Integrity Pacts

Transparency International

Hungarian Business Leaders Forum

5th February 2008

www.transparency.hu
 Overview

 Background & Objectives

 The Authority’s Commitment
 The Bidder’s or Contractor’s Commitment
 Sanctions
 Disputes
 Monitoring
 Transparency
 Doubts
 Results
 Why implement an IP?
 Background and Objectives

 Islands of Integrity developed in the 1990s by Transparency

International

 Help governments, businesses & civil society in public

contracting

 Help enhance public trust in government contracting

 Contribute to improving credibility of government

procedures & administration
 Background & Objectives (cont.)

 IP suitable for contracts with

– One party: central / local / mun. govt., govt. subdivision or state-
owned enterprise (the Authority)
– Other party: private entities interested in obtaining contract (the
Bidder / Contractor)

 IP aims at enabling
– Bidder / contractor to abstain from bribing
– Authority to reduce high costs & distortionary effect of corruption
 Background & Objectives (cont.)

 IP establishes mutual contractual rights & obligations

 IP may cover different kind of projects

– Construction, installation, operation of assets by Authority
– Privatization sale of assets
– Issuing of licenses, permits, concessions
– Related services (consulting, other technical, financial &
administrative support)
 IP may cover different phases of projects
– Planning, design, tendering, evaluation, selection, contracting,
implementation
 The Authority’s Commitment:
 Not to demand or accept any advantage in exchange for
an advantage in the contracting process,

 To make publicly available all necessary technical, legal

and administrative information on the contract,

 Not to disclose confidential information to a bidder or

contractor,

 All officials and consultants involved in the contracting

process to disclose conflicts of interest in connection
with the Contract,
 Bidder’s / Contractor’s Commitment

Pledge (on behalf of CEO or CEO of the national subsidiary):

 Not to offer any advantages to any official in exchange for

any advantage in contracting process,
 Not to collude with other parties interested in the Contract to
impair transparency and fairness of the contracting process,
 Not to accept any advantage,
 To disclose all payments made to agents and other
intermediaries (preferably by all bidders at the time of
bidding, but at least by the awardee of the Contract).

Highly desirable: contractor provides proof of existence and

 Sanctions

 Violations by Authority: officials and consultants to suffer

appropriate disciplinary, civil, criminal sanctions (e.g.
removal, dismissal)
 Violations by Bidder - some or all of the following:
– denial or cancellation of contract,
– forfeiture of the bid and/or performance bond,
– predetermined indemnisation to Authority and the other bidders,
– debarment for future bidding for appropriate time

Debarment on the basis of what?

Not only suspicion, but not necessarily criminal conviction -
guilt generally on basis of a “no-contest” statement by the
accused party or if there are no material doubts.
 Disputes

Disputes could / should be resolved through

 International or - where appropriate - national

arbitration

 IP would define the venue and procedure.

 Monitoring

 Civil Society (Transparency International NC) should be

Monitor
 Monitoring should include all phases of the project

 Monitor may appoint external, independent expert

 Monitor should be independent from all parties

 Cost of Monitor covered by Authority and/or bidders

 Monitoring (cont.)

 Monitor has full access to all documents and meetings

 Monitor should take suspicion

– first to Authority head
– if no corrective action taken: to Public Prosecutor or the Public

 Finally: a statement that procedure

– was clean, did not lead to any incidents
– what incidents, how these were dealt with, outcome.
 Transparency

 A maximum of transparency: basis for successful design,

setup and implementation of IP

 Needed: public access to all the relevant information

 Internet: nearly ideal platform (also allows detailed controls)

 Access to legitimately proprietary information should

remain restricted.
Doubts

 It´s only another piece of paper!

 It´s only another step in the bidding process!
 It´s only a private contract!
 Not in my backyard!
Results

 Savings
– Colombia reports savings ranging between 5% up to 60
% of contracts´ official budgeted price
– Italy: Milan subway costs fell from USD 227 m per km to
97 m
 Trust
– Bidders interviewed said they lost fairly
– Positive changes in local investment climates
 Competition
– More bidders take part in tenders
Why implement an IP?

 Makes bidding process more transparent

 Reduces transaction costs: corruption is not free of
charge or cheap. Winning or loosing fairly is cheaper
 Corruption almost always bites back
 Safeguards the company´s reputation
 Conclusion

 IPs in operation in ~ 15 countries in Asia, Europe, LatinAm

 Successful IPs: from Colombia to Pakistan to Germany

 Sectors include information systems, utilities, transportation,

school supplies, police supplies, tourism etc.

 IPs are not very expensive to operate

 IPs have been praised by governments & businesses