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Leading Multilateral Development Bank Forge Agreement to Tighten Sanctions on Corrupt Firms
From the World Bank
- Five multilateral development banks (MDBs) sign cross-debarment agreement; additional regional development banks encouraged to participate - World Bank and the regional development banks for Africa, Emerging Europe, Asia and latin America.
- Cross-debarment agreement multiplies impact of every decision taken by the Bank to debar corrupt entities.
- The World Bank has debarred 399 firms, individuals, and non-governmental organizations, rendering them ineligible to participate in World Bank-financed contracts.
The multilateral development banks (MDBs) have agreed to cross-debar firms and individuals found to have engaged in wrongdoing in the development projects that the organization’s finance.
“Fraud in development projects disadvantages the most vulnerable. This agreement is an important signal that the development banks are making a concerted effort to sanction corruption around the world,” said Huguette Labelle, Chair of Transparency International (TI).
“A clear message on anticorruption is being delivered: Steal and cheat from one, get punished by all,” said World Bank Group President Robert B. Zoellick. "This action gives all our Banks a strong new tool to hold accountable firms that are engaging in fraudulent and corrupt practices in development projects, as well as a powerful incentive to companies to clean up their operations. The rules of the road have gotten tougher. This accord also underscores to our member governments that scarce development financing goes where it is intended.”
Under the agreement, entities debarred by one MDB may be sanctioned for the same misconduct by the other participating development banks, in effect closing a loophole that had previously allowed a firm that had been debarred by one MDB to continue obtaining contracts financed by other MDBs.
MDBs participating in the agreement will continue to manage their independent strategies to deter and prevent fraud and corruption in projects. However, the new agreement offers an opportunity to deepen the cooperation between participating MDBs on fraud and corruption risk management and creates opportunities for joint investigations where relevant.
“As the Bank Group ramps up its commitments to support countries affected by the global crisis, we must assure our donors and client governments that we are responsible stewards of funds; that we are doing enough to guard against delinquent companies and risk-prone sectors; and that we are helping governments show their people, through governance and anticorruption efforts, that they can have confidence in government and public institutions,” said Zoellick.
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US Inspectors General: Accountability is a Balancing Act
A report from the Project On Government Oversight
The Project On Government Oversight (POGO) is an independent nonprofit that investigates and exposes corruption and other misconduct in order to achieve a more effective, accountable, open and honest federal government.
From the new report: POGO says the single most important recommendation will be that IGs, as well as their stakeholders in the administration, Congress, and public, continually and thoughtfully review whether they have achieved the appropriate balance in a number of areas, including:
Quantity vs. Quality
The IG law requires Semi-Annual Reports from each OIG, covering the preceding six months’ activities. The law in fact spells out, page after page, the numbing list of statistics, facts, and figures that are required. But POGO urges IGs to be more thoughtful in their reporting, so that the meaning behind the numbers is evident, and the reports exhibit some balance between quantity and quality.
Prioritizing: Big Windows vs. Little Windows
Former CIA IG John Helgerson told POGO, “We have to wash the big windows and ignore the little ones.” But some OIGs spend inordinate amounts of scarce time and resources on smallwindow issues. We acknowledge that small issues can sometimes grow into something large and ugly, so exhort IGs to periodically reassess whether they are putting their energies and resources into overseeing the most significant issues facing their agencies.
Inward vs. Outward Focus
It is no secret that there are many different federal agencies with significantly different missions. However, it may not be quite so obvious that the 67 statutory IGs, in overseeing their respective agencies, should reflect the agency’s focus with their own. For example, HHS spends roughly 85 percent of its budget on programs such as Medicare and Medicaid; and the IG for HHS spends about 83 percent of his budget helping the Department ensure that those programs are not defrauded. POGO’s concern is that the remaining 17 percent must be spread so thinly over all the important issues of FDA, CDC, NIH, and public health emergencies. Once again, POGO does not say the percentages should be rigid or the mirroring exact, but we do strongly recommend
that IGs periodically review whether their emphasis is in balance.
Impact: Roar, Don’t Squeak
It should go without saying: an OIG must have impact to be successful. Its reports and actions must make a difference in its agency’s programs and activities. We would frankly like to see IGs shouting their findings from the rooftops. Instead we all too often find OIGs hiding behind such protestations as, “we don’t leak” or “IGs don’t talk to the press.” We don’t need any more showboats in Washington, and no agency chief will appreciate first learning about problems from a blaring headline. But if an IG is doing his or her job exposing or even preventing waste, fraud, abuse, and misconduct, then we want to hear about it. An IG report falling silently in the forest is just a waste of trees. POGO strongly urges IGs to do much more outreach—to the public as well as to Congress.
Shameful: Whistleblowers and IGs
Easily our most troubling finding was that IGs, the very offices charged by Congress with
receiving complaints about agency problems, all too often treat those complainants or whistleblowers as mere afterthoughts. Even IGs who give lip service to the importance of
whistleblowers and their disclosures often fail to protect them from retaliation by their managers. Here is one issue on which POGO does not demand balance: we strongly urge all OIGs to treat the information from genuine whistleblowers with the significance it merits, and treat the complainants with the dignity and protection they deserve.
POGO’s Recommendations include:
• All IGs should be cognizant of their impact, and focus more on outcomes than outputs.
• IGs should regularly review their focus to determine if they are appropriately balancing
their programs and activities based on the most significant issues facing their agencies.
• Congress should consider revamping the reporting requirements of the Inspector General Law so that Semi-Annual Reports (SARs) are more meaningful and reflective of the information that Congress and the agencies actually need and use.
• Even in the absence of a change in the law, IGs should focus their SARs on the most significant audits, investigations, and inspections or evaluations, while briefly summarizing the others.
• The entire IG community should engage in a review of how it treats whistleblowers, including how it handles hotline callers. This means having a well-trained and experienced unit dedicated to conducting thoughtful examinations of both the disclosures
made and of any allegations of retaliation.
• Congressional offices should carefully reconsider the impact of mandates on the ability of OIGs to perform their missions.
• The Integrity Committee should make explicit recommendations at the end of an investigation conducted under its auspices.
• The Integrity Committee should not be chaired by the FBI’s designee to the IG Council. That FBI official should instead be an advisor to the Integrity Committee. The Chair of the Committee should be an Inspector General with experience in investigating sensitive matters.
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New Rules for U.S. Federal Government Contracting: You Must Report Wrongdoing
Analysys from the Ethics Resource Center
The Policy Report
By Paula J. Desio, ERC Chair on Ethics Policy
As part of its ongoing efforts to promote the “highest degree of integrity and honesty” in the procurement process, the federal government now requires self-disclosure of misconduct by all companies performing government contracts.
The new rule flows down from government contractors to their subcontractors and suppliers, extends to companies providing commercial items as well as specific performance contracts, and applies outside the United States, when certain value and duration thresholds apply.
A year of controversy surrounded consideration of the new requirement that companies make a “timely disclosure” and “fully cooperate” with the government when violations of certain criminal and the civil False Claims Act are detected. Failure to notify the contracting officer and the appropriate Inspector General now constitutes grounds for contractor suspension and debarment from future government business.
Voluntary Policing Rejected
The Department of Justice advocated aggressively for this new rule because it views the existing voluntary disclosure program for contractor misconduct as increasingly inadequate. The voluntary disclosure program was instituted in 1986 by the presidentially appointed Packard Commission investigating the defense procurement scandals of the 1980s. The Commission favored self-governance and a partnership with companies committed to business integrity as the most promising mechanism to foster contractor compliance with ethics and integrity standards. This view has now been soundly rejected by the Federal Acquisition Regulations Council, the agency responsible for government procurement rules.
Recognizing that it has made a “sea change” in policy and practice, the FAR Council determined that the voluntary disclosure program has been largely ignored for the past decade It justified its view on the basis of statistics on the existing program’s infrequent use and information from various Inspector General offices that most of their investigations did not relate to matters that had been voluntarily disclosed by contractors.
These revised business integrity rules for contractors also require full cooperation once disclosure is made to the government. Cooperation is defined as “information sufficient for law enforcement to identify the nature and extent of the offense and the individuals responsible for the conduct.” This includes timely and complete responses to government auditors’ and investigators’ requests for documents as well as access to employees. These standards are similar to those initially set out by the federal organizational sentencing guidelines, and the FAR Council commendably built on these and other existing standards to promote a greater measure of uniformity in federal rules and standards.
Wisely, the FAR Council also included a specific provision that contractors are not required to waive their attorney-client privilege when they disclose wrong-doing.
Business Community Input
DOJ’s broad initial proposal was also narrowed in two ways that are more favorable to the contractor community. First, in the face of substantial comment and concern about a potentially limitless landscape of rules that could be broken by contractors and the lack of resources to identify them all, the FAR Council limited the substantive criminal violations that must be disclosed to violations of laws involving fraud, conflicts of interest, and bribery and gratuity prohibitions. This realignment is internally consistent with the jurisdiction of the Inspectors General who will be receiving the mandatory disclosures.
Second, after further discussions with industry representatives, DOJ supported a change to its own proposal that would give contractors more opportunity to examine potential violations and decide if a mandatory disclosure is appropriate. The standard that was originally proposed -- that a contractor must disclose when it has “reasonable grounds to believe” a criminal violation has occurred -- was replaced with a higher standard of “credible evidence.” This change is intended to give contractors adequate time for preliminary examination of the information it can develop, typically through an internal investigation, although such a formal step is not an actual requirement.
Potential Protection for Companies
There is a nugget of potentially helpful news in all of the paper surrounding the new mandatory disclosure rules Buried in the hundred-plus page discussion of public comment and policy considerations preceding its release of the final rule last November 12, the FAR Council specifically noted that “[e]xisting DOJ guidelines addressing corporate prosecution standards, while certainly not providing amnesty, suggest that if a company discloses such [designated] violations, the prosecution will be of individuals responsible for the violation, not the entire organization.”
While the FAR Council cannot legally bind Justice, this observation arguably reflects a policy preference by the procurement authorities that company prosecution is not necessary when self-policing is taken seriously. This conclusion seems a sensible and well-motivated trade-off for the FAR Council’s adoption of DOJ’s initiative to make a fundamental shift from voluntary to mandatory disclosure.
Obstacles En Route
In the immediate future, many practical questions will have to be addressed about implementing processes and procedures to ensure full compliance with the new requirements. Fundamentally, contractors concerned with their obligation to inform their subcontractors of these new “flow-down” requirements will legitimately ask if their own commitment to business integrity includes some training and information exchange with their smaller suppliers, research partners, and overseas contractors. Major U.S. companies and organizations have undertaken this effort in the past without the looming specter of mandatory disclosure, and have developed sound methods to accomplish this goal.
The business ethics community can serve as a valuable and accessible ally for advancing these newest rules to foster improved integrity in the workplace. In these times of cost-cutting and restraint, “lessons learned” should be shared. ERC will be working with partners to advance this effort.
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Project on Government Oversight Releases New federal Contractor Misconduct Database
President Bush has signed into law the Fiscal Year 2009 National Defense Authorization Act, which includes a provision to establish a database of information regarding the integrity and performance of federal contractors and grantees. Coinciding with the signing of the new law, the Project On Government Oversight (POGO) released its updated Federal Contractor Misconduct Database (FCMD) www.contractormisconduct.org. The government database is modeled after POGO’s database, which was originally released in 2002. However, POGO noted that the new government database will not be accessible to the public.
POGO’s updated FCMD features various format changes, new search and sort features, and an expanded list of contractors that now includes the top 100 federal contractors. The FCMD now includes over 750 instances of misconduct including fraud, antitrust, environmental, securities and labor law violations since 1995.
With 47 instances, Lockheed Martin remains the company with the most instances of misconduct. Exxon Mobil and General Electric leapt to the 2nd and 3rd slots, with 32 and 30 instances respectively, beating out Boeing and Northrop Grumman, which held those positions in POGO’s FCMD last year.
"POGO applauds the government database as a positive step toward greater contractor accountability, even though it will be less comprehensive than POGO’s Federal Contractor Misconduct Database and, more importantly, it is not accessible to the public,” said Scott Amey, POGO General Counsel.
Equally important to note in the FCMD is that 25 of the top 100 contractors do not have any known instances of misconduct in the database. The fact that one quarter of the government’s top 100 contractors have no known instances of misconduct belies the myth that any company big enough to do business with the government will inevitably have multiple instances of wrongdoing. Additionally, 14 of the contractors only have one instance in the database, which means that 39 of the top 100 government contractors do not show a pattern of misconduct.
Some disturbing examples from POGO’s new FCMD include:
KBR -- An audit report by the Department of Defense Inspector General found that the Navy paid approximately $4.1 million for meals and services that should have cost $1.7 million, and inappropriately paid a markup on material and equipment that cost an additional $7.2 million. The report recommended the Navy seek a $1.4 million refund from KBR for the inappropriate payments.
United Technologies Corporation -- Pratt & Whitney (a division of UTC) and its subcontractor,PCC Airfoils LLC, agreed to pay $52.3 million to the federal government to resolve False Claims Act allegations that they knowingly sold defective turbine blade replacements for engines used in F-15 and F-16 fighter aircraft.
GlaxoSmithKline -- An Alabama state court jury found GlaxoSmithKline liable for misrepresentation by overcharging the state Medicaid program for medications. GlaxoSmithKline was ordered to pay the state $80.9 million.
IBM -- IBM agreed to pay $20 million to settle a shareholders lawsuit that claimed the company misled the public about employee stock-option expenses in 2005.
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Studies in Public Hospital Procurement Show Need for Multi-Strategy Approach to Combat Graft
A number of studies have been done on corruption in public services, but there are relatively few on corruption in public hospital procurement. Studies by Social Insight, which appeared in a U4 brief, analyzed several initiatives in Argentina, Bolivia and Venezuela aimed at combating corruption in this area. The studies were meant to test the commonly accepted hypothesis that higher wages are an effective measure in preventing corrupt behavior. The conclusion in every case was that raising wages alone did not necessarily prevent corruption, but when implemented with other initiatives, such as publishing what officials paid for particular supplies, delegating responsibilities to the local levels, and enacting effective punitive measures, success in curbing corruption had a better chance of being sustained.
Download the full briefs from U4:
The City of Buenos Aires raised the salaries of its public hospital purchasing agents to US$375 more than the same manager in the standard labor market in an effort to curb corrupt behavior. There continued to be large, unexplained discrepancies in prices paid for supplies across the hospital system, a finding researchers attributed to corruption. The same researches never found any correlation between pay and corruption. It was also observed that purchasing managers were at very low risk of losing their jobs. Researchers concluded this attitude was a more likely cause of sustained corruption.
In a different study, levels of corruption were monitored before and after the government of Buenos Aires began to collect information about prices paid for a wide range of non-pharmaceutical medical supplies commonly purchased by hospitals. After the first round of collection, the data revealed very wide dispersion in prices paid for very simple and homogeneous products. When the information was dispersed throughout the hospital network, prices began to go down. Researchers could conclude that corruption was mitigated because prices fell in anticipation that the prices would continually be reported, and there was a greater fear of being caught. However, in the last five months of the initiative, prices began to increase. No one was ever investigated or reprimanded for overpaying, so increasing transparency in the procurement process had only a short-term effect.
In contrast to Argentina, researchers found a relationship between pay and corruption, but one that saw an increase in wages directly related to an increase in corruption. Hospitals that paid their purchasing managers more were also the hospitals that paid more for their medical supplies. Respondents from these hospitals felt the likelihood of being detected for graft was only 31 percent, compared to 48 percent for theft and 72 percent for being absent without an excuse. Because there were no initiatives to investigate wrongdoing and punish those guilty of corruption, researchers speculated that there was a high degree of collusion between highly paid hospital directors and purchasing managers.
A national law devolved numerous responsibilities, such as hospital procurement, to municipalities and to representative bodies that included local citizens. Some local directorates were found to be much more active than others. Researchers found that hospitals that were supervised by active directorates paid 40 percent less on average for specific supplies than hospitals supervised by less active directorates. Overall, local supervision appeared to be more effective at controlling corruption than the standard ‘vertical’ controls embedded in the management and administrative channels of the public health system.
Based on the numerous studies done in these countries, it is clear that combating corruption will require numerous strategies, most importantly the existence of real consequences that will deter those who engage in corrupt practices. Embedding more transparency in the purchasing network helps to target where corruption is taking place and may deter some in the short-term and local bodies appear to be most effective at managing corruption. However, neither of these initiatives will be as effective without investigations and reprimands for guilty parties.
U4 is the global anti-corruption association whose members regularly produce reports on corruption across many sectors. Social Insight is an American consulting organization that provides economic analysis, research, and dialogues for policymakers interested in social equity.
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U4 Policy Paper: Good Governance Key to Anti-Corruption Policies in the Forest Industry
A recent study from U4, the Norwegian-based Anti-Corruption Resource Center, gives an in-depth picture of how the forest industry functions and where cracks exist that allow corruption to seep in. According to U4, “Corruption is directly linked to illegal and unsustainable logging, a problem that causes significant environmental damage in terms of erosion and reduced water quality, loss of biodiversity and challenges for communities that are settled in natural forests.” At the core, problems in the industry are simply a result of poor governance. Each country has a different forest management policy. The process involves cooperation between the government and the private sector through concession contracts.
U4 gives a number of explanations as to why the current systems are not working:
- Sometimes logging occurs in clear violation of forest regulations. Law enforcers themselves may be implicated or play an active role in corruption.
- In some countries, forests are seen as an abundant resource, so regulatory authorities do not take proper precautions.
- There are insufficient human and financial resources to conduct effective monitoring.
- Commercial interests are often allowed to influence timber production at the cost of environmental concerns. Many firms have drawn more benefits from weak regulatory frameworks and have enough influence to maintain these systems.
In order to address these concerns, serious thought must be put into the design of each country’s forest management policy, according to U4. A “one-size fits all” strategy will not be effective as each market is different.
Some factors that should be considered:
- The government should make a list of its priorities with regard to the forest industry and reduce the amount of commercial interest on regulation. Each government should identify its unique challenges and all the opportunities where corruption can take place.
- Long-term contracts are most applicable in rapidly growing forest areas/plantations, the report states. In slower growing forest areas that have less market benefits, short-term contracts are more applicable, and better monitoring will be needed. Performance reviews based on simple and transparent criteria, which are conducted regularly, will provide better incentives for performance in these areas.
- Fee collection associated with the license to operate in a forest area is easily subject to corruption. A good forest management policy should have a detailed and comprehensive plan to formalize this royalty system.
- The awarding of contracts will depend on the market in each country, but “sealed bid auctions” are usually considered the optimal system because it reduces the opportunities for collusion between bidders, according to U4. Bribery and collusion often occurs in secret, so making the process more transparent will be important to reduce this type of crime.
- Illegal logging is still a large problem. Even when rules are established, many firms that practice illegal logging have not been prosecuted because they have political influence. Enforcement of the concession policies should be strictly carried out, and credible sanctions should be instituted when necessary.
- A lack of competition in the industry gives a firm more leverage to manipulate the rules. It is critically important to clarify the opportunities for renegotiation in the concession system and to erect barriers to opportunistic renegotiation after the bid was won. Governments can also foster competition in the forest industry by more strongly engaging with domestic competition authorities.
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UK Advocacy Project Recommends Actions to Reduce Corruption in Defense Sectors
The Bribe Payers Index ranks the defense sector in the top three most corrupt business sectors, says the Defense Against Corruption in a recent discussion paper. The project, led by the UK chapter of Transparency International, has published its views on the root causes of corruption in defense and what actions can be taken by various stakeholders to stop it.
Globally, there are a number of reasons TI-UK cites that contribute to corruption in this sector. Very large amounts of money are spent on arms and are typically in the hands of a few people. It is also a highly technical industry, which makes it difficult for outsiders, and some insiders, to understand the process. The defense industry makes use of a number of agents and middlemen, so illicit transactions can be hidden easily. Adding to this, it is the industry with the least amount of oversight and the least amount of competition in the procurement process.
TI-UK names three types of corruption in defense:
Defense officials (ministers and military staff)
Political contexts and controls
There are a number of key players that can affect the way business is done in the defense sector. TI-UK recommends that there be a stronger partnership among these groups to share information. The groups mentioned in the paper include:
National defense ministries and military leadership
Arms exporting governments
Civil society organizations
International Development Banks
International defense bodies (such as NATO)
Defense academies, universities, and training agencies
In creating a strategy among these groups, TI-UK stresses the importance that there must be an equal effort from all countries. In addition, TI-UK cites that in 2006, the United States accounted for 46% of global military expenditures and was the leading exporter of conventional weapons, followed closely by Russia. Therefore, according to the paper, support from the U.S. and Russia for anti-corruption policies in this industry is especially critical.
Based on its own anti-corruption work across industries, TI-UK has the following recommendations for key players:
Defense ministries and military leadership
Arms exporting governments
Multinational development banks
Civil society organizations
1. Talk openly about the need to address corruption and the benefits to be gained from building integrity.
1. Collaborate with other defense companies, to raise anti-corruption standards in tendering.
1. Publicly demand strong anti- corruption practices from national defense companies.
1. Insist on publishing (complete) defense budgets.
1. Engage the defense establishment.
2. Conduct a thorough diagnosis of the key problems to focus on solutions.
2. Have a strong compliance program. There are good examples to copy.
2. Actively support international efforts to raise standards, by working with defense companies and talking to multilateral organizations.
2. Require anti-corruption diagnostics and measures to assess the defense establishment as well as other areas of government.
2. Organize meetings with the government and other interested parties to raise awareness.
3. Use the twin themes of building integrity and transparency.
3. Show rigorous implementation of the compliance program.
3. Pursue prosecutions more aggressively under the anti-bribery convention
of the OECD.
3. Build capacity for reducing corruption in these sectors in post-conflict countries and more stable development contexts.
3. Tap into the expertise of retired military officers. Many of them care
deeply about addressing defense corruption.
Download the full paper to see the complete list of recommendations.
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UK Anti-Corruption Forum Holds Open Discussion on Transparency in Public Sector Construction Projects
The UK Anti-Corruption Forum has developed a set of questions which it deems to be of particular importance in fighting corruption in the procurement arena. The Forum is currently requesting feedback on these questions which will eventually be turned into a formal Position Paper.
The UK Anti-Corruption Forum requests that comments on this Discussion Paper be made prior to July 31, 2008. If you have any comments, please send them to firstname.lastname@example.org. Your comments will be discussed among Forum members. They may also be published on the Forum website but only with your prior consent. Consequently, when you submit your comments, please indicate whether you are happy to have your comment together with your identity and/or that of your organisation published.
There are a number of questions which arise in applying the concept of transparency. These questions are set out below together with the Forum’s views. To view the original document with all relevant footnotes and the attached Schedule referred to in this text, please download here.
1. Should there be disclosure to the public of information on public sector construction projects? Currently, the extent of public disclosure of project information varies from project to project, and country to country. Overall, there is limited disclosure.
Forum view: The public has a right to disclosure of information in respect of projects which the tax-payer is to own, finance or guarantee. Greater disclosure of project information is necessary to help reduce corruption. Disclosure would make it more difficult to conceal corruption, and would therefore help both to prevent corruption and to uncover corrupt practices. In addition, greater willingness by the public sector to provide transparency would increase public confidence in the integrity of the public sector.
2. Should all public sector projects disclose project information to the public? If all public sector projects were required to disclose information, it is possible that the cost and burden of disclosure for very small projects would outweigh any likely benefit, and that the number of projects for which information were to be disclosed would be unmanageable. On the other hand, if disclosure were not provided for all projects, there would be no public scrutiny of smaller projects many of which might directly impact on the public.
Forum view: At least initially, there should not be disclosure for all projects. Disclosure should be provided according to project cost thresholds. The lowest threshold should be set at a level where the project cost can justify the cost and burden of providing a limited degree of disclosure. Due to the variation in project costs from country to country, suitable disclosure thresholds will vary. In the UK context, the Forum recommends the following thresholds. For projects of a cost below £20,000, there should be no disclosure. For projects of a cost above £20,000 but below £1,000,000, there should be a limited degree of disclosure. For projects of a cost above £1,000,000, there should be a greater degree of disclosure. Projects which would qualify for disclosure under these thresholds are referred to below as ‘qualifying projects’. The recommended levels of disclosure are discussed in paragraph 4.
3. Within a qualifying project, should information be provided only in relation to contracts above a specified cost threshold? Some qualifying projects will involve many contracts and sub-contracts. Disclosure only of main contract information may not reveal corruption which occurs at sub-contract level or through joint venture partners and agents. On the other hand, disclosure in relation to all subcontracts, and joint venture and agency arrangements would impose a significant cost and management burden.
Forum view: There should not be disclosure for all contracts within a qualifying project. Disclosure should be provided according to contract cost thresholds4. The lowest threshold should be set at a level where the contract cost can justify the cost and burden of providing a limited degree of disclosure. Due to the variation in contract costs from country to country, suitable disclosure thresholds will vary. In the UK context, the Forum recommends the following thresholds. For contracts below a cost of £20,000, there should be no disclosure. For main contracts above a cost of £20,000 but below £1,000,000, there should be a limited degree of disclosure. For any contract or sub-contract above a cost of £1,000,000, there should be a greater degree of disclosure. Contracts which would qualify for disclosure under these thresholds are referred to below as ‘qualifying contracts’. The recommended levels of disclosure are discussed in paragraph 4.
4. What level of information should be disclosed in relation to qualifying projects and qualifying contracts? The amount and type of information disclosed needs to be sufficient to help prevent or identify corruption, without imposing a disproportionate cost and management burden. This is a difficult balance to establish.
Forum view: The type and degree of disclosure provided should vary according to the project and contract cost. The Forum’s recommendations in this regard are shown in the attached Schedule. By necessity, the Schedule uses generic terms which indicate the general nature of the recommended disclosures. These terms may need to be tailored to suit particular types of project.
5. Should non-disclosure be permitted in cases of commercial confidentiality or where safety is at stake? There are cases of genuine commercial confidentiality such as secret manufacturing processes, or information which could prejudice commercial negotiations prior to contract award. There are also genuine safety concerns relating to, for example, the identity of whistle-blowers. Disclosure of such information should not be required.
Forum view: None of the information recommended for disclosure in the attached Schedule is likely to raise issues of safety or commercial confidentiality. However, if a party can establish genuine commercial confidentiality or prejudice to safety in respect of a particular category of information, then non-disclosure of that particular information should be permitted. Otherwise, information should be disclosed. As far as possible, the public interest should override commercial confidentiality concerns.
6. Who should provide the disclosure? The information recommended for disclosure in the attached Schedule may be in the possession of a number of project participants. There may also be contractual and confidentiality issues which may affect the ability to disclose.
Forum view: Public sector project owners are accountable to the public to ensure that their projects are properly managed. It should, therefore, be the responsibility of the relevant project owner to ensure that disclosure is provided. Most of the information recommended for disclosure in the attached Schedule will be in the possession of the project owner. To the extent that it is not, the project owner should obtain such information from the project participants. To facilitate this process, the project owner should make it a condition of contract that relevant project participants will provide specified information to the project owner, and that they will consent to its disclosure.
7. How should disclosure be effected? The method of disclosure to the public may vary from country to country depending on the technology available and the cost of such technology.
Forum view: A method of disclosure should be chosen which is cost effective and easily accessible to the public. Where the technology is available, disclosure should be provided by the project owner on its web-site. In addition, for members of the public who do not have access to the Internet, one hard copy of the disclosed information should be available for inspection by the public at the project owner’s offices. In all cases, the public should be made aware that the information is available.
8. When should disclosure be made? The information recommended for disclosure in the attached Schedule will become available at different stages through the project. Requiring disclosure at too frequent intervals will impose an undue burden. However, disclosure of inadequate frequency may reduce the effectiveness of the disclosure in preventing and revealing corruption.
Forum view: Disclosure should be made at key stages of the project of the information available at that stage. Depending on the project structure, key stages may include project identification, determination of project estimate, agreement of project funding, award of each qualifying contract, completion of each qualifying contract, project completion, and project evaluation. In addition, during the execution of the project, information should be disclosed at regular intervals in relation to major changes concerning price, programme and scope. The length of these intervals will depend on the overall programme.
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World Bank’s Dept. of Institutional Integrity Highlights Anti-Corruption Achievements
INT Completed and Closed 152 Cases, and Opened 123 Cases in Fiscal 2007
The World Bank’s Department of Institutional Integrity (INT) released its 2007 annual report highlighting its accomplishments in investigating both fraud and corruption in the organization’s operations and misconduct among the Bank’s staff. INT, which was the subject of a critical independent review by a commission headed by former U.S. Federal Reserve Board Chairman Paul Volcker, was established several years ago as the Bank’s internal investigative office and its director reports to the Bank’s president.
The new annual report, covering the fiscal year 2007 (July 1, 2006 – June 30, 2007), stated that overall, the percentage of cases reported to INT increased 35 percent, which is up from 32 percent in FY05 and FY06. The highest number of cases related to public procurement. The length of time between an allegation being received and the time the case closed is still a significant concern, noted INT. With regard to abuse by staff found through internal investigations, the INT report noted that overall, violations of Bank policies and procedures, as well as fraud and corruption in administrative and budget activities composed the highest number of reported allegations. INT said it continues to try to reduce the length of time it takes to investigate an internal case.
Accomplishments of the Internal Investigative Unit of INT in the last year include:
- Major contributions to the Bank-wide whistleblower policy;
- Improved overall transparency in investigations; and,
- Highest volume of internal cases completed in the last four years.
Accomplishments of the External Investigative Unit of INT in the last year include:
- Declaration of Lahmeyer International GmbH ineligible to do business with the World Bank for seven years;
- The creation of three rigorous Anticorruption Action Plans for borrower countries where significant levels of fraud and corruption were found; and,
- Consolidation of policies and procedures to match UN and IFI Task Force Principles and Guidelines.
Bank-wide Policy Actions
The report underlined a series of broad policy actions pursued by the Bank in the year under review to strengthen anti-corruption and anti-fraud. For example, the Bank recently approved a new Governance and Anti-Corruption Strategy, which includes the following measures:
- supporting country efforts in these areas;
- addressing fraud and corruption in World Bank operations; and,
- building global partnerships to mitigate corruption.
The new strategy called for actions including:
- improvement of fraud and corruption mitigation measures in project design;
- wider publication of INT findings and emerging best practices; and,
- increased training for spotting “red flags.”
The Bank also in 2007 introduced the Voluntary Disclosure Program (see also EthicsWorld coverage). Under this program, firms and individuals obtaining Bank-funded procurement contracts are encouraged to report past fraud and corruption to avoid administrative sanctions. The report is careful to point out that this is not an amnesty program. Participants must pay program costs, commit to monitoring necessary reforms, and are still liable for violation of any national laws. The goal of the program is to gain more valuable information for the purposes of more effectively mitigating risk in World Bank projects in the future.
Bank Internal Reforms
The INT report noted that several internal reforms were also instituted with more Evaluation and Suspension Officers appointed to take responsibility for evaluating evidence presented by INT in order to determine whether or not cases are substantiated. The Bank’s Sanctions Committee now includes external parties rather than only Bank representatives. In addition, the Sanctions Committee proposed for the first time positive incentives for private sector entities to reform their internal mechanisms as a way of reducing a company’s debarment time from participating in Bank contracts.
INT noted that it worked together with other international financial institutions to develop common strategies to fight fraud and corruption and a Joint Framework was announced in September 2006 to promote common guidelines and procedures.
Detailed Implementation Reviews (DIR) were used more intensely, stated the report. A DIR examines a project’s procurement, financial management and implementation processes for indicators of fraud and corruption in order to “proactively diagnose the level of risk” in Bank projects. Due to more extensive use of DIRs, there was an increase in information sharing on lessons learned from the reviews and an increase in training on mitigating risk in specific areas. A main challenge remains to use DIR more strategically so that new strategies can be implemented Bank-wide.
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TI Czech Supports Blacklisting to Clean Up Public Procurement
Report provides key conditions for blacklisting to be successful
The government of the Czech Republic recently introduced in its latest anti-corruption program the instrument of blacklisting in public procurement, or the act of barring certain companies convicted of corrupt activities from participating in public contracts. The Czech branch of Transparency International, the global organization dedicated to fighting corruption, has been pushing this measure for a long time. TI Czech has released a report on how blacklisting should be implemented in the country and the important factors that should be in place in order for the list to be effective.
TI Czech believes blacklisting can be an important preventative measure that would purify the market of those companies that corrupt it. It should also have a deterrent effect on those companies caught in a moral dilemma over whether or not to participate in corrupt activities. Investigation of companies that are accused of paying bribes, illegally influencing the bidding process, or laundering money often takes a long time. Creating an immediate list of companies that pose risks to the public market would be a more timely and effective way of creating a more level playing field.
The report outlines specific preconditions that should be in place to better ensure success:
- All rules relating to blacklisting must be clear and made publicly available.
- The blacklist should be kept centrally, and it should be binding for all the public principals regardless of the form and amount of the public contract.
- The system established should ensure equal condition for entrance into and erasure from the list.
- A common standard must be agreed upon for what would be considered “sufficient proof” that would warrant blacklisting so that the list will not be misused.
- Penalties for those blacklisted should be strictly administrative, not criminal, and each listed company should be given the chance to defend itself effectively. Criminal liabilities should be left to the courts.
- The nature of the penalties should encourage companies to reform themselves, not induce bankruptcy.
- Whistleblower protection for those who recommend blacklisting of certain companies should be strengthened.
Most importantly, TI Czech recommends that blacklisting should be a part of a more complex strategy of anti-corruption measures in public procurement (observation of the codes of ethics of public contracts, integrity pacts, whistleblowing protection, leniency program and other measures). There are still many questions the Czech government will have to resolve. The questions of who will be in charge of blacklisting, the basic criteria for companies involved in public contracts, and the process of removal from the blacklist have not been answered. The TI Czech report is meant to bolster a meaningful discussion on how best to respond to these questions.
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Leaked World Bank Report Highlights Severity of Corruption in Indian Health Sector Projects
A World Bank report by its Department of Institutional Integrity (INT) (available in full at Corruption Chronicles: A Judicial Watch Blog) reveals rampant corruption and fraud in the Indian Reproductive and Child Health program, sponsored by the Indian Government, the World Bank, and the UK Department of International Development. The report, which was prepared in late 2005, said that projects worth $2 billion were “beset with corruption or were at risk,” reported The Indian Express on September 6, 2007. Since the report was issued, the main contracting companies implicated, Nestor Pharma and Pure Pharma, have been debarred from World Bank contracts. The Indian Express also reported that a Bank spokesperson said the detailed report expected in September 2007 was possible only because of cooperation from the Indian Government.
INT outlines in the 2005 report the dysfunctional nature of the procurement process and the corrupt activities undertaken by almost all entities involved in the project. The following are the key findings from the INT investigation and the recommendations it proposes.
Fraud and Corruption in the Bidding Cartel. Nestor Pharmaceutical and Pure Pharma colluded to win the majority of pharmaceutical and “kitting” (packaging of pharmaceutical products) contracts under both the Reproductive and Child Health (RCH I) project and the Child Survival and Safe Motherhood (CSSM) project. At least US$50 million worth of contracts (65 percent of the project total) were awarded to colluding companies under RCH I, with a further US$23.4 million (93 percent of the project total) awarded during CSSM.
Use of Fraudulent Performance Certificates. A company related to Nestor routinely falsified performance certificates, which it also admitted to and continues to do, but was the third most successful bidder under the RCH I Project.
Compromised Product Quality. Nestor pharmaceuticals failed quality tests, failed UNICEF inspections (in 2001 and 2004), failed to deliver full quantities of drugs, allegedly diluted drugs, and contractors allegedly used unlicensed suppliers from China.
Corruption in the Supply Chain. The shift in management of one Procurement Supply Agency (PSA), who won 95 percent of the contracts, to another, who won 83 percent, resulted in a price increase for cotton bandages and absorbents of 60 percent and 75 percent, respectively. PSAs lacked adequate procurement capacity and accepted kickbacks to secure the award of contracts, favorable inspection reports, and payment of contractors’ invoices under the project. INT found that PSA officials would sell competitors’ bid information to prospective bidders, manipulated procurements to favor corrupt companies, and had special “consultants” who facilitated fraud and corruption.
Corrupt Government Officials. INT found that companies bribed government officials under the CSSM project, government officials participated in corruption with PSAs, government officials of the Orissa State Health Ministry demanded facilitation payments, and a “well-placed witness” alleges that PSA Chairmen had to pay bribes to Indian Government officials to obtain their positions.
Other World Bank health projects in peril:
- Malaria Control Project
- Orissa Health Systems Development Project
- Uttar Pradesh Health Systems Development Project
- Tuberculosis Control Project
INT Recommendations to the Government of India:
- A Government of India review of its own procurement capacity in the health sector, which would contribute to a restructuring of upcoming World Bank-financed health sector projects.
- Restructuring of all upcoming World Bank-financed health sector projects in India to reflect the procurement review findings.
- Criminal investigations and prosecution by the Indian Government of all entities involved in the corrupt activities outlined in the report.
INT Recommendations to the World Bank’s management:
- A Detailed Implementation Review in selected World Bank-financed health sector projects in India.
- An INT-coordinated review of the World Bank’s procurement function in India.
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OECD Calls on Governments to Clamp Down on Counterfeiting
Governments should work more closely with companies and strengthen enforcement to fight the rising global trade in counterfeit and pirated goods, according to a report on June 4, 2007 by the Paris-based Organization for Economic and Cooperation and Development.
Based on data from customs seizures in OECD countries, the Report estimates that trade in counterfeit and pirated goods across national borders may have totaled around USD 200 billion in 2005.
The total value of trade in counterfeit and pirated goods, including products made and sold inside the same country, may have been several hundred billion dollars higher, the report said. Its estimate excludes the value of digital products distributed via the Internet.
“Trade in counterfeit goods is a big problem and getting bigger,” said John Dryden, Deputy Director of the OECD’s Science, Technology and Industry Directorate. “It is pervasive, it involves some pretty unsavoury and ruthless characters, and it has serious implications for health, safety, living standards and jobs. It is also a major disincentive to invent and innovate.”
Fake goods are being produced and consumed in most economies, with Asia emerging as the main region for such trade and China as the single largest source of production. The nature of pirated goods varies from market to market, with the main market for counterfeit car parts, for example, being in the Middle East, while consumption of counterfeit tobacco products is highest in Latin America, Africa and Asia. Counterfeit drugs are a major problem in Africa and there have been big seizures in Europe and North America. Counterfeit electrical components, food and drink and household products are appearing worldwide, with Africa, Asia and Latin America key regional markets.
Recommendations for ways to address these issues:
- Increase enforcement of existing laws;
- Further strengthen co-operation between governments and industry to make current policies more effective and help identify new strategies to fight counterfeiting;
- Strengthen criminal penalties to deter criminals and toughen sanctions to more effectively redress the harm caused to rights holders;
- Educate consumers to raise public awareness of the growing threat to health and safety of substandard counterfeited products.
One of the biggest challenges facing governments and business is getting reliable and up to date information on the extent of counterfeiting and piracy and the impact on economies. The OECD recommends governments and business invest more in collecting and analysing information; agree a common approach to collecting enforcement data and develop a framework to report the health and safety effects.
Main elements of the report
Analyses the structure of the markets for counterfeit and pirated products; the analysis highlights the importance of distinguishing those consumers who knowingly purchase counterfeit or pirated products, from those who are deceived;
Assesses the scope of products being counterfeited and pirated;
Examines the principal factors driving production and consumption;
Estimates the potential magnitude of counterfeited and pirated goods in international trade, based on a new econometric model;
Establishes and applies a 17-point framework for assessing the effects of counterfeiting and piracy economy-wide, as well as on rights’ holders, consumers and governments;
Presents a framework for assessing the effectiveness of the policies and related initiatives being
pursued to combat counterfeiting and piracy;
Describes and evaluates the main national and international initiatives being taken by governments and business to combat counterfeiting and piracy;
Examines in detail the situation in the audio-visual, automotive, electrical components, food and drink, pharmaceutical and tobacco sectors;
Outlines ways that information and analysis on counterfeiting and piracy could be strengthened; and,
Suggests areas where policies and practices to combat counterfeiting and piracy could be strengthened.
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Preventing Corruption In Construction Projects
A Host of Practical Work Modules Now Available from Transparency International
Project Anti-Corruption System (PACS) (Construction Projects). Transparency International has developed a Project Anti-Corruption System (PACS) specifically for construction projects.
The continuing prevalence of corruption in construction projects requires governments, funders and project owners to take preventive measures to limit corruption on a project-by-project basis. PACS is designed for this purpose. Implementation of PACS may be required by governments as a pre-requisite for project approval, by funders as part of the funding package, or by public or private sector project owners as a condition of participation in a project. The use of PACS will not only help governments, funders and project owners to ensure that projects are properly identified and executed, and that funds are properly spent. It will also demonstrate their commitment to the prevention of corruption.
Contractors, consultants and suppliers are frequently the victims of corruption on a project. Their competitors may win the project through bribery. They may be subject to extortion and fraud during tender and execution. The implementation of PACS on a project will materially reduce this risk.
PACS is a modular system which applies a variety of anti-corruption measures to all major project participants throughout their involvement in the project. These measures include independent monitoring, due diligence, contractual commitments, procurement requirements, government commitments, a corporate programme, rules for individuals, training, transparency, reporting and enforcement. PACS targets both bribery and fraud.
Although PACS has been designed as a project system, some Modules (such as disclosure, training, and rules for individuals) may also be used by companies as general anti-corruption tools.
Questions on PACS and comments on how PACS could be improved would be welcomed and should be sent to:
Project Director, Anti-Corruption Systems
Transparency International (UK)
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The World Bank's Voluntary Disclosure Program: Perceptions and Realities
An analysis* by experts Pascale Dubois, acting manager of the World Bank's new Voluntary Disclosure Program, and Jason Matechak partner at Reed Smith, LLP and expert on public procurement and international regulatory matters.
To download as .pdf
VDP Perceptions and Realities—Although the VDP is new, it has received attention in the press and in legal and development communities. Considering this interest, a few points are worth clarifying.
Off the Hook?: The program provides the right to continue working on World Bank projects in exchange for disclosure of past wrongs and commitment to future anti-corruption compliance. Specifically, by joining the VDP, contractors with less-than-perfect pasts will not end up on the Bank’s debarment black list. However, if a participant is found in material violation of the Terms and Conditions, it faces mandatory public 10- year debarment through a proceeding before the Bank’s sanctioning body. This debarment provision is triggered if the participant:
• engages in misconduct that is sanctionable by the Bank (e.g., fraud, corruption, collusion and coercion);
• conceals or destroys information demonstrating misconduct;
• fails to properly report past or current misconduct;
• does not implement a compliance program;
• fails to hire and cooperate fully with an independent compliance monitor; or
• fails to mitigate or remove any disclosed imminent nthreats to human health or safety.
The World Bank retains the right to impose the debarment for any misconduct committed while in, but discovered or reported after termination from, the nVDP.
While debarment results from breach of the Terms and Conditions, participation in the VDP does
not waive the Bank’s right to exercise any available contractual remedies. Further, program participation does not provide immunity from prosecution in any jurisdiction. The World Bank may promise not to impose administrative sanctions (i.e., debarment), but it cannot prevent the national departments or ministries of justice from enforcing their national anticorruption (bribery, fraud, kickback, etc.) laws if such authorities independently investigate the participant’s activities.
Confidentiality: Under the World Bank’s sanctions procedures, companies debarred from Bank projects are listed publicly on the Bank’s Web site. National anti-corruption enforcement authorities may request, and will be provided, information on these debarments. On the other hand, anything provided to the Bank for purposes of the VDP is confidential. For example, if the U.S. Department of Justice requests information non companies suspected of violating the U.S. Foreign nCorrupt Practices Act, the World Bank will not disclosen VDP participant data. The VDP’s confidentiality policy nis a result of the need to protect the participant’s physical nsafety. Namely, the World Bank does not have a “witness nprotection” program or other resources to protect or notherwise defend those companies or individuals whon participate in the VDP.
Costs and Benefits: There are clear benefits of participating nin the World Bank VDP. Primary among these nare freedom from the stigma of public debarment and nthe opportunity to “clean up your own house.” The ncontinuation of the revenue stream of World Bankfunded contracts and avoiding negative publicity from nan anticorruption investigation are also strong positives. However, the VDP imposes significant costs that should nbe considered. First, fees for attorneys, other experts and nassistants during the investigation, and the costs of preparing nthe disclosure report and devising the compliance program are at the participant’s expense. The cost burden nof investigation verification is on the participating ncompany as well. Likewise, the participant must pay all costs associated with the compliance monitoring.
Therefore, while there are definite benefits to the VDP, the overall cost of participation is considerable. The World Bank, however, may provide participants with up to 50 employees with technical expertise to help them meet program obligations. Assistance may include performing the internal investigation, drafting nthe investigation report, and developing and monitoring implementation of the compliance program. Smaller companies’ participation costs likely will be lower because less work is involved in the investigation and verification phases.
Conclusions—Born of the World Bank’s desire to combat corruption globally and the private sector’s desire to self-police and correct past sanctionable conduct, the VDP is an important new tool for the Bank’s Department of Institutional Integrity and the Bank as a whole. Contractors, through the VDP, may come to the Bank with a full disclosure, make amends for past misconduct, fortify compliance capabilities and maintain their ability to participate in World Bank programs without debarment or publicity. In turn, the World Bank has a mechanism for reducing and addressing corruption— which studies show stifles development—so that development resources may be better used. The VDP is a win for the private sector, a win for the World Bank and a win for international development."
* Reprinted with permission from the "World Bank Battles Corruption Through Voluntary Disclosure Program" by Jason Matechak and Pascale Dubois, which appeared in the September 2006 International Government Contractor, (c) 2006 Thomson/West. For additional information about this publication please visit www.thomson.com
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The World Bank's Voluntary Disclosure Program
“When both ethics and economics favour greater transparency, real progress is possible.”
-Alexandra Wrage, President of TRACE International on the World Bank’s VDP
To download this article as .pdf
Since becoming President of the World Bank in mid-2005, Paul Wolfowitz has stressed that anti-corruption actions will be an increasingly important part of the Bank's programs. On July 20, 2006 the Bank announced the creation of a major tool to reducing corruption and bribe payments in its projects: a Voluntary Disclosure Program (VDP) under which companies doing business with the bank will be able to voluntarily disclose their participation in corrupt practices without risking public discovery or debarment from future projects. In return, the companies will agree to conduct an investigation of their misconduct, report the results to the Bank, and comply with its anti-corruption procedures.
The following are excerpts from the newly released VDP Guidelines.
Purpose of the Voluntary Disclosure Program
The purpose of the VDP is to scale up the World Bank’s fight against corruption by partnering with the private sector through a program that provides firms, other entities, and individuals with incentives to disclose their knowledge of fraudulent and corrupt practices and comply with World Bank rules and guidelines. The program aims to improve development effectiveness by creating a business climate surrounding World Bank-financed and supported projects that is free of fraud and corruption, and to reduce the risk of fraud and corruption in ongoing and planned Bank projects by providing the World Bank with information about specific wrongdoing.
The VDP gives firms, other entities, or individuals who have entered into, been a party to, or were involved in the procurement and selection process for contracts related to projects financed or supported by the IBRD, IDA, IFC, or MIGA the opportunity to confidentially partner with the World Bank and:
- a. Cease corrupt practices;
- b. Voluntarily disclose information about Misconduct that is sanctionable by the Bank (e.g., fraud, corruption, collusion, coercion) by conducting an internal investigation at the Participant’s cost; and
- c. Adopt a robust “best practice” corporate governance Compliance Program which is monitored for 3 years by a Compliance Monitor.
In exchange, the Bank does not publicly debar Participants for disclosed past Misconduct and keeps their identities confidential.
If, however, a Participant does not disclose all Misconduct voluntarily, completely, and truthfully; continues to engage in Misconduct; or violates other material provisions of the Terms and Conditions of the VDP, that Participant faces mandatory 10-year public debarment in accordance with regular World Bank procedures.
To disseminate knowledge about the anatomy of corruption, the World Bank shares non-confidential information resulting from a Participant’s disclosures—in a redacted format to protect the identity of the Participant—with World Bank management and staff, member countries, and interested stakeholders.
In exchange for a Participant committing to and satisfying its obligations under the VDP Terms & Conditions, the World Bank’s sanction for a Participant’s disclosed past Misconduct is the financial obligation imposed on the Participant under the VDP Terms & Conditions. This sanction will not be publicized or communicated by the Bank to any third party. The Bank will not seek the Participant’s debarment for its, or its current or former officers’, employees’, or agents’ involvement in disclosed Misconduct that occurred prior to the Participant joining the VDP.
Under the VDP, Participants disclose all information in their possession about the actors and schemes that corrupt Bank funds, they stop engaging in corrupt and fraudulent behavior, and they enhance their compliance system and controls. The VDP Process is summarized in a diagram that can be viewed by clicking here.
What do you think? To discuss the VDP and read other’s views, see the World Bank and IFC’s Private Sector Development Blog.
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In this article authors Peter Bosshard of the International Rivers Network and Shannon Lawrence of Environmental Defense describe how the World Bank's current infrastructure strategy encourages corruption even while the Bank reactively ratchets up its fight against graft in specific projects.
The World Bank’s Conflicted Corruption Fight
By Peter Bosshard and Shannon Lawrence (*)
World Bank President Paul Wolfowitz has called corruption the single most important obstacle to development and has ratcheted up the fight against graft in Bank projects. While this effort is welcome, it is being undermined by the bank’s simultaneous increase in infrastructure lending. The experience of Pakistan’s water sector shows that the bank’s self-interests facilitate rather than discourage corruption in infrastructure development. Unless the World Bank addresses upstream the corruption incentives that drive infrastructure decisions, the poor will continue to be deprived of access to essential services.
After closely following the script of his predecessor, in early 2006 the new President of the World Bank, Paul Wolfowitz, finally revealed his own vision for the embattled development institution. Identifying corruption as the single largest obstacle to development, he held up loans to India, Bangladesh, Kenya and Chad because of corruption concerns and increased the budget of the Bank’s anti-corruption unit. “This is about making sure that the bank’s resources go to the poor and don’t end up in the wrong pockets,” Wolfowitz told US News & World Report. “It is about fighting poverty.”
Critics have long accused the Bank and other donors of turning a blind eye to the leakage of development funds, leaving corrupt contractors and officials flush with cash, governments saddled with “white elephant” projects and odious debt, poor people devoid of essential services and the environment unprotected. The World Bank began to address the “cancer of corruption” under President Wolfensohn, and Paul Wolfowitz’s pledge to “move from talking about corruption to dealing with corruption” is welcome. Yet the world’s largest development institution still attempts to treat the symptoms and not the cause of the disease. In fact, the Bank’s current lending strategies might even be fueling the corruption epidemic.
Just as the bank vows to get tough on corruption, it has simultaneously announced a big increase in its support for infrastructure, the sector perceived to be the most corrupt globally according to Transparency International. In fact, approximately half of the World Bank anti-corruption unit’s investigations that have led to specific corrective actions were linked to infrastructure projects.(1)
Massive, centrally planned and financed water, energy, transport and other public works projects are particularly prone to corruption, thanks to their complexity, capital intensity and high price tags. They offer larger spoils than small-scale projects and programs to increase the efficiency of existing infrastructure. Unless corruption is checked in the earliest stages of the planning process, corrupt politicians, government officials and construction companies will always favor large-scale projects to address a country’s infrastructure needs.
Development efforts can only be effective if they reflect a country’s own priorities. The World Bank has acknowledged the importance of “country ownership” in recent years. Yet it has tended to equate country ownership with government ownership and government ownership with ownership by finance and infrastructure ministries. The bank has limited the opportunities for civil society input in the development of infrastructure strategies, and cut down the preparation time for infrastructure projects.
Combined, the bank’s push into infrastructure, the emphasis on government ownership and the limited accountability to civil society are creating large opportunities for corruption in a sector in which graft is already endemic. If the World Bank does not address the incentives for corruption upstream, fighting graft in individual contracts will be a losing battle. If its fight against corruption continues to be focused reactively on specific projects, infrastructure development will remain distorted, the poor will be deprived of essential services in many countries, and the environment will continue to be neglected.
Infrastructure, Corruption, and Development Failures
Building infrastructure projects in the developing world is a $200 billion business that provides a plethora of opportunities for corruption. Bribes are paid to secure concessions and kickbacks are provided in exchange for contracts. Bid rigging occurs, shell companies are established, and procurement documents are falsified. Sub-standard materials are used in construction, regulators are paid off, and prices for infrastructure services are inflated. Compensation for forcibly displaced communities ends up in the pockets of bribe-seeking local officials. The World Bank acknowledges these corruption risks, but it has not figured out what to do about them. A recent bank report about infrastructure acknowledges that “anti-corruption is the area where the largest gaps remain in our understanding of what works and what does not.”(2)
Given the enormous potential pay-offs, it is not surprising that there are often powerful vested interests behind big, new public works projects. Peter Eigen, the founder of Transparency International, argues that corruption in the construction sector not only plunders economies; it shapes them: “Corrupt government officials steer social and economic development towards large capital-intensive infrastructure projects that provide fertile ground for corruption.” (3) Paul Collier and Anneke Hoeffler explain: “If budget decision-makers themselves are corrupt, they may decide to skew the budget towards infrastructure spending so as to increase the opportunities for corruption. If roads are more capital-intensive than primary education, the budget may be skewed towards roads... and if there is more opportunity for corruption in road construction than in road maintenance, then roads may be built, allowed to fall apart, and then rebuilt.” (4)
Similarly, large dams, massive irrigation systems and river diversion schemes, some constructed with World Bank support, are often touted as the solution to the water and energy needs of the poor. Rarely, however, are alternative options assessed. The World Commission on Dams (WCD) pointed out that “the pressure on development aid agencies to move large amounts of capital ... argued for large-scale solutions such as large dams.” (5) Even as large dams have provided fewer than anticipated benefits, forced tens of millions of people from their lands, and destroyed rivers and river-based livelihoods, they have tended to prevail over alternative options. The WCD noted: “Decision-makers may be inclined to favor large infrastructure as they provide opportunities for personal enrichment not afforded by smaller or more diffuse alternatives. The consequences frequently directly affect the poor and the environment.” (6)
The political economy of infrastructure development “doesn’t just line the pockets of political and business elites; it leaves ordinary people without essential services,” according to Peter Eigen. (7) The push for big projects diverts resources from decentralized, community-based options and from the maintenance of existing infrastructure. Ultimately, local people are stuck with the economic, social, and environmental costs of infrastructure projects that may not be the best option for providing water or energy services – or may not even be providing them at all. These two problems, namely corruption and unmet needs for infrastructure services, are closely linked.
The Pakistan Case
Pakistan’s Indus Basin Irrigation System, the world’s largest water diversion scheme with more than 1.6 million kilometers of watercourses, is a prominent example of how corruption pervades economic development and distorts the priorities of infrastructure investment. It also shows how the World Bank’s business model and development paradigm encourage rather than counteract the pervasive dynamics of corruption.
Pakistan’s irrigation system has been shaped by the World Bank’s approach to water infrastructure for five decades. In the 1950s, the bank brokered a water treaty between India and Pakistan which created the foundation for irrigating the Indus Basin. It helped devise the policies and institutions of Pakistan’s water sector in a series of master plans and reports, and has loaned almost $20 billion (in 2005 prices) for projects in the sector.
The Indus Basin Irrigation System is a central planner’s dream turned concrete. Its corner stone, the Tarbela Dam, was the largest manmade structure on earth at the time of its construction. Tarbela is just one of 19 dams that block and divert the basin’s mighty rivers. Large canals, drainage highways and more than 100,000 distributaries crisscross the Indus basin.
Today, the Indus Basin Irrigation System serves an area the size of Bangladesh, and generates more than one fourth of Pakistan’s electric power. Yet the system is in deep crisis. The irrigation network operates extremely inefficiently, and sedimentation is rapidly reducing the capacity of its reservoirs. More than 60% of irrigation water is lost from the canal head to the root zone, and a lot of water is wasted on thirsty crops such as sugar cane that are not suited to the arid Indus Basin. Average crop yields are much lower than in neighboring India.
The construction of reservoirs and canals caused the forcible displacement of more than 200,000 people in Pakistan. Decades after they were moved, thousands of families are still living in misery. A report prepared for the World Bank argues that the lack of replacement land and corruption in the system are “creating extreme hardship for people.” (8)
Pakistan’s irrigation network has always served the privileged elite at the expense of the poor. World Bank and government programs have consistently favored feudal landowners. When the irrigation system was established, the government failed to recognize the land rights of the original inhabitants and allotted irrigated plots to rich landowners and military personnel. While large and very large farmers control 66% of all agricultural land in Pakistan, almost half of all rural households own no land. A World Bank evaluation noted in 1996 that the bank’s projects “provided large and unnecessary transfers of public resources to some of the rural elite.” (9)
The top-down engineering approach to Pakistan’s water sector has also caused massive collateral damage downstream. The Indus Basin Irrigation System starves areas of Sindh province – and particularly the Indus Delta – of water and sediment. And because the sediment trapped in the reservoirs does not replenish the delta, close to 5,000 square kilometers of farm land have already been lost to the sea. Meanwhile salt water is intruding 100 kilometers upstream in the Indus. The lack of water and sediment is destroying flood plain forests that are home to hundreds of thousands of people and mangrove forests that help protect the coast against storms.
While the downstream areas suffer from a water shortage, wasteful water use is wreaking environmental and economic havoc in the command area. Over-irrigation and inadequate drainage have caused the water table to rise across a large area. As a result, about 60% of all farm plots in Sindh are plagued by water logging and salinity.
Corruption In Pakistan’s Water Sector
Pakistan’s water sector, like many of those around the world, is fraught with large and small-scale corruption. According to a 2003 survey by Transparency International, Pakistan’s Water and Power Development Agency is perceived to be the second most corrupt institution in the country. (10) Close to half of the more than 31,000 complaints received by Pakistan’s anti-corruption ombudsman in 2002 were related to this one institution. (11) As the World Bank’s 2005 Pakistan water strategy admits, top positions in the country’s water bureaucracy are sold at a high price.
Corruption works in a variety of ways in Pakistan’s water sector. After paying high sums to secure senior government positions, officials need to recoup their costs in the form of kickbacks. They can do so primarily through projects that serve construction companies and large landowners, not through improved maintenance programs and low-cost projects that serve the poor. This is why the water bureaucracy, as the World Bank puts it, suffers from a “build-neglect-rebuild” syndrome, and “has yet to make the vital mental transition from that of a builder to that of a manager.” (12)
Even resettlement programs are a source of patronage, which rewards rather than penalizes large-scale displacement projects such as dams and canals. “Pakistan has well established corrupt practices in the revenue departments that hurt the interests of those who are resettled,” notes Pervaiz Amir, a consultant to the World Bank on large dams. “The manner in which resettlement and rehabilitation is handled becomes susceptible to patronage and corruption and it becomes difficult to ensure that every affected person is treated fairly and receives his or her due share.” (13)
Many officials in Pakistan’s water sector also allocate irrigation water to the highest briber and not necessarily to the most needy or productive farmers. “Payments to irrigation officials to ensure the delivery of sanctioned water supplies were reported as routine and endemic” the World Bank found in 2002, and “water availability clearly depends on efforts to bribe irrigation officials.” (14)
Corruption is allowed to flourish because Pakistan’s water sector lacks transparency and accountability. Water allocations at all levels of the irrigation system are not disclosed to the public, for example. The World Bank concludes: “In the shadows of discretion and lack of accountability, of course, lurk all sorts of interests – of powerful people who manipulate the system for their ends, and of those in the bureaucracy who serve them and are rewarded for this service.” (15)
Brick-and-mortar investments in centrally managed dams and canals are not the only way to address Pakistan’s water and energy needs. Because the existing infrastructure is not being properly maintained and so much water is being wasted, the efficiency of the irrigation system could be greatly increased. Plugging the leaks of the existing system is environmentally more benign than building new dams and canals.
It is also more economical. A World Bank evaluation found in 1996 that water conservation measures saved more water than the largest new dam in Pakistan’s investment program could have stored, and at one-fifth the cost. (16) The Asian Development Bank estimates that an additional 4.7 million acre-feet of water could be provided either by conservation measures at a cost of $1.7 billion, or by a new dam with a price tag of $4.5 billion. (17)
Decentralized and nonstructural solutions to Pakistan’s water crisis also exist. The Indus Valley has huge groundwater reservoirs, which could store many times as much water as all future dams. Recharging these reservoirs would require more sustainable flood management practices which allow the Indus to overflow its banks temporarily rather than confine it within massive embankments.
Farmers still irrigate thousands of square kilometers of land through traditional techniques outside the modern canal system, and without support from the government or World Bank. Rainwater harvesting and simple, affordable treadle pumps provide a steady supply of water to farmers, without the added costs of bribes for water officials or diesel pumps. Drip irrigation kits apply water directly to the roots rather than the furrows, and use only half as much irrigation water in the process. An innovative way of planting rice without standing water (called the System of Rice Intensification) allows rice – a particularly thirsty crop – to be grown using only half the amount of water while boosting harvests. Such soft approaches have been adopted with good success around the world, and are being introduced in Pakistan. Shifting control over water resources from bureaucrats and absentee landlords to poor farmers would ensure a more economic use of water, reduce poverty, fight corruption, and protect the environment at the same time.
In 2003, the World Bank argued that a “genuine paradigm shift” emphasizing the proper management of water resources rather than new infrastructure was needed in Pakistan. Yet the bank’s new water strategy for Pakistan does not reflect this paradigm shift. It asserts that “Pakistan has to invest, and invest soon, in costly and contentious new dams.” (18) The 2005 strategy recognizes the potential for efficiency gains, but does not address the maintenance gap in the water sector, and the serious social and environmental impacts of the current approach. In January 2006, General Musharraf announced that his government would soon start construction of the Bhasha and Kalabagh Dams. The two dams will cost more than $20 billion, will displace an estimated 160,000 people, and will further reduce downstream flows.
The World Bank prepared its water sector strategy for Pakistan without any input from civil society. It argued that “while all voices must be heard, much greater weight must be given to the voices of those who have responsibility and face the voters, and less to those who are self-appointed or who represent small special interests.” (19) This is a remarkable statement about a country that is marred by corruption, in which top government positions are for sale, and which is run by a self-appointed military ruler.
Pakistan is a prominent example for the pervasive impacts of corruption on development planning. Yet as Eigen, Collier, Hoeffler and others have pointed out, the mechanisms that distort the development of Pakistan’s water sector are widespread. White elephant projects that made no economic sense and failed to deliver any developments benefits — like the Bataan nuclear power plant in the Philippines, India’s Dabhol power plant and the Turkwell dam in Kenya — can be found around the world.
Why are governments and the World Bank so obviously flouting the lessons of the past? The bank has always been good at evaluating its own performance, but is notorious for ignoring evaluation findings in subsequent operations. And although bank managers frequently speak out against corruption, the institution’s self-interests align with and reinforce the interests of corrupt borrowers and contractors in various ways.
The bank covers its administrative costs from the profits it makes by lending to middle-income countries. It has to continue lending to these countries in order to sustain its own business model. Since middle-income countries can raise capital on the private market, the World Bank must keep its lending costs low so as to not be out-competed by private banks. It is easier and cheaper for the bank to invest in large brick-and-mortar projects than to process loans for small, decentralized irrigation schemes, or for cheap but institutionally complex programs to improve the maintenance of existing infrastructure.
The interests of the World Bank’s member governments have helped define those of the institution’s bureaucracy. Northern governments favor loans that pay for the contracts of international consultants and construction companies. Borrowing governments prefer bulky projects that yield ribbon-cutting opportunities and political prestige, support centralized bureaucracies, and offer spoils for patronage. The bank’s institutional self-interests translate into an incentive structure that rewards staff for pushing money out the door quickly, and not for achieving lasting developing impacts. For example, Paul Wolfowitz recently promoted the author of the Pakistan water sector strategy to become the bank’s country director for Brazil.
The World Bank’s preference for brick-and-mortar projects has undermined efforts to improve the performance of Pakistan’s water sector before. In the 1980s, the bank approved four projects to rehabilitate the existing canal system and stem water losses. When the water bureaucracy resisted change and misused the loans for building new canals, the World Bank looked the other way. As an internal evaluation found, “the Bank did not insist on the implementation of the agreed strategy against the pressures of special interests,” and “[its] concern to keep disbursement flowing reinforced this focus. … The Bank helped to further this distortion of objectives by making it plain that construction progress was the highest priority.” (20) In Pakistan and elsewhere, the bank’s self-interests conflict with its own development objectives and will continue to thwart its efforts to fight corruption.
(*) Peter Bosshard is Policy Director of International Rivers Network. Shannon Lawrence is International Policy Analyst at Environmental Defense. A shorter version of this article appeared in the May 2006 issue of the Far Eastern Economic Review.
Contact the authors at: email@example.com, firstname.lastname@example.org 1. World Bank, Infrastructure: Lessons from the Last Two Decades of World Bank Engagement, January 30, 2006, p. 40
2. World Bank, Infrastructure: Lessons from the Last Two Decades of World Bank Engagement, January 30, 2006, pp 38f
3. Transparency International, Global Corruption Report 2005, pp. 1f
4. Collier and Hoeffler in TI GCR 05, p.13.
5. World Commission on Dams, Dams and Development, 2000, p. 178
6. World Commission on Dams, Dams and Development, 2000, p. 187
7. TI GCR 05, pp. 1f
8. Pervaiz Amir, The Role of Large Dams in the Indus Basin System, March 2005, p. 27
9. World Bank, Irrigation Investment in Pakistan, OED Precis, 9/1/96
10. Transparency International Pakistan, Nature and Extent of Corruption in the Public Sector
11. Transparency International, National Integrity Systems, Pakistan 2003, p. 78
12. World Bank, Pakistan’s Water Economy: Running Dry, Draft of June 23, 2005, pp. 11, 79
13. Pervaiz Amir, The Role of Large Dams in the Indus Basin System, March 2005, p. 28
14. The World Bank, Pakistan Poverty Assessment, October 28, 2002, pp. 88, 90
15. World Bank, Pakistan’s Water Economy: Running Dry, Draft of June 23, 2005, p. 59
16. World Bank, Irrigation Investment in Pakistan, OED Precis, 9/1/96
17. See Pervaiz Amir, The Role of Large Dams in the Indus Basin System, March 2005, pp. 41f.
18. World Bank, Pakistan’s Water Economy: Running Dry, Draft of June 23, 2005, p. 10
19. World Bank, Pakistan’s Water Economy: Running Dry, Draft of June 23, 2005, p. 112
20. World Bank, Operations Evaluation Department, Pakistan - On-Farm and Command Water Management and Irrigation Systems Rehabilitation Projects, Impact Evaluation Report number 15863, 06/28/1996, paragraph 3
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Corruption-Free Public Procurement is a Prime Priority in Many Countries
Transparencia por Colombia has been a major pioneer of “Integrity Pacts” and anchored approaches in the rule of law.
Rosa Ines Ospina Robledo, Executive Director Transparencia por Colombia, notes that, “Integrity Pacts in Colombia have been a successful tool to prevent bribery and to encourage private and public institutions to use new and more transparent rules of the game in goods and services procurement processes, as well as in the selection of consultants and the awarding of concessions and privatizations.”
The Integrity Pact was generically defined in Colombia as an agreement entered into by all the participants in public procurement in order to fortify the transparency and integrity of standing procurement procedures. In essence, it is based on the basic principle of contract law of the obligatory force of the agreement between the parties. Taking into account that those who subscribe the Pact are, in principle, individuals or legal persons or other forms of private collaboration, the Pact is a private contract, subject to private law. Because the Pact is a solemn contract, it has to be in writing and it also has to comply with the general requirements for formation included in article 1502 of the Colombian Civil Code, as follows: i) capacity of the parties, ii) consent with no defects, iii) licit object and iv) licit cause. Once validly formed, the contract has obligatory force as between the parties. The effect of the subscription of the Pact is that the bidders that subscribe it, assume a series of obligations to give, to do and not to do, based on the principles of autonomy of will and freedom of contract.
It is important to point out that the Integrity Pact is on the one hand, a private agreement which seeks to maintain the integrity of the public procurement procedure by combining rules and activities in order to generate trust and credibility in the procedure; and, on the other, a preventive tool and not a warranty, by itself, of the absence of corruption. In the adaptation process to the Colombian conditions, the intention has been that its voluntary character and its use as a tool to discuss openly the risks of corruption in the negotiation processes between the public and private sector, would effectively contribute to voluntary cultural changes that would lead to the construction of integrity in a country where, according to information to all known, there is always a need for these type of initiatives. Read the full article by following this link.
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(Readers may also wish to view the article on legal issues pertaining to integrity pacts in the public procurement area that is based on the extensive experience of Transparencia por Colombia. Read the article on a special Public Procurement page.)
Civil society has the potential to play critical roles in pressing public authorities to open procurement bidding to public scrutiny and to introduce systems that heighten transparency and make bribery far more difficult. This was the case in Pakistan. In February, 2000 Shaukat Omari – Chairman NEDIANS Association (later to become Transparency International Pakistan) approached key authorities in Karachi and the result was the detailed and successful project described below. It was a project that involved modest, but crucial outlays by TI-Pakistan that enabled it to be strictly independent in the process - the PTF provied key funding (the full prokect completion report, as well as other sponsored by PTF, can be found at the PTF website.)
OBJECTIVE: The core objective of the Karachi project was to eliminate corruption and the potential for corruption in public procurement in a major civil works area in Karachi. The project, which was undertaken between June 2001 - February 2002 was pursued at a time when the country’s new government had made fighting corruption a major priority and the moment was thus opportune for TI-Pakistan to seek to initiate a concrete strategy to build transparent systems of procurement and financial management which make manipulation more difficult. EthicsWorld is highlighting this project now because it is an exceptional “best practices” model that many other anti-corruption organizations may seek to replicate and this is particularly timely as an increasing number of NGOs and public sector institutions are reflecting on experiences and lessons learned in this area.
Not only did the Karachi project lead to the granting of contracts with very significant financial savings, but it encouraged the Mayor of Karachi to introduce the IP concept in all city procurements. However, as TI-Pakistan is swift to underscore to EthicsWorld: “One success does not mean winning the war against corruption.” Public procurement in Pakistan remains rife with allegations of grand corruption.
MAIN FEATURES of the Integrity Pact Project Report to PTF from TI-Pakistan on its work with the KWSB:
A formal no-bribery commitment by the bidder, as part of the signed tender document, supported by a company Code of Conduct and a Compliance Program; and,
- A corresponding commitment of the government to prevent extortion and the acceptance of bribes by its officials;
- Disclosure of all payments to agents and other third parties;
- Sanctions against bidders who violate their no-bribery commitment; and
- An involvement of Civil Society in monitoring the bid evaluation, the award decision process and the implementation of the contract. Alternatively to the involvement of Civil Society, or preferably in addition to it:
- Public disclosure of the award decision, including the major elements of the evaluation and the reasons for the selection of the successful bidder.
1. review of existing laws, regulations, contracts and other technical documents to see how best to harmonize them with the concept of the Integrity Pact.
2. apply the integrity pact concept to a specific investment project, including consultations and agreements with stakeholders, local surveys and workshops and eventually a media campaign.
The objectives of introducing transparency in procurement procedures were to eliminate corruption from the procurement processes of KWSB and realize cost efficiency. These objectives were achieved fully with respect to contracting for the engineering and supervision services for the Greater Karachi Water Supply Scheme (K-III project). The overall actual savings in the budgeted cost at over 75% was unprecedented for any public sector project in Pakistan. Also, the benefits of a corruption free procurement process were widely applauded by the certain quarters of the government and civil society.
The context of the project was that during the government of Pervez Musharraf, the government was placing high priority on fighting corruption. TI-Pakistan was able to identify that the head of KWSB and the Provincial Governor were potential allies because of their reputations for being honest officials. Also, at the federal level, the National Accountability Bureau had been given the power to punish corrupt officials and businessmen with strict measures. Therefore, the project was undertaken at a time when it could have the maximum amount of impact. In the end, the project had a positive impact and the Mayor of Karachi city decided to apply the IP concept in all city government procurements, while at the federal level, the National Accountability Bureau recommended use of IP in all government procurements above a certain threshold. The success of the project was also, in no small part, due to the leadership of Shaukat Umari, at TI-Pakistan, whose perseverance and tact helped guide the project to a successful conclusion.
A major lesson emanating from the project implementation experience is the importance of pragmatism and flexibility to be exercised while dealing with partner organizations. In this case, after intervention by some parties with vested interest the procurement procedures were altered threatening the transparency of the whole procurement process. However, a tactful handling of the situation by TI-Pakistan with some compromise and without sacrificing the broader objective of fairness and efficient procurement, a potentially adverse situation was averted. A rigid adherence to the procedure recommended by TI-Pakistan would have resulted in a complete collapse of the relationship between KWSB and TI-Pakistan.
Another positive lesson is that while efforts for transparency should be maintained, all possibilities of a direct personality clash should be avoided as was done in this case.
One of the most significant decisions was the removal of all discretionary powers regarding the evaluation of consultants and contractors both in the short listing and in the tendering stages, which will revolutionize the contracting procedures within the KWSB.
The second milestone decision has been the acceptance of the consultants and contractors bidding for the project and the signing by 10 Leading Consultants and 44 Major contractors of the “Integrity Pact”. This is a major breakthrough in the history of contracting in Pakistan.
Another major decision was made by the coordinating committee is the implementation of the “Integrity Pact” with regards to the access to information by prospective consultants, contractors and material procurement vendors. KWSB decided to build a website, which was provided by TI – Pakistan. All information related to the project and the workings of the KWSB were available on the website during the project.
The Coordinating Committee also took a decision to set up an independent “Monitoring Committee” including one member from TI-Pakistan, which would supervise all future decisions of the Coordinating Committee. The Transparency and the Integrity Pact was to be an on-going process with the hope that the independent monitoring committee would strictly implement all procedures established by the coordinating committee.
PROCESS AND EVALUATION OF BIDS
The Letter of Invitation issued to short listed consulting firms was based on the Least Cost Selection Method, the Criteria set by the World Bank in 1997.
Under this method, a “minimum” qualifying mark for the “quality” was established. Proposals were to be submitted by short listed Consultants in two envelopes containing the technical and financial proposals separately. The technical envelopes were first opened and evaluated for responsiveness. Those securing less than the minimum marks were rejected and the financial envelopes of the remaining Consultants were opened in the presence of the consultant’s representatives. The firm with the lowest price was then to be awarded the project. Under this method, the qualifying minimum marks were 65%.,
Evaluation of Technical Proposals
6.3 The individual member of the evaluation committee appointed by KWSB will carry out the evaluation of proposals on the basis of their responsiveness to the Terms of Reference, applying the evaluation criteria and point system. Each responsive proposal will be given a technical score. A proposal to be considered unsuitable shall be rejected at this stage if it does not respond to important aspects of the Terms of Reference, declared as Non Responsive, or if it fails to achieve the minimum technical score of 65 %. The KWSB shall notify Engineering Firms of the rejection of their technical proposal indicating that their financial proposals if any will be returned unopened after completing the selection process.
Public Opening and Evaluation of Financial Proposals
6.4 All the qualified financial proposals will be opened in presence of representatives of the firms and KWSB evaluation committee, and total cost will be publicly announced.
6.5 The Evaluation Committee will check and make the arithmetical corrections if required, and examine compliance of all financial inputs by each bidder.
6.6 In case of difference of rate in words and numerical, rate in words will be taken as correct and will be multiplied (if required) and cost of the item corrected accordingly.
6.7 Any financial item not priced it will be evaluated as works to be performed
at no cost.
6.8 The firm/JV which has submitted the Least Cost in its financial proposal will be invited for negotiations to award the assignment.
However, after the proposals were received, and technical evaluation completed which took 45 days, a complaint was made by one of the participating firm. The Pakistan Engineering Council which is the regulatory body under PEC ACT 1976, approached KWSB and informed them to follow the standard PEC Procedures for selection of consultants.
The Financial Proposals from 6 firms were then returned by KWSB, and both the Technical & Financial were re-invited. The firms were instructed to follow PEC procedures and comply 100% with all rules of PEC. The PEC Rules were not what the coordination committee had originally recommended but close enough to satisfy TI-Pak with regards to the transparency in evaluation and the selection of consultants.
The PEC procedure was slightly different to what TI-Pakistan had proposed but acceptable to it. It stated that, “after evaluating the technical proposals, the financial proposals of the Top Three Ranking Firms are to be opened in presence of representatives of these firms”.
The following procedure of PEC was then included in the new LOI.
- The award procedure of PEC is that the Top Ranking Firm is invited to negotiate the financial costs, and if negotiations fails with the Top ranking firms, then 2nd Ranking Firm is invited for negotiations, and if it also fails, the 3rd ranking firm is invited.
- In the LOI it was declared that the negotiations of financial costs may result in award of contract at the cost even lower than the lowest bid.
To satisfy itself that the PEC procedures would be adopted, TI-Pakistan met with the Chairman of the Pakistan Engineering Council, Dr Jamil Ahmed Khan. A meeting was then scheduled between the Deputy Registrar PEC and the KWSB Evaluating Committee. This exercise was carried out in order to avoid any ambiguity in the evaluation process and to the satisfaction of all the stakeholders including TI-Pakistan.
Role of Civil Society
It is essential that a process be employed that involves consultation among key parties and leads to the adoption of a methodology, which enjoys the confidence of the private sector. Where an effective civil society structure exists, possibly also a National Chapter of TI, it will be highly desirable to enlist its support by providing access for an effective monitoring role – directly or through expert consultants – and thereby create transparency and credibility to the process. It is therefore important that a government does not seek unilaterally to impose such system but it is recommended that the government arrange for prior consultation, possibly in the form of a hearing or hearings with the key actors.
A government may also, either in addition to the involvement of Civil Society, or possibly in its place, adopt a policy of total transparency of the bidding, bid evaluation, award selection and contracting process, through outright publication of all the critical documents or by giving easy access to relevant documents and information to any interested party.
Provision for suggestions and complaints:
- A suggestions box should be placed in the office premises to encourage suggestions from the concerned or other interested parties.
- Arrangements for the analysis of and implementation of feasible suggestions be made.
- An official should be designated to respond to the suggestions and complaints
Thus received. Complaints be studied and redressed as soon as possible. All these processes be made public.
The IP concept should be presented to the respective bidders as early in the process as possible, so as to assure that the new rules are established before interested parties have had the opportunity to enter into different (traditional) arrangements. This means inter-alia that for any contract with pre-qualification procedures (e.g. major civil works contracts) the bidders are requested to present their commitment as part of their submission for pre-qualification, or at least that the companies invited to apply for pre-qualification are informed of the use of the IP concept in the bidding process.
The government may begin by testing this IP concept on major contracts for one or several selected projects, or for all projects in a particular sector. Broader application could then follow at a later date when sufficient experience has been gained, and any desirable modifications may have been introduced.
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