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www.transparency.org
CURBING CORRUPTION IN PUBLIC CONTRACTINGTHE INTEGRITY PACT : overview Training the Trainers Workshop
Karachi, September 18-21, 2005
Juanita Olaya Programme Manager
Integrity Pact and Public Contracting ProgrammeTransparency International
the coalition against corruption
Contents
• Corruption in Public Contracting
– Why so important?
– How it happens?
• TI’s Approach
• Strategies to Prevent Corruption in Public Contracting
• The Integrity Pact
– What it is
– Applications
– Results/ Benefits
Public Contracting…why so important?
Good contracting will:
• Satisfy the needs of the people – better quality of life
• Be fair to businesses
• Save (waste of?) public funds
• Good policy – good governance – good government
• Save (create?) Government‘s credibility and legitimacy
Corruption in Pub. Contracting will:
• Increase poverty and inequality Provide
an unfair, unstable and risky competitive
advantage.
• Engender bad choices: encouraging
competition in bribery rather than in quality
or price.
• Undermine competition
• Distort and undermine development.
• Is a non-tariff barrier – for those who
cannot pay for it
Why is Public Contracting so important?
• Experts estimate that corruption can add up to 25% to the costs of contracting.
• Mexico: On a yearly basis, the Federal Mexican government participates in more than 15,000 – 20,000 public procurement processes
• Mexico: On aggregated figures, US $2.3 billions (23,400 millions of pesos) are lost in petty corruption
• Households use 6.9% of their income just for bribes
• Households under one minimum wage use 13.9%
• Germany: 11 million EUR in bribes for a trash burner that was not needed in the city of Köln
How Does Corruption Happen in Public Contracting ?
Contracting Decision
Contracting Process/Bid Evaluation
Contract Implementatio
nContract design
How Does Corruption Happen in Public Contracting ?
Contracting Decision
Contracting Process/Bid Evaluation
Contract Implementatio
n
• Unnecessary• Tagged• Conflicts of interest
Contract design
• Tagged• Over-designed, under-designed• Documents are confusing
• Decision makers are biased• Selection procedures are non-transparent, or not objective• Clarifications are not shared with other bidders• Confidentiality durign the process• Award decisions are not made public or are not justified
• Poor quality, deffective, different specifications• Contract renegotiation•Claim non-existent damages• Supervisors are biased
RISKS:
• Appear right from the earlier stages (design and planning)
• Remain after the contracting process is finished
• Include various forms: bid rigging, collusion, bribery, deception, unexposed conflicts of interest etc.
• Exacerbated by process opacity
• As relevant through sub-contracting, and the engagement of agents/intermediaries
• Can hide under the appearance of legality
Corruption in Public Contracting
The risk petry dish
• Obscurity
• Unnecessary complexity
• The speed of crime and the speed of control: patience, contract enforcement, etc.
• Institutional environment
• Social norms: ( for example..)
– Law of silence
– Uncertainty – what will the others do? Is there a chance to get money out of it?
– Favours pay off: the reciprocity principle
3 basic elements of TI’s approach:
PreventionCollaboration
Role of Civil Society
TI‘s Approach
• Prevention:
– TI has demonstrated it is possible
– Control is necessary but can be expensive and may come too late
• Transparency:
– Facilitates monitoring
– Encourages accountability
– Helps/strengthens law enforcement – institution building
• Role for Civil Society
– Even in a highly technical matter
– Multifaceted: facilitator, independent monitor, etc.
TI‘s Approach
Access to Information
Education
Standards (Laws, rules and norms)
Codes of Ethics
Corruption is neither natural nor unavoidable.
Prevention is more effective than control.
Preventing Corruption in Public Contracting
CORRUPTION
INEFFICIENCYCAPACITY-ERROR
• Aprox 75% of respondants: Bribes do help solve the problems (Map of Corruption in Lithuania, 2002)
• Aprox in 67% (avg) of the cases the initiative or the reasons to payoff was indirectly mentioned, was heard from others or was decided by own initiative. (Map of Corruption in Lithuania, 2002)
• Only in 5% (avg) of the cases it was directly asked (Map of Corruption in Lithuania, 2002)
Preventing Corruption in Public Contracting
Good rules (+ institutions) – minimum standards
Good practices: good rules are not enough (IP, monitoring, oversight)
Monitoring: an important ingredient for the accountability recipe
Transparency (Public hearings, info publication, etc.)
Access to information (Price comparisons)
Information and Knowledge Ethics payoff
Preventing Corruption in Public Contracting
Preventing Corruption in
Public Contracting, what can I do?• Bring light into the process: GIVE ACCESS TO INFORMATION and BE
OPEN TO INFORMATION
• Follow the law
• Get help:
– Independent monitoring, auditing and control
– Role of Civil Society is key
– All institutions need to respond
• Think:
– Where/what are the stages, areas, sectors of highest risk and exposure to corruption in public contracting?
– How can they be addressed? How to give the positive aspects more potential?
Anti-corruption measures in
multilateral agreements and organizations• 1996 OAS – Inter American Convention Against
Corruption.
• 1997 European Union – penalizes active and passive corruption.
• 1997 – OECD Convention – Forbids bribery of foreign officials, had forbidden tax deduction
• 1999. Council of Europe Criminal Law Convention on Corruption.
• 2000 – OECD - ECG Action Statement on Export Credit Insurance and Guarantees.
Anti-corruption measures in
multilateral agreements and organizations
• 2003 – UN Convention. A valuable global framework now signed by a 100 countries and as of the day before yesterday ENFORCEABLE!. – Mandatory!
• 2003 – African Union Convention – mandatory: to maintain and strengthen procedures. – Mandatory!
Strategies to Prevent Corruption
in Public Contracting: changing practices
With the use of public (civil society) participation:
•Integrity Pact
•Public Hearings ( Panama, Argentina)
•Price Comparisons (Colombia, Argentina, WTO..)
•Simple monitoring ( Bulgaria, Latvia )
•Procurement law reform ( Philippines)
•Risk maps – measurement (LAC)
• Legal commitment • Level the playing field (common, shared, known rules of the game)
• 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 – protect themselves from
them • Reduce costs of contracting
• Applicable through the whole contracting process
The Integrity Pact
• A process• And a legal document: structure
– Rights and Obligations to all parties
– Sanctions (evidence, process to issue them, liquidated damages)
– Arbitration Clause
– Others (monitoring system, access to information, asset disclosure, protected information, codes of conduct etc.)
– Role for Civil Society
The Integrity Pact
•No bribes and no facilitation payments•No collusion•Access to information and confidenctiality•Ethical declarations
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
IP Concept
Some of TI’s IP experience
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 systems 14 + 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.
– Could potentially save future judicial claims.
• Sanctions
– In some countries, companies have been blacklisted for violating the Pact. ( i.e. Italy, Korea)
Results
• Increased use:
– World Bank guidelines
– DAC recommendations for best practice
– UN Habitat Tool Kit
– Business Associations references
• New Applications
– Considered in China, Japan, Nigeria, Russia
– Sector specific adaptations: arms trade, construction, oil, forestry sectors under way
Results
Risks
• It‘s only another piece of paper !
• It‘s only another step in the bidding process !
• Appealing name !
• It‘s only about a contract !
• Not in my backyard!
• OOps! No body watched?
jolaya:jolaya:
Key Stages:
• Identify Capacity• (Marketing & Id. Right Opportunity) • Obtaining/Sustaining Political Will • Implementing • Independent Monitoring
How to implement an Integrity Pact
Some necessary Ingredients:
1. Political Will2. Facing resistance3. Partnerships4. Independent Monitoring – 5. Identify success
How to implement an Integrity Pact
Is there a role for Civil Society
in Procurement?
• In trust building
• As an independent facilitator to the contracting process
• A final chance to directly address the loopholes of the contracting or procurement laws
• A source of support and sustainability for public policy
• A tool for conflict management and good policy implementation
• CSOs can contribute in bringing balance vs. powerful stakeholders.
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
– 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
Why implement and IP?
• As NGO (Civil Society)
– Effective and efficient way to generate changes at different levels
• As anyone interested in governent change
– A way to start from facts and not from theory or law: changing actual behaviour.
www.transparency.org
CURBING CORRUPTION IN PUBLIC CONTRACTINGTHE INTEGRITY PACT : overview Training the Trainers Workshop
Karachi, September 18-21, 2005
Juanita Olaya Programme Manager
Integrity Pact and Public Contracting ProgrammeTransparency International
the coalition against corruption
Preventing Corruption in Public Contracting:
Minimum Standards in Procurement Rules (GCR 2005)
• Procurement should be defined as broadly and inclusively as possible. Scope of transparency and anti-corruption action should be
wide: from early contracting stages (planning, design) until contract execution.
• Transparency throughout the whole process is the best antidote.
• Open competitive bids is the rule. Exceptions are limited.
• Transparent process should allow monitoring on, before and after award decision.
• Sanctions for procurement corruption should be included as effective detterents (forfeiture of bid or performance bond, liability of damages, blacklisting.)
• Debarment (Blacklisting) is a very effective deterrent ( see cases World Bank and some regions in Germany)
• Minimize discretionality. Some systems have given good results ( minimum cost and maximum quality, Pakistan case).
• Award decision should be collective.
• Award decision should be public. It is desirable that it states ground for determing winner ( and therefore why the losers lost).
• Awarded contract changes beyond a certain threshold should be reviewed by award comittee.
• Integrity Pact or at least an integrity pledge (no-bribery clauses) with significant sanctions is a good option.
Preventing Corruption in Public Contracting: Minimum Standards in Procurement Rules (GCR 2005)