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Engineering Risks Management & Integrity Building Capacity Building Package on Corruption Prevention for Construction Industry.

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Presentation on theme: "Engineering Risks Management & Integrity Building Capacity Building Package on Corruption Prevention for Construction Industry."— Presentation transcript:

1 Engineering Risks Management & Integrity Building Capacity Building Package on Corruption Prevention for Construction Industry

2 Suggested Programme For Contract Administration Staff and Students  Main Parties to a Construction Contract  Corruption Prone Areas and Preventive Measures Contract Letting Site Supervision Contract Administration  Integrity Issues  ICAC Services for Private Sector

3 Main Parties to Construction Contract Client: (Government / Public Body / Developer) Client: (Government / Public Body / Developer) Architect / Engineer (In-house Staff/ Consultant) Main Contractor Sub-Contractor

4 Corruption Prone Areas in Construction Process Contract Letting Site Supervision Contract Administration

5 Contract Letting Preparation of Tender Documents Invitation, Receipt and Opening of Tenders Assessment of Tenders

6 Contract Letting Preparation of Tender Documents Corruption Risks Inclusion of specifications of materials in the tender documents (e.g. specify by a brand name) that only one supplier in the market could provide Preventive Measures Avoid using brand names or restrictive specifications Use functional/ performance specifications as far as practicable If unavoidable, set up a panel to examine the reasons and approval Include the term “or equivalent” after the brand name in the specifications

7 Contract Letting Invitation, Receipt & Opening of Tenders Corruption Risks Tender rigging among the limited number of tenderers Preventive Measures Broaden the pool of tenderers, (e.g. open tendering, remove unduly stringent eligibility criteria for tenderers, etc.) If only a few tenderers are to be invited, draw up the tenderers list by more than one person Include an anti-collusion clause in the tender documents

8 Contract Letting Invitation, Receipt & Opening of Tenders Corruption Risks Leakage of tender price information to the tenderer Assist the tenderer to gain competitive edge through improper means (e.g. destroy other tenders received, alter his tender price and technical proposal after the tender closing date) Preventive Measures Implement security measures to prevent leakage of tender price information, e.g.  use a double locked tender box  open tender box by a tender opening team  register all tenders received and keep them in safe custody Do not accept late tenders

9 Contract Letting Assessment of Tenders Corruption Risks Manipulate the tender assessment process (e.g. change the assessment criteria after the tender closing date) Preventive Measures Pre-determine the tender assessment criteria and prohibit any change of the criteria after the tender closing date Disclose the tender assessment criteria and their weightings in the tender documents (to be cont’d)

10 Contract Letting Assessment of Tenders Corruption Risks Manipulate the tender assessment process (cont’d) Preventive Measures Set up a panel comprising at least three members for tender assessment (at least one member from an independent department) Subject the panel’s tender recommendation to the vetting and approval by a tender board comprising senior management members

11 Contract Letting Assessment of Tenders Corruption Risks Exert undue influence over other panel members during tender assessment to favour a colluded tenderer Preventive Measures Require tender assessment panel members to conduct tender assessment independently before deliberation of their views Record members’ original marking/ assessment and any subsequent revisions, and views and deliberations during the tender assessment meeting

12 Site Supervision Inspection Arrangement Testing of Construction Materials

13 Site Supervision Inspection Arrangement Corruption Risks Site supervisory staff connive at substandard works of contractors Lack of accountability and checks and balances in site supervision, resulting in lax supervision over the works executed by contractors Preventive Measures Put in place a quality site supervision plan system, setting out the work items to be inspected, inspection frequencies, and rank of inspecting staff Require the inspecting staff to maintain detailed site inspection records and sign against them Require supervisors to conduct regular site checks on the inspections

14 Site Supervision Inspection Arrangement Corruption Risks Undesirable relationship between site supervisory staff and maintenance term contractors built up over a long period of time while carrying out their inspection duties (for term maintenance contracts only) Preventive Measures Change posting of site supervisory staff periodically

15 Site Supervision Testing of Construction Materials Corruption Risks Site supervisory staff manipulate the process for selection of test samples to ensure that only compliant samples are selected for testing Preventive Measures Issue guidelines on the number of samples to be selected and the sample selection procedures Monitor compliance by regular supervisory checks and audits Require test samples to be selected randomly, and document the sample selection process (e.g. location/batches of the samples selected)

16 Site Supervision Testing of Construction Materials Corruption Risks Site supervisory staff connive at tampering with test samples by contractors (e.g. swapping of selected samples with compliant ones) Preventive Measures Implement security measures on the storage and transportation of test samples to the laboratory Adopt, where practicable, unique identifiers to enhance the traceability and identification of test samples Implement a stock identification/ control system on site to ensure only materials passing the tests will be used for the works

17 Site Supervision Testing of Construction Materials Corruption Risks Contractors tamper with the test reports to ensure a pass before sending them to clients/consultants Preventive Measures Require laboratories to send the test reports to the clients/consultants and the contractors in parallel

18 Site Supervision Testing of Construction Materials Corruption Risks Laboratories appointed by contractors are unduly influenced to prepare biased test reports with a view to covering up the use of substandard materials Preventive Measures Avoid direct employment of laboratories by the contractors Engage the laboratories through the consultants or the clients themselves Require the contractors to declare any conflict of interest with the laboratories Arrange independent parallel tests on materials which are expensive or used in bulk

19 Contract Administration Multi-layer Sub-contracting Issue of Works Orders (for maintenance term contracts only) Certification of Payments Issuing and Valuation of Contract Variations Certification of Extensions of Time/Monetary Claims Acceptance of Works upon Contract Completion Certification of Contract Completion

20 Contract Administration Multi-layer Sub-contracting Corruption Risks Inadequate construction fee for sub-contractors at the lowest-tier to produce quality works Adversely affects the accountability of site supervision as the main contractor’s supervision may be difficult to reach the sub-contractors at the lowest tier Preventive Measures Include contract provisions to control multi-layer sub- contracting, e.g.  prohibit wholly sub-contracting  limit the number of tiers of sub- contracting for specialist works, such as piling works, etc.

21 Contract Administration Issue of Works Orders (for Maintenance Term Contracts only) Corruption Risks Staff issue works orders selectively to favour contractors Preventive Measures Draw up updated standard rates for maintenance items Group the items together as far as practicable Lay down the upper/ lower limits for tender percentages Require bidders to submit their tender percentages for the groups instead of individual items

22 Contract Administration Issue of Works Orders (for Maintenance Term Contracts only) Corruption Risks Staff issue works orders for unnecessary maintenance works to increase the business of the contractors Preventive Measures Require staff to provide justifications, cost estimates and supporting documents (e.g. written requests from users) when issuing works orders Designate different authorities for approving works orders of different values

23 Contract Administration Issue of Works Orders (for Maintenance Term Contracts only) Corruption Risks Staff split high-value works orders into a number of lower-value ones to circumvent the approval of the higher financial authorities Staff issue repeated works orders for the same maintenance items to facilitate the contractors in obtaining repeated payments Preventive Measures Regularly generate management reports on the works orders issued for scrutiny by management to deter and detect split and repeated works orders

24 Contract Administration Certification of Payments Corruption Risks Staff connive at the slow construction progress, but still pay the contractors for works which have not been completed Preventive Measures Lay down guidelines for making payments to the contractor, e.g.  make interim payments monthly based on the progress of works on site  make milestone payments based on the contract payment schedule Require the contractors to provide detailed breakdown and supporting information together with their payment applications (to be cont’d)

25 Contract Administration Certification of Payments Corruption Risks Payment for incomplete works (cont’d) Preventive Measures Verify the construction progress on site against the payment claimed by the contractors Conduct regular supervisory checks on payment valuations certified by site supervisory staff

26 Contract Administration Certification of Payments Corruption Risks Staff accept advantages from contractors in return for early processing and release of payments Preventive Measures Specify the time limits for processing of payment applications and making payments to the contractors Monitor compliance of payment by regular supervisory checks and audits

27 Contract Administration Issuing and Valuation of Contract Variations Corruption Risks Staff approve substitution of high quality construction materials with cheaper alternatives Preventive Measures Ensure availability of construction materials in the market before specifying them in tender specifications Issue formal variation orders to cover any change of construction materials Assess the cost savings for the use of cheaper alternative materials by an independent quantity surveyor, and adjust the contractors’ payments accordingly

28 Contract Administration Issuing and Valuation of Contract Variations Corruption Risks When contractors obtain contracts by submitting very low bids, they may compromise the project staff to obtain more payments through the issue of unnecessary and over- valued contract variations Preventive Measures Designate different authorities for approving contract variations of different values Require staff to provide justifications, cost estimates and supporting documents (e.g. written requests from users) when issuing contract variations (to be cont’d)

29 Contract Administration Issuing and Valuation of Contract Variations Preventive Measures Set a ceiling to the total value of contract variations allowable under a contract (e.g. 50% of the contract value) Contract variations amounting to more than the specified ceiling should form its own contract to be let under a separate tender exercise Corruption Risks Unnecessary and over- valued contract variations (cont’d)

30 Contract Administration Certification of EOT/ Monetary Claims Corruption Risks Staff favour contractors through the approval of unjustified and inflated extension of time as well as monetary claims Preventive Measures Issue guidelines on assessment of time and monetary claims Designate different authorities for approving claims of different magnitudes/ values and subject major claims to the approval of a committee (to be cont’d)

31 Contract Administration Certification of EOT/ Monetary Claims Corruption Risks Approval of unjustified and inflated extension of time as well as monetary claims (cont’d) Preventive Measures Require contractors and site supervisory staff to maintain detailed site records of delays and prolongation costs Appoint an independent quantity surveyor to assess extension of time and monetary claims (to be cont’d)

32 Contract Administration Certification of EOT/ Monetary Claims Corruption Risks Approval of unjustified and inflated extension of time as well as monetary claims (cont’d) Preventive Measures Assess and certify claims strictly according to contract provisions and laid down guidelines Document the details and justifications for claims approved or rejected Conduct supervisory checks and audits on the assessment and approval of extension of time and monetary claims

33 Contract Administration Acceptance of Works upon Contract Completion Corruption Risks Staff accept defective or incomplete works to favour contractors Preventive Measures Require the inspecting staff to document their inspection results on standard checklists Invite representatives of clients and consultants to join the completion inspections Require the inspecting staff to sign for all accepted works (to be cont’d)

34 Contract Administration Acceptance of Works upon Contract Completion Corruption Risks Accept defective or incomplete works (cont’d) Preventive Measures Document any outstanding/ defective works Require the contractors to rectify outstanding/defective works before the specified time limits

35 Contract Administration Certification of Contract Completion Corruption Risks Staff certify contract completion pre-maturely to favour contractors to avoid liquidated damages for the delay in completion of works Preventive Measures Clearly define the works to be completed for the certification of contract completion Require the staff to certify contract completion according to the contract provision, and provide supporting documents (e.g. OP issued by the Building Authority, site photographs illustrating completion of works, etc.)

36 Integrity Issues Prevention of Bribery Ordinance Acceptance of Advantages and Entertainment Management of Conflict of Interest Handling of Confidential Information Use of Contract Cars Carrying Out Inspections Outside Hong Kong

37 solicits / accepts Any prescribed officer advantage without general / special permission of the CE guilty of an offence Penalty : $100,000 fine and 1 year imprisonment Integrity Issues Prevention of Bribery Ordinance – Section 3 (for government employees only)

38 Integrity Issues Prevention of Bribery Ordinance – Section 4 without lawful authority or reasonable excuse offers to do/ not to do any act in his official capacity Offence – Max. Penalty : $500,000 fine and 7 years imprisonment Public servant Any person solicits / Accepts advantage guilty of an offence (for public servants only)

39 Integrity Issues Prevention of Bribery Ordinance – Section 9(1)&(2) Penalty : $500,000 fine and 7 years imprisonment Agent (Employee) Any person without lawful authority/reasonable excuse solicits/accepts offers advantage in relation to principal's (employer’s) business guilty of an offence

40 Integrity Issues Prevention of Bribery Ordinance – Advantages Gift, loan, fee, reward, commission Employment, contract Payment, release or discharge of loan or liability Service, favour (except entertainment) Exercise of any right or power

41 Integrity Issues Prevention of Bribery Ordinance – Entertainment Provision of food or drink for consumption on the occasion, and any entertainment provided at the same time. Not ‘advantage’ but…  sweetening process  obligatory position  conflict of interest

42 Integrity Issues Acceptance of Advantages and Entertainment Corruption Risks Staff accept advantages from contractors/suppliers for conniving at sub- standard works or materials Staff solicit advantages from workers seeking employment in contractors/sub-contractors under their charge Preventive Measures Issue guidelines to prohibit staff from soliciting or accepting advantages from contractors, suppliers and workers Include a probity clause in contracts/ sub-contracts to prohibit the contractors/ sub-contractors’ staff from soliciting or accepting advantages

43 Integrity Issues Acceptance of Advantages and Entertainment Corruption Risks Contractors provide frequent/ lavish entertainment to site supervisory staff, and over- socialise with them (e.g. high stake gambling) Site supervisory staff solicit donations from contractors on behalf of their professional institutions or other organizations Preventive Measures Issue guidelines to prohibit site supervisory staff from accepting frequent/ lavish entertainment from contractors and over- socialising with them Issue guidelines to prohibit site supervisory staff from soliciting donations/ sponsorships from contractors under their supervision

44 Integrity Issues Management of Conflict of Interest Private interest !? Official duties !? when private interests compete or conflict with interests of organisation or official duties

45 What are Private Interests? Financial and other interests of the staff member himself family or relations personal friends group with personal or social ties any person owed favour or obligated Integrity Issues Management of Conflict of Interest

46 Does a Conflict Exist? Public and/or third party perception are the paramount considerations The “Sunshine Test” Onus of proof on the staff member himself Integrity Issues Management of Conflict of Interest

47 Corruption Risks Conflict of interest of staff in contract letting, e.g.  the chairman of the tender assessment panel has financial interest in a particular tenderer  the staff responsible for drawing up the specification of a construction material is a relative of the sole supplier of the material Conflict of interest of staff in site supervision and contract administration, e.g.  the project clerk of works has financial interest in a sub-contractor employed by the main contractor for part of the works under his supervision  the project architect and the site agent of the contractor are close personal friends

48 Integrity Issues Management of Conflict of Interest Preventive Measures Lay down guidelines on handling conflict of interest declared by staff, e.g.  require the staff to abstain from handling the project  require supervisors to monitor the work of the staff who are not required to abstain due to the minor nature of the conflict of interest declared, etc. Designate the authority (e.g. immediate supervisor, chairman of committee/ panel, etc.) for handling any conflict of interest declared by staff Properly document the actions taken

49 Integrity Issues Handling of Confidential Information Corruption Risks Staff leak confidential information (such as tender price information) for personal gain Preventive Measures Properly classify confidential information Implement security measures to prevent unauthorised disclosure of such information Require staff to sign an undertaking on keeping information in strict confidence Follow the need-to-know principle in handling confidential information

50 Integrity Issues Use of Contract Cars Corruption Risks Contractors order the contract car drivers to serve site supervisory staff for private use of the contract cars (e.g. to pick up family members or for personal use), with a view to sweetening them Preventive Measures Restrict the use of contract cars for work related duties only Enlist public support in monitoring the use of contract cars to prevent abuse by making them more visible to the public (e.g. displaying in prominent positions and a conspicuous size the restriction on the use of contract cars and the contract information) (to be cont’d)

51 Integrity Issues Use of Contract Cars Corruption Risks Serve site supervisory staff for private use of the contract cars (cont’d) Contractors sell under- priced contract cars or other valuable items to site supervisory staff Preventive Measures Maintain records on the use of contract cars (e.g. user, date, time, trip and purpose) to be signed by the users after use Subject the records to regular checking Prohibit staff from accepting advantages, including under-priced contract cars and other valuable items, from contractors

52 Integrity Issues Carrying Out Inspections Outside Hong Kong Corruption Risks Improper conduct and practices while carrying out inspections outside Hong Kong for pre-fabricated construction components (e.g. accept lavish entertainment from contractors during the trip) Preventive Measures Require prior approval of supervisors on conducting inspections outside Hong Kong Include the inspection arrangement as well as frequency in the quality site supervision plan Keep the number of persons joining the inspections to the minimum necessary (to be cont’d)

53 Integrity Issues Carrying Out Inspections Outside Hong Kong Corruption Risks Improper conduct and practices while carrying out inspections outside Hong Kong for pre-fabricated construction components (cont’d) Preventive Measures Avoid requiring the contractors to directly pay for expenses incurred during inspection visits to avoid conflict of interest Issues guidelines to prohibit the inspecting staff from accepting frequent/ lavish entertainment from the contractors (to be cont’d)

54 Integrity Issues Carrying Out Inspections Outside Hong Kong Corruption Risks Improper conduct and practices while carrying out inspections outside Hong Kong for pre-fabricated construction components (cont’d) Preventive Measures Lay down the standard of accommodation and transportation to be provided by the contractors Require the inspecting staff to report to their supervisors when the standard is exceeded

55 Advise private companies on corruption prevention controls and practices Code of Conduct Provide corruption prevention training to supervisory staff ICAC Services Advisory Services Group “Company’s Health is Wealth”

56  Hotline:  Fax:  Pledge Response within 2 working days ICAC Services Advisory Services Group

57 Declaration This Capacity Building Package aims at providing general guidance on the common corruption risks and preventive measures in construction and does not purport to deal with corruption issues that may arise in any given situation. Names of all characters, locations and incidents portrayed in the drama are entirely fictitious. Description and explanations of the legal requirements under the relevant Ordinances and the recommended procedures and practices are necessarily general and abbreviated to make this Package easy to understand from the layman’s angle. Users of this Package should refer to the original legislations or seek ICAC’s advice as and when necessary. While we endeavour to ensure the accuracy of the information in this Package, no statement, representation, warranty or guarantee, expressed or implied, is given by us as to the accuracy, completeness or appropriateness of such information for use in any particular circumstances. The ICAC, Construction Industry Council, Development Bureau and Hong Kong Housing Authority are not responsible for any loss or damage whatsoever arising out of the use of this Package or in connection with any information contained in this Package. The copyright of this Capacity Building Package is owned by the ICAC. Interested parties are welcomed to produce any part of this Package for non- commercial use. Acknowledgement of this Package is required.


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