engineering risks management & integrity building capacity building package on corruption...

Engineering Risks Engineering Risks Management &Management &Integrity BuildingIntegrity Building

Capacity Building Package on Capacity Building Package on Corruption Prevention for Construction Corruption Prevention for Construction IndustryIndustry

Suggested Programme For Contract Administration Staff and

Students Main Parties to a Construction ContractCorruption Prone Areas and Preventive

Measures Contract Letting Site Supervision Contract Administration

Integrity Issues ICAC Services for Private Sector

Main Parties to Construction Contract

Client:(Government / Public Body / Developer)

Client:(Government / Public Body / Developer)

Architect / Engineer (In-house Staff/ Consultant)

Architect / Engineer (In-house Staff/ Consultant)

Main Contractor

Sub-Contractor Sub-Contractor

Sub-Contractor Sub-Contractor Sub-Contractor Sub-Contractor



Corruption Prone Areas in Construction Process

Contract Letting Site Supervision Contract

Administration

Contract Letting

Preparation of Tender Documents

Invitation, Receipt and Opening of

Tenders

Assessment of Tenders

Contract LettingPreparation of Tender Documents

Corruption Risks

Inclusion of specifications of materials in the tender documents (e.g. specify by a brand name) that only one supplier in the market could provide

Preventive Measures

Avoid using brand names or restrictive specifications

Use functional/ performance specifications as far as practicable

If unavoidable, set up a panel to examine the reasons and approval

Include the term “or equivalent” after the brand name in the specifications

Contract LettingInvitation, Receipt & Opening of Tenders

Corruption Risks

Tender rigging among the limited number of tenderers

Preventive Measures

Broaden the pool of tenderers, (e.g. open tendering, remove unduly stringent eligibility criteria for tenderers, etc.)

If only a few tenderers are to be invited, draw up the tenderers list by more than one person

Include an anti-collusion clause in the tender documents

Contract LettingInvitation, Receipt & Opening of Tenders

Corruption Risks

Leakage of tender price information to the tenderer

Assist the tenderer to gain competitive edge through improper means (e.g. destroy other tenders received, alter his tender price and technical proposal after the tender closing date)

Preventive Measures

Implement security measures to prevent leakage of tender price information, e.g.

use a double locked tender box

open tender box by a tender opening team

register all tenders received and keep them in safe custody

Do not accept late tenders

Contract LettingAssessment of Tenders

Corruption Risks

Manipulate the tender assessment process (e.g. change the assessment criteria after the tender closing date)

Preventive Measures

Pre-determine the tender assessment criteria and prohibit any change of the criteria after the tender closing date

Disclose the tender assessment criteria and their weightings in the tender documents

(to be cont’d)


Corruption Risks

Manipulate the tender assessment process (cont’d)

Preventive Measures

Set up a panel comprising at least three members for tender assessment (at least one member from an independent department)

Subject the panel’s tender recommendation to the vetting and approval by a tender board comprising senior management members


Corruption Risks

Exert undue influence over other panel members during tender assessment to favour a colluded tenderer

Preventive Measures

Require tender assessment panel members to conduct tender assessment independently before deliberation of their views

Record members’ original marking/ assessment and any subsequent revisions, and views and deliberations during the tender assessment meeting

Site Supervision

Inspection Arrangement

Testing of Construction Materials

Site SupervisionInspection Arrangement

Corruption Risks

Site supervisory staff connive at substandard works of contractors

Lack of accountability and checks and balances in site supervision, resulting in lax supervision over the works executed by contractors

Preventive Measures

Put in place a quality site supervision plan system, setting out the work items to be inspected, inspection frequencies, and rank of inspecting staff

Require the inspecting staff to maintain detailed site inspection records and sign against them

Require supervisors to conduct regular site checks on the inspections

Site SupervisionInspection Arrangement

Corruption Risks

Undesirable relationship between site supervisory staff and maintenance term contractors built up over a long period of time while carrying out their inspection duties (for term maintenance contracts only)

Preventive Measures

Change posting of site supervisory staff periodically

Site SupervisionTesting of Construction Materials

Corruption Risks

Site supervisory staff manipulate the process for selection of test samples to ensure that only compliant samples are selected for testing

Preventive Measures

Issue guidelines on the number of samples to be selected and the sample selection procedures

Monitor compliance by regular supervisory checks and audits

Require test samples to be selected randomly, and document the sample selection process (e.g. location/batches of the samples selected)


Corruption Risks

Site supervisory staff connive at tampering with test samples by contractors (e.g. swapping of selected samples with compliant ones)

Preventive Measures

Implement security measures on the storage and transportation of test samples to the laboratory

Adopt, where practicable, unique identifiers to enhance the traceability and identification of test samples

Implement a stock identification/ control system on site to ensure only materials passing the tests will be used for the works


Corruption Risks

Contractors tamper with the test reports to ensure a pass before sending them to clients/consultants

Preventive Measures

Require laboratories to send the test reports to the clients/consultants and the contractors in parallel


Corruption Risks

Laboratories appointed by contractors are unduly influenced to prepare biased test reports with a view to covering up the use of substandard materials

Preventive Measures

Avoid direct employment of laboratories by the contractors

Engage the laboratories through the consultants or the clients themselves

Require the contractors to declare any conflict of interest with the laboratories

Arrange independent parallel tests on materials which are expensive or used in bulk

Contract Administration• Multi-layer Sub-contracting

• Issue of Works Orders (for maintenance term contracts only)

• Certification of Payments

• Issuing and Valuation of Contract Variations

• Certification of Extensions of Time/Monetary Claims

• Acceptance of Works uponContract Completion

• Certification of Contract Completion

Contract AdministrationMulti-layer Sub-contracting

Corruption Risks

Inadequate construction fee for sub-contractors at the lowest-tier to produce quality works

Adversely affects the accountability of site supervision as the main contractor’s supervision may be difficult to reach the sub-contractors at the lowest tier

Preventive Measures

Include contract provisions to control multi-layer sub-contracting, e.g.

prohibit wholly sub-contracting

limit the number of tiers of sub-contracting for specialist works, such as piling works, etc.

Contract AdministrationIssue of Works Orders (for Maintenance Term Contracts only)

Corruption Risks

Staff issue works orders selectively to favour contractors

Preventive Measures

Draw up updated standard rates for maintenance items

Group the items together as far as practicable

Lay down the upper/ lower limits for tender percentages

Require bidders to submit their tender percentages for the groups instead of individual items


Corruption Risks

Staff issue works orders for unnecessary maintenance works to increase the business of the contractors

Preventive Measures

Require staff to provide justifications, cost estimates and supporting documents (e.g. written requests from users) when issuing works orders

Designate different authorities for approving works orders of different values


Corruption Risks

Staff split high-value works orders into a number of lower-value ones to circumvent the approval of the higher financial authorities

Staff issue repeated works orders for the same maintenance items to facilitate the contractors in obtaining repeated payments

Preventive Measures

Regularly generate management reports on the works orders issued for scrutiny by management to deter and detect split and repeated works orders

Contract AdministrationCertification of Payments

Corruption Risks

Staff connive at the slow construction progress, but still pay the contractors for works which have not been completed

Preventive Measures

Lay down guidelines for making payments to the contractor, e.g. make interim payments monthly

based on the progress of works on site

make milestone payments based on the contract payment schedule

Require the contractors to provide detailed breakdown and supporting information together with their payment applications

(to be cont’d)


Corruption Risks

Payment for incomplete works (cont’d)

Preventive Measures

Verify the construction progress on site against the payment claimed by the contractors

Conduct regular supervisory checks on payment valuations certified by site supervisory staff


Corruption Risks

Staff accept advantages from contractors in return for early processing and release of payments

Preventive Measures

Specify the time limits for processing of payment applications and making payments to the contractors

Monitor compliance of payment by regular supervisory checks and audits

Contract AdministrationIssuing and Valuation of Contract Variations

Corruption Risks

Staff approve substitution of high quality construction materials with cheaper alternatives

Preventive Measures

Ensure availability of construction materials in the market before specifying them in tender specifications

Issue formal variation orders to cover any change of construction materials

Assess the cost savings for the use of cheaper alternative materials by an independent quantity surveyor, and adjust the contractors’ payments accordingly


Corruption Risks

When contractors obtain contracts by submitting very low bids, they may compromise the project staff to obtain more payments through the issue of unnecessary and over-valued contract variations

Preventive Measures

Designate different authorities for approving contract variations of different values

Require staff to provide justifications, cost estimates and supporting documents (e.g. written requests from users) when issuing contract variations

(to be cont’d)


Preventive Measures

Set a ceiling to the total value of contract variations allowable under a contract (e.g. 50% of the contract value)

Contract variations amounting to more than the specified ceiling should form its own contract to be let under a separate tender exercise

Corruption Risks Unnecessary and over-

valued contract variations (cont’d)

Contract AdministrationCertification of EOT/ Monetary Claims

Corruption Risks

Staff favour contractors through the approval of unjustified and inflated extension of time as well as monetary claims

Preventive Measures

Issue guidelines on assessment of time and monetary claims

Designate different authorities for approving claims of different magnitudes/ values and subject major claims to the approval of a committee

(to be cont’d)


Corruption Risks

Approval of unjustified and inflated extension of time as well as monetary claims (cont’d)

Preventive Measures

Require contractors and site supervisory staff to maintain detailed site records of delays and prolongation costs

Appoint an independent quantity surveyor to assess extension of time and monetary claims

(to be cont’d)


Corruption Risks

Approval of unjustified and inflated extension of time as well as monetary claims (cont’d)

Preventive Measures

Assess and certify claims strictly according to contract provisions and laid down guidelines

Document the details and justifications for claims approved or rejected

Conduct supervisory checks and audits on the assessment and approval of extension of time and monetary claims

Contract AdministrationAcceptance of Works upon Contract Completion

Corruption Risks

Staff accept defective or incomplete works to favour contractors

Preventive Measures

Require the inspecting staff to document their inspection results on standard checklists

Invite representatives of clients and consultants to join the completion inspections

Require the inspecting staff to sign for all accepted works

(to be cont’d)

Contract AdministrationAcceptance of Works upon Contract Completion

Corruption Risks

Accept defective or incomplete works (cont’d)

Preventive Measures

Document any outstanding/ defective works

Require the contractors to rectify outstanding/defective works before the specified time limits

Contract AdministrationCertification of Contract Completion

Corruption Risks

Staff certify contract completion pre-maturely to favour contractors to avoid liquidated damages for the delay in completion of works

Preventive Measures

Clearly define the works to be completed for the certification of contract completion

Require the staff to certify contract completion according to the contract provision, and provide supporting documents (e.g. OP issued by the Building Authority, site photographs illustrating completion of works, etc.)

Integrity Issues

Prevention of Bribery Ordinance Acceptance of Advantages and Entertainment Management of Conflict of Interest Handling of Confidential Information Use of Contract Cars Carrying Out Inspections Outside Hong Kong

solicits / accepts solicits / accepts

Any prescribed officerAny prescribed officer

advantageadvantage

without general / special permission of the CEwithout general / special permission of the CE

guilty of an offence

Penalty : $100,000 fine and 1 year imprisonmentPenalty : $100,000 fine and 1 year imprisonment

Integrity IssuesPrevention of Bribery Ordinance – Section 3(for government employees only)

Integrity IssuesPrevention of Bribery Ordinance – Section 4

without lawful authority or reasonable excusewithout lawful authority or reasonable excuse

offersoffers

to do/ not to do any act in his official capacityto do/ not to do any act in his official capacity

Offence – Max. Penalty : $500,000 fine and 7 years imprisonmentOffence – Max. Penalty : $500,000 fine and 7 years imprisonment

Public servantPublic servant Any personAny person

solicits / Accepts solicits / Accepts

advantageadvantage


(for public servants only)

Integrity IssuesPrevention of Bribery Ordinance – Section 9(1)&(2)

Penalty : $500,000 fine and 7 years imprisonment

Penalty : $500,000 fine and 7 years imprisonment

Agent (Employee)Agent (Employee) Any personAny person

without lawful authority/reasonable excusewithout lawful authority/reasonable excuse

solicits/acceptssolicits/accepts offersoffers

advantageadvantage

in relation to principal's (employer’s) businessin relation to principal's (employer’s) business


Integrity IssuesPrevention of Bribery Ordinance – Advantages

Gift, loan, fee, reward, commission

Employment, contract

Payment, release or discharge of loan or liability

Service, favour (except entertainment)

Exercise of any right or power

Integrity IssuesPrevention of Bribery Ordinance – Entertainment

Provision of food or drink for consumption on the occasion, and any entertainment provided at the same time.

Not ‘advantage’ but… sweetening process obligatory position conflict of interest

Integrity IssuesAcceptance of Advantages and Entertainment

Corruption Risks

Staff accept advantages from contractors/suppliers for conniving at sub-standard works or materials

Staff solicit advantages from workers seeking employment in contractors/sub-contractors under their charge

Preventive Measures

Issue guidelines to prohibit staff from soliciting or accepting advantages from contractors, suppliers and workers

Include a probity clause in contracts/ sub-contracts to prohibit the contractors/ sub-contractors’ staff from soliciting or accepting advantages

Integrity IssuesAcceptance of Advantages and Entertainment

Corruption Risks

Contractors provide frequent/ lavish entertainment to site supervisory staff, and over-socialise with them (e.g. high stake gambling)

Site supervisory staff solicit donations from contractors on behalf of their professional institutions or other organizations

Preventive Measures

Issue guidelines to prohibit site supervisory staff from accepting frequent/ lavish entertainment from contractors and over-socialising with them

Issue guidelines to prohibit site supervisory staff from soliciting donations/ sponsorships from contractors under their supervision

Integrity IssuesManagement of Conflict of Interest

Private interest !?

Official duties !?

when private interests compete or conflict with interests of organisation or official duties

What are Private Interests?

Financial and other interests of

the staff member himself

family or relations

personal friends

group with personal or social ties

any person owed favour or obligated


Does a Conflict Exist? Public and/or third party perception

are the paramount considerations

The “Sunshine Test”

Onus of proof on the staff member himself



Corruption Risks

Conflict of interest of staff in contract letting, e.g. the chairman of the tender assessment panel has financial interest in a

particular tenderer

the staff responsible for drawing up the specification of a construction material is a relative of the sole supplier of the material

Conflict of interest of staff in site supervision and contract administration, e.g. the project clerk of works has financial interest in a sub-contractor employed

by the main contractor for part of the works under his supervision

the project architect and the site agent of the contractor are close personal friends


Preventive Measures

Lay down guidelines on handling conflict of interest declared by staff, e.g. require the staff to abstain from handling the project

require supervisors to monitor the work of the staff who are not required to abstain due to the minor nature of the conflict of interest declared, etc.

Designate the authority (e.g. immediate supervisor, chairman of committee/ panel, etc.) for handling any conflict of interest declared by staff

Properly document the actions taken

Integrity IssuesHandling of Confidential Information

Corruption Risks

Staff leak confidential information (such as tender price information) for personal gain

Preventive Measures

Properly classify confidential information

Implement security measures to prevent unauthorised disclosure of such information

Require staff to sign an undertaking on keeping information in strict confidence

Follow the need-to-know principle in handling confidential information

Integrity IssuesUse of Contract Cars

Corruption Risks

Contractors order the contract car drivers to serve site supervisory staff for private use of the contract cars (e.g. to pick up family members or for personal use), with a view to sweetening them

Preventive Measures

Restrict the use of contract cars for work related duties only

Enlist public support in monitoring the use of contract cars to prevent abuse by making them more visible to the public (e.g. displaying in prominent positions and a conspicuous size the restriction on the use of contract cars and the contract information)

(to be cont’d)

Integrity IssuesUse of Contract Cars

Corruption Risks

Serve site supervisory staff for private use of the contract cars (cont’d)

Contractors sell under-priced contract cars or other valuable items to site supervisory staff

Preventive Measures

Maintain records on the use of contract cars (e.g. user, date, time, trip and purpose) to be signed by the users after use

Subject the records to regular checking

Prohibit staff from accepting advantages, including under-priced contract cars and other valuable items, from contractors

Integrity IssuesCarrying Out Inspections Outside Hong Kong

Corruption Risks

Improper conduct and practices while carrying out inspections outside Hong Kong for pre-fabricated construction components (e.g. accept lavish entertainment from contractors during the trip)

Preventive Measures

Require prior approval of supervisors on conducting inspections outside Hong Kong

Include the inspection arrangement as well as frequency in the quality site supervision plan

Keep the number of persons joining the inspections to the minimum necessary

(to be cont’d)


Corruption Risks

Improper conduct and practices while carrying out inspections outside Hong Kong for pre-fabricated construction components (cont’d)

Preventive Measures

Avoid requiring the contractors to directly pay for expenses incurred during inspection visits to avoid conflict of interest

Issues guidelines to prohibit the inspecting staff from accepting frequent/ lavish entertainment from the contractors

(to be cont’d)


Corruption Risks

Improper conduct and practices while carrying out inspections outside Hong Kong for pre-fabricated construction components (cont’d)

Preventive Measures

Lay down the standard of accommodation and transportation to be provided by the contractors

Require the inspecting staff to report to their supervisors when the standard is exceeded

Advise private companies on

corruption prevention controls and practices

Code of Conduct

Provide corruption prevention training to supervisory staff

ICAC Services Advisory Services Group ““Company’s Health Company’s Health

is Wealth”is Wealth”

Hotline : 2526 6363

Fax : 2522 0505

Email : [email protected]

PledgeResponse within 2 working days

ICAC Services Advisory Services Group

Declaration This Capacity Building Package aims at providing general guidance on the common corruption risks and preventive measures in construction and does not purport to deal with corruption issues that may arise in any given situation. Names of all characters, locations and incidents portrayed in the drama are entirely fictitious. Description and explanations of the legal requirements under the relevant Ordinances and the recommended procedures and practices are necessarily general and abbreviated to make this Package easy to understand from the layman’s angle. Users of this Package should refer to the original legislations or seek ICAC’s advice as and when necessary. While we endeavour to ensure the accuracy of the information in this Package, no statement, representation, warranty or guarantee, expressed or implied, is given by us as to the accuracy, completeness or appropriateness of such information for use in any particular circumstances. The ICAC, Construction Industry Council, Development Bureau and Hong Kong Housing Authority are not responsible for any loss or damage whatsoever arising out of the use of this Package or in connection with any information contained in this Package.

The copyright of this Capacity Building Package is owned by the ICAC. Interested parties are welcomed to produce any part of this Package for non-commercial use. Acknowledgement of this Package is required.

engineering risks management & integrity building capacity building package on corruption...

Documents

tender assessment criteria

tender board

tenders assessment of

preventive measures

tender opening team

panels tender recommendation

construction process

construction contract