Integrity Pact w.r.t International Goods Procurement

International Goods Procurement and Integrity Pact

Independent External Monitor (IEM)

1. International Good Procurement Practices : Integrity Pact
Ashutosh K Mishra

2. Formal Agreement between government authority and bidders
/beneficiaries for public contracts/funds disbursement
–Establishes rights and obligations between parties
–Provides enforceable sanctions in case of violation
Process occurring during all stages of procurement
–Increased Transparency
–Independent External monitoring
–Detection of risks/red flags, facilitating corrective measures
Applicable to all sectors & types of contracts
WHAT IS INTERGRITY PACT?

3. OBJECTIVES:
enables companies to abstain from bribing and malpractices
–level playing field: discourages others from
corruption/malpractices
–authority curbs corruption/extortion
enables governments to reduce high costs and distorting impact of
corruption, to achieve social, economic and development goals
builds up public confidence on the procurement /disbursement
system and the government/authority and improves reputation and
image
improves investment climate

4. CVC Circular – CVC issued ‘Standard Operating Procedure’ on May 18, ‘09
(appending copies of its earlier circulars of 4 Dec., ‘07, May 19, ‘08, Aug. 5, ‘08, etc.)
laying guidelines for IP’s adoption.
Ministry of Finance and Ministry of Public Enterprises have issued office memorandum
recommending adoption of Integrity Pact in their department (July 2011)
DP&T vide its Circular No. 372/13/2009-AVD-III dt. 16.6.09 suggested to all State Chief
Secretaries to consider IP adoption in respect of SPSUs
Second Administrative Reforms Commission - Following the TI India’s presentation on
Dec 1
st
, 2006, the 2
nd
Adm. Reforms Commission in its IV Report on ‘Ethics in
Governance’ has recommended the adoption of IP.
•IP for Banks
Prime Ministers address for CBI and State Anti-Corruption Bureaux
  [
26 August 2009]
at Vigyan Bhavan
EFFORTS TO ADOPT IP

5. CVC’s scanned copy of recommendation on IP

7. Feasible - IPs can often be implemented without legislative reforms
Collaborative - Built on trust and support among parties
Preventive - Tackles corruption risks from the outset
Inclusive - Involves Civil Society as active contributor and as channel
to increase legitimacy and public trust in authority/government
Saves costs
Saves time – Faster processing of bid and contract, reduces frivolous
interventions and false complaints
ADVANTAGES OF INTEGRITY PACT

8. CONDITIONS NECESSARY FOR SUCCESS
Political will of authority to reduce corruption and promote integrity
Maximum transparency via public access to relevant information
Third party independent monitoring to verify fulfillment of
obligations by the parties, to provide trusted channel for complaints
and to facilitate stakeholder involvement
Multi-Stakeholder Involvement by Civil Society Organizations,
government and private companies

9. WHEN & WHERE CAN IPS WORK BEST?
Contract
Execution
Contractor
Selection,
Contract
Award &
Signing
Preparation
Phase,
organisation
& Bid
Documents
Preparation
Final
Accounting,
Audit
Needs Assessment
Identify Demand
Procurement
Process
•IP should cover all
phases of
procurement
/disbursement process
• If not possible,
should start – latest –
with invitation to bid
• In this case,
independent vetting of
bidding documents is
crucial

10. PROJECT CYCLE: WHEN & WHERE CAN IPS
WORK BEST
• There are contracts at
different phases
• Each contract faces
particular risks
• IPs should be used at
earliest possible phases,
corruption/malpractices
are possible at every
phase, and effects can
multiply with later phases
Policy Making/
Project Planning
Project Design
Project Implementation
Operation
Taken from : How to implement IPs in the Water Sector, a guide for government officials, by Juanita Olaya
Contracts
Contracts
Contracts
Contracts

11. POSSIBLE RISKS OF INTEGRITY PACTS
Corruption not 100% ruled out
Effective detection and enforcement mechanisms by
relevant agencies also needed
Misused as window dressing
Independent External Monitoring is crucial
Increased costs and delays
If properly implemented, costs and delays due to lack of
transparency, corruption and malpractices are
minimised
Violation of confidentiality and intellectual property
Protection and remedies provided in IPs

12. WHY IMPLEMENT AN IP?
As Public Official
Saves public money/Increases value for money and quality
Helps increase credibility and legitimacy of the process
Reduces unnecessary complaints/problems.
As Private Bidder
Levels the playing field
Obligations and responsibilities are upfront and transparent
Protection against corrupt, illegal and improper demands
Trusted channel for complaints

13. WHY IMPLEMENT AN IP?
As NGO (Civil Society)
Opportunity to participate in short and long term changes by
contributing to integrity in public procurement
Support increased trust & credibility on public procurement -
defend public interest
As anyone interested in better government performance (eg Donors)
A way to start from facts and not theory or law: “roll up sleeves”
to change actual behavior
A way to improve aid effectiveness and contribute to deliver better
services to the needy and deserving

14. ELEMENTS – PARTIES & ROLES
Independent
External
Monitor
(IEM)
• Not to demand/accept bribes
• To disclose all relevant information
• To guarantee protection of restricted information
• Not to pay bribes, facilitation payments, etc.
• Not to collude with other bidders
• Disclose information on payments to middlemen
• Code of conduct & compliance program
• Reviews and provides expert feedback on all
documents and steps of procurement
process
• Monitors access to information
• Deals with complaints by bidders
• Keeps public & authorities informed
• Contributes to raise overall confidence in the
process
Public
Authority:
PSU
Bidders/
Contractors
Integrity Pact
Commitments
Role
Commitments

15. ELEMENTS – ENFORCEMENT
MECHANISMS
Sanctions
Civil, criminal, administrative sanctions
Loss of contract
Forfeiture of bid security/performance bond(s)
Liability for damages (to principal and competitors)
Debarment/Blacklisting

16. IMPLEMENTATION ARRANGEMENTS (2)
Civil Society
Organisation
(NGO)
Public Authority
Monitor Monitoring
Contract
Memorandum of
Understanding
Authority undertakes most implementation activities

17. QUALITIES OF A GOOD MONITOR
Independence and commitment
Objective monitoring with public good as guidance
Strength of character and impeccable behaviour
Expertise
Adds value to the project and better equipped to uncover corruption/malpractices
Capacity
Individual monitor or organization, depending on project
Accountability
Accountable to all parties and the public in varying degrees

18. EXPERIENCES OF VARIOUS
PSUS
(Source TII Reports)
ONGC
Processing of contracts is faster
 Improvement in the image and general perception about the
company
 Reduced lawsuits and arbitrations .
All frivolous interventions and false complaints cease.
 Competitive rates – no delay in payments, no bribing etc from
vendors, improved vendor satisfaction ensuring overall efficiency
and low cost of production

19. RINL
Improved the image as an ethical organisation
Eliminated corruption in Procurement
Improved Vendors Satisfaction
Speeded up tender & procurement processes
Lowered the cost of doing business
Reduction in no. of complaints

20. IOCL
Impartial & objective assessment of critical issues
Minimisation of delay due to quicker resolution of tender
issues/complaints
Enhanced transparency oriented perspective as regular
reporting to IEMs is a standard protocol
Indirect cost-saving through minimisation of delays in tender
finalisation
Occasional direct cost saving through finalisation of tender at
a lower value

21. PERIODIC REVIEW AND
IMPLEMENTATION
It is recommended that the Principal will periodically review the
progress and effectiveness of IP Program through all or some of the
following:
IEM to submit a Quarterly Report on the IP’s functioning.
The IEM and senior leadership of the Principal do a self-assessment of
Integrity Pact Program’s effectiveness and identify areas/ways to
improve.
The Principal to conduct periodic reviews by outside agencies (including
Government officials, suppliers, independent observers) on IP’s
effectiveness in reducing corruption.
The Principal along with IEMs to meet with CVC on an annual basis to
discuss the above.

22. SCENARIO
India
Abroad
 Germany
Rwanda
Hungary
Pakistan

23. INTEGRITY PACT: RESEARCH FINDINGS
(Source TII reports)
Bidders
In case of complaints registration- 80% with the vigilance
department, 12% of the approach (IEMs) and the remaining
register their case with an Anti-Corruption Agency.
PSUs
Room for negotiations and changes in IP, IP should be
standardized.
88% said that sub-contractors should be included in IP.

24. Independent External Monitors (IEMs)
83% IEMs said that IP made procurement
process transparent.

25. CHALLENGES IN IP
IMPLEMENTATION
General
Execution stage
IP is restricted to a transparent bidding process.
IP is being implemented as a complaint based mechanism, i.e. once a
complaint is received IEMs come in the picture. Also the vendors do
not, in most cases, get an opportunity to place their side of the story,
which leads to their victimization.

26. TRANSGRESSION
In case the company has an internal policy of banning the company
guilty of transgression for ten years, which period should be followed
– one given under IP or company policy.
Integrity Pact is not very clear about 'previous transgression
Until a certain level of evidence is given or charges are proven, the
company should not be banned and they should not incur any loss of
business
Mitigation measures to overcome the ban.

27. INCLUSIONS, EXCLUSIONS AND
CLARIFICATIONS ON IP CLAUSES
The sub-contractors for any contract are not disclosed before the
contract is awarded,
In instances of a complaint received by an IEM, bidders should be
give equal opportunity to -present their case.
CVC has yet to give direction on investigations and to what extend
an IEM can / should get involved. Private sector feels that IP should
be made equitable as it currently favors the contracting companies
and is disadvantageous towards the bidders and sub-contractors

28. RECOMMENDATIONS FROM
STAKEHOLDERS
ADOPTION OF IP
Rigid format/ structure of Integrity Pact
Blank Implementation of Integrity Pact
Sectoral adoption of IP- Certain important sectors such
as chemical, cement, infrastructure, oil and gas, banking,
among others that have complex procurement processes,
should comply with IP

29. FLEXIBILITY IN STRUCTURE
IP could be designed for certain specific strategic sectors example
chemical, cement, oil and gas, banking to name a few
IP could be designed for complex and noncomplex contracts.
Challenges in Implementation Process
Information to bidders
Cartelization
Empowerment of Contractors
Accountability-defunct companies and special vehicles do not participate
in the tendering process

30. TRANSGRESSION
Only half of PSUs (50%) have policies on
transgression.
OVERALL RECOMMENDATION
78% of Vendors said that PSUs should be ranked
for effectiveness of Integrity Pact implementation

31. WHISTLE BLOWING MECHANISM AND
INTEGRITY PACT
A process of making disclosures of any irregularities in
conducting business by companies
empowers the vendors (bidding in a tender) to approach an
independent authority with their grievances.
Transparency International Malaysia one of the essential
ingredients of successful implementation of IP is a whistle
blowing line and process.

32. CODE OF CONDUCT
one of the essential ingredients for the successful implementation
of IP.
Integrity Pact provisions advise the bidders and sub-contractors to
have compliance process in place along with a code of conduct.
 However, there is no mechanism for overseeing the adoption of
code of conduct by the suppliers.
Also, it is not a mandatory provision for the implementation of
Integrity Pact

33. CONCLUSION
If Integrity Pact is adopted sincerely in business dealings of Ministries &
PSUs, it would certainly -
introduce greater honesty, integrity and transparency
enhance the credibility of the organization
facilitate considerable reduction in the overall cost of the projects
reduce considerable possibility of conflict between the Principal and
the bidders
Minimize litigations due to IEM’s involvement

34. ISSUES FOR DISCUSSION
Complaint handling Mechanism
Subcontractors
Collusion
Role of IEM
Execution stage
Advocacy of IP among Vendors
Feedback from IEM
Quality of Good monitor