Project Anti-Corruption System (PACS)

 

PACS STANDARDS

PS 4: Pre-contract disclosure

 

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

This PACS Standard makes the following recommendations in relation to pre-contract disclosure of information on public sector projects.

  1. On individual projects, there should be pre-contract disclosure of information as part of the procurement process for each major contract and major sub-contract.

  2. The project owner and each tenderer for a major contract should exchange information about themselves and their business partners which is relevant to assessing the risk of potential or actual corruption in relation to the project.  The project owner should provide the required information to the tenderer as part of the invitation to tender, or on its web-site.  The tenderer should be requested to provide the required information to the project owner as part of the tender submission.

  3. If any relevant information is not available at those times, then it should be provided as soon as reasonably possible after the information becomes available.

  4. Any tenderer for a major contract who fails to provide this information with its submission should be disqualified from the procurement process.

  5. Any inaccuracies or inadequacies in information which has been provided should be remedied as soon as reasonably possible after the inaccuracy or inadequacy becomes apparent to the party who has provided the information.

  6. The information which is disclosed by the tenderer should be assessed by the project owner in order to determine the risk of corruption which may be posed by the involvement of that tenderer in the project.

  7. The information which is disclosed by the project owner should be assessed by the tenderer in order to determine the risk that the tenderer may become involved in a corrupt project or in a contract which could be affected by corruption.

  8. The following information should be disclosed by the project owner and by each tenderer for a major contract:

In relation to themselves:

(1) name, principal address, and date and place of incorporation;

     

(2) name and country of residence, and percentage shareholding of any principal shareholder;

     

(3) name, country of residence, and title of its senior officers;

     

(4) annual turnover, profits and net assets for the last 3 accounting years, with audited annual accounts;

     

(5) number of officers and employees;

     

(6) bonus or incentive schemes for senior officers, senior managers or employees which relate to the project;

     

(7) potential conflicts of interest of the organisation or any of its principal shareholders, senior officers or senior managers in relation to the project;

     

(8) convictions for corruption of the organisation or any of its principal shareholders, related companies, senior officers or senior managers  within the last 5 years;

     

(9) debarment from tendering of the organisation or any of its principal shareholders, related companies, senior officers or senior managers which is still in force, or which occurred within the last 5 years;

     

(10) any corporate or institutional policy or programme for countering corruption.

In relation to each of the project owner’s and tenderer’s joint venture members, major sub-contractors and agents:

(11)  the information in (1) to (10) above;

(12)  its normal business;

(13)  its intended scope of works or services for the project;

(14)  the method of its selection;

(15) whether its appointment was required or recommended by any person;  if so, by whom, and what connection the person making the requirement or recommendation has with the project or any project participant;

(16)  whether it has, on previous occasions, provided services to the party appointing it on the project;

(17) the payment or other benefit to be received for the works or services;

(18)  whether such payment is proportionate to the work or services to be provided, and steps taken to establish this;

(19)  the currency and location in which payment is to be made.

  1. The chief executive officer and the chief financial officer of each organisation providing the above information should each sign the relevant disclosure document warranting that:

(1) he has made reasonable enquiries to ascertain that the matters declared are correct;

(2) he is not in possession of any information which would put him on notice that the matters declared are incorrect;

(3) he honestly believes that the matters declared are true;

(4) he is aware that it may be a criminal offence to provide false, incomplete or misleading information;

(5) the organisation will as soon as possible provide further relevant information as and when it becomes available, and notify any discovery that any information provided is incorrect, incomplete or misleading.

  1. There should also be similar pre-contract disclosure of information between each major  contractor and the tenderers for major sub-contracts. 

  2. 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 document which may be used to request the above information, see Disclosure Form  (pdf) (word).

For a model guide which may be used to assess the disclosed information, see Disclosure Assessment Guide (pdf) (word).

 

 

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Frequently Asked Questions

 

FAQ (1):  Why is pre-contract disclosure of information necessary?

There is usually a choice as to whether an organisation will enter into a business relationship.  One of the factors that should apply in making this choice is the risk of corruption that may be involved in that business relationship.  This factor is just as important as any factor concerning technical or financial suitability.  Involvement in a corrupt relationship or with a corrupt partner can have devastating consequences.  It can damage a project, it can result in severe financial loss, and it can result in civil and criminal liability for organisations and individuals. 

To determine the risk of corruption, it is essential to acquire and assess information about potential business partners and projects in advance of entering into contractual relations.

The following are some examples of information which may reveal potential corruption or which may at least raise red flags:

  • Disclosure of the identity of the shareholders and directors of a tenderer may reveal that one of its directors or shareholders is a government employee who can influence the award of the contract.

  • Disclosure of the agency agreement may reveal that the fee being paid to the agent is far higher than is justified by its services, and so may indicate that the fee is concealing a bribe.

  • Disclosure of codes of practice may reveal that a potential business partner has no proper internal safeguards against corruption.

  • Disclosure of corruption convictions may reveal that the joint venture partner of one of the tenderers may have been convicted of corruption. 

Without pre-contract disclosure of information such as the above, potentially corrupt situations may not be avoided.

 

FAQ (2):  When should pre-contract disclosure of information take place?

It should form part of the due diligence process in the procurement phase for major contracts.  In this phase, the project owner should obtain sufficient information about each tenderer in order to assess the risk of corruption in selecting that tenderer. Similarly, each tenderer should be provided with information on the project and the project owner in order to limit the risk of its becoming involved in a corrupt project or transaction.  This information should be exchanged before any tender decision is made or any contract entered into.  The same should apply in relation to the procurement of major sub-contracts.

 

FAQ (3):  What if the party making the disclosure lies?

This is an obvious risk.   However, one of the obligations of the independent assessor is to check the accuracy of pre-contract disclosures (see PACS Standard 1, clause 10(2)).  This will be a significant deterrent against false disclosure, and means there is a possibility that any false disclosure made will be uncovered by the independent assessor.

In addition, this PACS Standard recommends that the chief executive officer and the chief financial officer of each organisation providing the above information should be required personally to certify the accuracy of the information disclosed (see clause 9 above). These officers will be aware that they will be personally liable for fraud if they deliberately or recklessly allow false, incomplete or misleading information to be included in the disclosure.

 

FAQ (4):  Why does this PACS Standard apply only to pre-contract disclosure in relation to major contracts and major sub-contracts?

There is a corruption risk in relation to every business transaction and in relation to every project contract.  However, it would be unduly onerous, and not cost effective to require disclosure in relation to very minor contracts and sub-contracts.  Consequently, this PACS Standard recommends that information should be exchanged as follows:

  • Between the project owner and each tenderer for a major contract;

  • Between each major contractor and each tenderer for a major sub-contract.

Determining what will constitute a “major contract” and a “major sub-contract” is a decision for the party which is imposing this PACS Standard on the project.

 

FAQ (5):  How does this PACS Standard apply where there is a pre-qualification or nomination procedure?

For purposes of simplicity, this PACS Standard recommends that there should be pre-contract disclosure of information at the tender stage, and it uses the term “tenderer”.  However, if there is a pre-qualification stage, then pre-contract disclosure of information could take place as part of the pre-qualification process.  Alternatively, if the contractor is to be selected by way of nomination, then pre-contract disclosure of information should take place prior to any nomination being made. 

The essential point is that information should be disclosed and assessed before any contract is made.

 

FAQ (6):  What are “principal shareholders” and why should information be disclosed in relation to them? (See clause 8(2))

In order to assess the corruption risk, it is important to understand the identity of a potential business partner.  This includes understanding the ownership of that partner.  Organisations or people can use some form of “front” vehicle to hide behind so that their participation in a project or transaction remains unknown.  So, for example, a person who can influence the outcome of a tender may also be a principal shareholder of one of the tenderers.  Alternatively, the project engineer may have a significant shareholding in the selected contractor and so may collude with the contractor to certify inflated claims or approve defective work. 

It is important, therefore, to know who has ultimate ownership and control of a potential business partner.

The decision of what percentage shareholding in a company would constitute a principal shareholder is a decision for the party who is requiring this PACS Standard to be implemented.  There should be disclosure in relation to any shareholder who could have a significant interest in the outcome of the tender or project.  It is suggested that the identity of any individual or entity which owns or controls more than 10% of the shares or voting rights in a company should be disclosed.

 

FAQ (7):  Why should bonus and incentive schemes be disclosed?  (See clause 8(6))

Bonus and incentive schemes can unduly influence people to behave corruptly.  For example, the bank manager responsible for putting into place the project financing on a project may be paid a success fee on completion of the signing of the loan agreement.  The desire to secure this success fee could influence him to pay a bribe to a representative of the project owner or to turn a blind eye to corruption in project selection.  Disclosure of these bonus or incentive schemes in advance could reduce the risk of this occurrence.  Disclosure also alerts the independent assessor to pay more attention to this transaction.

 

FAQ (8):  What is a "related company" and why should information be disclosed in relation to their convictions for corruption, if any?  (See clause 8(8))

A 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.

Information relating to convictions for corruption of the related companies of a potential business partner may indicate that that group of companies does not have adequate internal anti-corruption controls or, worse, that it condones corruption.  If there are such convictions, then further information should be requested as to what steps have been taken to prevent any further such convictions.

 

FAQ (9):  What is a “senior manager” and a “senior officer”?  (See clause 8(8))

“Senior manager” means a person with supervisory responsibility in respect of the project, including, for example, a person with responsibility for contract, project, financial, procurement, commercial or technical management.

 

“Senior officer” means:

    • In relation to a company, the chairman, chief executive, and directors.

    • In relation to a government department, its minister(s) and heads of department.


FAQ (10):  Why is disclosure necessary in relation to joint venture companies, agents and major sub-contractors?  (See second sub-heading in clause 8)

Joint venture companies, agents and major sub-contractors can be the vehicles of corrupt transactions.  For example:

  • An agent appointed by a tenderer may not be performing legitimate services,  and may be  paid a large fee which will be used as a bribe.

  • A joint venture partner may agree to pay a government official a bribe on behalf of the whole joint venture, and conceal the cost of the bribe in its part of the work in the joint venture.

  • A sub-contractor may agree to pay a bribe to a government official on behalf of the main contractor, and to conceal the cost of the bribe in its sub-contract price.

  • A government minister may require a tenderer to appoint a sub-contractor which he owns.

Disclosing the identity, ownership, scope of work and contract price or fee of these parties increases the chance that any potential corrupt appointment may be identified and avoided in advance.  It also gives the independent assessor the basis upon which to asses the information for inaccuracy.  For example, therefore, if an agent was to receive a payment of 5% of the contract price, allegedly in return for performing contract services, the independent assessor could verify whether the agent is in fact capable of carrying out those services, whether it did in fact carry out those services, and whether the fee is reasonable.

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

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

 

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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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