Guidance

G1:  Why appoint an independent monitor?

Corruption on infrastructure projects is a complex problem.  It can include bribery, extortion, fraud, collusion, embezzlement, and money-laundering.  It can take place during all the different phases of an infrastructure project, including project selection, planning, design, land acquisition, procurement, project execution, and project operation and maintenance.  It can involve any of the project participants, including government, the project owner, suppliers (such as funders, contractors, suppliers and consulting engineers) and their sub-suppliers.  It can take place at any level of the project structure, from the smallest sub-contracts at the bottom of the contractual chain, right the way up to large contracts with the project owner.

For example:

• The project design may be corrupt where the designer is bribed to specify a design that only a particular supplier can provide
• Bribes to win project contracts may be paid by the bidder or its sub-suppliers or agents, and the cost of those bribes may be recovered in the contract prices of the bidder or sub-supplier.
• Suppliers and sub-suppliers may commit fraud during project execution by inflating claims, delivering short quantities, installing defective equipment or materials, or making false delay claims. 
• The project owner may make fraudulent claims for defects.
• Government officials may extort bribes in return for issuing permits, certificates or payment.

See How Corruption Occurs for further information.

This corruption will usually be concealed. In view of the complexity and hidden nature of corruption, it is 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 reasons for 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 or claims against them for defamation.  Alternatively, they may not have the opportunity or expertise to identify the corruption. 

Similarly, one cannot rely on interested members of the public 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 monitor should be appointed whose duty is to monitor the project for corruption on an on-going basis and for the duration of the project, and to make appropriate reports.  The monitor should have full access to all project participants, records and site.  The key aim of the appointment of the monitor is prevention.  Parties are less likely to undertake corrupt practices if there is a reasonable chance that these practices may be discovered by the monitor.  However, if the monitor does uncover corrupt practice, the monitor should make appropriate reports so that enforcement action can be taken.

G2:  Who should select the independent monitor? (Paragraph 2 of PACS Standard 11)

The selection of the independent monitor is a separate issue from the appointment.  Selection is the choosing of the independent monitor.  Appointment involves the contractual appointment of the selected monitor to the role.  Greater independence is assured if the independent monitor is selected by an independent and reputable institution (such as a professional institution or specialist organisation) and is then appointed and paid by the relevant party (see G3 below).  This reduces the opportunity for any undue influence by the appointing party in the selection, and reduces the risk that a monitor may not report problems or suspected corruption for fear this would upset the appointing party and so prevent a future appointment.

Under paragraph 2 of this PACS Standard, the Project Owner is required to select the independent body who will in turn select the independent monitor.  To protect against the Project Owner selecting an independent body which will choose a monitor who will favour the Project Owner’s interests, the Project Owner is required to select an “independent and reputable” body.

G3:  Who should appoint and pay the independent monitor? (Paragraph 2 of PACS Standard 11)

Depending on the type of project and applicable regulations, the independent monitor could be appointed and paid by the Project Owner, a government department (such as an anti-corruption commission), a regulatory authority, a bank funding the project, or an independent body.

Appointment and payment by any party which may have a conflict of interest (such as the Project Owner or, in the case of a public sector project, a government department) is less preferable as this could compromise the independence of the monitor, for example:

• where the Project Owner or government department try to influence the monitor by withholding or delaying payment, or
• where the independent monitor is reluctant to make assessments which are against the interests of the Project Owner or government in case this affects the monitor’s payment.

Consequently, where possible and practical, appointment and payment should be by an independent body.  Such appointment is also likely to be perceived by the public and project participants as genuinely independent. 

However, whoever appoints and pays the independent monitor, it is vital that:

• the appointing body is required to appoint the independent monitor who has been selected by the independent body under G2 above
• the monitor should act, and be seen to act, independently.

G4:  What are the necessary qualifications of an independent monitor? (Paragraph 2 of PACS Standard 11)

The independent monitor should be a reputable individual or organisation, be suitably qualified and competent, and be genuinely independent of the Project and all project participants.  The monitor should have:

• detailed experience and understanding of the type of project to be monitored, and
• a working knowledge of the law of bribery, extortion, fraud, cartels, embezzlement, abuse of office, and money-laundering, and of how these can occur on infrastructure projects. 

It is possible that an organisation may be appointed as independent monitor.  In this case, the organisation should be a reputable organisation, and the personnel employed by the monitoring organisation to undertake the monitoring activities should possess the qualifications required of an individual monitor. 

G5:  When should the appointment of the independent monitor commence and end? (Paragraph 2 of PACS Standard 11)

Under PACS Standard 11, the independent monitor’s appointment is required:

• to commence sufficiently early so that the independent monitor is able to monitor the Project selection, process.  This is important as Project selection could be corrupt and so should be monitored and assessed by the independent monitor.  This means that the independent monitor’s appointment should, if possible, commence as soon as the Project has been conceived in principle, but prior to it being formally selected and agreed
• to end when the Project construction is complete.

Paragraph 2 of PACS Standard 11 also provides that the independent monitor’s appointment may be extended beyond completion of construction to cover the operation and maintenance phase, if any, of the Project.  The independent monitor’s role in the operation and maintenance phase is likely to be a less time consuming role than in the planning, procurement and execution phases.

On a long term Project, the monitor may need to be replaced by another monitor (for example if the monitor resigns or becomes ill).

G6: How many independent monitors should be appointed for a project (Paragraph 2 of PACS Standard 11)

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 monitors to monitor the Project.  On a large Project (e.g. a power station), one full time monitor may be adequate.  On a smaller Project, a monitor could be appointed to work part time.

G7:  What are the obligations of the independent monitor? (Paragraphs 3 and 4 of PACS Standard 11)

Paragraph 3 of PACS Standard 11 provides that the overriding obligation of the independent monitor is to monitor the Project on an on-going basis in order to monitor, assess and report:

• whether the Project is being carried out in accordance with, and whether all Project participants are complying with:
  • applicable anti-corruption laws and regulations
  • the Project Procedures
  • the Anti-Corruption Contractual Commitments, and
  • the Project Code of Conduct
• whether there is any evidence of corruption in relation to the Project
• to what extent the Project Procedures are compliant with the PACS Standards.

Paragraph 4 sets out some of the specific responsibilities which are included in those overriding obligations. 

It is not possible to specify every step that the monitor should take in carrying out the overriding obligations in paragraph 3.  The monitor will need to use discretion and common sense.  A skilled monitor should understand what is required.

G8: Why do the independent monitor’s obligations include assessing compliance with the Project Procedures, and assessing that the Project Procedures are compliant with the PACS Standards? (Paragraphs 3 and 4 of PACS Standard 11)  

The independent monitor has an obligation in paragraphs 3 and 4 of PACS Standard 11 to monitor, assess, and report on an ongoing basis both:

• whether the Project is being carried out in accordance with, and whether all Project participants are complying with the Project Procedures, and
• to what extent the Project Procedures are compliant with the PACS Standards.

It is critical that the independent monitor assesses that the Project Procedures are being properly complied with, as non-compliance could indicate or enable corruption.

However, it would not be sufficient for the independent monitor merely to assess compliance with the Project Procedures.  It is also critical that the independent monitor should assess whether the Project Procedures themselves are compliant with the PACS Standards (as required by paragraph 2 of PACS Standard 1). 

In making this assessment, the relevant Project Procedure will be compliant with the relevant PACS Standard if it is the same as, is materially equivalent to, or exceeds the requirements of the relevant PACS Standard.

The independent monitor should, in its routine reports (paragraph 4 of PACS Standard 11), report on the extent to which the Project Procedures are not being complied with and the extent to which the Project Procedures are non-compliant with the PACS Standards.

G9: Why should the independent monitor focus largely on Major Project Contracts and Major Project Sub-contracts? (Paragraph 4 of PACS Standard 11)

As explained in G1 above, corruption can occur in relation to any Project Contract (however large or small) and involve any project participant.

However, it would not be practical or cost effective for there to be independent monitoring of every aspect of every Project Contract, and of every action of every participant.  Consequently, PACS Standard 11 recommends that independent monitoring should focus on Major Project Contracts and Major Project Sub-contracts as this is where the more significant corruption is likely to occur.   

The independent monitor should assess other (non-major) Project Contracts on a sample basis.

G10:  Why should the independent monitor assess the appointment and performance of all Major Suppliers and Major Sub-suppliers? (Paragraph 4 of PACS Standard 11)

The PACS Standards define Major Suppliers and Major Sub-suppliers as including any supplier, contractor, consultant, funder, agent or other organisation which enters into a project contract of over US$1,000,000.  The Major Suppliers enter into Major Project Contracts with the Project Owner.  Major Sub-suppliers enter into Major Project Sub-contracts with Major Suppliers or with other Major Sub-suppliers.  The high value of these contracts, and their large scopes of work present a significant corruption risk. 

It is, therefore, important that the independent monitor examines the appointment and performance of these major project participants, in order to assess whether they have a legitimate role in the Project, whether they are properly qualified for that role, whether they have any conflict of interest, whether they have been appointed on arms’ length terms and conditions, whether their fees/payments/contract prices are proportionate to the legitimate services that they are carrying out, whether they are performing their obligations under their contracts, whether modifications and claims are being properly made, and whether all payments made are contractually due.

The independent monitor is also required to assess the appointment and performance of suppliers, consultants, etc. with smaller contract values, but in this case would do so on a sample basis, taking into account the perceived corruption risk of such smaller suppliers.

G11:  Why should the independent monitor assess contract modifications and claims for payment, extensions of time, defects and damages? (Paragraph 4 of PACS Standard 11)

Modifications to or under the contract and contract claims for payment, extensions of time, defects or damages are a common mechanism for concealing bribery and fraud.  For example:

• A project manager may be bribed to agree a modification to the contract terms so as to unduly favour a supplier (e.g. to reduce the amount of damages payable for delay or to bring forward payment dates).
• A claim for payment in relation to a modification to contract works could be exaggerated and could also conceal a bribe from the contractor to the Project Owner’s manager or consulting engineer authorising the modification.
• An application for payment by a sub-contractor may fraudulently claim for a greater quantity of materials than were supplied.
• A project owner may fraudulently allege that the contractor delayed the project, or that there are significant defects, in an attempt to avoid paying the final contract payments and contractor’s retention.

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

G12:  How should the independent monitor investigate matters of concern which may suggest corrupt activity and make appropriate reports where there is evidence of corruption? (Paragraph 4 of PACS Standard 11)

If, in carrying out the monitoring obligations, the independent monitor identifies an issue which may indicate corruption, the monitor should conduct preliminary investigations so as to determine whether there are reasonable grounds to suspect corruption.  If this is established, then the monitor should not investigate any further and should report the matter to the top management and Project compliance manager of the Project Owner, to the body which appointed the independent monitor (if different from the Project Owner), and to the law enforcement body.  For example, if the monitor ascertains that a manager of the Project Owner has an undeclared ownership interest in a Supplier and has made a clearly unjustified decision in favour of that Supplier (e.g. has approved defective work), the monitor may conclude that there are reasonable grounds to suspect corruption and so should report this issue as required in this PACS Standard.  The monitor would not be obliged to undertake a detailed investigation to establish whether the manager had actually received any benefit or acted corruptly.

In carrying out these preliminary investigations and making these reports, the independent monitor should ensure, as far as possible, that:

• enquiries are kept confidential so as not to alert the wrongdoer who may then destroy or tamper with evidence or seek to intimidate or interfere with potential witnesses
• the identity of potential informants or witnesses is not revealed, so as to protect them from retaliation or danger
• reports are made promptly so as to:
  • limit the risk of the matter being suppressed
  • avoid any perception of collusion between the monitor and a particular party
  • limit the risk that the monitor could be in personal danger as being the only person who is aware of the potential corruption
• reports are made in a manner which limits the risks of:
  • retaliation against or danger to the monitor, informants or witnesses
  • allegations of defamation against the monitor
  • compromising any investigation
  • any unwarranted damage to the reputation of the alleged wrongdoer should the concerns prove to be unfounded
• evidence is preserved.

It is preferable that the monitor has a duty to report suspected corruption.  Firstly, this duty will act as a significant deterrent to corruption, as the parties involved in the Project will be aware that the independent monitor has an obligation to report suspected corruption .  Secondly, having a duty, rather than a discretion, to report will help to counter any personal reluctance that the monitor may have to report corruption due to its potentially serious consequences.

G13: Routine reports (Paragraph 4 of PACS Standard 11)

Paragraph 4 of this PACS Standard requires the independent monitor to submit a routine report to the specified persons every three months.  In preparing these reports, the independent monitor should take similar precautions to those stated in G12 above, particularly as these reports are also (in the case of wholly or partly publicly owned or funded projects) required to be published to the public under paragraph 9 of PACS Standard 11.

G14: Full co-operation, no interference, and access (Paragraph 7 of PACS Standard 11)

If the independent monitor is to be able to carry out the monitoring duties effectively, it is necessary that Project participants (i.e. the Project Owner, Suppliers and Sub-suppliers) fully co-operate with the independent monitor, do not interfere with or try to influence the independent monitor, and provide the independent monitor with access to their Project offices and site premises, personnel, records and correspondence, and works, products, services, equipment and materials.

In order to help ensure this, the contractual commitment of the Project Owner, Suppliers and Sub-suppliers will be required.  These contractual commitments are contained in PACS Standard 4 and there are corresponding requirements for their personnel in the Project Code of Conduct.  Any failure by the Project Owner, Suppliers and Sub-suppliers, or any of their personnel, to comply with these commitments should be reported by the independent monitor as a breach of the contractual commitments or Project Code of Conduct (see paragraph 3 of this PACS Standard).  Having received such reports, the Project Owner should take enforcement action under PACS Standard 14.

G15: Transparency (Paragraph 9 of PACS Standard 11)

Paragraph 9 of this PACS Standard provides that, in relation to any Project which is wholly or partly publicly owned or funded, the Project Owner should publish the independent monitor’s full reports to the public. In view of this intended wide publication and also for the other reasons stated in G12 above, the independent monitor should, when preparing these reports, take inter alia the precautions identified in G12 above.

G16:  Can the independent monitor make decisions affecting the Project?

Under PACS Standard 11, the independent monitor does not have the power to make decisions affecting the Project or to require action by any Project participant (e.g. to stop work on the Project, or change any aspect of the Project).  The monitor’s remit is primarily one of observing, making preliminary investigations and reporting. 

G17: Will the independent monitor be cost effective?

The financial loss due to corruption can be very large.  Many observers assume the cost of corruption at a minimum of 5% of project value.  Bribes as high as 30% of the overall project value are common in some territories and sectors.  In addition to bribes paid to win contracts (whose costs are then added to the contract prices), corruption during contract execution also adds to the cost.  This could include matters such as inflated claims which are paid as a result of deception and/or bribery, unjustified and costly variations to the contract scope procured by bribes, and the provision of defective work or materials. 

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 national development, and the uncertainties and inefficiencies which it introduces into business.   

It is therefore imperative that action is taken to prevent and detect corruption.  The appointment of an independent monitor is widely regarded as being an effective anti-corruption action.  There is no guarantee that the independent monitor will uncover any corrupt activity.  Some corruption may be too well hidden.  Some monitors may not be sufficiently experienced, alert or diligent, or may not have adequate time under their appointment to examine certain aspects of the project. Some monitors may themselves be corrupt. However, the very presence of a reputable monitor is likely to be a major deterrent, and should, therefore, result in a material reduction in corrupt activity.  There is also a strong likelihood that a competent and diligent monitor will uncover significant corrupt activity.  If the monitor does uncover corruption, there is also an opportunity for the wronged party to obtain redress from the wrongdoers.

The presence of the monitor on a project is also a strong signal from the project owner that the project will be managed ethically, and is accordingly likely to:

• encourage the participation on the project of ethical funders, contractors, suppliers and consultants
• in the case of a public sector project, provide assurance to the public that corruption prevention is being taken seriously by government.

It is not possible to prove that an independent monitor will be cost effective, i.e. will save more money in preventing corruption than the cost of the monitoring.  As corruption is usually hidden, the full extent of corruption on a project may not be identified, and it is unlikely to be possible to show how much loss due to corruption will be or has been avoided by having a monitor.  However, the appointment of a competent monitor with a carefully controlled and reasonable scope of work and fee structure is likely to be a cost-effective investment.

G18:  How can the integrity and safety of the independent monitor be assured?

The independent monitor is at risk of being bribed, threatened, or harmed by a corrupt party so as not to report corruption. There is also the risk that the monitor could extort bribes so as not to report corruption. These risks can be minimised, but not entirely avoided:

• The risk of corruption of or by the monitor can be minimised by ensuring that:
  • the monitor is a person of known integrity and is a member of a professional institution which maintains high ethical standards and has strict disciplinary procedures
  • all relevant personnel on the Project have received anti-corruption training and so will be alert to suspicions of corruption by the independent monitor and how to report such corruption. 
• The risk of threats and personal harm to the monitor can be minimised by rapid and routine reporting of findings by the monitor (subject to the factors in G12 above).  Once information has been reported to other parties, threats and personal harm to the monitor become less likely.

The monitor’s safety should be taken very seriously, and protection for the monitor may need to be provided.

G19: Could the same person carry out the role of independent monitor and independent auditor (see PACS Standard 12 Independent auditing)?

PACS Standard 11 requires the appointment of an independent monitor who has an ongoing remit to monitor the Project for corruption during its whole duration. 

PACS Standard 12 requires the appointment of independent auditors to carry out financial and technical audits of the Project to assess whether there has been any corruption in relation to the Project’s financial and technical aspects.

It is possible that the same person could act as independent monitor and technical auditor as these functions may require similar professional and technical qualifications and experience.   However, it is preferable for the monitor and technical auditor to be separate persons, as this will enable the auditor to act as a check on the monitor: the auditor may identify corruption that the monitor has failed to identify and may also identify corruption by the monitor.

It is unlikely to be appropriate for the independent monitor and financial auditor to be the same person, as these functions are likely to require different skills and qualifications.  The independent monitor should be a professional with detailed knowledge of the type of construction being undertaken (so that the monitor can identify possible corruption during the Project).  A financial auditor is likely to be an accountant who is skilled in financial controls.  Furthermore, as with the technical auditor, it is in any case preferable for the monitor and financial auditor to be separate persons, as the auditor will act as a check on the monitor: the auditor may identify corruption that the monitor has failed to identify and may also identify corruption by the monitor.