Integrity Pacts: a collaborative tool for curbing corruption in public procurement –

Approach, experience and Lessons Learned

Conference on Safeguarding EU funds against fraud & corruption through the civil control mechanisms of Integrity Pacts

Budapest, 17-18 February 2014

Susanne Kuehn

Head of Public Sector Integrity Programme

Transparency International Secretariat

skuehn@transparency.org

Corruption in public procurement

High corruption risk: public procurement amounts to 15 or more of GDP Loss of government/tax payers’ money through corruption in public

procurement is estimated to be 25% of value of a procurement contract Waste of financial resources: more expensive and inefficient projects Distortion of allocation: corruption can lead to decisions, which are

motivated by money not citizens’ needs Lack of trust in government and politics where politicians and civil

servants are seen to be corrupt

Clean, corruption-free public procurement can save millions of Euros

What is an Integrity Pact?

A Pact between contracting authority (government) and bidders (companies) & civil society in a monitoring role

Legal commitment = contract A set of sanctions in case of break of the pact Enables companies to abstain from bribing (and other corrupt

practices) by assuring:• Competitors will also do so• Government officials won't demand it or expect it

Enables Government to:• (officials) abstain from corrupt practices• Reduce costs of contracting

Applicable throughout the entire contracting process and in all sectors

Why Integrity Pacts?

Help governments, businesses & civil society in public contracting – reduce corruption

Help enhance public trust in government contracting

Contribute to improving credibility of government procedures & administration

Why implement and IP?

As Public Official Help increase credibility and legitimacy when honestly

concerned about corruption and transparency problems Make work easier. The process has support from the outset.

Reduces unnecessary trials. Saves public money

As Private Bidder Levels the playing field (common, shared rules of the game) Makes bidding process easier Reduces transaction costs: corruption is not free of charge or

cheap. Winning and loosing fairly is cheaper Corruption almost always bites back

The Authority’s Commitment

Not to demand or accept any advantage in exchange for an advantage in the contracting process

To make publicly available all necessary technical, legal and administrative information on the contract

Not to disclose confidential information to a bidder or contractor

All officials involved in the contracting process to disclose conflicts of interest in connection with the Contract,

To report any attempted or completed breaches of above commitments as well as any substantiated suspicion

Bidder’s / Contractor’s Commitment

Pledge (on behalf of CEO or CEO of the national subsidiary):

Not to offer any advantages to any official in exchange for any advantage in contracting process,

Not to collude with other parties interested in the Contract to impair transparency and fairness of the contracting process,

Not to accept any advantage, To disclose all payments made to agents and other

intermediaries (preferably by all bidders at the time of bidding, but at least by the awardee of the Contract).

Highly desirable: contractor provides proof of existence and application of code of conduct

Sanctions & Dispute Resolution

Violations by Authority: officials to suffer appropriate disciplinary, civil, criminal sanctions (e.g. removal, dismissal)

Violations by Bidder - some or all of the following: denial or cancellation of contract, forfeiture of the bid and/or performance bond, appropriate (liquidated = predetermined) damages to Authority and

the other bidders, debarment for future bidding for appropriate time

Disputes could / should be resolved through International or - where appropriate - national arbitration IP would define the venue and procedure

Monitoring

Civil Society (TI chapter?) should monitor all phases CSO may appoint external, independent Monitor Cost of Monitor often covered by Authority Monitor has full access to all documents and meetings Monitor should take suspicion

first to Authority head if no corrective action taken: to Public Prosecutor or the Public

Finally: a statement that procedure was clean, did not lead to any incidents what incidents, how these were dealt with, outcome

Qualities of a good monitor

Independence: objective monitoring with public good as guidance

Knowledge: expertise adds value to the project

Capacity: individual monitor or organization, depending on project

Accountability: accountable to all parties and the public in varying degrees

Commitment: strength of character and impeccable behaviour

How to select a Monitor

Selection process needs to provide for transparency and accountabilityPredetermined selection criteria and profile for

monitorDefinition of procedure (open vs. Intuitu

personea) Establish who is responsible for choosing

monitorAccess to information about the final decision

and the grounds for the decision

Key Stages:

Identify Capacity (Marketing & Right Opportunity) Obtaining/Sustaining Political Will Implementing Independent Monitoring

How to implement an IP

Transparency

A maximum of transparency: basis for successful design, setup and implementation of IP

Needed: public access to all the relevant information

Highly desirable: forum for civil society representatives to discuss official steps taken in context of the Contract

Internet: nearly ideal platform (also allows detailed controls)

Access to legitimately proprietary information should remain restricted.

Characteristics

Flexible but consistentFlexible but consistent: allows adaptation to local rules/culture while maintaining essential characteristics

Requires political will/commitment for success

Essential & highly desirable ElementsEssential & highly desirable Elements

Implementation Arrangement (1)

Civil Society Organisation (NGO)

Public Authority

BiddersMonitor

Monitoring Contract

Memorandum of Understanding

NGO undertakes most implementation activities

IP Document

Taken from : How to implement IPs in the Water Sector, a guide for government officials, by Juanita Olaya

Some of TI’s IP experience: > 300 IPs in 15+ countries

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

Sectors and Areas of Work• Telecommunications

• Public works

• Transportation

• School supplies

• Office supplies

• Utilities

• Services

• Tourism

• Police supplies

• Local government

• Finance

• Information systems13 +

countries

Savings. Colombia: reports savings ranging between 5% up to 60% of contract‘s

official budgeted price Pakistan Karachi Dam: savings of more than half of initial budgeted price +

spill-overs Trust.

Bidders interviewed for case study said, they lost fairly. Korea: positive changes in local investment climates, prosecution of

corrupt officials based on local IP’s

Competition. Ecuador: IP contribute to opening of market in mobile

telecommunications industry, 25% drop of prices

Results

Possible risks and challenges of IPs

IPs may not rule out corruption 100% Detection and enforcement mechanisms by the relevant

agencies need to be effective too IPs may be misused as window dressing if not

properly implemented Possible bidder reluctance

Can be addressed through information, training and clarification of IP

Conflicts of interest Can exist or arise between bidders – govt. officials –

monitor, and need to be managed

Defining Success

Contracting process characterized by Transparency, Accountability, No Corruption

The Project Completed on schedule Social, economic and development goals achieved

Trust & Reputation Trust in government and officials increased Reputation of participants improved

Detection of Corruption Sign of effective monitoring

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

LAW

RULE OF LAW

SOCIAL NORMS/ CULTURE/OBSERVED BEHAVIOR

LAW

SOCIAL NORMS

Thank you!

Contact:Susanne Kuehn, skuehn@transparency.org

The Contracting Process

• What to buy/sell• How much• For when

•Decision to invest• Choice of Method

Bidding documents

Announcement of open bid

Clarifications on Bidding Documents

• What is being bought/sold• Deadline to present offers• Where to find bidding documents• Others: budget line, agency, etc

Bid Closes

No OffersEvaluation

of OffersSelection of Contractor

Publication of decision

Contract

Contract implementation

Contract Oversight and control

Decision is Questioned