Presentation on

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• Presentation on
• INTEGRITY PACT
• PROGRAMME

September, 2009
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INTEGRITY PACT

• TI India is the Indian Chapter of Berlin
  based-Transparency Intl established to combat
  corruption
• Integrity Pact (IP) Program launched in mid-1990s
  by Transparency Intl to create Islands of
  Integrity.
• It is a voluntary contract between the Buyer and
  the Seller to eliminate corrupt practices. But
  once adopted, it should cover all specified
  tenders/ procurements
• It entails commitment and/or understanding
  between buyer seller not to seek any material
  consideration/ favour for awarding the contract
  or business.
• It establishes mutual contractual rights
  obligations
• It brings transparency and enhances the
  credibility of the organisation

Integrity Pact Programme
Transparency International India
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• Need for Integrity Pact
• Large scale corruption occurs particularly in
  Govt and PSUs procurement programs and works
  contracts, mostly those funded by international
  financial institutions.
• Such corruption results in major drain of
  valuable resources. It impedes the development
  process, corrodes the moral fiber of the society
  and affects the BPL most.
• It is felt that the higher the level of
  corruption in an organization, the greater will
  be the resistance to IP Program as it directly
  affects the financial interests of corrupt
  officials.

Integrity Pact Programme
Transparency International India
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WHY NEEDED IN INDIA

• India is perceived to be among the most corrupt
  countries. It ranked 85th among 180 countries in
  CPI-2008. It is at the 19th position in BPI among
  the 22 major exporting countries.
• Frequent scandals/delays occur in large Govt.
  contracts and other procurements. This
  significantly increases their cost and causes
  delays.
• Existing anti-corruption institutions have had
  limited success in fighting corruption.
  Therefore, a new initiative is needed.
• IP Program offers a way to supplement existing
  methods and make efforts more effective in
  reducing corruption.

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EFFECTS OF INTEGRITY PACT

• Helps governments, businesses and civil society,
  which are prepared to fight corruption in the
  field of public contracting - both for
  procurement and works.
• Enhances public trust in government contracting.
• Improves the credibility of government procedures
  and administration.

Transparency International India
Integrity Pact Programme
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POTENTIAL USERS OF INTEGRITY PACT

• Public Sector Undertakings
• Indian Corporates
• Other large Organizations such as Hospitals,
  Schools, etc.

• Central Government Departments
• State governments
• Municipal Governments

Transparency International India
Integrity Pact Programme
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BENEFICIARIES

• Government (1) Help in speeding up and
  streamline contract management process.
• (2) Lower the cost of procurement and works.
• (3) Reduce harassment faced by honest officials.
• Contractors and Suppliers Makes process more
  efficient, and reduces their business cost.
• Nation Spillover benefit of accelerating
  economic growth.
• LOOSERS
• Corrupt officials, Politicians, Contractors and
  Suppliers who will fight for non-implementation
  of this Program.

Transparency International India
Integrity Pact Programme
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PRIMARY OBJECTIVES

• Enables Companies to abstain from bribing by
  providing assurances to them that -
• i. their competitors will also refrain from
  bribing,
• ii. the Government will undertake to prevent
  corruption, including extortion, and to follow
  transparent procedures
• Enables Governments to reduce the high cost,
  adherence to specific quality and the distortion
  impact of corruption in public works
  procurement.

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• Efforts to Adopt IP
• CVC Circular CVC issued Standard Operating
  Procedure on May 18, 09 (appending copies of
  its earlier circulars of 4 Dec., 07, May 19,
  08, Aug. 5, 08, etc.) laying guidelines for
  IPs adoption, IEMs role appointment, review
  system etc. for IPs implementation in respect of
  all major procurements
• DPT vide its Circular No. 372/13/2009-AVD-III
  dt. 16.6.09 suggested to all State Chief
  Secretaries to consider IP adoption in respect of
  SPSUs as outlined by CVC
• Second Administrative Reforms Commission -
  Following the TI Indias presentation on Dec 1st,
  2006, the IInd Adm. Reforms Commission in its IV
  Report on Ethics in Governance has recommended
  the adoption of IP.
• Review of IP Implementation RINL, Vizag,
  organised a seminar on Aug. 12, 2009. It was
  attended by CVC, TI India and the Jt Secy
  (Steel), besides various PSUs representatives

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Adoption in India Ministry of
Defence In its 2008 Procurement Policy, it has
proposed to adopt IP in defence deals of Rs 100
crores and over, and Rs 20 crores in its
Enterprises So far, 38 CPSUs are committed to
adopt IP both in letter and sprit Oil Natural
Gas Corp.- being the first (April 17, 2006). It
was followed by - GAIL, Oil India, BPCL, HPCL,
Indian Oil, Chennai Petroleum Corp, Coal India
and its subsidiaries, 10 Steel PSUs, namely,
RNIL, Steel Authority of India Ltd, Bharat
Refractories Ltd, National Mineral Dev Corp.,
Ferro Scrap Nigam Ltd., Metal Scrap Trading
Corp., Manganese Ore India Ltd., Kudremukh Iron
Ore Co Ltd., Hindustan Steel Works Construction
Ltd., Metallurgical and Engineering Consultants
India Ltd., Neyvelli Lignite, BHEL, NTPC, NHPC,
Airports Authority, MTNL, BSNL, Container Corp,
RITES, Hindustan Copper Ltd. and Shipping Corp.
of India. Expected Shipping PSUs Port
Trusts, State PSUs, etc.

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KEY FEATURES

• The commitments obligations of the PRINCIPAL.
• The commitments obligations of the
  Counter-party (i.e., the Bidder, Contractors, and
  Suppliers).
• The role responsibilities of the Independent
  External Monitor (IEM) to ensure compliance of
  obligations in all phases of the contract
• Consequences of violation of commitments
  obligations.
• IP Implementation guidelines.
• Periodic review of IPs effectiveness.

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COMMITMENTS OBLIGATIONS OF PRINCIPALS

• The Principal would commit to have most ethical
  corruption-free business dealings with
  Counter-parties.
• The Principal will honour its commitments and
  make payments in a timely manner.
• The Principal will values its relationship with
  all counterparties and will deal with them in a
  fair and transparent manner.
• In competitive tenders, the Principal will deal
  with all counter-parties with equity, reason
  fairness. Contd.

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COMMITMENTS OBLIGATIONS OF PRINCIPAL

• The Principal and/or its Associates (employees,
  agents, consultants, advisors, etc.) will not
  seek any favour, benefit or accept bribes for
  themselves or for third parties.
• The Principal will exclude all Associates who may
  be prejudiced or have a Conflict of Interest in
  dealings with Counter-parties.
• The Principal will initiate action and pursue it
  vigorously whenever corruption or unethical
  behaviour comes to notice.

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COMMITMENTS OBLIGATIONS OF COUNTERPARTY/BIDDER

• The Counterparty, directly or indirectly (through
  agent, consultant, advisor, etc.), will not pay
  any bribe or extend illegal benefit or provide
  undue advantage to any one while dealing with the
  Principal .
• The Counterparty will not engage in collusion,
  price-fixing, etc. with other Counterparties in
  dealing with the Principal .
• The Counterparty will not pass on to any third
  party any information of the Principal unless
  authorized by the Principal.
• Contd.

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COMMITMENTS OBLIGATIONS OF COUNTERPARTY/BIDDER

• The Counterparty will promote and observe best
  ethical practices within its organization.
• The Counterparty will inform the Independent
  External Monitor
• If it receives demand for a bribe or illegal
  payment/ benefit/favor
• If it comes to know of any unethical or illegal
  practice in the Principal
• Of all payments it makes to the Associates of the
  Principal in its periodic report.
• The Counterparty will not make any false
  statement or allegation against the Principal

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INDEPENDENT EXTERNAL MONITOR (IEM)

• According to CVC, it will be a voluntary and
  non-salaried position.
• His/her remuneration may be similar to
  Independent Directors in the organization.
• IEM will have stature/ benefits similar to those
  of the chairman of the Board Audit Committee.
• His major role is to oversee the IPs
  implementation to prevent/eliminate corruption,
  bribes and other unethical practices in the
  Principal because only IEM has the wide access to
  both the parties.
• Though IEM does not have any administrative,
  implementation or enforcement responsibilities,
  he is to coordinate with other anti-corruption
  organizations.

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INDEPENDENT EXTERNAL MONITOR

• He will have the right to attend any meeting
  between the Principal and the Counterparties as
  well as internal meetings of the Principal.
• The Principal, in consultation with CVC and TI
  India, will appoint IEM to oversee IP
  implementation effectiveness
• IEM will coordinate with other anti-corruption
  organizations such as CVC. He may engage services
  of outside agencies such as accounting firms, law
  firms, etc., if required, in discharge of his
  responsibilities.
• If he observes or suspects any irregularity, he
  will inform appropriate senior most officer of
  the Principal, CVC and TI-India. He can also make
  the information public.
• He can be removed from his office only with the
  consent of CVC and TI-India through an open and
  transparent process.

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Eligibility of an IEM

• IEM will be a person of high impeccable integrity
  and experience in the relevant fields.
• A maximum of three IEMs would be appointed in
  Navratna PSUs and upto two IEMs in other PSUs.
• While recommending the names for IEMs to CVC,
  their detailed bio-data, including details of
  their postings during the last ten years before
  superannuation, in case the names relate to
  persons having worked in the government sector,
  should be sent to CVC. The bio-data should also
  include details regarding experience older than
  ten years before superannuation of the persons
  proposed as IEMs, if they have relevant domain
  experience in the activities of PSUs where they
  are considered as IEMs.

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VIOLATIONS CONSEQUENCES

• If a Counterparty commits any violation of the
  Integrity Pact, it may loose Bid Security and
  Performance Bond. In addition, the Principal will
  terminate any current contract and business
  relationship with such Counterparties and their
  associates.
• The Principal would black list and exclude the
  Counterparty from future dealings until the IEM
  is satisfied that the Counterparty will not
  commit any violation in future.
• The Counterparty will be liable to damages as
  determined by the IEM.
• The Principal may initiate criminal proceedings
  against violating Counterparties.

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PROCEDURE FOR ADOPTION

• The process starts with the commitment from all
  Senior-level officials of the Principal to
  implement the program.
• To select and appoint IEMs in consultation with
  CVC TI-I
• To develop detailed implementation plans and
  modify IP document in consultation with the TI
  India, IEM and/or senior staff members and major
  contractors/Venders.
• Depending on their business environment, all PSUs
  should initially fix a threshold limit to cover
  around 95 of contracts. Later on, this limit
  can be revised.
• Drafts of the MoU and the proposed Integrity Pact
  have to be approved by CVC and the TI India.
  Model Drafts can be had from the CVCs website
  www.cvc.nic.in or from TI-I.
• Signing of MoU between TI India and the
  Principal.
• Put plans to implement IP Program and IEMs
  contact details on the Principals web-site and
  publicise it through the media.

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PERIODIC REVIEW EVALUATION

• It is recommended that the Principal will
  periodically review the progress and
  effectiveness of IP Program through all or some
  of the following
• IEM to submit a Quarterly Report on the IPs
  functioning.
• The IEM and senior leadership of the Principal do
  a self-assessment of Integrity Pact Programs
  effectiveness and identify areas/ways to improve.
• The Principal to conduct periodic reviews by
  outside agencies (including Government officials,
  suppliers, independent observers) on IPs
  effectiveness in reducing corruption.
• The Principal along with IEMs to meet with CVC
  and TI-India on an annual basis to discuss the
  above.

Transparency International India
Integrity Pact Programme
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EXPERIENCES OF ONGC

• Greater transparency and integrity between buyer
  and seller
• Improved sense of ethics in ONGC and its Bidders
• Speed up of Tender and Procurement Process
• Reduction in the interventions in
  contracts/tenders
• Speedy decisions since matters are referred to
  IEMs
• Less procurement cost due to early finalization
• Reduction in no. of representations/complaints -
• (i) 62 representations referred to IEMs
  till July 08 (ii) frivolous lawsuits and
  complaints from Vendors

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Bidders (like GCA, Schlumberger, Gesco,
Halliburton, Transocean , Jindal Drilling, CIPL,
CDSS, ISMTL, OCTL, BHEL, BPCL, HSL, BL,
HPCL,HAL, All Engineering EPC contractors etc.)
and NSIC registered and Foreign vendors have
signed the IP for all ONGC tenders. However,
some have been given dispensation from signing
IP. These are - OEMs/OESs/ Proprietary Article
Manufacturers like M/s Altair Filter Technology,
UK, M/s GE International Inc, Dubai, M/s Haskel
(Asia) Pte., Ltd, Singapore and M/s Indian
Ordnance Factory, Pune
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An Example of Frivolous Complaint Four MPs
complained that while evaluating the commercial
responsiveness (i) unwanted relaxations were
granted to the Consortium bidder, led by M/s
Great Offshore and another bidder M/s Naftogaz.
(ii) M/s Sub Ocean, one of the consortium
partners with M/s Great Offshore, was stated to
be not meeting the financial criterion regarding
turn over. The Statutory Auditors expressed
doubt about M/s Naftogazs financial position.
Hence, the representationist sought that the
above two bids ought to be rejected. (con
td)
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(from the previous slide) In the Joint Report,
the panel of 3 IEMs opined that (i) the
relaxation granted to the consortium of M/s Great
Offshore in the matter of turnover criteria in
relation to M/s Subocean seems to be in order and
does not bestow any undue advantage. (ii) In
the case of M/s Naftogaz, the Balance Sheet of
2006 (not available during evaluation) resolves
the issues raised by the earlier BS of 2005.
Presently, the BS of 2006 is available and
demonstrates that the financial position of the
parent co.M/s Nafto Gaz, Ukraine is sound and
consequentially, Naftogaz India is commercially
responsive.
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ONGCS SUGGESTIONS

• To have a threshold limit of Rs. 1 crore in terms
  of value for submission of Integrity Pact. It
  forms more than 95 of tenders by value.
• To submit Integrity Pact on a plain paper, which
  shall be applicable for all tenders.
• To incorporate suitable modifications in the
  Standard Tender, Contract conditions and all
  other Tenders/Contracts including the Turnkey
  Contracts.
• The clauses on Bid and Performance Security be
  suitably modified to cover the invoking of Bid/
  Performance Security in case of IP breach.
• Arbitration clause needs to be amended reframed
  to exclude those disputes which were referred to
  IEMs

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RINLs EXPERIENCES

• Improved the image as an ethical organisation
• Eliminated corruption in Procurement
• Improved Vendors Satisfaction
• Speeded up tender procurement processes
• Lowered the cost of doing business
• Reduction in no. of complaints
• SUGGESTIONS
• CPSUs Annual Meet to share experiences
• Periodic Interactive sessions with all IEMs
• Setting up of a IP website for sharing experiences

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EXPERIENCES OF NMDC

• IP has improved NMDCs image among customers
• Bids have been rejected resulting in less
  corruption
• Increase in the number of complaints
• No visible changes in the offered price
• No proof of benefits accrued (So far, IP covers
  about half of all the contracts, and is limited
  to procurement contracts)
• IEMs are generally busy
• As per the SOP, the references have to be sent to
  all IEMs, which results in delays

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EXPERIENCES OF HPCL

• Confidence of bidders in tendering process
• Intangible benefits due to systems improvement
• Increased clarity in tenders
• Need for information sharing between PSUs on
  matters referred to IEMs
• Interaction with IEMs There were two meets on
  Feb 28 and June 26, 2009. It was realised that
  the role of IEM is limited only till contract is
  finalised

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EXPERIENCES OF INDIAN OIL

• Impartial objective assessment of critical
  issues
• Minimisation of delay due to quicker resolution
  of tender issues/complaints
• Enhanced transparency oriented perspective as
  regular reporting to IEMs is a standard protocol
• Indirect cost-saving through minimisation of
  delays in tender finalisation
• Occasional direct cost saving through
  finalisation of tender at a lower value
• Suggestions - (i) Greater clarity of IEMs role
  in terms of long term contracts, (ii) Competent
  body to decide application of IP in tenders, and
  (iii) information hoisting by TII with regard to
  parties complying with IP on a global basis.

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EXPERIENCES OF CIL

• Since March 19, 2008, 13 tenders have been
  floated with IP
• All bidders have submitted signed IP
• Four complaints against two tenders, received
  pseudonymous complainants, were referred to IEMs.
  They did not find any merit in them.
• Advices Sought with regard to (i) standard
  procedure for forwarding complaints/representation
  s, (ii) deal with pseudonymous complainants,
  (iii) suspected irregularities by prospective
  bidders, (iv) IEMs more involvement in pre- and
  post-tender process, and (v) best method to
  measure the effectiveness of the IP Programme.

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CONCLUSION

• If Integrity Pact is adopted sincerely in
  business dealings of Ministries PSUs, it would
  certainly -
• introduce greater honesty, integrity and
  transparency
• enhance the credibility of the organisation
• facilitate considerable reduction in the overall
  cost of the projects
• reduce considerable possibility of conflict
  between the Principal and the bidders
• Minimise litigations due to IEMs involvement
• Like Pakistan, the Indian government may also
  consider to include IP programme in its Public
  Procurement Rules after assessing the success of
  this experiment.

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Thank You
Transparency International India
Integrity Pact Programme