1. A POWERFUL TOOL FOR CLEAN BIDDING
INTEGRITY PACT
A POWERFUL TOOL FOR CLEAN BIDDING

2. What is an Integrity Pact
Formal Agreement between government authority and bidders for public contracts
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 & type of contracts

3. What is the Integrity Pact for?
Objectives:
enables companies to abstain from bribing and malpractices
level playing field: discourages others from corruption/malpractices
authority curbs corruption/extortion
enables departments to reduce high costs and distorting impact of corruption, to achieve social, economic and development goals
builds up public confidence on the procurement system and the government/authority and improves reputation and image
improves investment climate

4. Conditions Necessary for Success
Political will 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

5. Need for Integrity Pact in India
India is perceived to be among the most corrupt countries. It ranked 87th among 178 countries in CPI-2010.
Such corruption results in major drain of valuable resources. It impedes the development process, corrodes the moral fiber of the society and affects the BPL most.
Large scale corruption occurs particularly in Government and PSUs’ procurement programs and works’ contracts, mostly those funded by international financial institutions.

6. Efforts to adopt IP
Second Administrative Reforms Commission - Following the TI India’s presentation on Dec 1st, 2006, the 2nd Adm. Reforms Commission in its IV Report on ‘Ethics in Governance’ has recommended the adoption of IP.
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.
DP&T vide its Circular No. 372/13/2009-AVD-III dt suggested to all State Chief Secretaries to consider IP adoption in respect of SPSUs as outlined by CVC
Prime Minister’s address for CBI and State Anti-Corruption Bureaux  [26 August 2009] at Vigyan Bhavan, New Delhi

7. Integrity Pact in India
So far, 39 CPSUs are committed to adopt IP both in letter and sprit – Oil & Natural Gas Corp.- being the first (April 17, 2006). List includes IOCL, CIL and its subsidiaries , BPCL, HPCL, SAIL, NTPC, BHEL etc.
Ministry of Defence : It was included in 2006 in Defence Procurement Policy. However, In 2008, its threshold limit was reduced to Rs 100 crores & above, and Rs 20 crores in its Enterprises

9. Independent External Monitor
IEMs major role is to oversee the IP’s implementation to prevent/eliminate corruption, bribes and other unethical practices in the Principal because only they have the wide access to both the parties.
According to CVC Guidelines, IEMs jobs are voluntary and non-salaried.
IEMs’ remuneration may be similar to Independent Directors in the concerned organization.
IEMs will have stature/ benefits similar to those of the Chairman of the Board Audit Committee.
Though IEMs do not have any administrative, implementation or enforcement responsibilities, they are to coordinate with other anti-corruption organizations

10. Independent External Monitor
The Principal, in consultation with CVC and TI India, will appoint IEM to oversee IP implementation & effectiveness
IEM will coordinate with other anti-corruption organizations such as CVC. He may engage services of outside agencies such as accounting firms, law firms, etc., if required, in discharge of his responsibilities.
If he observes or suspects any irregularity, he will inform appropriate senior most officer of the Principal, CVC and TI-India. He can also make the information public.
He will have the right to attend any meeting between the Principal and the Counterparties as well as internal meetings of the Principal.
He can be removed from his office only with the consent of CVC and TI-India through an open and transparent process

11. Independent External Monitor
IEM will be a person of high impeccable integrity and experience in the relevant fields.
A maximum of three IEMs would be appointed in Navratna PSUs and up to two IEMs in other PSUs.
While recommending the names for IEMs to CVC, their detailed bio-data, including details of their postings during the last ten years before superannuation, in case the names relate to persons having worked in the government sector, should be sent to CVC. The bio-data should also include details regarding experience older than ten years before superannuation of the persons proposed as IEMs, if they have relevant domain experience in the activities of PSUs where they are considered as IEMs.

12. Advantages of Integrity Pacts
Feasible – Integrity Pacts 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

13. Violations and consequences
If a Counterparty commits any violation of the Integrity Pact, it may loose Bid Security and Performance Bond. In addition, the Principal will terminate any current contract and business relationship with such Counterparties and their associates.
The Principal would black list and exclude the Counterparty from future dealings until the IEM is satisfied that the Counterparty will not commit any violation in future.
The Counterparty will be liable to damages as determined by the IEM.
The Principal may initiate criminal proceedings against violating Counterparties

14. Possible risks of Integrity Pacts
Corruption can be controlled
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

15. 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
Contracts
Project Design
Contracts
Project Implementation
Contracts
Operation
Contracts
Taken from : How to implement IPs in the Water Sector, a guide for government officials, by Juanita Olaya

16. When & where can IPs work best?
Procurement
Process
IP should cover all phases of procurement process
If not possible, should start – earliest – with invitation to bid
In this case, independent vetting of bidding documents is crucial

17. Why implement an IP? As Public Official As Private Bidder
Saves public money/Increases value for money and quality
Helps increase credibility and legitimacy of the process
Reduces frivolous complaints/unnecessary 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

18. 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 governance/performance (e.g., 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

19. Elements – Parties & Roles
Not to demand/accept bribes
To disclose all relevant information
To guarantee protection of restricted information
Use of Internet and Public Hearings
Public Authority
Commitments
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
Independent Monitor (CSO)
Integrity Pact
Role
Bidders
Contractors
Not to pay bribes, facilitation payments, etc.
Not to collude with other bidders
Disclose information on payments to middlemen
Code of conduct & compliance program
Commitments

20. 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

21. Main activities to implement an IP
Planning and design of IP process with input from all stakeholders
Ensure there is proper infrastructure for access to information
Facilitate logistics: public hearings, workshops, etc.
Draft IP and Monitoring Agreements
Select and support the Monitor, ensuring accountability
Get Monitoring Agreement and Integrity Pact signed by parties
Supervise compliance with the monitoring agreement
Explain the IP fully, how it works and its effects
Contribute to find and channel necessary resources
Manage the IP implementation with credibility & independence

22. Implementation Arrangements (1)
Memorandum of Understanding
Civil Society Organisation (NGO)
Public
Authority
Monitoring Contract
Monitor
NGO undertakes most implementation activities

23. Implementation Arrangements (2)
Memorandum of Understanding
Public Authority
Civil Society Organisation (NGO)
Monitor
Monitoring Contract
Authority undertakes most implementation activities

24. 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

25. Selection Criteria for IP Projects
Public Agency has many projects
Projects with more relevant social or economic impact
Projects that use combined funds
Projects where risks of corruption threaten its viability
Projects suffering from corruption in the past
Complex Projects
Projects that are sensitive in terms of public opinion
Large scale projects that take a large part of the budget

26. Procedure for adoption of IP
The process starts with the commitment from all Senior-level officials of the Principal to implement the program.
To select and appoint IEMs in consultation with CVC & TI-India.
To develop detailed implementation plans and modify IP document in consultation with the TI India, senior staff members, major contractors/Venders and/or IEM.
Depending on their business environment, IP adopters should initially fix a threshold limit to cover around 95% of contracts. Later on, this limit can be revised.
Drafts of the MoU and the proposed Integrity Pact have to be approved by CVC and the TI India. Model Drafts can be had from the CVC’s website or from TI-I.
Signing of MoU between TI India and the Principal.
Put plans to implement IP Program and IEM’s contact details on the Principal’s web-site and publicize it through the media

27. Experiences of Various PSUs
Processing of contracts is faster
Improvement in the image and general perception about the company
Reduced lawsuits and arbitrations .
Frivolous interventions and false complaints ceased.
Competitive rates – no delay in payments, no bribing etc from vendors, improved vendor satisfaction, ensuring overall efficiency and low cost of production

28. 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 and TI-India on an annual basis to discuss the above.

29. Role of TII : Problems in implementation of IP
Advocacy
Monitoring : IP cell

30. Thank You