Project Anti-Corruption System (PACS)

 

PACS STANDARDS

PS 1:  Independent assessment

 

(Note:  Please refer to the Frequently Asked Questions (FAQs) at the end of this PACS Standard for further guidance on this Standard.)

This PACS Standard makes the following recommendations in relation to independent assessment of a public sector project.

  1. An independent assessor should be appointed to monitor the project for corruption on an on-going basis and to make appropriate reports where he believes there is evidence of corruption.

  2. The independent assessor should be:

    - a person of integrity

    - independent of the project and project participants

    - without any conflict of interest

    - suitably qualified

    - nominated by an independent and reputable organisation

  3. His terms of appointment should include paragraphs 4 to 27 below.
  4. He should be appointed and paid by an independent body, or by the project owner, or by the body which required his appointment. 
  5. His appointment should run from commencement to completion of the project. 

  6. His scope of work should be proportionate to the size and value of the project.

  7. His general duty should be to use reasonable endeavours to monitor and assess the project for corruption and to make appropriate reports where he believes there is evidence of corruption. 
  8. The independent assessor should assess the following for possible corruption:

    (1)  Project selection, planning approvals and design;

    (2)  Project funding;

    (3)  Each major contract.

  9. In relation to each major contract, he should:

    (1)  monitor and assess the procurement process;

     

    (2)  review the major contract documentation, including contract conditions, price, programme, and scope of work or services;

    (3)  monitor and assess the appointment of major sub-contractors, joint venture partners, and agents;

    (4)  make random inspections of the works, services, materials and equipment;

    (5)  review all major claims;

    (6)  review smaller claims on a random basis.

  10. In relation to each PACS Standard (PS) to be implemented on the project, he should:

    (1)  Monitor and assess whether it is being properly implemented and complied with;

    (2)  For PS 2 (Transparency) and PS 4 (Pre-contract disclosure), he should also assess whether the information disclosed is accurate and whether it reveals any possible corruption;

    (3)  For PS 5 (Project commitments), PS 6 (Funder commitments), and PS 7 (Government commitments) he should also assess whether the parties are complying with their anti-corruption commitments.

  11. He should investigate matters of concern which may suggest corrupt activity.
  12. He should make reports where he believes there is evidence of corruption.
  13. He should make regular reports of his activities and assessments to the party which has appointed him, to the project owner and to the project funders.
  14. He should act impartially.
  15. He should be required to do only what is reasonable taking into account the time available to him.
  16. He should be required to make assessments to the best of his knowledge and belief and on the basis of the facts available to him.
  17. He should keep confidential all information obtained by him as a result of carrying out his duties unless the information is already in the public domain, or its disclosure is necessary in order to comply with the above duties. 
  18. He should not disclose the identity of any person who has reported corruption or suspicion of corruption to him unless the person who has made the report provides written consent to the disclosure of his identity.
  19. He should not make reports to any particular party if doing so would prejudice any criminal investigation or endanger himself or any other person.
  20. He should make written or other permanent records of his activities.  These should be dated and either signed by him or marked to show that they were made or collected by him.  They should be stored safely for at least 20 years.
  21. He may delegate any part of his function to one or more suitably qualified persons or organisations, provided that he remains legally responsible for the actions of those persons and for the payment of their fees and expenses.  He should notify his employer of the delegation.
  22. He should provide anti-corruption declarations and undertakings to his employer.
  23. The liability of the independent assessor to his employer should be limited to acts of gross negligence, wilful misconduct or criminal activity by the independent assessor.   
  24. His identity, the terms of his appointment and his contact details should be disclosed to the public in accordance with PS 2 (Transparency), except that, if he is an individual, his contact details should not include his home address. 
  25. His appointment should be terminated only as follows:

    - by order of a court of law having appropriate jurisdiction, in the event of any corruption, gross negligence or wilful misconduct on the part of the independent assessor;

    - with immediate effect, upon service of written notice by the independent assessor on his employer if the independent assessor’s fees are more than 2 months overdue;

    - upon the expiry of 3 months’ prior written notice from the independent assessor.

  26. If an independent assessor is removed from his appointment, or if he terminates his appointment, another independent assessor should be appointed in accordance with this Standard as soon as reasonably possible.
  27. In relation to the performance of his duties, all major project participants and their agents and related companies should each contractually agree to co-operate with the independent assessor, to permit him to attend project meetings and inspections (save for internal meetings and inspections); and to allow him to have, without requiring advance notice,  unrestricted access to any of the following which are under their control, or in their possession, or who are employed by them: 

- the project site;

- project works, equipment and materials;

- project and other office premises;

- senior officers and managers;

- employees connected with the project;

- records and correspondence relating to the project;

- any other information relating to the project.

They should also agree that the liability of the independent assessor to each of them should be limited to acts of gross negligence, wilful misconduct or criminal activity by the independent assessor.   

  1. This Standard may be implemented on its own.  It is, however, recommended that it is implemented in conjunction with all other PACS Standards, as far as appropriate.

For a model appointment agreement, see Independent Assessor Agreement (pdf)  (word).

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Frequently Asked Questions

  

FAQ (1): Why appoint an independent assessor?

Corruption on construction projects is a complex problem.  It can include bribery, extortion, fraud, collusion, money-laundering, or any similar activity.  It can take place during all the different phases of a construction project, including project selection, planning, design, funding, tendering, project execution, operation and maintenance, and dispute resolution.  It can involve any of the project participants, including government, funder, project owner, contractor, consulting engineer, joint venture partner, agent, sub-contractor and supplier.  It can take place at any level in the supply chain, from the smallest sub-contract or supply contract at the bottom of the contractual chain, right the way up to main contractor, project owner, funder and government level. This corruption will usually be concealed. 

In view of the complexity and hidden nature of corruption, it is very difficult for anyone who does not have the appropriate skills, who does not have access to the relevant documents and people, and who does not have an in-depth involvement in the project, to be able to prevent or uncover corruption. 

One cannot rely on the chance that corruption will be discovered and reported by a project participant.  Project participants may have a vested interest in staying silent: they may themselves be implicated in the corruption, they may be intimidated, they may fear loss of business or employment, or they may fear damage to their reputation.  Alternatively, they may not have the opportunity or expertise to identify the corruption. 

Similarly, one cannot rely on interested members of civil society to uncover corruption in a project.  They will in most cases not have the requisite skills or adequate access to the project site, staff and documents.

Consequently, a skilled and properly qualified independent assessor should be appointed whose duty is to monitor the project(s) for corruption on an on-going basis and for the duration of the project, and to make appropriate reports.  He should have full access to all project participants, records and site.  The key aim of the appointment of the assessor is prevention.  Parties are less likely to undertake corrupt practices if there is a reasonable chance that these practices may be discovered by the assessor.  However, if the assessor does uncover corrupt practice, he will make appropriate reports so that enforcement action can be taken.

 

FAQ (2): Who should nominate the independent assessor?

The nomination of the independent assessor is a separate issue from his appointment.  Greater independence would be assured if the independent assessor was nominated by an independent and reputable institution (such as a professional institution or specialist organisation) and then appointed by the relevant party (see FAQ 3).  This would reduce the opportunity for any undue influence by the appointing party, and would help prevent the situation where an assessor may be inclined not to report corruption as he would fear that reporting corruption would prevent a future appointment.

 

FAQ (3): Who should appoint the independent assessor?

The independent assessor can be appointed by an independent body, by a government department, by the project owner, or by the organisation (e.g. bank or regulatory authority) which requires his appointment.

Where a government introduces the requirement for independent assessment across all of its projects, there could be an approved panel of assessors from which an assessor could be allocated to a project on a full time or part time basis according to the size of the project.  In this case, the assessor could be appointed by an independent body (for example an independent anti-corruption commission), or by the relevant government department.

In all cases, the appointment by an independent body is preferable, as there is a danger that appointment by the project owner or government department could compromise the independence of the assessor.  Such appointment is also more likely to be perceived by the public and project participants as genuinely independent. 

 

FAQ (4): Who should pay the independent assessor?

 

The independent assessor could be paid by the government, by an independent anti-corruption commission, by the project owner, or by the bank funding the project.  However, it is vital that, irrespective of who pays the independent assessor, he should act independently.

Payment by an independent body is preferable, as there is a danger that, if he is paid by the government or a project participant, that body could try to influence the assessor by withholding or delaying payment.

 

FAQ (5): How many independent assessors are necessary?

 

For a very large project (e.g. the construction of facilities for an Olympic Games), it may be necessary to have a team of several full time independent assessors to monitor the project.  On a large project (e.g. a power station), one full time assessor should be adequate.  On smaller projects, an assessor could be appointed to monitor several projects at the same time.

 

FAQ (6): Who can be an independent assessor?

The independent assessor should be a person of integrity, be suitably qualified, and be genuinely independent of the project and all project participants.  He should be someone who has detailed experience and knowledge of the construction industry, and a working knowledge of the law of bribery and fraud and of how corruption can occur on construction projects.  

 

FAQ (7): When should the appointment of the independent assessor commence and terminate?

 

The independent assessor should be appointed for the duration of the project.  The appointment should if possible commence as soon as the project has been selected (as the whole purpose of the project, or selection of project type or location can be corrupt), and should terminate only once the project is complete (as corruption can continue right the way through construction, operation and maintenance).

Once the construction phase is complete, the role of the independent assessor during operation and maintenance could be a significantly smaller and part time role.

On a long term project, the assessor may need to be replaced by another assessor (for example if the assessor resigns).

 

FAQ (8): What is the scope of work of the independent assessor?

 

The overriding obligation of the independent assessor is to monitor the project on an on-going basis in order to assess whether there is any suspicion of corruption, and to make appropriate reports if he believes that there is evidence of corruption.  The scope of work of the assessor therefore needs to be sufficient to give the assessor a reasonable opportunity to carry out this objective.

The scope of work of the independent assessor should be tailored to the size of the project.  On a large project, the independent assessor would probably be appointed on a full time basis, and would be expected to undertake the actions listed in PS 1 paragraphs 7 to 13 above.  On a small project, the independent assessor would undertake these actions on a random and part time basis.

A detailed suggested scope of work is attached to the model Independent Assessor Agreement  (pdf) (word)

It is not possible to specify each step that the Independent Assessor should take in carrying out his duty.  He will need to use discretion and common sense.  A skilled assessor will understand what is required of him, and how to undertake his work.

 

 

FAQ (9): Why do the independent assessor’s duties focus largely on major contracts? (See clause 9)

Corruption can involve any of the project contracts between government, funder, project owner, contractor, consulting engineer, joint venture partner, agent, sub-contractor and supplier.

For example:

  • The project selection, design or specification may be corrupt due to actions of the project owner, funder or consulting engineer.

  • Significant bribes can be concealed in the contract prices of the main contractor, joint venture partners, agents, sub-contractors and suppliers, right the way through the supply chain. 

  • Any of these parties can commit fraud during project execution by inflating claims, delivering short quantities or installing defective equipment. 

  • Government officials may extort bribes in return for issuing permits, certificates or payment.

See “How corruption occurs” for further information.

However, it would not be possible or cost effective for there to be independent assessment of every aspect of every project contract.  Consequently, this PACS Standard recommends that there should be independent assessment of major contracts (i.e. those contracts of financial or technical significance) as this is where corruption of any significance is likely to occur.   These would include major contracts for works, services, equipment and materials.

 

The selection of the size of contract which would qualify as a “major contract” is a decision for the party which is requiring independent assessment to be implemented.   This party should assess the corruption risk of a particular contract and the resources available to fund the independent assessor.

 

FAQ (10):  Why is the independent assessor required to assess the appointment of major sub-contractors, agents and joint venture partners of a major contractor? (See clause 9)

Agents, sub-contractors and joint venture partners can be used as conduits for bribery.  With the more recent focus on agents as potentially corrupt elements, and the greater due diligence carried out on them, there is an increasing tendency for bribes to be channelled through sub-contractors and joint venture partners, as bribes can often be more easily concealed in sub-contract or joint venture contract prices.  It is also possible for agents, sub-contractors and joint venture partners to be independently corrupt, i.e. for them to pay bribes in order to ensure their main contractor wins the contract in cases where the main contractor has no knowledge that a bribe is being paid. 

It is, therefore, important that the independent assessor examines the appointment of these project participants, in order to assess whether they have a genuine role in the project, whether they are properly qualified for that role, and whether the fees/payment they are receiving is proportionate to the legitimate services that they are carrying out.

 

“Agent” means any company, entity or individual which acts as agent, intermediary or representative in relation to the award of a project contract.

“Joint venture” means any joint venture, consortium, partnership or similar arrangement in relation to the project. 

 

FAQ (11):  Why does the independent assessor need to assess claims?  (See clause 9)

 

Contract claims (variations, extensions of time, payment etc.) are a common mechanism for concealing bribery and fraud.  A major variation (e.g. a change to the design of the project) can conceal a major bribe from the contractor to the government representative or consulting engineer.  An application for payment by a sub-contractor may fraudulently claim for a greater quantity of materials than were supplied.  A claim for liquidated damages by the project owner against the contractor may fraudulently allege that the contractor delayed the project in an attempt to enable the project owner to avoid paying the contractor’s retention.

It is therefore important that the independent assessor reviews all major claims to assess whether they could be corrupt.  The number of claims which the assessor examines, and the detail into which the assessor goes is a matter for the assessor to determine, and depends on the number and size of the claims, and the time available to the assessor. 

 

FAQ (12):   Why does the independent assessor need to check compliance with the PACS Standards?  (See clause 10)

If other PACS Standards (apart from this one) are to be implemented on the project, then there will need to be some independent assessment of whether these PACS Standards have been implemented and complied with, and whether they reveal any possible corruption.  For example:

  • If PS 2 (Transparency) is to be implemented on the project, the assessor would assess whether a mechanism has been set up by the project owner to provide disclosure to the public, and whether all necessary information is being properly disclosed, and whether it reveals any possible corruption.

  • If PS 4 (Pre-contract disclosure) is to be implemented on the project, the assessor would assess whether the information disclosed is complete and accurate, and whether it reveals a risk of corruption.

  • If PS 5, PS 6 and PS 7 (Commitments) are to be implemented, the assessor would assess whether the relevant commitments have been provided and whether the parties are complying with those commitments.

The degree to which the independent assessor checks compliance will be dependent on what is reasonable given the time and resources available to him.

 

FAQ (13): How should the independent assessor carry out his duties to investigate matters of concern which may suggest corrupt activity, and to make appropriate reports where he believes there is evidence of corruption? (See clauses 11 and 12)

In carrying out these duties, there are a number of risks for the independent assessor.  These include the following risks:

  • He may be liable for defamation if he makes allegations that he is unable to substantiate.

  • He may alert the wrongdoer prematurely to an investigation so enabling the wrongdoer to destroy or tamper with evidence.

  • He may put himself in danger if wrongdoers are aware that he suspects them.

  • He may put others in danger if they are key witnesses to suspected corruption.

The independent assessor should, therefore, have some discretion in the way in which he carries out his duties in order to balance and minimise the above risks.  He should investigate any situation which gives cause for concern.  In doing so, it may be advisable initially simply to make further inquiries and gather more information in order to assess whether there is a genuine cause for concern.  This may involve speaking only to the party or parties directly concerned.  In doing so, he should be aware of the need to preserve evidence and protect potential witnesses. 

If he believes that there is evidence of corruption, he should then report the relevant facts to the appropriate persons.  These may include: the party who appointed him, the project owner, the project funders, other project participants who may be affected by the corruption, and the criminal authorities.  The importance of reporting fairly widely is to limit the risk of the matter being suppressed, to avoid any perception of collusion by the independent assessor and a particular party, and also to limit the risk that the independent assessor could be in personal danger as being the only person who is aware of the potential corruption.  However, the reporting should be done in such a way as to limit the risks of danger to any person, allegations of defamation, and any unwarranted damage to reputation should the concerns prove to be unfounded. 

It is preferable that the independent assessor has a duty to report evidence of corruption.  Firstly, this duty will act as a significant deterrent to corruption, as the parties involved in the project will be aware that evidence of corruption will be reported.  Secondly, having a duty to report takes away any personal reluctance that the assessor may have to report corruption due to its potentially serious consequences.

 

FAQ (14):  Who are the “major project participants”?  (See clause 27)

These are the project participants whose role in the project could result in significant corruption.  Consequently, this is likely to include the project owner, project funders, major contractors, and major sub-contractors.  The decision as to who is a “major” contractor or sub-contractor will depend on the size of the project and the relevant contract or sub-contract.

 

FAQ (15):  What is a “related company” and an “agent”?  (See clause 27)

"Related company” means a company which is related to another company as follows:

  • it directly or indirectly owns or controls that company; or
  • it is directly or indirectly owned or controlled by that company; or
  • both companies share the same ultimate parent company.

"Agent” means any company, entity or individual which acts as agent, intermediary or representative in relation to the award of a project contract.

 

FAQ (16):  Why is it necessary to have the agreement of the major project participants specified in clause 27, and how will this agreement be provided?  (See clause 27)

If the independent assessor is to be able to carry out his duties effectively, he will require access to project staff, offices, documentation, records and the works, materials, equipment and services being provided.  In order to obtain this access, the agreement of the relevant project participants will be required.  This agreement should be given in the form of a contractual obligation in order to ensure that the parties are obliged to provide the required co-operation to the independent assessor. This obligation could be one of a number of anti-corruption commitments to be provided by all major project participants (including the project owner).  (See clause 6(15) in each of PS 5 and PS 6)

 

FAQ (17):  What powers should the independent assessor have?

This PACS Standard recommends that the independent assessor should not have any power to require action by any project participant.  His remit is one of observing, investigating and reporting.  He should, however, be provided with the necessary co-operation and access in order to enable him to carry out his duties (as provided for in clause 27 above).   

 

FAQ (18):  Will the independent assessor be cost effective?

It is not possible to prove that an assessor will necessarily be cost effective.  Will he save more money in preventing corruption than the cost of his fees?  As corruption is usually hidden, the actual cost of corruption cannot be calculated, nor can it be shown how much loss due to corruption has been avoided by having an independent assessor.  Consequently, the decision to appoint an independent assessor will require certain assumptions to be made as follows.

Many observers assume the cost of corruption at a minimum of 5% of project value.  Bribes as high as 30% of the project value are common in some territories and sectors.  In addition to the actual bribe paid to procure the project, corruption during project execution also adds to the cost.  This could include matters such as inflated claims (procured by deception and/or bribery), and large variations to the contract scope procured by a bribe. 

In addition to the above attempts to quantify the costs of corruption in financial terms, there are the unquantifiable costs, such as the construction of unnecessary, over-designed, or unsafe projects, the retarding effect of corruption on international development, and the uncertainties and inefficiencies which it introduces into business.   

See “Cost of Corruption” for further analysis.

Based on the above analysis of the costs of corruption, it is reasonable to assume that the appointment of a competent assessor with a carefully controlled scope of work and fee structure is likely to be a highly cost effective investment.

 

FAQ (19): How can the integrity and safety of the independent assessor be assured?

It is an obvious risk that if the independent assessor uncovers a bribe, he could be bribed or threatened by the defaulting party not to reveal the bribe.  This risk can be minimised, but not entirely avoided.

  • The bribery risk to the assessor can be minimised by ensuring that the assessor is a person of known integrity, and is a member of a professional association which maintains the highest ethical standards, and which has strict disciplinary procedures. 

  • The risk of personal danger to the assessor can be minimised by rapid and routine disclosure by the assessor of his findings to all related parties (subject to the factors discussed in FAQ 13).  Threats are normally designed to prevent information from being published.  Once the information has been published, the threats become less effective.  The assessor’s safety should be taken very seriously, and protection for the assessor may need to be provided in some countries.

 

 FAQ (20): What is the likelihood of the independent assessor uncovering corrupt activities?

There is no guarantee that the assessor will uncover any or all corrupt activities.  Some bribes or corrupt activities may be too well hidden.  Some assessors may not be sufficiently experienced, alert or diligent, or may not have adequate time under their appointment to examine certain aspects.  However, the very presence of the assessor will be a major deterrent, and is therefore likely to result in a material reduction in corrupt activities.  There is also a significant chance that the assessor will uncover corrupt activities which take place.

 

FAQ (21): Could the same person carry out the role of independent assessor and technical auditor (see PS 10)?

Both the independent assessor and technical auditor are likely to be required to have the same or similar professional and technical qualifications and experience.  It is possible, therefore, that the same person could carry out both functions, provided that this does not result in any dilution or compromise of the essential qualities and functions of either role.  For example, the independent assessor’s role should not be limited to that of technical audit.  The independent assessor should be independent of the project.  He has a roving remit to inspect as and when he sees fit.  His duty relates specifically to identifying and reporting potential or actual corruption.  The technical auditor, on the other hand, will audit the project only at specific times in the project cycle, and will be focusing on technical issues.


FAQ (22): Could the same person carry out the role of independent assessor and financial auditor (see PS 10)?


This is unlikely to be appropriate.  The independent assessor should be a professional with detailed knowledge of the type of construction being undertaken (so that he can identify possible corruption during the project).  A financial auditor on the other hand is likely to be an accountant who is skilled in financial control.  It is unlikely that a financial auditor would have the necessary skill to be an independent assessor.

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Return to:

PACS home page

PACS Standards:

PS 1: Independent Assessment

PS 2:   Transparency

PS 3:   Procurement

PS 4:   Pre-contract disclosure

PS 5:   Project commitments

PS 6:   Funder commitments

PS 7:   Government commitments

PS 8:   Raising awareness

PS 9:   Compliance

PS 10:  Audit

PS 11:  Reporting

PS 12:  Enforcement

 

 

Page updated on 1st November 2008

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