(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.
For a model document which may be used to request the above information, see Disclosure Form
For a model guide which may be used to assess the disclosed information, see Disclosure Assessment Guide
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:
Without pre-contract disclosure of information such as the above, potentially corrupt situations may not be avoided.
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.
This is an obvious risk. However, one of the obligations of the independent assessor is to check the accuracy of pre-contract disclosures (see PS 1 Independent Assessment, clause 10). 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.
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:
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.
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.
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.
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.
A related company means a company which is related to another company as follows:
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.
“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:
Joint venture companies, agents and major sub-contractors can be the vehicles of corrupt transactions. For example:
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.
Updated on 10th April 2020