PACS STANDARD 2:

Project Selection, Design and Land Acquisition

PACS Standard 2 forms part of GIACC’s Project Anti-Corruption System (PACS), which comprises 15 PACS Standards (see links at foot of this webpage).

Requirements

General management controls: The anti-corruption measures in paragraphs 10 (conflict of interest), 11 (decisions), 12 (communication) and 13 (records) of PACS Standard 1 should apply to all Project selection, design and land acquisition processes.
Appointment and employment of managers: An appropriate number of managers of the Project Owner who are of appropriate skill and seniority should be appointed to manage the Project selection, design and land acquisition processes. These managers should be employed in accordance with paragraph 9 (employment procedures) of PACS Standard 1.
Project selection, design and land acquisition responsibilities: The Project Owner’s managers should ensure that, in relation to the Project selection, design and land acquisition processes which they manage:
1. relevant Anti-Corruption Obligations are complied with by the managers, the Project Owner, relevant Suppliers and Sub-suppliers, sellers and lessors of land, and the personnel of each of these bodies
2. they are alert to any suspicions of corruption or breach of the Anti-Corruption Obligations, and they report any such suspicions, as soon as possible:
  1. to the compliance manager (paragraph 5 of PACS Standard 1), and/or
  2. under the reporting system in PACS Standard 13.
Project selection: A proposed Project should be selected for construction, development or implementation only where:
1. it is for a legitimate purpose which is in accordance with the Project Owner’s objectives
2. it is necessary for the Project Owner to be able to achieve that purpose
3. it provides value for money for the Project Owner
4. in the case of a Project with an estimated value over a prescribed threshold, it is justified by a written and objective needs assessment, technical assessment and value for money assessment provided by a suitably skilled and independent third party
5. the corruption risk has been assessed in accordance with paragraph 7 of PACS Standard 1 and it has been determined that the Project Procedures are adequate to reduce those risks to an acceptable level.
Project design: The design of the Project should:
1. be based on the legitimate needs of the Project Owner
2. be described in terms that are clear, comprehensive, objective, functional and generic
3. not be intended to favour any particular Supplier or to artificially narrow competition.
Project land acquisition:
1. “Acquisition” and “acquired” for the purposes of paragraph 6 applies to a purchase, lease or other right to occupy and use land.
2. “Land” for the purposes of paragraph 6 applies to land, and any buildings, fixtures and fittings on that land.
3. Any land needed for the Project which is not already owned by the public sector should be acquired by the Project Owner only if and to the extent that the acquisition:
  1. is lawful
  2. is necessary for Project purposes
  3. is permitted by the Project Owner’s budgetary requirements
  4. will provide value for money for the Project Owner
  5. is at arm’s length and on market terms and conditions
  6. has been justified, in terms of price, by a written and objective valuation provided by a suitably skilled and independent third party
  7. where over a prescribed value threshold, has been justified by a written and objective needs assessment and value for money assessment provided by a suitably skilled and independent third party.
4. Where there is a choice of land for acquisition, the acquisition should be by way of a competitive process consistent, as far as applicable, with the provisions of PACS Standard 3.
5. Where the land needs to be compulsorily acquired, it should be acquired under a fair and transparent process under which all affected members of the public are:
  1. given adequate notice
  2. promptly compensated for:
    1. their land value at fair market value
    2. their reasonable sale and relocation costs.
6. No payment to the seller or lessor of the land should be made by or on behalf of the Project Owner unless the finance managers who are making the payment have taken all reasonable steps to verify, and reasonably believe, that:
  1. the requirements of this paragraph 6 have been complied with
  2. the account designated to receive payment is the account of the proper payee
  3. there are no suspicions of corruption in relation to the payment.

Guidance

G1: General management controls (paragraph 1 of PACS Standard 2)

Paragraph 1 of this PACS Standard provides that the general anti-corruption measures in paragraphs 10 (conflict of interest), 11 (decisions), 12 (communication) and 13 (records) of PACS Standard 1 should apply to all Project selection and design processes. This means, for example, that:

no manager should act where s/he has a conflict of interest
there should be appropriate separation of functions
decisions should be made by an appropriate number of skilled senior managers
all decisions, approvals, recommendations and outcomes should be properly communicated and recorded.

G2: Appointment and employment of managers (paragraph 2 of PACS Standard 2)

Paragraph 2 of this PACS Standard provides that the Project Owner’s managers who manage the Project selection, design and land acquisition processes should be employed in accordance with paragraph 9 (employment procedures) of PACS Standard 1. This means, for example, that:

they should be obliged by their conditions of employment to comply with applicable anti-corruption laws and regulations, the Project Code of Conduct and relevant Project Procedures, and can be disciplined if they do not comply
if they are in a position which is exposed to more than a low corruption risk, then they should be vetted before they are employed, should be competent to undertake their role, and should declare any conflict of interest, and their performance bonuses and targets should be reviewed periodically to verify that there are reasonable safeguards to prevent these bonuses and targets from encouraging corruption.

G3: Why is selection of the Project important from an anti-corruption perspective?

Corruption may occur in relation to the selection of the Project. Corrupt public officials, managers of the Project Owner, and Suppliers may collude to select a Project which the Project Owner does not need, or which does not provide value for money for the Project Owner, but which will enable the corrupt persons to extract improper personal profit from the Project. For example, a new highway or airport may be unnecessary, but may be corruptly selected by the Project Owner’s managers because it will create work for the corrupt Suppliers, and enable the Suppliers to pay bribes to the Project Owner’s managers.

Therefore, paragraph 3 of PACS Standard 2 provides that the selection of the Project must satisfy the tests of legitimacy, necessity and value for money.

To reduce the risk that the Project Owner’s managers may corruptly make the above decisions, or may be compelled to do so by corrupt public officials, paragraph 3 of PACS Standard 2 requires that a Project with an estimated value over a prescribed threshold should be justified by a written and objective needs assessment, technical assessment and value for money assessment provided by a suitably skilled and independent third party.

G4: Why is the design of the Project important from an anti-corruption perspective?

The whole or part of the Project may be designed with corrupt intent. For example:

the design may be over-specified or be otherwise unsuitable for the Project Owner’s needs in order to enable bidding Suppliers to submit higher bids than necessary
the design may be deliberately incomplete so as to enable the winning Supplier to be awarded additional work during the course of the contract at an inflated price
the design may name the Supplier which must supply the equipment for the Project, or may specify the design in such a way that only one Supplier can provide that equipment. In this case, there is no point in other Suppliers competing for the Project, as their equipment will be non-compliant. Therefore, the named or compliant Supplier can materially increase its price, as there will be no competition.

The above situations may occur with no corruption (i.e. the designer of the Project may make a genuine mistake in over-specifying the design or providing an incomplete design, or may genuinely believe that the named Supplier’s equipment is the best). However, the above situations may often occur for corrupt reasons (i.e. the potential Supplier(s) have bribed the managers responsible for the design in order that the design is over-specified or incomplete or wrongly specifies only one named Supplier).

In order to limit the above risk, paragraph 4 of PACS Standard 2 provides that the design of the Project should: be based on the legitimate needs of the Project Owner; be described in terms that are clear, comprehensive, objective, functional and generic; and not be intended to favour any particular Supplier or to artificially narrow competition.

G5: Why is land acquisition for the Project important from an anti-corruption perspective?

In some cases, the land which is needed for a public sector Project will already be in public ownership and will merely need to be allocated to the project. However, in other cases, the necessary land may be in private sector ownership, and will therefore need to be acquired by the Project Owner for the Project.

In some cases, there may be a choice of land availability. For example, if land is needed to build an office or facility for the Project Owner, there may be several sites which can be chosen. In other cases, the necessary land will only be available from one source (for example, in the case of a highway where the optimum route of the highway determines the land requirement).

Where land is required from a private sector owner, the owner may voluntarily sell it to the Project Owner. However, in other cases, the owner may not be willing to sell, and the Project Owner may need to utilise compulsory acquisition powers in cases where the land is essential for public development.

There may be corruption in relation to the acquisition of land by the Project Owner from a private sector owner. For example:

a public official may abuse her/his office by:
- obtaining advance confidential information about a likely land acquisition, and then buying the land privately from the private sector owner, and then on-selling the land to the Project Owner at a profit
- arranging for the Project Owner to buy land from the public official which the Project Owner does not need, and/or which is bought at an overvalue
a manager of the Project Owner who is responsible for managing the land acquisition may:
- agree a price with the seller which is above market value, and then share part of the profit with the seller
- embezzle funds which are intended to be allocated to sellers in relation to a compulsory purchase
the Project Owner may abuse its powers by compulsorily acquiring the land at below market value.

The above examples apply to a sale of land. In some cases, it may be more beneficial or necessary for the land to be leased by the Project Owner. The provisions of paragraph 6 apply to leases of land as well as sales of land.

The term “land” applies to land, and any buildings, fixtures and fittings on that land.

Paragraphs 1, 2, 3 and 6 of PACS Standard 2 attempt to reduce these corruption risks by imposing a set of controls in relation to any acquisition of land for the Project by the Project Owner.