Integrity Pact : an anti corruption tool Anupama Jha Executive Director: Transparency International India

Agenda Corruption Perception Index Bribe Payers’ Index Perception of Fraud in India What is Integrity Pact Why companies should sign?

Corruption Perception Index Source:

75% : Felt the overall incidence of fraud was rising. 45% : Fraud (Suspected & Actual) has increased within their organization. Perception of fraud in India * Source: India Fraud Survey Report 2010’ by KPMG.

81% : Financial statement fraud is a major issue in India. Perception of fraud in India * Source: India Fraud Survey Report 2010’ by KPMG. 63%: Pursuit of meeting market expectations 61%: Performance based remuneration

“Enemy within” poses the highest risk * Source: India Fraud Survey Report 2010’ by KPMG.

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 & types of contracts What is Integrity Pact?

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 system and the government/authority and improves reputation and image improves investment climate What is Integrity Pact for?

Integrity Pact in India Ministry of Defence : In its 2008 Procurement Policy, it has proposed to adopt IP in defense deals of Rs 100 crores and above, and Rs 20 crores in its Enterprises 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.

Advantages of Integrity Pact 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

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

Why implement 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

Why implement 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

Experience of various PSU’s 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

Thanks! Questions? Anupama Jha Executive Director: Transparency International India