A POWERFUL TOOL FOR CLEAN BIDDING INTEGRITY PACT A POWERFUL TOOL FOR CLEAN BIDDING www.transparencyindia.org

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

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

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

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.

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. 16.6.09 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

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

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

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

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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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 www.cvc.nic.in 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

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

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.

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

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