria, Latvia )
• Procurement law reform ( Philippines)
• Risk maps measurement (LAC)

18
The Integrity Pact

• Legal commitment
• Level the playing field (common, shared, known
  rules of the game)
• Enables companies to abstain from bribing (and
  other corrupt practices) by assuring
• Competitors will also do so
• Government officials won't demand it or expect it
• Enables Government to
• (officials) abstain from corrupt practices
  protect themselves from them
• Reduce costs of contracting
• Applicable through the whole contracting process

19
The Integrity Pact

• A process
• And a legal document structure
• Rights and Obligations to all parties
• Sanctions (evidence, process to issue them,
  liquidated damages)
• Arbitration Clause
• Others (monitoring system, access to information,
  asset disclosure, protected information, codes of
  conduct etc.)
• Role for Civil Society

• No bribes and no facilitation payments
• No collusion
• Access to information and confidenctiality
• Ethical declarations

20
IP Concept

• Helps bring existing norms into actual
  behavior, and non-existing norms into enforcement

LAW
LAW
SOCIAL NORMS
RULE OF LAW
SOCIAL NORMS/ CULTURE/OBSERVED BEHAVIOR
21
Some of TIs IP experience

• Countries
• Argentina
• Colombia
• Chile
• Ecuador
• Italy
• Latvia
• Germany
• Korea
• Mexico
• Nepal
• Pakistan
• Paraguay
• Peru

• Sectors and Areas of Work
• Telecommunications
• Public works
• Transportation
• School supplies
• Office supplies
• Utilities
• Services
• Tourism
• Police supplies
• Local government
• Finance
• Information systems

14 countries
22
Results

• Savings.
• Colombiareports savings ranging between 5 up to
  60 of contracts official budgeted price
• Pakistan Karachi Dam savings of more than half
  of initial budgeted price spill-overs
• Trust. Bidders interviewed for case study said,
  they lost fairly.
• Could potentially save future judicial claims.
• Sanctions
• In some countries, companies have been
  blacklisted for violating the Pact. ( i.e. Italy,
  Korea)

23
Results

• Increased use
• World Bank guidelines
• DAC recommendations for best practice
• UN Habitat Tool Kit
• Business Associations references
• New Applications
• Considered in China, Japan, Nigeria, Russia
• Sector specific adaptations arms trade,
  construction, oil, forestry sectors under way

24
Risks
jolaya

• Its only another piece of paper !
• Its only another step in the bidding process !
• Appealing name !
• Its only about a contract !
• Not in my backyard!
• OOps! No body watched?

25
How to implement an Integrity Pact

• Key Stages
• Identify Capacity
• (Marketing Id. Right Opportunity)
• Obtaining/Sustaining Political Will
• Implementing
• Independent Monitoring

26
How to implement an Integrity Pact

• Some necessary Ingredients
• Political Will
• Facing resistance
• Partnerships
• Independent Monitoring
• Identify success

27
Is there a role for Civil Society in Procurement?

• In trust building
• As an independent facilitator to the contracting
  process
• A final chance to directly address the loopholes
  of the contracting or procurement laws
• A source of support and sustainability for public
  policy
• A tool for conflict management and good policy
  implementation
• CSOs can contribute in bringing balance vs.
  powerful stakeholders.

28
Why implement and IP?

• As Public Official
• Help increase credibility and legitimacy when
  honestly concerned about corruption and
  transparency problems
• Make work easier. The process has support from
  the outset . Reduces unnecessary trials.
• Saves public money
• As Private Bidder
• Makes bidding process easier
• Reduces transaction costs corruption is not free
  of charge or cheap. Winning and loosing fairly is
  cheaper
• Corruption almost always bites back

29
Why implement and IP?

• As NGO (Civil Society)
• Effective and efficient way to generate changes
  at different levels
• As anyone interested in governent change
• A way to start from facts and not from theory or
  law changing actual behaviour.

30
CURBING CORRUPTION IN PUBLIC CONTRACTING THE
INTEGRITY PACT overview Training the Trainers
Workshop Karachi, September 18-21, 2005 Juanita
Olaya Programme Manager Integrity Pact and
Public Contracting Programme Transparency
International jolaya_at_transparency.org
www.transparency.org
31
Preventing Corruption in Public Contracting
Minimum Standards in Procurement Rules (GCR 2005)

• Procurement should be defined as broadly and
  inclusively as possible. Scope of transparency
  and anti-corruption action should be wide from
  early contracting stages (planning, design) until
  contract execution.
• Transparency throughout the whole process is the
  best antidote.
• Open competitive bids is the rule. Exceptions are
  limited.
• Transparent process should allow monitoring on,
  before and after award decision.
• Sanctions for procurement corruption should be
  included as effective detterents (forfeiture of
  bid or performance bond, liability of damages,
  blacklisting.)

32
Preventing Corruption in Public Contracting
Minimum Standards in Procurement Rules (GCR 2005)

• Debarment (Blacklisting) is a very effective
  deterrent ( see cases World Bank and some regions
  in Germany)
• Minimize discretionality. Some systems have given
  good results ( minimum cost and maximum quality,
  Pakistan case).
• Award decision should be collective.
• Award decision should be public. It is desirable
  that it states ground for determing winner ( and
  therefore why the losers lost).
• Awarded contract changes beyond a certain
  threshold should be reviewed by award comittee.
• Integrity Pact or at least an integrity pledge
  (no-bribery clauses) with significant sanctions
  is a good option.