Presentation 4.2 Procurement and integrity pacts


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  • Million cubic metres per year: Sufficient to cover foreign debt
    Chief executive of LHDA (Lesotho Highlands Development Authority) Mr Sole was prosectuted. Initial investigation based on suspected misuse of cars, expenses etc. Appealed against dismissal.
    Companies also strongly resisted prosecution including through name changes and takeovers to try and escape liability. Representative agreements provided veneer of respectability. One debarred by world bank.
    Successful prosectuion by Lesotho despite high cost and limited initial support. Payments to agents were linked to payments to Mr Sole. Over a million dollars over 9 years. 11 charges bribery, 15 years in jail
  • Trial showed multinational companies can be held to account, even by a small country with limited resources
    Also concerns e.g. cost and support needed for such trials. Should donors fund? WB wouldn’t pay.
  • Presentation 4.2 Procurement and integrity pacts

    1. 1. Module 4. Taking action Session 4.2 Procurement best practice and integrity pacts Training Workshop 6-7 Apr 2010 Strengthening transparency, integrity and accountability IRC International Water and Sanitation Centre
    2. 2. Types of corruption • Bribes or kickbacks: payment of a fixed sum, % of a contract or in-kind favours. • Fraud: manipulation or distortion of information, facts and expertise for private gain by people entrusted to cater to the public good (purposeful: does not include unwilling misconduct or negligence.) • Favouritism, clientalism, cronyism and nepotism: use of entrusted power to provide preferential treatment to friends, family, kin etc
    3. 3. Contents • the Lesotho Highlands project: bribery in procurement • why is procurement a hot spot for corruption and bad decision-making in WASH? • best practice examples in procurement • the principles of integrity pacts
    4. 4. Lesotho Highlands Water Project “Massive corruption was discovered on the LHWP in 1999, when more than 12 multinational firms and consortiums were found to have bribed the CE of the project. After the CE himself was found guilty, three major construction firms were put in the dock; thus far, three have been found guilty and charged, and one has been debarred at the World Bank” (IRN website, 2005)
    5. 5. Lesotho Highlands Water Project • Largest international water transfer from Lesotho- South Africa • Construction contracts awarded fraudulently • Foreign companies paid bribes through agents and international accounts • Successful prosecutions of both givers and takers set precedents Source: Earle & Turton
    6. 6. LWWP: implications • Precedents from prosecution – Jurisdiction can be taken where the impact is felt – Giver and taker are equally responsible – Bribes are still illegal even if not acted on after corrupt agreement reached – courts could gain access to Swiss bank accounts
    7. 7. Collusion in India • “A group of [contractors] meet on the weekend in the office. We have a list of contracts being offered by [the public W&S agency]. We draw names out of a bag to see who will be the winner for each contract. That person decides what he will bid for the contract, and everyone else bids something higher than that.” • pre-determined winners of contracts reimburse the losers for their bidding fees. • values of winning bids estimated 15% higher than in a competitive environment Source (Davis)
    8. 8. Why a hot spot? • Government procurement is10-15% GDP! • High levels of procurement of products and services in WASH • Construction sector • Complexity • High levels of competition • Tight operating margins • Few other ways to develop advantage
    9. 9. Why a hot spot? • Representatives • Weak capacity to regulate and monitor • Bribery (kickbacks), fraud (Collusion or bid-rigging) • Consequences: Higher costs, poor quality construction and lack of sustainability
    10. 10. Corruption triangle Source: Campen, pers. comm.
    11. 11. Prequalification, tendering and contract negotiation • Time consuming (average 2.5 years) • Expensive ( 2 –10 % of the contract value) • Strong competition • Complicated administrative requirements • Large impact (multi €M) • Lot of paperwork • Financial Guarantees (bid bonds, tender guarantees) • No level playing field (information, ToR, tender docs) • Bonus/award of the Sales Manager • Contract negotiations • Winner takes it all!
    12. 12. Implementation • Profit driven • Recover the initial cost (also of the project proposals lost) • Change of scope / variation orders • Delays • Claims • Reporting/ Progress Control • Payment of instalments • Performance guarantees • Permanent negotiations
    13. 13. Completion • Reporting/ Approval • Performance / Compliance/ Acceptance • Installment/ Final payment • Completion of the guarantees
    14. 14. Possible anti-corruption actions • (Some) firms (Givers) – Active implementation of a no corruption policy – Business Integrity Management System – Joining international initiatives (WEF, FIDIC) – Termination of corruption prone activities – Blacklisting of clients, governments, partners • (Some) clients/governments (Takers) – Rules and regulations – Sanctions (blacklisting of firms, legal actions, …) • (Some) facilitators – Starting public debate – Rules and regulations – Control – Sanctions
    15. 15. Best practice examples • Conflict of Interest Laws • E-procurement • Disclosure of Income and Assets • Whistleblower Protection • Business Principles for Countering Bribery (BPCB) • Business Integrity Management System • Integrity pacts
    16. 16. Integrity pacts • To reduce high costs of corruption in public procurement • binding agreement (pact) between the awarding agency and bidders for contracts • Companies pledge to abstain from bribery, government agrees not to solicit bribes • Disclosure of payments e.g. to agents • Code of conduct and compliance programme