PACS Standard 5 forms part of GIACC’s Project Anti-Corruption System (PACS), which comprises 15 PACS Standards (see links at foot of this webpage).
[NOTE: The webpages on PACS Standards 1 to 15 are being updated between 1st and 30th September 2021, during which time the page content may not be complete, and there may be inconsistencies on these pages.]
There is a significant risk of corruption in relation to the carrying out of the works and services under Project Contracts. For example:
Furthermore, corruption which previously took place in relation to the procurement process for the relevant Project Contract (see PACS Standard 3) or the agreement of contract terms (see PACS Standard 4) may impact on the carrying out of the works and services under the Project Contract. For example, a Supplier may have paid a bribe so that:
This previous corruption could impact on the carrying out of the works and services. For example:
Contract management plays an important role in managing these risks. Inadequate or corrupt contract management allows corruption to prosper.
Therefore, effective anti-corruption contract management measures need to be implemented to manage this risk. PACS Standard 5 recommends these measures.
Paragraph 2 of PACS Standard 5 recommends the contract management measures which should be put in place in relation to Project Contracts in order to minimise the corruption risks. These measures include the following:
Modifications to or under an awarded Project Contract are modifications which take place after the contract has been entered into between the Project Owner and the Supplier. A modification is also often called a ‘variation’.
There are two types of modification:
Modifications may include:
There is a significant risk that a Supplier may bribe the Project Owner’s contract manager to allow improper modifications to or under the contract. Alternatively, a corrupt manager of the Project Owner may extort a payment from the Supplier in order to approve a valid modification. It is therefore important that modifications to the contract are properly regulated and managed. Paragraph 3 of PACS Standard 5 recommends such control measures.
In order to reduce the risk of corruption, a manager of the Project Owner should not approve both: (i) works, products or services provided by a Supplier, and (ii) payment to that Supplier. Accordingly, there should be a separation of functions whereby the contract manager approves the works, products or services provided by the Supplier and the finance function approves payment.
However, finance managers who are responsible for approving payments will not normally have the necessary skill or involvement with a contract to be able to assess whether the contract has been properly performed and whether the payment is actually due. Therefore, there needs to be a process whereby an appropriately skilled manager(s) who has suitable knowledge of the contract and its performance makes a recommendation for the payment prior to payment being made.
The manager who approves work done may also recommend payment. Alternatively, the two functions may be divided as an additional anti-corruption safeguard.
The manager approving work and/or recommending payment should always be different from the manager approving payment.
Paragraph 4 of PACS Standard 5 provide measures in relation to recommending payment.
Controls over the making of payments are dealt with in PACS Standard 6.
There is a risk that, even though the contract management procedures are effectively designed to limit corruption, a corrupt public official or contract manager may ensure that the anti-corruption procedures are improperly by-passed. This risk is limited in PACS by:
A Project Owner may delegate some or all of its contract management functions in relation to Project Contracts to another individual or organisation (e.g. to a consulting engineering firm with contract management expertise). However, if it does so, it is imperative that it retains responsibility for ensuring that these functions are carried out properly and without corruption. Paragraph 4 1(2) refers to this individual or organisation as the “Delegated Contract Manager”. Alternative terms used in contracts may, for example, be “Project Engineer” or “Project Supervisor”. This individual or organisation may be given specific responsibilities on behalf of the Project Owner to carry out certain functions such as approving work, approving payment, and/or agreeing modifications to the contract works and programme within pre-established parameters. In this case, it is vital that the Project Owner takes reasonable steps to monitor and verify, on an on-going basis, that the Delegated Contract Manager is undertaking its responsibilities honestly and effectively. The Project Owner could incur enormous losses if the Delegated Contract Manager corruptly approves payments to the Supplier which are not due, or work which is defective, or claims which are invalid or inflated.
PS 5: Contract management
Updated on 16th September 2021