The Engineering Consultants Action Plan Against Corruption

A discussion paper

Felipe Ochoa

Chair, FIDIC Task Force on Capacity Building

Presented at:
1999 Biennial Meeting of the International Lending Agencies and the Consulting Industry (BIMILACI '99), Washington D.C., USA , 20-21 May 1999 (FIDIC News item and programmes)

Text available at: http://www.fidic.org/news/n.asp?8ev

1. BACKGROUND: ANTICORRUPTION ISSUE
2. CONTENDING WITH CORRUPTION APPROACH
3. FIDIC’S ACTION PLAN

1.  BACKGROUND: ANTICORRUPTION ISSUE

1.1. FIDIC’S position on corruption

• FIDIC considers systemic corruption to be a serious item that merits priority status in the global agenda.

• Corruption is a "zero-sum game" where through bribery, extortion, collusion or fraud someone wins at the expense of society and thus it must be curbed for the effective functioning of the global village.

• To be controlled effectively, systemic corruption will require a system’s approach strategy that simultaneously encompasses givers and takers

• FIDIC considers that only with the momentum that could be achieved by a global commitment, ( similar to the commitment for sustainable develoment), will it be possible to make a difference on the subject.

FIDIC understands corruption in consulting work as defined internationally:

"Abuse of public power for private gain"

FIDIC seeks to prevent and to react to the blight of corruption in any of its forms, defined as follows:

a. BRIBERY

• Offer, promise or giving of any payment, gift or other advantage directly or indirectly by a private consulting firm to any public official as undue consideration to influence the selection or compensation procedure.
• Soliciting, demanding, accepting or receiving, directly or indirectly by any public official from a private consulting firm any payment, gift or other advantage as undue consideration to influence the selection or compensation procedure.

b. EXTORTION

• Threatening any public official, his family or his property to influence the selection or compensation procedures or the execution of the assignment.

c. FRAUD

• Misrepresentation of data, facts or qualifications to meet the terms of the contract during selection or execution or the diversion of funds from a project.

d. COLLUSION

• Actions among bidders designed to fix the process and prevent the client from conducting a fair and open bidding process.

OECD

• In December 1997, all 29 members signed an Anticorruption Convention that came into force at the end of 1998

IBRD (World Bank)

• Ordered spot audits of projects.
• Barred corrupt firms from bidding on contracts.
• Sought non-bribery pledges from companies bidding on public sector contracts.
• Made special provisions in procurement guidelines (Section 1.25 and others)
• Project monitoring

United Nations, International Chamber of Commerce, Organization of American States, European Union

• Adopted declarations, reports and conventions against bribery and corruption

WTO (World Trade Organization)

• To negotiate a multilateral agreement on transparency in government procurement transactions.

Integrity of the home government cannot be protected by national measures alone, thus OECD’s Convention on Bribery.

OBJECTIVES

• Illegal for corporations in the signatory countries to bribe government agents
• To stop the practice of allowing corporations to deduct bribes for tax purposes
• To be expanded to include bribery in the private sector (is still legal)

1.7. Since the early 1990’s the fight against corruption is gaining international momentum

• For years bribe-givers have been active because there was a lack of restrictions and even tax deductibility of bribes.
• The OECD has committed to make the payment of corporate kickbacks a criminal offense wherever money changes hands. (OECD Convention on Bribery effective in 1999)
• To have an anticorruption law is better than to have none, even if takes years for parliaments of OECD countries to ratify it.
• Implementation is a serious problem. In countries where laws are in effect, like the 1977 Foreign Corrupt Practices Act of the US, they are not difficult to get around.
• Any company can do its bribing at arm’s length by, as it were, passing the parcel to a third party in the country concerned.

FIDIC’s Presidents have been denouncing international corruption for many years.

• FIDIC has established that the principal criterion in consultant selection processes should be the quality of the services and qualification of consultant.
• When price becomes a factor, it should not become the main factor, as it may facilitate bribery to affect the selection of consultants.

2.2. Corruption in the consulting business is also a zero-sum game

• Sometimes bribery is considered as the second-oldest profession in the world, because it appears to be victimless, since supposedly the only sufferers are those who give bribes.
• FIDIC belives bribery generates a cost to society and, in a global world, systemic bribery is against the best interest of all countries.
• It is one of the most regressive taxes on the poor and bribery becomes an economic rent.

In a direct or indirect way, unethical benefit goes to the decision making chain.

Zero-sum scenarios:

Either

• Bribes will cause the consulting assignment to reduce the amount of resources and thus the quality of the project and this will be against society or taxpayers´ interest.
• Bribes absorbed by the company will reduce stockholders value
• If the bribe is over and above the budget, society loses the opportunity cost of the additional moneys that could have been used for its benefit.

Bribery is a trade distortion of great proportions and a social flagellation that should be consistently resisted and stopped.

2.3. A more global approach is required

• International Engineering Consulting is offered by firms of more developed countries to less developed countries through direct or IFI financed government procurement.
• Engineering Consulting is becoming more of a global operation for many large firms which together with local firms, must address the corruption issue.
• A logical consequence of the international and now global nature of consulting is that honesty requires to be enforced globally and not only nationally.
• Consequently, north-south solidarity is needed among consulting associations and firms.

FIDIC considers that anticorruption policies and plans should address "both sides of the coin".

• It is an unethical delivery system market, but a market nonetheless.
• There is a demand and a supply side willing and freely dealing with corruption.
• For ethical players, this constitutes a self-imposed business trade barrier and thus it does not guarantee a "Level-playing-field" in international nor in national trade.
• Grand corruption is fundamentally the responsibility of the North and it is within the power of the North to set it right.
• When considering a course of action, the two-way nature of corruption has to be addressed.
• Its solution can be supply - side initiated, demand-side initiated or both.

• When a "corruption perception" index is used it has to be analyzed in two directions:

Countries have to be rated in both categories as:

Bribe - Takers
   but also as
Bribe - Givers

It is certainly unfair to publish one list without the other.

*Source: Transparency International; Report on Business Magazine, March 1998

Transparency International:

• Turn corruption from being a low risk, high profit operation into being a high risk, low profit operation.

3. FIDIC’S ACTION PLAN

3.1. General framework of corruption causes and solution guidelines

Since international consulting involves Government Agencies, International Lending Agencies and Consulting Firms, the proposed strategy is based on increasing the risk:

• Transparency policy for all government and multilateral agencies.
• Comprehensive and timely disclosure of actions and results of the project selection and execution processes.

• Certification policy for Consulting firms
• Peer Review process of Integrity Assurance of consulting firms.
• ISO to include Integrity Assurance certification.

3.4. Towards a culture of integrity assurance

• Integrity Assurance Certification (IA) should be a medium or longterm goal along the same line of Quality Assurance (QA).
• It is generally agreed that certification is not a neccesary condition for quality or integrity of consulting services, but it could be a sufficient condition.
• FIDIC considers that IA will become in due course part of the ongoing evolution of international business practices.

3.5. Recommendations - FIDIC policy statement

• Use QBS and Competitive tenderings for project procurement;
• Objective procurement process advice;
• Information and disclosure to funding agencies;
• Respect local laws and report infractions;
• Disciplinary actions against firms;
• Public case histories of corrupt practice;
• Promote high ethical standards and cooperate with agencies investigating corruption;
• Support legislation against corruption.

Complementary measures to curb corruption:

• On the demand side:

In all cases government procurement of public works should have all design and engineering work completed before the construction bid is out.

Government Agencies and Financial Institutions should be prepared to disclose initial budgets of public works contracted as well as the actual costs incurred.

Government Agencies should have experienced professionals to adequately evaluate proposals.

• On the supply side:

Strengthen local consulting capacity for better professionalization of consulting work and to facilitate enforcement of other policy measures

3.7. Preventive anticorruption policy

• FIDIC considers that the following anticorruption tools should be implemented on a step-by-step fashion:

© FIDIC 1999 (published April 1999)
For information, contact the International Federation of Consulting Engineers, BP 86, CH-1000 Lausanne 12 (tel. +41 21 654 44 11; fax: +41 21 653 54 32; fidic@pobox.com)

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