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

1. 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

2. 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

3. 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 Governmentto: • (officials) abstain from corrupt practices • Reduce costs of contracting • Applicablethroughout the entire contracting process and in all sectors

4. 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

5. 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

6. 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

7. 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

8. 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

9. Monitoring • Civil Society (TI chapter?) should monitorall 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

10. 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

11. How to select a Monitor • Selection process needs to provide for transparency and accountability • Predetermined selection criteria and profile for monitor • Definition of procedure (open vs. Intuitu personea) • Establish who is responsible for choosing monitor • Access to information about the final decision and the grounds for the decision

12. How to implement an IP Key Stages: • Identify Capacity • (Marketing & Right Opportunity) • Obtaining/Sustaining Political Will • Implementing • Independent Monitoring

13. 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.

14. Characteristics • Flexible but consistent: allows adaptation to local rules/culture while maintaining essential characteristics • Requires political will/commitment for success • Essential & highly desirable Elements

15. Monitor Implementation Arrangement (1) Memorandum of Understanding Civil Society Organisation (NGO) Public Authority Monitoring Contract IP Document Bidders NGO undertakes most implementation activities Taken from : How to implement IPs in the Water Sector, a guide for government officials, by Juanita Olaya

16. Countries Argentina Colombia Chile Ecuador Italy Latvia Germany Korea Mexico Nepal Pakistan Paraguay Peru Some of TI’s IP experience: > 300 IPs in 15+ countries • Sectors and Areas of Work • Telecommunications • Public works • Transportation • School supplies • Office supplies • Utilities • Services • Tourism • Police supplies • Local government • Finance • Information systems 13 + countries

17. 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. • 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

18. 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

19. 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

20. Helps bring existing norms into actual behavior, and non-existing norms into enforcement LAW LAW SOCIAL NORMS RULE OF LAW SOCIAL NORMS/CULTURE/OBSERVED BEHAVIOR

21. Thank you! • Contact: • Susanne Kuehn, skuehn@transparency.org

22. The Contracting Process • Decision to invest • Choice of Method • What to buy/sell • How much • For when Bidding documents • What is being bought/sold • Deadline to present offers • Where to find bidding documents • Others: budget line, agency, etc Announcement of open bid Clarifications on Bidding Documents Decision is Questioned Bid Closes No Offers Evaluation of Offers Selection of Contractor Publication of decision Contract Contract Oversight and control Contract implementation