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					                   the coalition against corruption
CURBING CORRUPTION IN PUBLIC CONTRACTING
       THE INTEGRITY PACT : overview
        Training the Trainers Workshop
                       Karachi, September 18-21, 2005

                                 Juanita Olaya
                              Programme Manager
               Integrity Pact and Public Contracting Programme
                           Transparency International

                            jolaya@transparency.org



www.transparency.org
              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:            Corruption in Pub. Contracting will:

• Satisfy the needs of the people   •   Increase poverty and inequality Provide

  – better quality of life              an unfair, unstable and risky competitive
                                        advantage.
• Be fair to businesses
                                    •   Engender bad choices: encouraging
• Save (waste of?) public funds         competition in bribery rather than in

• Good policy – good                    quality or price.

  governance – good                 •   Undermine competition
  government
                                    •   Distort and undermine development.
• Save (create?) Government‘s
  credibility and legitimacy        •   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      Contract
                     Process/Bid   Implementation
          Contract    Evaluation
           design
How Does Corruption Happen
in Public Contracting ?

 Contracting
  Decision
                          Contracting                Contract
                          Process/Bid             Implementation
          Contract         Evaluation
           design


                         • Decision makers are biased
                         • Selection procedures are non-transparent,
• Unnecessary
                         or not objective          • Poor quality,
• Tagged
                                                   deffective, other
                         • Clarifications are not shared with different
• Conflicts of interest
                         bidders                   specifications
           • Tagged                                • Contract renegotiation
                         • Confidentiality durign the process
                         • under-designed          •Claim non-existent
           • Over-designed,Award decisions are not made public or are
                         not justified
           • Documents are confusing               damages
                                                   • Supervisors are biased
            Corruption in Public Contracting
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
                    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
          TI‘s Approach


3 basic elements of TI’s approach:


          Prevention
          Collaboration
       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.
  Preventing Corruption in Public Contracting

Corruption is neither natural nor
unavoidable.
Prevention is more effective         Access to
than control.                       Information

                        Codes of               Standards
                         Ethics               (Laws, rules
                                               and norms)

                                     Education
   Preventing Corruption in Public Contracting


                            • Aprox 75% of respondants: Bribes do
                            help solve the problems
       CORRUPTION           (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
                 INEFFICIENCY       others or was decided by own initiative.
CAPACITY-ERROR
                                    (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, 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)
                    The Integrity Pact

• 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,
                             •No bribes and no facilitation
    liquidated damages)      payments
  – Arbitration Clause           •No collusion
                                 •Access to information and
  –                              confidenctiality
      Others (monitoring system, access to information,
      asset disclosure, protected•Ethical declarations
                                  information, codes of
      conduct etc.)
  – Role for Civil Society
                   IP Concept


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


                                      LAW
          LAW

     RULE OF LAW                SOCIAL NORMS
    SOCIAL NORMS/
 CULTURE/OBSERVED BEHAVIOR
              Some of TI’s IP experience

Sectors and Areas of Work          Countries
• Telecommunications               • Argentina
• Public works                     • Colombia
• Transportation                   • Chile
• School supplies                  • Ecuador
• Office supplies                  • Italy

• Utilities                        • Latvia
                                   • Germany
• Services
                                   • Korea
• Tourism
                                   • Mexico
• Police supplies
                                   • Nepal
• Local government
                                   • Pakistan
• Finance
                                   • Paraguay
• Information systems                              14 +
                                   • Peru        countries
                         Results

• 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
jolaya:


                    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?
    How to implement an Integrity Pact
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 Will
2.   Facing resistance
3.   Partnerships
4.   Independent Monitoring –
5.   Identify success
           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.
                   the coalition against corruption
CURBING CORRUPTION IN PUBLIC CONTRACTING
       THE INTEGRITY PACT : overview
        Training the Trainers Workshop
                       Karachi, September 18-21, 2005

                                 Juanita Olaya
                              Programme Manager
               Integrity Pact and Public Contracting Programme
                           Transparency International

                            jolaya@transparency.org



www.transparency.org
 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.)
  Preventing Corruption in Public Contracting:
  Minimum Standards in Procurement Rules (GCR 2005)
• 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.

				
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