assessment of integrity pact in ip compliant psus

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A TRANSPARENCY INTERNATIONAL INDIA REPORT

TRANSPARENCYINTERNATIONAL INDIAthe coalition against corruption

PARTNERSHIP FORTRANSPARENCY FUN

Process Rights Obligations Monitoring Sanctions

ASSESSMENT OF

INTEGRITY PACT (IP)

IN IP COMPLIANT

PUBLIC SECTOR

UNDERTAKINGS


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Transparency International India (TII) is the accredited India chapter of Transparency International, an international civil society organisation based atBerlin that has turned the fight against corruption into a worldwide movement. Transparency International challenges the inevitability of corruption,and offers hope to its victims. Since its founding in 1993, TI has played a lead role in improving the lives of millions around the world by building

momentum for the anti-corruption movement. TI raises awareness and diminishes apathy and tolerance of corruption, and devises and implementspractical actions to address it.

Transparency International India is part of global network including more than 100 locally established national chapters and chapters-in-formation. TIIis a non-government, non-party and not-for-profit organisation of Indian citizens with professional, social, industrial or academic experience seekingto promote transparent and ethical governance and to eradicate corruption.

Publisher : Transparency International India

First Edition: January, 2012

ISBN : 978-81-909418-4-6

Authors : Ashutosh Kr. Mishra and Nakul Gupta

Editor : Dr. S. K. Agarwal

2012 Transparency International India. All rights reserved.

Reproduction in whole or in parts is permitted, providing that full credit is given to Transparency International India and provided that any suchreproduction, whether in whole or in parts, is not sold unless incorporated in other works.

Disclaimer

Every effort has been made to verify the accuracy of the information contained in this Report as of October 2011, including comments made by differentstakeholders. Nevertheless, Transparency International India or authors of the Report are not responsible for its correctness or in other contexts. Policyrecommendations reflect only Transparency International India's opinion. They should not be taken to represent the views of those quoted orinterviewed unless specifically stated.

All legal issues are subject to Delhi Courts' Jurisdiction.

9 788190 941846

ISBN 819094184-4


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TABLE

OFCONT

ENTS ACKNOWLEDGEMENTS

FOREWORD

MESSAGE

ABOUT THE AUTHORS

ABBREVIATIONS AND ACRONYMS

EXECUTIVE SUMMARY

INTRODUCTION 01

INTEGRITY PACT

WHAT IS INTEGRITY PACT?

WHY SHOULD A COMPANY SIGN INTEGRITY PACT?

INTEGRITY PACTS RELEVANCE IN INDIA 02

EXPERIENCES OF INTEGRITY PACT IMPLEMENTATION

IMPLEMENTATION OF INTEGRITY PACT IN INDIA 03

ROLE OF CENTRAL VIGILANCE COMMISSION

FEATURES OF INTEGRITY PACT

WORKING OF INTEGRITY PACT

METHODOLOGY AND SCOPE OF THIS STUDY 04

FACTS, FIGURES AND ANALYSIS 06

QUANTITATIVE ANALYSIS

CONCEPTUAL FRAMEWORK

FEEDBACK FROM STAKEHOLDERS 07

GENERAL OBSERVATIONS AND SUGGESTIONS 15

ACTION POINT FOR STAKEHOLDERS 16

INTEGRITY PACT IN DEFENCE PROCUREMENT 18

INTRODUCTION OF INTEGRITY PACT IN PRIVATE SECTOR 19

CASE STUDIES FROM IP COMPLIANT PSUs 20

Case Study I : GAS AUTHORITY OF INDIA LIMITED : SAVINGS

Case Study II : CENTRAL COALFIELDS LIMITED: ROLE OF IEM IN

GRIEVANCE REDRESSAL


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OIL INDIA LTD. 66

CONTAINER CORPORATION OF INDIA LTD. 69

NEYVELI LIGNITE CORPORATION LTD. 71 BHARAT PETROLEUM CORPORATION LTD. 73

INDIAN OIL CORPORATION LTD. 75

AIRPORT AUTHORITY OF INDIA LTD. 76

MAHANAGAR TELEPHONE NIGAM LTD. 78

NORTHERN COALFIELDS LTD. 79

SOUTH EASTERN COALFIELDS LTD. 80

MAHANADI COALFIELDS LTD. 81

WESTERN COALFIELDS LTD. 82

CENTRAL COALFIELDS LTD. 83

CENTRAL MINES PLANNING & DESIGN INSTITUTE 85

TELECOMMUNICATIONS CONSULTANTS INDIA LTD. 86

HINDUSTAN COPPER LTD. 88

BHARAT HEAVY ELECTRICALS LTD. 88

NATIONAL THERMAL POWER CORPORATION LTD. 91

EASTERN COALFIELDS LTD. 93

BHARAT SANCHAR NIGAM LTD. 94

BHARAT COKING COAL LTD. 95

RAIL INDIA TECHNICAL AND ECONOMIC SERVICES LTD. 96

CHENNAI PETROLEUM CORPORATION LTD. 97

SHIPPING CORPORATION OF INDIA LTD. 99

NATIONAL HYDRO POWER CORPORATION LTD. 102

POWER GRID CORPORATION OF INDIA LTD. 103

SATLUJ JAL VIDYUT NIGAM LIMITED (SJVNL) 105

Annexure 8 : EXPERIENCES OF THE INDIAN OIL CORPORATION LTD. 106

Annexure 9 : SAMPLE NON-DISCLOSURE AGREEMENT FOR IEMs 109


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We would like to thank all those who contributed towards Integrity Pact survey and preparaon of this

report, in parcular - Nodal officers of the PSUs, Independent External Monitors (IEMs), Chief Vigilance

Officers (CVOs) and Bidders of the IP Compliant PSUs.

Our sincere gratude goes to Shri K. Vidyasagar (Principal Secretary Health, Medical Educaon &

Family Welfare - Jharkhand and Former-CVO-RINL), Shri M. N.Buch (Retd. IAS), Prof. M. P. Jaiswal

(MDI, Gurgaon), Shri B. B. Tandon (Former Chief Elecon Commissioner), Shri Kanwarjit Singh

(IEM-BHEL), Shri N.R. Banerjee (IEM-CCL) Shri Arun Singhal (CVO-GAIL), Shri M.B.Sagar (CVO-SCI), Shri

S.M.Mishra (CVO-HPCL), Shri Shiv Raj Singh (CVO-HSCL), Ms Vismita Tej (CVO-CCL), Shri S.K.Gupta

(CVO-WCL), Shri B. Pradhan(CVO-AAI), Shri K.S. Balasubramanian (CVO-NLCL), Ms Madhumita Basu

(CVO-MSTC), Shri S. Galgali (CVO-KIOCL),P. S. N. Murty (RINL), Shri Paul Thomas (SAIL), Shri S. K. Singh

(Nodal Officer - OIL), Shri P. Balasubramanian (BPCL) Shri Selvakumar (CVO-TCIL), Shri B. B. N. Subudhi

(NHPC), Shri Kanwar Singh (NHPC), Shri K. K. Basu (NMDC), Shri K.Kannaiyan (CPCL) Shri Shankar Bha

(SCI), Shri D. Ghosh (SCI), Shri Reteesh (SCI), Shri K. R. M. Rao (GAIL), Shri V. Bobraj Jeyaharan (KIOCL),

Shri Alok Kumar (CONCOR), Shri P. K. Singh (Wipro Technologies ) and Shri S. K. Mehta (BCCL).

We are thankful to Dr. S. K. Agarwal (Vice ChairTII) for the eding and proof reading of the report,

without his support it would have been impossible to complete this task, Shri A. C. Talwani (Vice Chair

-TII) , Shri S. C. Bahri, Col. K. R. Dhramadhikary (Board Member-TII) and Shri R. Sampat (Acve

Member-TII) for their valuable insights and support. We sincerely thank Shri U. S. Pandey for his

experienced insights and guidance in proof reading of the first dra. We also thank Shri P.S. Bawa

(Chair-TII), Ms. Anupama Jha (ED- TII) and Shri Sanjeev, Anshul Jain, Ajay , Vinod, Ms. Sangita and

Vipin (colleagues at the TII Secretariat) for their assistance in this report.

We also sincerely thank Shri Rama Nath Jha, Director (ALAC-TII) for his input and proof reading.

We would like to acknowledge contribuons of interns Ms. Vasudha Thirani, Shri Mayank Goel,

Shri Dhirendra, Shri Akhil Khurana and Shri Karunesh Rai for assisng us in carrying out the herculeantask of interviewing various stakeholders.

Our Special thanks go to Shri Dheeraj Kumar Jha, a mining engineer with Rio Tinto, who in his

brief snt with TII, assisted us in taking feedback from various IP stakeholders and also helped us in

systemacally compilaon of the inputs received from various stakeholders.

We are extremely grateful to Shri Vinay Bhargav (Former Director, World Bank, Chief Technical

Advisor, Partnership for Transparency Funds) and his organizaon for funding this Integrity Pact Survey

and its publicaon.

Last but not the least, our thanks and sincere gratude to Admiral (Retd.) R. H. Tahiliani, Mentor

TII, who has been pioneer and great promoter of TIIs Mission and Vision.

ACKNOWLEDGEMENTS


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Integrity Pact (IP) is one of the crical and important tools

of Transparency Internaonal that has been consciously

and conscienously adopted by 44 public sector

undertakings so far. The adopon of the tool was supported

by the Central Vigilance Commission, the Department of

Personnel & Training, the Second Administrave Reforms

Commission report, the Ministry of Company Affairs,

besides the Ministry of Defense that has incorporated its

spulaons in their procurement manual.

The uniqueness of the Pact lies in the fact it is a voluntary acceptance by the top management

that acknowledges the fact that the behemoth organizaons handle public money and therefore

they are responsible and accountable to the people through the civil society organizaon, mediated

by Independent External Monitors from outside their systems who can observe their funconing and

resolve situaons of conflict. It is therefore a moral commitment and, at the same me, a willingness

of management to expose itself to outside scruny by experts having administrave experience anddomain knowledge.

The IP has been accepted by a wide range of companies from oil, gas, minerals including coal, iron

ore, manganese, copper, airport, and steel, to telecommunicaons, shipping, hydro electric projects,

and refineries. This demonstrates the robustness of the tool that has aracted them to adopt the tool

in order to work transparently and in the interest of boom line by saving costs, and shadow

overheads.

It was thus considered that there ought to be an evaluaon of the funconing of the tool by an

expert in management who could give it a 360 degree focus. The object was to assess ulity of the

tool and its impact. A feedback is necessary both to learn from mistakes and inspire confidence, if the

tool is found useful.

The task has been ably supervised by Dr. M.P. Jaiswal, currently Professor in Informaon Systems

and Dean (2009-11), Management Development Instute, Gurgaon, one of the highly-rated

management schools in the country. He, being an expert in areas of administrave innovaon,

process re-engineering, and e-governance implementaon models, is highly suited to guide the

research conducted by Shri Ashutosh Kr. Mishra, Director, IP Project, TI India, and Shri Nakul Gupta,

a Research Scholar with the MDI. This work is the result of indefagable efforts in formulang

quesonnaires for different stakeholders like the management, the vigilance department, the IEMs,

and the vendors so that a comprehensive view could be available. Seeking replies was a herculean

effort. Both young researchers have shown commitment, hard work, concerted effort and hot pursuit.

We hope to be guided by the findings that would help us in further chiseling and refining the

tool. We are grateful to Partnership for Transparency Fund who has provided financial support and

encouragement for us to undertake such a review. Special thanks are for Mr. Vinay Bhargav who hasbeen constantly interested in seeing that the tools has added value to the organizaons that have

adopted it. Both for him and us, it is happy moment to share the findings of the study.

January 1, 2012 P.S. BawaNew Delhi Chairman,

Transparency Internaonal India

FOREWORD

Shri P. S. BawaChairman

Transparency Internaonal India.


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It gives me immense pleasure that Transparency Internaonal India is coming out with a special

report on Assessment of Impact of Integrity Pact. Ethical governance, parcipave acon and

transparency in operaons are the core value on which every company and every organizaon

should funcon. It is a maer of great pride for me to be associated with Transparency Internaonal

India - an organizaon which is commied to transparency, accountability and integrity.

The launching of the report on Assessment of the Integrity Pact is a welcome step toward

quanficaon of the efficacy of the acvies undertaken by Transparency Internaonal India. I

wholeheartedly congratulate the Chairman-TII, his team and the authors of the report for this

iniave. I am parcularly happy to know that this special report is just a start of efforts that TII has

taken to ensure transparency in the procurement process. The iniave started with public sector

and is now all set to include private sector as well.

I urge upon all the officers & staff of public and private sector undertakings to parcipate

wholeheartedly in the acvies during of Transparency Internaonal India and be a part of the

launch of the Report on The Assessment of the Impact of the Integrity Pact on 16th January 2011- thereby making Transparency a way of life and Integrity Pact a great success.

M. P. Jaiswal

MESSAGE

(Dr.) M. P. Jaiswal is currently Professor inInformaon Systems and Dean (2009-11) at theManagement Development Instute, Gurgaon. Hehas been a Vising Professor-cum-Sr. Fulbright

Fellow at Carnegie Mellon University, USA during2004-05. His area of research, consultancy andteaching includes Administrave ProcessInnovaon and Reengineering, ERP ande-Government Implementaon Models.)


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Nakul Gupta

Nakul holds a bachelors degree in Electronics and

Communicaons Engineering and is currently pursuing hisdoctoral degree in Informaon Management from Management

Development Instute, India. He has several naonal andinternaonal publicaons in the fields of renewable energy,

electronics engineering, open source soware, e-learning,e-governance and innovaon in pedagogy along with accolades

such as Internaonal Climate Champion 2009 and Brightest YoungClimate Leader 2010 in his basket of achievements. He is a

member of Internaonal Society for Technology in Educaon andwas also selected for Stanfords Summer Instute of

Entrepreneurship in the year 2011.

AUTHORS

Ashutosh Kumar Mishra

Director (Integrity Pact and Corporate Support Forum)Transparency Internaonal India

Ashutosh Kumar Mishra holds a bachelors degree in MineralEngineering from Indian School of Mines ,Dhanbad. He holdscerficate degree in Cyber Laws from The India Law Instute,Delhi. Before joining Transparency Internaonal India , he hasworked in mining and power sector and has experience in thearea of handling issues related to beneficiaon of high ash coal ,beach sand minerals and clean coal technologies.


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TII : Transparency Internaonal India

TI : Transparency Internaonal

ONGC : Oil & Natural Gas Corporaon

RINL/VIZAG : Rashtriya Ispat Nigam Ltd.

HPCL : Hindustan Petroleum CorporaonLtd.

GAIL : Gas Authority of India Ltd.

CIL : Coal India Ltd.

HSCL : Hindustan Steelworks ConstruconLtd.

MSTC : Metal Scrap Trading Corporaon

NMDC : Naonal Mineral DevelopmentCorporaon

FSNL : Ferro Scrap Nigam Ltd.

SAIL : Steel Authority of India Ltd.

KIOCL : Kudremukh Iron Ore Company Ltd.

MOIL : Manganese Ore (India) Ltd.

Oil : Oil India Ltd.

CONCOR : Container Corp. of India

NLCL : Neyveli Lignite Corporaon Ltd

BPCL : Bharat Petroleum Corporaon Ltd.IOCL : Indian Oil Corporaon Ltd.

AAI : Airports Authority of India

MTNL : Mahanagar Telephone NigamLtd.

NCL : Northern Coalfields Ltd.

SECL : South Eastern Coalfields Ltd.

MCL : Mahanadi Coalfields Ltd.

WCL : Western Coalfields Ltd.

RITES : Rail India Technical & EconomicServices Ltd.

MECON : Metallurgical Engg. ConsultantsIndia Ltd.

MoU : Memorandum of Understanding

ANNEX : Annexure

CCL : Central Coalfields Ltd.

CMPDI : Central Mine Planning Design &Instute Ltd.

TCIL : Telecommunicaon ConsultantsIndia Ltd.

HCL : Hindustan Copper Ltd.

BHEL : Bharat Heavy Electrical Ltd.

NTPC : Naonal Thermal PowerCorporaon

ECL : Eastern Coalfield Ltd.

BSNL : Bharat Sanchar Nigam Ltd.

BCCL : Bharat Coking Coal Ltd.

CPCL : Chennai Petroleum CorporaonLtd.

SCI : Shipping Corporaon of India Ltd.

NHPC : Naonal Hydro-Electric PowerCorpn Ltd.

PGCIL : Power Grid Corporaon of IndiaLtd.

SJVNL : Satluj Jal Vidyut Nigam Ltd.

NRL : Numaligarh Refinery Ltd.EIL : Engineers India Ltd.

OPGC : Odisha Power GeneraonCorporaon

CVC : Central Vigilance Commission

CMD : Chairman-cum-Managing Director

PSE : Public Sector Enterprises

IEM : Independent External Monitor

CVO : Chief Vigilence Officer

OECD : The Organizaon for EconomicCooperaon and Development

PSU : Public Sector Undertaking

SOP : Standard Operang Procedure

ABBREVIATIONS AND ACRONYMS


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EXECUTIVE SUMMARYIntegrity Pact (IP), a tool devised by Transparency Internaonal to curb corrupon in public procurementand was first implemented in mid 1990s in Germany during the construcon of Berlin Airport. ONGC wasthe first PSU which implemented IP in India by entering into a MoU with Transparency Internaonal India(TII) in 2006. Since then, almost aer five years, IP is now being implemented by 44 PSUs in India. As such,a lot of work has been done for the IP implementaon but the assessment of IPs efficacy remained anunexplored area unl now. Various stakeholders have also requested for its impact assessment to know

whether IP has achieved its primary objecve of making procurement process more transparent or not.

Consequently, TII with the support from Partnership for Transparency Fund (PTF) has undertaken thistask. The process started in the month of January 2011. TII representaves interviewed variousstakeholders through personal interviews, telephonic talks, e-mails and by post. Aempts have been madeto compile gains, success stories supported by case studies from various PSUs, as well as to highlight greyareas in IPs implementaon and possible recommendaons to make it an effecve tool. Almost all IPcompliant PSUs, IEMs and substanal number of bidders feel that IP has helped in making procurementprocess more transparent but there have also been certain non-responsive cases as well. Implementaonof IP in coal PSUs is a maer of concern for all stakeholders.

Private sector is considered to be an acve parcipant in corrupon, and hence it is imperave that itadopts IP. In no other me in history entrepreneurship, private economic acvity and markets have been

more important and intertwined with the economic prosperity, polical stability and environmentalsustainability than they are at present. The financial crisis and the economic turmoil that this crisis hastriggered have thrown this insight into sharp relief. The private sector can be a source of dynamicinnovaon and growth. It is not ironic that mulnaonals are more aware of provisions of IP, as comparedto Indian companies. During the assessment process, it was found that the general awareness of IP amongbidders is low and the IP compliant PSUs are the ones that need to share a blame for this. Hence, thereis a need to widen the level of awareness among bidders by organizing more Focus Group Discussions(FGDs), workshops etc.

Proper selecon of IEMs is an important task for effecve implementaon of IP. Individuals withimpeccable integrity and credible records should be appointed as IEMs. They should be selected fromdiverse fields having the knowledge of the relevant domain and the selecon procedure should not belimited to rered bureaucrats only.

Unlike in other countries, where IP is being implemented on a project-to-project basis, in India it has beenadopted by the companies in all the projects above the specified threshold value. Nevertheless, therehas also been a demand from various quarters to implement IP on a project-to-project basis, so thataccording to projects the IEM can be appointed. But several PSU officials feel that if IP is implemented insuch a way then they could lose experse of already appointed IEMs who render their advice on otherissues also. Hence while deciding this issue, these consideraons have to be kept in mind before makingany shi and adopng project specific strategy.

While quanfying feedback from stakeholders, we have kept 50% sasfacon as bench mark, anythingbelow 50% was treated as below average, 50-75% as average and above 75% as above average.

Amidst clouds of corrupon, there have been quite a few silver linings as well. Most important isquanfying gains from IP, as done by Gas authority of India Limited (GAIL), case studies from GAIL, Central

Coalfields Limited (CCL), South Eastern Coalfields Limited (SECL), Naonal Mineral DevelopmentCorporaon (NMDC), Bharat Petroleum Corporaon Limited (BPCL). We especially laud efforts of ChiefVigilance Officer (CVO) of Shipping Corporaon of India (SCI), who took acon against officials for violaonof IP provisions.


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INTRODUCTIONINTEGRITY PACT

The concepts of transparency and accountability are nowhere more significant in public administraon than in public

procurement and contract management. Yet while these aributes are paramount as in regards to good governance, they do

not on their own disnguish procurement from many other acvies of public process. Public procurement is inherently a

polically sensive acvity, not the least because it involves significant amounts of public money even within the context of a

naonal economy.

1

The significance of public procurement reform for developing countries is increasingly being appreciated by development

agencies globally, recognizing that the social and economic costs2 of the weaknesses in public procurement governance are

compounded with increase in sovereign risk that represents for foreign investment3. However, even amongst the reformists in

this area there are common misunderstandings and a lack of consensus about this acvity, for example, many perceive it as a

regulatory problem and others as a mainstream management funcon. These problems are by no means limited to developing

countries4. Even in those jurisdicons with stronger administraons the issues are poorly appreciated and suscepble to

systemic failure of accountability -- oen because the agents of accountability themselves have at best a weak appreciaon of

the issues5. Cases have involved, for example, failures to understand when contractual relaonships exist; or when the passing

of informaon on the process constutes breaches of confidenality 6. Even where these weaknesses are exposed, it will

commonly be on an occasional and excepons basis despite the problems somemes being ongoing and endemic.

WHAT IS INTEGRITY PACT?

The Integrity Pact (IP) is a tool developed in 1990s by Transparency Internaonal (TI) to help governments, businesses and

civil society to fight corrupon in public contracng and procurements. It establishes mutual contractual rights and obligaons

to reduce the high cost and effects of corrupon. It covers all contract-related acvies from pre-selecon of bidders, bidding,

contracng, implementaon, compleon and operaon. Thus, IP is intended to make public contracng and procurement

transparent by binding all to ethical conduct. It also envisages a monitoring role for the civil society which is the ulmate

beneficiary of such acon.

The IP consists of a process of signing an agreement between the government or a government department and bidders for a

public sector contract. It contains commitment to the effect that neither side will pay, offer, demand or accept bribes, or collude

with competors to obtain the contract, or while carrying it out. Besides, bidders will disclose all commissions and similar

payments made by them to anybody in connecon with the contract. Sancons will apply in case of violaons occur. IP also

introduces a monitoring system that provides for independent oversight and accountability.

WHY SHOULD A COMPANY SIGN IP?

The IP is a model for transparency in public procurement and contracts. It helps enhance public trust in government contracng

and hence contributes to improving credibility of contracng procedures and administraon in general. It enables companies

to abstain from bribing by providing assurances to them that

(a) Their competors will also refrain from bribing

(b) Government bidding system and procurement will be absolutely transparent

(c) Government will not only prevent corrupon but also extoron by their officials, and follow transparent procedures.

(d) It helps Government and companies to reduce high cost and maintain quality control.

(e) It creates confidence and trust in decision making process, a more hospitable investment climate, and public support

in the country.

1 The Organizaon for Economic Co-Operaon and Development (OECD)s Development Assistance Commiee (DAC) esmated the volume of global public

sector procurement at 8% (US$3.2 trillion) of the worldwide GDP of US$40 trillion.2 Schapper, P. R. & Veiga Malta, J. (2004). Cmo Hacer para que el Estado Compre Mejor. Gobierno Digital, 3: 6-29.3Jones, D. S. (2002). Procurement Pracces in the Singapore Civil Service: Balancing Control and Delegaon. Journal of Public Procurement, 2 (1): 29-53.4 Hunja, R. (2003). Obstacles to Public Procurement Reform in Developing Countries. WTO-World Bank Regional Workshop on Procurement Reforms and

Transparency in Public Procurement for Anglophone African Countries, Tanzania. Available at www.worldbank.org. Nagle, F. J. (1992). A History of

Government Contracng. Washington, DC: George Washington University.5 Peachment, A. (1992). The Execuve State: WA Inc and the Constuon. Perth, Australia: Constuonal Press6 Finn, J. (1997, July 2). Major Changes in Tendering Law the Hughes Case. Legal Briefing No. 33. [On-line]. Available at

hp://www.ags.gov.au/publicaons/agspubs/legalpubs/legalbriefings/br33.htm

PAG

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INTEGRITY PACTS RELEVANCE IN INDIA

(a) India is perceived to be one of the corrupt naons and ranks 95th among 183 countries in Transparency Internaonal's

Corrupon Percepon Index (CPI) 2011.

(b) Corrupon hurts poorest the most.

(c) Most people believe that corrupon is rising at an alarming rate.

(d) Frequent scandals and delays plague Government contracts and other procurement.

(e) Such delays increase costs of procurement, works and public projects and drains public exchequer.

(f) Exisng an-corrupon organizaons have had limited success in fighng corrupon.

(g) If IP is implemented sincerely, it will be helpful as an effecve tool in dealing with mal-pracces in procurement/works

contracts.

EXPERIENCES OF IP IMPLEMENTATION

Integrity Pact ensures:

(a) Greater transparency and integrity between Principal and Counter Party.

(b) Eliminaon of external intervenons in maers of contracts and tenders.

(c) Improved sense of ethics in companies and among the bidders.

(d) Reducon in representaons/complaints from any bidder or contractor for review.

(e) Improvement in the boom line.

P

AGE

2 ASSESSMENT OF INTEGRITY PACT (IP) IN IP COMPLIANT PUBLIC SECTOR UNDERTAKINGS


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IMPLEMENTATION OF INTEGRITY PACT IN INDIAThe IP was introduced in India in 2006 with the iniave of (Late) Shri Subir Raha, the then

CMD of Oil & Natural Commission (ONGC). Then the Second Administrave Reforms

Commission (ARC) in its IV Report on Ethics in Governance made the recommendaon for

IPs adopon in order to make contracng process more transparent. But it got the real

boost due to the support of Central Vigilance Commission (CVC) which issued its first circular

on Dec. 4, 2007 recommending the adopon of Integrity Pact in all major procurements of

central PSUs. The Prime Minister in his address on August 26, 2009 to CBI and StateAn-corrupon Bureaux also menoned IP as a tool to curb corrupon. As a result, so far

44 PSUs (Annex 1) have adopted IP since 2006.

ROLE OF CENTRAL VIGILANCE COMMISSION (CVC)

(a) Extending full support to the concept, the CVC issued circulars on Dec. 4, 2007, May

19 & Aug 5, 2008 and May 18, 2009 recommending the adopon of Integrity Pact

in all major procurements of Central PSUs. (Annex 2)

(b) Appointment of Independent External Monitors (IEMs) is approved by CVC.

(c) Periodical monitoring of IP

In accordance with CVCs circulars, the Department of Personnel & Training had also issued

a circular on June 16, 2009 recommending IP for State PSUs. Similarly, the Dep. ofExpenditure, Ministry of Finance issued an office Memorandum No. 14 (12) 2008 E-II (A)

on 20th July 2011 (Annex 3) for using the Integrity Pact in Govt. Ministries / Departments.

As its follow up, the Dep. of Public Enterprises of the Ministry of Heavy Industry & PE issued

an office Memorandum No. DPE/13(12)/II-Fin on September 9, 2011 (Annex 4) to CMDs of

all CPSES to decide and lay-down the nature of procurements/contracts and threshold limit

for IP by September 30, 2011.

FEATURES OF INTEGRITY PACT

(a) A Pact (contract) is entered into by the Principal (a government office inving public

tenders for the supply, consultancy, construcon and/or any other service) and the

Counter-party (bidders, contractors or the suppliers).

(b) The Principal and the Counter-party commit that they will not demand or accept anybribe or gi. The Principal agrees that its officials will not do so. They will be subject

to disciplinary or criminal sancon in case of violaon. Similarly, the bidder assures

that he would not pay any bribe in order to obtain and retain this contract.

(c) IEM is appointed based on consideraons of his impeccable integrity record and

working knowledge of tendering/contracng process and that panel of IEM for

central PSUs is approved by CVC. Use of IEM's advice as conflict resoluon

mechanism is important for sound implementaon of Integrity Pact.

(d) A set of sancons for any violaon by a bidder of its commitments or undertakings.

(e) Regarding state PSUs, the role of CVC can be performed by the concerned state vigilance commission or Lok Ayukta

as decided by concerned State Government.

WORKING OF INTEGRITY PACT

(a) Dras of the MOU and the Integrity Pact are prepared by the Principal and approved by Central Vigilance Commission

(CVC) and TII.

(b) A MOU is signed between the Principal and TII.

(c) Commitment is obtained from all senior officials of the Principal to implement the IP program.

(d) In case there are subsidiaries of the Principal, they are advised to follow IP of the Principal

Mechanisms

of ensuring

accountabilityare necessary

within a

governance

system,

especially in

public

procurement

wherein

clearly

delineated

black and

white is a

rarity and the

grey areas

are the way

of life

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METHODOLOGY AND SCOPE OF THIS STUDY

METHODOLOGY

The purpose of the assessment of Integrity Pact is to provide a systemac method (framework) for evaluang and mapping the

procurement funcon within government and allied agencies. This framework can be used to idenfy opportunies for

improvements in acquision processes as well as to highlight specific risks faced by each agency. Experience, knowledge and

experse of several stakeholders become an important ingredient of this framework.

While many of the issues have already been discussed, this report seeks to develop a proposion to suggest why integrity pactis likely to succeed beyond delivering minimal governance benchmarks.

The analysis in this report will show that public procurement is a subject not only to divergent polical, managerial and

regulatory objecves, but also to Transparency and Fairness in the whole deployment of procurement process (Mapping of

these has been done with the help of quesonnaires that take into account - key performance measures associated with these

divergent yet related objecves in the light of Integrity Pact Implementaon)

This report aempts to analyze the percepons of stakeholders towards public procurement and contracng pracces in IP

complaint PSUs. The survey and interview methods were used in the study to analyze the percepons of their stake holders

keeping in view the lens of integrity pact towards public procurement and contract-related issues in PSUs in India.

Within the management environment, control, risk migaon and transparency objecves are oen the focus of centrally

mandated regulatory compliance frameworks while management performance in terms of value outcomes is oen pursued

through devolved decision-making and deregulaon.In what follows Integrity Pact seeks to develop each of these factors as a foundaon for a framework within which they can

be more meaningfully ordered, related and understood. All of these elements make up the procurement environment and

need to be accounted for in any useful framework if it is to reconcile the acvies of procurement managers with the demands

of their execuves, the agendas of the policians and the expectaons of the business sector, the media and the community 8

SCOPE

Public procurement is a funcon of government that is most prone to corrupon, parcularly in developing countries, where

there is insufficient transparency and compeon. Procurement is one of the fundamental links in the supply chain of any

organizaon. If this link is not managed efficiently and effecvely, serious downstream challenges abound9.

Many jurisdicons worldwide have, implicitly or explicitly, similar management objecves for public procurement 10,11,12.

Common policies are widespread between jurisdicons, notwithstanding the great variances in methodologies and operaonal

pracce. Such common policies are generally constructed from the following elemental objecves:

Public confidence

Efficiency and effecveness

Policy compliance and consistency

These objecves are unsurprising and are consistent with generic public management. They simply say that the management

of public procurement needs to be in accordance with community standards, effecve, efficient and consistent with the broader

roles of government. However, while they seem simple, experience is that translang them into operaonal reality involves

issues and policies that are frequently in conflict if not mutually incompable. Broadly, above three approaches, somemes

in various degrees of combinaon, are employed to deliver these objecves. The following discussion includes each of these

approaches, generally defined in terms of their focus on regulaon, management and centralizaon of public procurement.

7 Md. RafiquI Islam (2007), Public procurement and contracng in Bangladesh: An analysis of the percepons of civil servants, Journal of public procurement,

volume 1, Issue 3, pp. 381-3908 Paul R. Schapper, Joo N. Veiga Malta and Diane L. Gilbert (2006), An analycal framework for the management and reform of public procurement, Journal

Of Public Procurement, Volume 6, Issues 1 & 3, pp. 1-269 Thai, K. V. (2008). "Measuring Losses to Public Procurement Corrupon: The Uganda Case." The 3"^ internaonal Public Procurement Conference

proceedings, August 28-30, 2008. [Online] .Available at www.ippa.ws.10 Qiao, Y., & Cummings, G. (2003). The Use of Qualificaons-Based Selecon in Public Procurement: A Survey Research. The Journal of Public

Procurement, 3 (2), pp. 215-249.11Jones, D. S. (2002). Procurement Pracces in the Singapore Civil Service: Balancing Control and Delegaon. Journal of Public Procurement, 2 (1), pp.

29-53.12 Thai, K.V. (2001). Public Procurement Re-Examined. Journal of Public Procurement, 1 (1), pp. 9-50.

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Operaonal failures of procurement governance are aributed by pro-regulators to weaknesses in the professionalism of

praconers rather than to any inherent weaknesses in the regulaons as such; while pro-management advocates aribute

failure to professional weaknesses but idenfy the causes with the regulatory regime itself which tends to reduce the role of

management of everything other than mechanical compliance. In both cases, the broader policy context and policy roles are

frequently not acknowledged at all. Governments have responded to many of the issues with cyclical reforms of regulaon and

management and somemes centralizaon to deliver the corresponding expectaons of the day in terms of compliance and

performance respecvely.

Extending concept13,14,15 of figure 1 further, figure 2 shows that any public procurement exercise can be subjected tocompeng

goals of conformance management and performance management, and each of these may also be compeng with broader

strategic polical goals of the government or reforms8.

Doing extensive literature and allied secondary resource mining (both academic as well as pracce oriented) we can lay down

basic framework of the whole public procurement noon and the role played by Integrity Pact and Transparency Iniaves.

Taking cue from Snider and Rendons paper on Public Procurement Policy: Implicaons for Theory and Pracce it can be

proposed

13 Pegnato, J.A. (2003). Assessing Federal Procurement Reform: Has the Procurement Pendulum Stopped Swinging? Journal of Public Procurement, 3(2),

pp. 145-175.14 Kovacic, W.E. (1992). Regulatory Controls as Barriers to Entry in Government Procurement. Policy Sciences, 25 (1), pp. 29-42.15 Shoop, T., (1994). Steven Kelman: Advocate of Reform. Government Execuve, 26 (8), pp. 68-72

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FACTS, FIGURES AND ANALYSIS

Good public management and administraon, with emphasis on accountability and responsiveness to customer needs; against

the backdrop of serious accountability scandals, has been seen as an aspect of good governance by donor agencies supporng

reforms in developing countries (Economic Commission for Africa, 2003). We have divided this analysis into qualitave and

quantave analysis. First the detailed quantave analysis, followed by the qualitave analysis have been described.

QUANTITATIVE ANALYSIS

In this parcular secon, we propose a conceptual model (Figure 4) of analyzing value delivered by the Integrity Pact. Also, we

enlist various quesonnaire responses (stascal items) that have helped us in mapping and quanfying the implementaon(and value) of Integrity Pact, analyze them and thereby discussing the efficacy and impact of Integrity Pact.

CONCEPTUAL FRAMEWORK

This conceptual framework basically represents the value that Integrity Pact delivers when implemented and adopted in various

Public Procurement Iniaves.

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Feedback from IP Compliant Public Sector Undertakings

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Feedback from IP Compliant PSUs Chief Vigilance Officers

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Composition of Independent

External Monitors

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Feedback from Bidders

Observaons :

1. Almost all respondent bidders feel that TII should organize more

workshops to educate bidders about various provisions of IP.

2. Majority of bidders are not aware about acvies of TII.

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GENERAL OBSERVATIONS AND SUGGESTIONS

General

1. Sub-contractor must be part of IP process and program

2. In case of any default pertaining to various provisions of IP, including bribery by sub-contractor, the contractor has to beheld responsible and accountable.

3. Every IP compliant bidder PSU must also sign IP document of Principal while parcipang in bidding process.

4. There are various instances, where bribes are routed through sub-contractors, big bidder companies, including MNCs are

very much into it.

5. No cases of Bribery have been reported.

6. Almost all respondents feel that there is a need of IP like tool in India, and this tool is to be further fine tuned by taking

feedback from them.

7. Almost all respondents feel sasfied with role played by CVC and TII. Major chunk of the bidders feel that TII has to be more

proacve in terms of advocacy of IP and complaint redressal.

8. Almost all PSUs feel that they are not overburdened with expenses on IEMs.

9. No PSU and CVO feels that IEM(s) is/ are duplicang the work of vigilance department.10. Some PSUs are changing nomenclature of Independent External Monitor for External Independent Monitor (EIM), TII

suggest a common nomenclature of Independent External Monitor should be used by all.

11. Interacve meengs with IEMs should be conducted more frequently and at regular intervals for speedier review of cases

PSUs

12. Minutes of IEM-Management meeng, annual report submied by IEMs, acon taken report on complaints be uploaded

on the PSUs website.

CVC

13. Since maximum IEMs are rered bureaucrats, there is a need to diversify pool of IEM(s), persons of impeccable integrityand having domain knowledge from private sector, academics, NGOs, Media, PSUs etc. should be also appointed as IEM.

IEM(s)

14. IEM must submit annual report pertaining to implementaon of IP to the concerned CMD, with a copy to CVC and TII.

Private Sector

15. Private sector is no more vicm of corrupon. Instead they are instrumental and hand-in-gloves with public officers.

16. Bribery among officials of private firms is rampant. They pay bribes to officers from others pvt. companies to get their

work done.

17. Government must bring a strong deterrent tool to curb corrupon in private sector.

World Bank

18. A few PSUs have reported that World Bank doesnt allow its funded project to be a part of IP program. TII and TI-S should

take up this maer with World Bank Officials.

TI India

19. List of all bidding companies which are not signing IP, must be displayed on concerned PSUs and TIIs website. In case of

foreign mulnaonal, TII may pursue this maer with their counterparts located in the countries concerned.

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Dimensions of procurement process that has to be taken care by PSUs while implemenng IP.

1. Finding the proper balance between over- and under-centralizaon :

A centralized procurement funcon fosters economies of scale in purchasing, eases enforcement of procurement rules, and

makes for a more transparent process to vendors. However, a hyper-centralized funcon may be too slow and unresponsive

to unique needs of organizaonal sub-divisions. Effecve procurement finds the happy medium between the two extremes.

2. Maintenance of an ethical operang environment :

All actors (government employees, vendors, and elected officials) must be aware of the legal-ethical environment in which

they operate. This requires constant training as well as clear guidelines for what constutes legal procedure.

3. Benchmarks for success and pracce :

Those in charge of the procurement process need to know what is thegood procurement. Is good procurement based

on cost? On quality? How long should procurement take? These are but a few of the quesons that should be addressed

on an on-going basis if one is to determine the success or failure of the procurement funcon.

4. Maintaining a transparent operaon :

A frequently menoned aribute of a good procurement process is transparency. All actors in the system should know

what is expected of them in terms of procedures and outcome. Where ever there is a doubt, procedures should be in

place to clarify to the vendors what is expected from them. Government employees should understand how they must

behave in contractual specificaon and award.

5. Emphasizing the importance of on-going training :

Procurement is a highly specialized profession. Like any other profession, it requires training and commitment to

professional norms. There is a need for parcipaon in professional conferences and connuing educaon as sine quo

non.

6. Adopon of e-Procurement while understanding its limitaons :

The internet has tremendous potenal for procurement. It can broaden the bidding pool while speeding up the bidding

process. It can also foster a more transparent process by virtue of the speed and ease by which informaon can be

disseminated. On the other hand, recent experience suggests the e-procurement is not without its shortcomings.

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Implementaon is expensive, parcularly if advanced automated bidding soware is adopted. Procurement personnel

and vendors need training prior to implementaon. e-procurement may bring outof-jurisdicon (or even foreign) vendors,

creang potenal conflict with current procurement rules. Hence, it is recommended that a roll-out should be tested in

one or two funcons before organizaon-wide implementaon; the upshot is that the internet and procurement is a

potent match but start-up can be me-consuming and costly. Smaller cies and organizaons may find that e-procurement

is limited to posng of Request of Proposal (RFP)s and the like.

7. Relaonship management with vendors must be on-going :

Successful procurement, parcularly in contracng and outsourcing, requires ongoing contact with vendors to assess

results and outcomes. Successful procurement requires weeding out of low quality vendors and constant outreach to

those that sasfy the cost and outcomes associated with the benchmarks established before the award of contract.

Maintenance of sound relaonship with vendors is not only defined in leer-of-the-law aspects of procurement; actors

must also realize the import of partnering with vendors as a means of achieving strategic organizaonal goals. This requires

a high degree of professionalism and strong interpersonal skills.

Keeping an eye on these seven factors simultaneously is not easy. But if taxpayers are to get the biggest bang for the buck

in the procurement process, maximizing success on these factors is essenal16.

16 Beyond the Bid: An Evaluaon of State and Local Government Procurement Pracces.By Sherri Greenberg,Ausn, TX: Universityof Texas, LyndonB. Johnson

School of Public Affairs, 2004.

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INTEGRITY PACT IN DEFENCE PROCUREMENT

Strengthening Integrity Pact in Defence Procurement

The Defence Procurement Procedures (DPP) 2006 for the first me introduced a provision called pre-contract Integrity Pact (IP),

in a move to eliminate all forms of corrupon in defence deals (IP is a binding agreement between the seller and the buyer,

prohibing any misconduct from either side). Further, the DPP 2006 also made a provision of appointment of Independent

Monitors (IMs), who would be responsible to examine any violaons of pact, brought to noce by the buyer.

However, the DPP 2006 and also the DPP 2008, which upholds the same, did not menon the precise role and power of the

IMs. To fill up the gap the Amendment-2009, has made the provision, giving precise role and powers to this oversight agency.

Henceforth, IMs are authorised to scrunize complaints with regards to violaon of Integrity Pact, through the access to the

relevant office records in connecon with the complaints sent to them by the buyer. It may be menoned that the Ministry

of Defence (MoD) had made certain amendments to the Defence Procurement Procedures 2008 (DPP 2008) to further promote

the domesc industry to parcipate in defence producon; streamline formulaon of qualitave requirements; ensure greater

transparency and accountability in defence procurement; and facilitate offset transacons.

(Based on an arcle of Shri Laxman Kumar Behra, an Associate Fellow at New Delhi-based Instute for Defence Studies and

Analyses [IDSA]) published in India Strategic, November 2009)

According to Defence Procurement Procedures 2011, Integrity Pact is applicable on the procurement worth Rs 100 crores &

above and in Defence Enterprises at Rs 20 crores & above.

(Comments: TI India has not come across any of the details about the implementaon of Integrity Pact in any of the

defence contract/procurement)

In his address to a TI India Workshop on Integrity Pact on January 23, 2010,Our Defence Minister Shri A. K. Antony commented

Defence procurements have always been ridden with controversies. ------ Our Government is commied to ensure

transparency into all defece deals and enforce a ban on middleman and agents. Our Government has taken several steps

to enhance the benchmarks for transparency, accountability and integrity. Our Defence Procurement Procedure (DPP) is now

revised every year, whereas earlier, it was revised every two years. The focus of DPP is to encourage widest possible

parcipaon from various manufacturers in the defence industry and above all, to ensure transparency and integrity in

defence procurements. It is in this context -------------- the Integrity Pact is welcome. The Pact includes an agreement between

the buyer and the bidder to neither give nor accept bribe in any form. Integrity Pact is an essenal tool to help government

and civil society to combat corrupon, parcularly in the field of defence procurements and the system of public contracng.In fact in his address to CBI and police officers in August last year, the Prime Minister, Dr. Manmohan Sing also highlighted

the introducon of Integrity Pact for high-value transacons. We must strengthen the instuon of Independent External

Monitors (IEMs) under the Integrity Pact to scrunize complaints in case of a violaon of the integrity Pact. The integrity

of IEMs is of crucial importance. It is here that CVC has an important role to play in the selecon of IEMs. The External

Monitors must be experts in their respecve fields and should be persons of unquesonable integrity. ----- The Integrity Pact

thus, establishes a monitoring process and is a legal document.

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INTRODUCTION OF INTEGRITY PACT IN PRIVATE SECTOR

We have been repeatedly approached by a number of private sector corporates for signing MoU for the

implementaon of IP in their dealings. During our study, there has been a strong demand for the

introducon of the Integrity Pact in the private sector also. Keeping it in mind, TI India is considering about

its pros & cons. We wanted to have an instuon to play the role being currently played by CVC in

appoinng IEMs of impeccable integrity and take deterrent acon against the concerned private sector

corporate if IP is not implemented in leer & spirit once it is commied. Accordingly, TI India wrote a

leer exploring the possibility of Securies and Exchange Board of India (SEBI) to perform the role similar

to the CVC that provides for independent oversight and accountability in case of IP compliant PSUs.

However, rejecng the idea of assuming a CVC-like role of an-corrupon watchdog for the private sector,

capital market regulator, the SEBI in a memorandum (Annex-5) submied to its board at its meeng on

November 24, 2011, said a CVC-like role is not within the mandate of SEBI under the exisng legal

framework. Its jurisdicon extends to listed companies in the private sector on certain maers delegated

under the Companies Act, and it has been established to protect the interest of investors in securies

and to promote the development of, and to regulate, the securies market as enshrined in the SEBI Act,".

Instead, it approved a new disclosure-based regime for listed companies with respect to non-ethical

business pracces. Accordingly, companies would need to submit a Business Responsibility Report, alongwith their annual reports, to help assess the fulfilment of their environmental, social and the corporate

governance responsibilies. These disclosures would be based on nine key principles of responsible,

transparent and ethical business pracces. These include the companies' conduct and governance being

based on ethics, transparency and accountability, promoon of the well-being of all employees, respect

toward human rights and environmental issues, among others. They also call for businesses to act

responsibly when engaged in influencing public and regulatory policy. These would inially apply to the

top 100 companies.

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CASE STUDIES FROM IP COMPLIANT PSUs

Case Study-I

Gas Authority of India Limited : Savings

Gas Authority of India Limited (a state owned IP compliant company) referred two cases to IEMs seeking advice before

finalizing tenders:

Case 1 : Procurement of bare lines pipes for VDPL project:

Dia 48 X 25 mm thick: 116.9 km

Dia 48 X 27 mm thick: 1.8 km

Brief : It was explained that due to sharp fall in steel prices during the period from floang to the opening of tender

bids, there was a need to secure benefit of the same in the procurement of pipes against the tender, as steel

constutes 60 to 70% of cost of pipes.

IEM advised the management to open price bids of the qualified bidders and negoate with the lowest

bidder to arrive at reasonable prices, having regard to the revised esmate which should duly be considered

by ECPC while according approval for award. We were informed that as negaons did not fetch any financial

benefit, the tender was re-floated.

FINANCIAL BENEFITS : Fresh bids resulted in a reducon of Rs 297.05 crore (2970.5 Million) against theinial offer.

Case 2 : Procurement of carbon steel bare line pipes for Dahejvijaipur up gradaon project (DVPL-2):

Dia 48 API 5L Gr.X-70or X -80PSL- 2

Brief : IEM were informed that representaons had been received from third pares before opening of financial bids

for re-tendering or obtaining revised bids as steel prices had come down substanally.

The management apprised IEM that since the date of inving bids and opening of tenders, prices of steel had

fallen sharply (steel index fallen by 11% up to price bid opening and has gone down further thereaer.)

It was felt that reducon in steel prices of this magnitude within a span of three months was not a normal

situaon and company must look for ways and means to secure a compeve bid.

GAIL was therefore advised that in the given circumstances it could exercise either of the following twoopons:

(a) Best reduced prices could be invited from the qualified tenderers and CVC informed accordingly, fully

explaining the circumstances for adopng such a course of acon in the best interest of the company.

or

(b) Management could negoate with L-1 bidder aer revising esmates to get the desired reducon, failing

which the process of re-tendering could be resorted to.

The Management was le free to take acon having regard to policy and legal tenability. As negoaons

did not yield significant financial benefit, the tender was refloated.

FINANCIAL BENEFITS : Re tendering resulted in reducon of cost by Rs 64.57 crores (645.7 Million).

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Case Study-II

Central Coalfields Limited: Role Of IEMs in Grievance Redressal

Bidders : Monnet Ispat & Energy, Aryan Coal Beneficiaons (P) Ltd., Mecnally Bharat Engg. Co.

IEM : Shri M. N. Buch

Duraon of Case : February 2011

Indicators : The result and impact of IP implementaon are difficult to measure, oen because it is difficult to establish

a casual relaonship between what was done and what didnt happen. It is nevertheless possible to observeimpact through indicators including :

Things run as planned; bidding documents were observed; contractual agreements were upheld and

enforced; the project was successfully concluded.

The process was visible, transparent and accountable. Informaon was shared with the public, and the

parcipaon of stakeholders was possible and effecve.

Conflicts and complaints related to bidding process and contract execuon were minimized or adequately

managed.

There was an observable reducon in costs or prices compared to the original budget

The strategy facilitates the improvement of processes or the undertaking of reforms that benefit future

projects at organizaonal and instuonal (legal) levels.

Corrupon is detected and addressed, and savings are made as a result or prevented damages.

Background : Central Coalfields Limited (CCL) in NK coalfields near Ranchi invited tender for seng up 10 MT capacity

washery at their Ashoka project. Three bidders, namely- Monnet Ispat & Energy, Aryan Coal

Beneficiaons (P) Ltd., and Mecnally Bharat Engg. Co., were declared qualified bidders aer inial

scruny by Central Mines Planning and Design Instute CMPDIL (which was appointed by CCL to evaluate

the tenders)

It was observed that all three tenders had not quoted on a moisture free basis as required in the tender.

CCL sought clarificaon from all three tenderers to resubmit the yield statement of wash coal on a

moisture free basis as per the prescribed level to bring all the three bidders on the same plaorm.

All three tenderers submied their clarificaons. These clarificaons were found to be in order by the

CMPDIL, aer which the tender commiee decided to open price bid in presence of the tenderers on a

pre-fixed date. Accordingly, the prices were opened of all three tenderers and yield was also declared bythe CCL during the meeng. CMPDIL on behalf of CCL again evaluated the composite tender both

technically and commercially and declared Monnets bid as the techno-commercially lowest bid to the

tender commiee which was approved unanimously by them.

As evaluated by CMPDIL, the difference in yield of L1 (Monnet) and L2 (Aryan) was 0.3 units. Monets

capital cost was Rs. 128.5 crores as compared to Rs. 163.6 crores of Aryans - a clear 20% lower bid.

Monets operang cost was Rs. 54 per tonne as compared to Rs 69 per tonne of Aryans. The difference

in operang cost tentavely saved CCL Rs. 450 crores.

Aer the price bid was opened and Aryan started quesoning the enre process and advocated

retendering. The maer was referred to IEM Shri M. N. Buch.

Acon taken : Shri Buch convened a meeng , in which all pares were present. He gave separate hearing to all three

by IEM bidders and based on inputs received from them and opinion from technical heads of the management,

he upheld the original decision taken by the management, and his decision was accepted by the

aggrieved partytoo.

Outcome and advantages of IP, as being observed from this case:

1. A separate grievance redressall system has boosted confidence of bidder in the system.

2. Decrease in the number of ligaon.

3. Beer compeve rates for the procurement

4. The project became visible, transparent and accountable.

5. Informaon was shared with the public, and the parcipaon of stakeholders was possible and effecves

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Case Study III

Bharat Petroleum Corporaon Limited : Grievance Redressal

Tender was floated on a limited tender basis in two-part bid system, i.e., techno commercial bids and price bids. Four Vendors

were technically qualified. One of the vendors made representaon to IEMs that the bid of one of the vendors was received

in open condion and was considered for evaluaon even though the tender specified that the techno commercial bids and

price bids have to be in sealed covers separately.

The IEMs deliberated on the issue and advised as under:

The tender opening commiee members should have sealed the opened price bid of the vendor and obtained the signatures

of the bidders present during tender opening. It was also noted that other vendors did not raise their objecons at the me

of opening of the price bid but sent their objecons ten days aer opening the price bid. Considering transparency and fairness,

the IEMs suggested that the tender be refloated. This suggeson was accepted.

Case Study IV

Naonal Mineral Development Corporaon - Grievance Redressal & Savings

Case History of Procurement of 10 Mulpass Drills : This case pertains to procurement of 6 nos. 10 dia. Blast Hole Drills with

Operaon and Maintenance spares for four years required for BIOM, Kirandul Complex (5 nos.) and BIOM, Bacheli Complex (1

no.) at an esmated indent value of Rs. 1,923 lakhs.Global Tender Enquiry was issued on 5.06.2008 in three bid system with due date of tender opening as 31.07.2008

Offers were received from M/S. Atlas Copco Construcon and Mining Sales, Hyderabad, M/S. Revathi Equipment Limited,

Coimbatore and M/s. MMHC Rudgormash Voronezh Ltd. Russia (Indian Representave M/s. Stork HKB (India) Pvt. Ltd., New

Delhi). Accordingly, they were opened on 31.07.2008 in presence of the tenderers representaves.

M/s. MMHC Rudgormash-Voronezh Ltd., Russia (Indian Representave M/s. Stork HKB (India) Pvt. Ltd., New Delhi) has not

submied the integrity pact in full as per tender. Firm had submied only 2 pages (first page and last page) with secons 129

and 10. M/s Revathi and M/s. Atlas Copco have submied representaon that the offer of M/s. MMHC Rudgormash should

not be considered as they had not submied the integrity pact in full as per NIT format.

Case was referred to IEM who had opined that M/s. Rudgormashs Part-A of the bid should be considered invalid and firms

bid be treated as disqualified. The recommendaons of IEM were approved by competent authority and accordingly M/s.

Rudgormash was informed.

The offers of both M/s. Revathi and M/s. Atlas Copco were processed and order was placed with M/s. Atlas Copco on lowest

offer basis.

Case Study V

Shipping Corporaon of India (SCI) : Grievance Redressal

The SET-IT Projects : A Report by the Independent External Monitors (IEMs).

1. The Vigilance Division of Shipping Corporaon of India (SCI) had received two complaints regarding Implementaon

of SET-IT Projects, both for awarding the contracts, one to Tata Consultancy services (TCS) and another to M/S. Entel

Network Systems Pvt.Ltd. (ENS). The consultancy contract to TCS and Local Area Network (LAN) contract to ENS were

finalized prior to the implementaon of Integrity Pact (IP) in SCI.

2. Due to lack of IT experse, the Vigilance Division of SCI aer having invesgated the above complaints, could not

carry out the detailed invesgaon in all respects, and thus had referred the maer to the Central Vigilance

Commission (CVC) for inspecon by the Chief Technical Examiner (CTE). While agreeing to the above, CVC advised to

refer these cases for detailed study and report by the Independent External Monitors (IEMs) appointed for SCI.

3. On CVCs direcons, the IEMs carried out a detailed study of the enre procurement process followed by SCI in this

regard, and had elaborave discussions with the concerned officials of SCI and TCS.

4. The background of the above two contracts awarded were :

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SET-IT CONTRACT TO TCS

Aer processing a global tender, M/s. Tata Consultancy Services (TCS) was selected as the IT partner of SCI and awarded

the contract on 12.10. 2006 to study and implement and end to end integrated IT system in SCI. The project was

planned to be executed in two phases viz.

o Phase 1 - Study the IT requirements of SCI and prepare IT Blueprint and Roadmap for implementaon.

o Phase 2 - The soluons idenfied in Phase 1 to be implemented as per the Roadmap.

During the selecon of an IT partner, the pares were not in a posion to quote actual price of implementaon beforePhase 1 was completed and the IT blueprint was finalized. In addion to the lumpsum cost quoted by the pares for

phase 1, the inter- departmental commiee recommended that for cost comparison of commercial bids, the

man-month requirements for different skill sets. Thus, the pares were asked to quote for the esmates regarding skill

sets and four pares had given indicave figures, which were used to arrive at the skill set requirement. These skill

sets were also debated at the pre-bid conference and changes were incorporated in the Request for Proposal (RFP).

The Phase 1 acvies of the project commenced on o6.11.2006 TCS submied IT Blueprint and the Roadmap on

12.03.2007. Phase 2 was scheduled to start from May 2007.

TCS had submied the budgetary costs to SCI comprising of a capital expenditure of Rs. 28.96 crores. Since this cost

was substanally higher than what was envisaged, SCI advised TCS to prune down the scope so that the vital and

essenal funcons are focused. Aer extensive discussions and taking into consideraon the management priories,

the SCI pain areas, the core business funconally and a robust backbone for a fully integrated system in future, TCS

resubmied revised Implementaon Plan and presented a revised budgetary esmate of Rs.80.28 crores and Rs.

17.28 crores as the recurring annual expenditure.

When SCI floated the RFP for selecon of an IT partner for consultancy-cum-implementaon of an end-to-end

integrated IT system, all the pares were asked to quote a lump-sum cost for phase 1 and since the scope an the exact

quantum of work in phase 2 could not be known then, they were asked to quote cost for phase 2 based on the

esmated skill set and man-months assumed by SCI, aer discussing with all the vendors during the pre-bid meeng.

All pares were also informed that the skill set rate quoted by them would be considered during the actual

implementaon. On this basis, TCSs cost for Phase 2 worked out to be Rs.7.11 crore as per their commercial bid. This

was based on the esmated/indicave skill set and manmonths furnished by SCI. This figure alongwith the lump-sum

cost of phase-1 was taken in the cost tabulaon to arrive at the L1 party. Finally, TCS had agreed for the cosng of

Rs.10.13 crores for Phase 2 aer pruning down the scope to the great extent.

In view of the foregoing and since the very scope of the tender/contract awarded to TCS had undergone a variaon,the selecon of TCS as IT partner has been challenged by the complaintant.

OBSERVARIONS

The details of the consultancy contract awarded to TCS were discussed and deliberated by the IEMs with the officials

of SCI and TCS. In the meeng held on 19th January, 2011, more informaon was sought.

The Chief Vigilance Officer (CVO) of SCI in a meeng held on 12th. March, 2010 informed IEMs that this subject maer

has been referred to Dr. Gulshan Rai, Director, CERT by the CVC and also confirmed the above vide his leer

Vig/TS-IT/08/D4(c)/243dt. 17th March, 2010. He requested IEMs not to do any enquiry or invesgaon or study of

the allegaons pertaining to the awarding of the contract to TCS to avoid any duplicaon.

Further, in the second complaint (i.e. LAN contract), IEMs were requested to do the enquiry/invesgaon/study at the

Shipping House only and the rest are being handled by the Vigilance Division (i.e. Data Center at Pawai).

PROCUREMENT OF LAN CONTRACT A request for proposal (REP) was prepared in consultaon with TCS wherein specific brand of passive components,

based on the exisng LAN cabling being used in SCI viz Sysmax Cabling was menoned and tender was floated

specifying the above brand name as one of the requirement criteria by SCI.

TCS had submied LAN implementaon strategy on 29th April 2008, The purpose of this document was to draw a

roadmap for SCI to upgrade its exisng LAN infrastructure in line with recommendaon made in IT blueprint. In this

report, TCS had stated as under :

o Para 2.1 - As SCI(HO) was being renovated, new network cabling was included as part of the renovaon plan. The

cabling was included as part of the renovaon plan. The cabling on the floor was done through conduits below

the floor. Cable channels were not used on any renovated floor.

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o Para 3.3 - The IT Blueprint & roadmap document had idenfied certain lacunae like scraping to GBPS speed,

structured cabling etc. In exisng passive cabling implementaon at SCI (HO). TCS had also observed that all the

newly renovated floors had a Sysmax cable (CAT 5e/6) for LAN.

o Para 5.1.2 : Since 11th floor South wing had CAT 6 cabling and North wing had CAT 5e cabling, TCS had further

recommended to have one type of cabling on enre floor.

A Technical Evaluaon Report was submied in January 2009 aer evaluaon of total 17 bids received in response to

the RFP, wherein only 3 pares, viz. HCL Infosystems, ENS and HCL Comnet Ltd. had emerged as the qualified bidders.

ENS was the lowest bidder and had complied with all requirements of the tender IT/108/2008/21 dt.25.11.2008floated for the purpose.

Aer processing a global tender, a contract was awarded to M/S. Entel Network Systems (P) Ltd. (ENS) on 17th March

2009 for revamping of LAN SET-IT project at Shipping House (HO) at a negoated cost of Rs.1.69 crore.

OBSERVATIONS

In order to minimize cost, me and efforts, TCS had recommended that floor cabling at SCI (HO) should be surveyed

again to ascertain cabling as per structured cabling norms, best pracces and capability to support GBPS and POE

features. TCS had also suggested that the survey would also help in idenfying scope of the work for addional cabling

work at HO, and the surveyed renovated floor with Sysmax cable (CAT 5e/6) cabling should be sasfied and accepted

for current/proposed applicaon implemented during Phase 2. Nevertheless, for the purpose of standardizaon of

physical layer LAN cabling, TCS had recommended to connue using CAT 6 Sysmax cabling in future.

TCS, the IT consultants of SCI, was fully aware of the CVC guidelines. However, they jusfied their acon by elaborangvarious advantages of connuing the exisng cabling.

It is observed that since a brand name of Sysmax Cabling was menoned in the RFP, the advantage of compeve

rates could not be taken by SCI in the procurement process. The complainants have also objected to branding the

name in the tender floated.

Both the projects, viz. procurement of LAN at HO and MTI Powai office have already been completed based on tenders

floated specifying the brand name of Sysmax cabling as one of the requirement criteria.

As per CVC guidelines (No.98/ORD/1 dt.05.05.2003), specifying the brand name in the tender is prohibited as it

encourages the monopolisc pracces. In 2007, CVC had taken strong objecon for branding name for purchase of

computers by SCI when the tender was eventually scrapped and SCI had to re-tender. It may be pernent to menon

that SCI had also floated another fender IT/106/2009/07 in March, 2009 wherein the same specific brand of exisng

LAN cabling had been included as one of the requirement criteria for its LAN procurement in MTI Powai office.

The concerned officers of IT division of SCI were solely guided by the advice of the consultant TCS, who prepared the

complete technical specificaons of all the IT hardware and soware and soware required for the SET-IT projects in

SCI. Since there was a deviaon from the guidelines, the concerned officials should have recorded the jusficaon and

taken the approvals of the competent authority.

The officials of IT division of SCI to be fully conversant with latest technology available in the market and also conscious

of the CVC guidelines while floang the tenders in future.

IEMs have not commented on the alleged bribe of Rs.30 lakhs taken by the consulng and deciding authority.

Case Study VI

South Eastern Coal Limited : Grievance Redressal

Conclusion of RC for procurement of DGMS approved Cement capsules. Size 500 x 35 mm for non watery mines against our

adversed E tender No. 176 dated 6.01.10

Background

The firm M/S Hi -Tech Enterprises Dhanbad represented by fax on 19.2.2010 that they had submied the tender papers as per

specificaons, i.e., both on-line and off-line (manual) and also submied that.

1. With reference to the above tender we had submied the tender paper as per the specificaons - both on-line and

off-line (manual)

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2. We enclose the copy of acknowledgement of submission of tender on-line on 18.02.10 at 13-30 hrs, for your ready

reference and kind perusal

3. As per the specificaons, we had also deposited the tender manually/off-line on 17.02.10. Our rep. had contacted the

concern materials manager, namely, Mr Sarewar and had shown him the envelope prior to deposion of the tender

paper .

4. Your official record will confirm the visit of our rep. namely Mr. Raju ,whose visit has been recorded on 17-2-10 at 11

AM.

5. The undersigned had a talk with the concerned material manager on the telephone, who had confirmed the deposion

of the tender by our rep, within minutes of the deposion, and if need arises we shall obtain the records of telephonic

conversaons.

The firm also represented that:

As the tender documents were submied by us, but is being claimed that there is no tender paper, we are of the opinion that

there are certain officials who must have colluded, connived and in abatement with the local vendors have claimed that the

tender papers were not submied which was actually deposited on 17.02.10. Hope we shall be meted with proper jusce, with

suppression of the execuon of the tender, ll verifying and authencang our claim. Hope for your expedient, raonal and

jusfied acon towards the needful.

On receipt of the above leer from the firm, the maer was discussed by CGM (MM) over phone with the rep. of the firm

wherein rep. of the firm confirmed to visit this office on 22.02.10. to explain the case.Rep. of the firm visited office on 23.02.10 and the maer was discussed with him in the chamber of CGM (MM) wherein rep

of the firm confirmed that they had submied the required off-line documents in their on-line bid with a copy of tender fee

of Rs 5000.00. They have further submied DGMS approval and NSIC registraon copies along with project report, ISO

cerficate, TIN no. and photocopy of the tender fee DD dtd. 13.02.10.

SECL issued NIT Through E-Tendering Process only vide reference No. SECL/BSP/MMW/Sec-III/A/Cement capsules/176

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Aer geng approval for above, all the other three parcipang firms were informed vide leer nos.4665-4667 dtd 16.03.10

about considering the opening of offer of M/s Hi Tech Enterprises, Dhanbad, based on the on-line documents up-loaded by

the firm and they were requested to confirm that they have no objecon in this regard. In spite of regular follow up, no response

was received from all the three firms and, they were reminded vide our leer Nos. 4750-4752 dtd 20.03 10 clearly indicang

to submit their reply immediately latest by 25.03.2010, failing which it shall be presumed that they have no objecon in this

regard, and the case shall be processed further accordingly.

Subsequent to the above, replies were received from M/s Pawan Putra Chemicals vide leer No.PPC/2009-10/HQ76 dtd.

28.03.10 and from M/s High Tech Mining Products vide leer No. HTMP/2009-10/HQ/82 dtd 28.03.10 as follows :

M/s High Tech Mining Products

Dear Sir,

In reference to the above, if the acceptance of the offer of M/s Hi-Tech Enterprises, Dhanbad is under the provisionof the

tender then we have no objecon in acceptance of their offer by SECL

M/S Pawan Putra Chemicals

Dear Sir,

Please read the NIT condions which as under The bidders who have not submied the required tender fee/exempon

documents for tender fee off-line as menoned under clause III G (i) will not be considered for opening of their online techno

commercial bids. Further, if the bidder fails to submit the other required documents off-line as menoned under clause G,

their price bid may not be considered for opening In consideraons of the above condions and also other condions of thetender, if the offer of M/S Hi Tech Enterprises, Dhanbad is found acceptable then we have no objecon in this regard.

The two bidders have naturally referred to the NIT condion of on-line and off-line submissions. The third has not replied.

We feel that the maer must be considered keeping in view all the circumstances of the case. M/s Hi Tech Enterprises,

Dhanbad had offered the bid on-line in me. It is also confirmed that their representave had talked to Mr. Sarewar on phone

and requested for his help in submission of the paper that he was sending. His man and a representave had come to submit

off-line documents and asked Mr. Sarewar who guided him to go to the tender box. He obviously cannot confirm whether the

papers were put in the box but having come there, it will be unnatural that he will not do so. The firm is also stang that these

copies of papers which were sent off-line as required are also in the on-line bid. It is also in the interest of the enhanced

compeon to open this online bid. It will be considered further only if these required papers are included in the on-line bid

papers. The company is in urgent need of these cement capsules.

IEM Mrs. Nirmala Buch Opined as follows:

As M/s HiTech Enterprises, Dhanbad, have claimed to have upload the scanned copies of their off-line documents along with

their on-line techno commercial bid, SECL may consider opening of on-line bid of M/s HiTech Enterprises. If the off-line

required documents are found available and also in order with their online bid, their offer may be considered further. In this

case, as the tender fee, Dra will here be only a scanned copy, they may be asked to submit tender fee within 7 days from the

date of inmaon to them and if they fail to comply, their offer may not be considered. In our opinion, it will enhance

compeon, expedite maer of procurement of needed cement capsules. I also fully support the proposal that:

Further to strengthen and streamline the system of submission and opening of tender in case of E- tenders, following may be

incorporated in the future NIT terms to avoid recurrence of problems faced in the subjects case:

All off-line required documents shall be submied on-line also, duly scanned, along with online techno-commercial bid,

apart from subming the same off-line, within the spulated date and me. A confirmaon in this regard may also be

submied either with off-line documents or separately, but the same may be received within the spulated me ofsubmission of opening

(Shri Yogesh Chandra, Independent External Monitor, fully concurred with the above opinion)

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Case Study VII

Collusion between Private & Public Sector Undertakings (PSU)

In the year 2007, Damodar Valley Corporaon (DVC) had issued an EPC (Engineering, Procurement and Construcon) contract

for seng up a 1200 megawa Thermal Power Staon at Raghunathpur in West Bengal. The contract was awarded to Reliance

Energy Ltd (REL) in Dec 2007 on single tender basis, as the sole bid received was from REL.

Later, BHEL, another PSU, had also purchased the tender papers and asked for extension of the date of opening of the tender.

However, their request was rejected on the ground that the project would miss the target of supplying power needed forCommon Wealth Games scheduled for October 2010, if me extension was granted. It is a normal procedure and in tune with

CVC guidelines, to extend the tender date in cases where single bid is received, in order to generate fair and adequate

compeon.

Aer awarding the project to REL, DVC gave an interest free advance of over Rs 354 crore to REL (now R Infra). It is a common

pracce to give a "Mobilisaon Advance" (of about 10 % of contract) to the EPC contractor aer award of contract for several

reasons. First, it shows that the ordering party is serious and commied to the project. Once the advance is given, the ordering

party is in no posion to back out. Second, the zero date or starng date of contract is counted from the date of advance

payment. Third, it is a facility to the EPC contractor to start the execuon of project with the funds at his disposal. In the tender

documents, it is specified whether the advance is to be given on interest or free of interest. In this case, the tender documents

spulated that it would be an interest bearing advance. The bids are submied by various pares taking into account that the

interest charges are to be paid, i.e., the interest cost is added to the bid amount. Aer award of contract to make a change in

bid condion by changing interest bearing advance to interest free advance straight away gives the benefit to EPC contractorto the extent if interest charges now being made zero. If we take an interest rate of 10% on an advance of Rs 354 cr it means

a benefit of Rs 35.4 cr per year to the contractor. It is a universal pracce and a golden rule that "Posender developments"

or changes in bid condions to give an advantage to bidding party is a sure proof of corrupon.

DVC also changed the coal boiler specificaons aer awarding of tender, to help REL.

The date of commissioning of the first 600 megawa unit was October 2010 (me when Commonwealth Games were being

held in Delhi). However, the project is now delayed to March 2012, defeang the very purpose for which the tender was

awarded on single bid to REL.

Comptroller & Auditor General (CAG), which is mandated to audit the award of tender has not been able to do anything in this

case, since the original tender file has gone missing in 2008-09. DVC has neither located the file nor registered an FIR. It has

also not referred the case to CBI for a probe.

Collusion between DVC and R Infra was detected in the construcon of a cooling tower by R Infra. It was found that there wasa short-fall in the amount of steel, needed to construct the tower.

assessment of integrity pact in ip compliant psus

Documents