Proceedings of the Seminar on Integrity Pact dated 27^th May 2005 at SPIPA, Ahmedabad.

A one–day seminar on Integrity Pact was organized by Gujarat Vigilance Commission 0n May 27, 2005at Sardar Patel Institute of Public Administration (SPIPA), Ahmedabad. The seminar was inaugurated by Shri P. Shankar, the Chief Vigilance Commissioner by lighting a lamp.

Welcoming the participants, Dr. Ashok Narayan, Vigilance Commissioner, Gujarat State, explained the importance of preventive vigilance as opposed to a purely complaint-based approach, which, though necessary is inadequate to deal with the problem of corruption. Preventive vigilance includes improvement in systems and procedures to make them more and more transparent and simplify minimizing the scope of corruption. Public tendering/contracting is one important area, which is very often the sources of corruption and malpractices. Integrity Pact (IP) is a device, which introduces a 'code of conduct', applicable equally to the Principal and bidders. He gave a brief overview of the concept of IP. A model IP had been made available by the Transparency International (TI), which had been circulated to the participants well in advance (Annexure I).  He also requested the Transparency International (TI) to present specific case studies pertaining to actual implementation of IP indicating the kind of problems which actually arose from time to time during its implementation and how they were tackled within the framework of IP. He hoped that the seminar would pave the way for a concrete model of IP, to be implemented by the Government of Gujarat and its PSU’s.

      Admiral Tahiliani from Transparency International (India) gave the keynote address. A copy of his presentation is at Annexure-II. He gave the figures that India is the 90^th most corrupt nation in the world (out of 143 nations) and 5% of the world GDP being diverted to corrupt practices. He also mentioned that the corruption is the highest in arms-trade (in which 50% of bribes are given in international transactions) followed by infrastructure and construction.

 He emphasized that the IP cannot be effective unless all the parties consisting of Government and Government officials involved and all the bidders or prospective bidders are a party to it. The pact has to remain in force starting from the pre-bidding stage through the contractive period up to the implementation of the entire project. The role of the representatives of the civil society is very crucial in constant monitoring of the tendering process. Any violations of the pact would invite sanctions applicable to Government officials as well as to the bidders. The violations of the integrity pact need not be proved in the strict judicial sense but must be established beyond any reasonable doubt. The disputes are to be resolved by national or international arbitration. However, when the spirit of the integrity pact catches up, arbitration is seldom necessary. Admiral Tahiliani stated that ONGC has decided to introduce the integrity pact with effect from July 1, 2005 and efforts are being made to introduce it in certain Ministries of GOI, for example in Defense Ministry.  Admiral Tahiliani also stated that the model IP, which he has sent to Vigilance Commission and which had been circulated to the participants in the seminar is still being worked upon to suit Indian conditions and that he would be sending a revised model of integrity pact along with specific case-studies highlighting how the IP have been implemented, what problems arose during its implementation and how exactly they were taken care of.

      Shri Sudhir Mankad, Chief Secretary to Government of Gujarat, stated that the IP should not merely consist of a simplistic statement on the part of the Government and bidders not to take or accept bribes. This would be hardly enough. He emphasized that individual honesty of officials concerned is more important than the systems and procedures. He wondered whether it was necessary to negotiate only with L1.  He gave examples of how, by a judicious deviation from the rules and procedures, he was able to arrive at decisions, which saved a lot of money for the Government. He also emphasized the need to make the tender procedures more and more transparent by putting tenders, price bids, proceedings of technical scrutiny; the details of the party finally awarded the contract etc. on the web site. He also mentioned how making the transfers of primary teachers totally transparent to public by having a camp approach had minimized corruption. He also made the point that an impression is sometimes conveyed that corruption is a phenomenon only of government and public sector enterprises. This is not true. There is a lot more corruption in private sector than in government and public sector. That also should be tackled. For instance, the law of disproportionate assets should be made applicable to private sector also.

Shri B.R. Lall from TI disagreed with Shri Sudhir Mankad that L1 should not have any sanctity. He said that one has to accept L1 but a proper analysis has to be there to ensure that L1 is comparable to all other bids with the same quality and other specifications. He mentioned that in the construction sector corruption starts right from the planning and designing stage and continues through every stage in award, execution and maintenance. Collusion (cartelization) on the part of contractors is the main problem. Efforts are made not to issue tender forms to those who may be the real competitors, excluding the potential L1 in pre-qualification, inflate estimates deliberately, using retail rates in plans and estimates which are higher than the wholesale rates, projecting productivity at lower level, misusing escalation clause, concealing substandard work, deliberately lowering specifications etc.. These malpractices are done either due to dishonest intention or under extraneous pressure.

            IP is workable because when the parties are brought face to face, it becomes a solemn commitment. For the IP to work properly, all the data should be put on the website accessible by all. The IP is useful at every stage of construction. He mentioned that there was a view that in place of pre-qualification there could be a post-bid qualification. He suggested that design and execution should never be with the same company. The text of his presentation is at Annexure-III.

     Shri AK Luke, MD, Gujarat State Fertilizer Company intervened to say that it was always possible for persons with integrity beyond doubt, to make procedural mistakes. Therefore he suggested that while making out a case of corruption against public servants, assets, (disproportionate to income) should be targeted rather than the procedural mistake. To put it briefly, the malafide intention is what needs to be established. He also mentioned that according to an estimate approx. 2550 billion dollars were stacked up in various Swiss bank accounts by Indians living in India. These are the kind of issues which need to be targeted.

      Shri Arun Duggal from TI made the point that IP is a tool for changing the entire working culture of the govt. This had happened in 14 countries, which have introduced and implemented the IP. But the implementing organizations need to have immense clarity about the code of conduct involved. The role of monitor is very important. He should be a knowledgeable person and should be beyond controversies in which both the parties should have confidence. The entire process should be transparent to the public. It is a tool that will eventually lead to economic growth. He was confident that Gujarat would take the lead and would play a role of model State, in this field also, as it had already done in many fields of social and economic development.

      Shri P.K. Laheri, CMD of Sardar Sarovar Narmada Nigam Limited (SSNL) welcomed the effort of Gujarat Vigilance Commission (GVC) to focus attention on the concept of IP which is a matter of considerable public importance and to discuss it in a forum consisting of knowledgeable experts and experienced and leading citizens. Transparency International (TI) had been engaged in conducting surveys of the levels of corruption in different countries. Looking to the situation there was a need to improve our countries image, he said.

He enumerated the advantages of the given IP model as:

However, it needs to address the issue of cartelization and collusion. He recommended that the agreement must contain a declaration by the bidder that he is not a member of any cartel. It should also contain a responsibility clause by the bidder for maintaining the declared and accepted quality and specifications. The IP should be so formulated that all the loopholes which leave room for corruption are effectively plugged by including items such as price escalation in exceptional circumstances, extra items, extension of time limit etc. Very often delay in the implementation of the project could jack up the cost of the project substantially and SSNL was a glaring example of this phenomenon. Too much manpower also would create similar problems. Very often there are very few offers which fulfill the quality standards. The specifications should be mentioned in the tender in as much detail as possible. The ‘dos and don’ts’ should be equally applicable to both the parties.

 He announced that SSNL was committed to the concept and was going to introduce IP in a suitable form.

      Shri VRS Cowlagi, former Vigilance Commissioner, Gujarat said that IP is an innovative idea. He mentioned that Gujarat State Fertilizer Company (GSFC) had already introduced an ‘Ethics Pact’ (a copy of the brief statement of the Ethics Pact is at Annexure II), which is a very good beginning. He emphasized that the past experiences must be taken into account.

Gujarat has a very favourable environment for introduction of any innovative idea such as IP. Even the presence of a monitor or ombudsman would be sufficient make the difference. The concept of social audit also needs to be developed. He gave an example to show how the unit cost of the same work in the same area used to be different for works undertaken by different departments. At the intervention of GVC and exercise was undertaken to have a uniform unit cost for similar work to be adopted by different departments. He also feared that in spite of IP, the losing bidders would have a tendency to go for litigation. This had to be taken care of in some way. While imposing sanctions, there should not be a blanket debarring of the bidder, but only for specified work. Blacklisting of bidders as of applicants was also a questionable practice, which would not stand the test of a court of law. He also pointed out that the courts had often ruled that any provisions of a contract which impinged on somebody’s legal and fundamental right would not be enforceable. This would have to be kept in mind while drafting the IP

Shri B.J. Vasavada, retired member-secretary, Gujarat Water and Sewerage Board mentioned that integrity, quality, fairness, transparency and objectivity are the fundamental principles, which go to the root of successful performance and installing public confidence. He welcomed the concept of IP and made the following suggestions:-

        i. While it is a positive step that the bidder/contractor should be disqualified if the IP is violated, it would be appropriate to have a Dispute Resolution Board consisting of independent representative nominated by each party as a part of the bid document and tender document, to ensure that corrupt and fraudulent practices are not resorted to while imposing sanctions on bidders through contractors.

        ii.  Just as the model IP circulated provides for compensation for damages by the bidder to the principal, it is also necessary to make the principal responsible for similar compensation of damages if it is proved that the contractor was wrongly disqualified or excluded from the contract.

      iii.   All project-implementing authorities should be made responsible to provide and maintain a record of fraudulent and corrupt practices adopted by the contractors. Similarly, Contractors should be given an opportunity to be informed the names and designations of the officers practicing corrupt and fraudulent practices.

      iv.  The concept of independent monitor is very good but there is a possibility of the monitor himself getting corrupted. Therefore it could be better to have a Board of Monitors with representation from the contractor, the principal, civil society from amongst persons of high professional integrity status, knowledge, experience, expertise and recognition.

The text of Shri Vasavada's presentation is at Annexure-IV.

Shri H Dora, Vigilance Commissioner (CVC)  gave a detailed account of steps taken by CVC to make the process of tendering transparent at all levels by making extensive use of technology. He mentioned that instructions have been given to Central Public Sector Undertakings to resort to 'e-bidding' by putting the tender on website, the details of technical scrutiny and final bidding on the web site. Even the system of ‘e-payments’ should be adopted. He mentioned the point that system improvements are very important because systems are meant for the conformists.

            Admiral Tahiliani intervened to emphasize that system improvements are very essential to curb the corruption and they could not be ignored.

 Shri P. Shankar, CVC, also emphasized the overall need of systems and procedures. He mentioned that the Transparency International has been advocating the implementation of IP. The matter was discussed also in the Advisory Council of the CVC. As a result of this, efforts are being made to introduce the IP in Central Ministries and PSUs. A similar Seminar was organized at Bangalore on 10-5-2005 to discuss the concept of IP in detail with Central PSUs and some of the Central Ministries. As a result, ONGC has already decided to introduce the IP and some ministries are making efforts in this direction.

            He also clarified that the sanctity of the L1 did not imply that no other factors should be taken into consideration. All the bidders have to pass through the pre-qualification stage and technical scrutiny. The bidders who do not satisfy the specification or other requirements of tender inquiry need not be considered at all. Among those who satisfy the specifications, undoubtedly the L1 must be preferred. There may be examples where money could be saved by having negotiations with parties other than L1, but he was very clear that this would breach the sanctity of the tender process and could lead to unfair practices. Altering the tender conditions or specifications after the tender had been floated and bids had been received should never be permitted. The specifications indicating the standards of quality required must be mentioned in the tender notice clearly and should not be altered later.

            Shri Varesh Sinha, Principal Secretary, Panchayat, Rural Housing & Rural Development Department, intervened to say that he welcomed the concept of IP and would take steps to introduce it in District Panchayats and Taluka Panchayats.

            Smt. Anita Karwal, Additional Commissioner, SPIPA stated that looking to the fact that the most important role of implementing the IP is that of the monitor and that he/she has to be chosen with great care, being a person of impeccable integrity and expertise in the areas of contact. It is recommended that the CVC may empanel for such persons for the benefit of various Government/Organizations desirous of taking up the IP model for implementation.

It was then suggested by CVC that it may be a good idea to taking the assistance of TI in the process of making a suitable panel of monitors.

            Summing up the discussion, Dr. Ashok Narayan, Vigilance Commissioner, Gujarat State, stated that improvement in systems and procedures by making them simpler, easy to interpret and more transparent is a very important aspect of preventive vigilance. This is not to say that individuals are not important or that no efforts should be made to improve their value systems. However, that was quite another matter and would require appropriate methods of recruitment and appointment. There are public servants whose honesty is always beyond doubt and they would remain honest no matter what systems and procedures are. There are yet others who would find a way of getting round any systems and procedures and practice dishonesty. Still there are a large number of public servants who are fence sitters and would act dishonestly if the systems and procedures permitted it. It is for them that the systems and procedures are meant. It would be wrong to over-generalize and glorify exceptions where deviating from the prescribed rules and procedures, one was able to save money. Even in such exceptions, the detailed reasons must be recorded; otherwise it would be difficult for the Vigilance Commission to understand the motive behind deviating from standard procedures.

            The IP is not merely a contract, it is a culture and it is supposed to create an environment of mutual trust and ethical behaviour. Therefore it can be introduced in phases. A very necessary prelude to the introduction of IP would be total transparency in the tender procedure at every stage as many participants emphasized. The tender notice, the bids, the proceedings of technical scrutiny, the price bids received and the details of the winning bid........ all these could be made known to the public through web site. After this, one may move towards the drafting of a suitable pact and involvement of the representatives of civil society as a monitor. The help of Transparency International could be taken to identify the monitor from the civil society. If the pact is implemented and monitored properly, the need for arbitration would hardly arise.

            He mentioned that the discussions in the seminar had been extremely fruitful. Sardar Sarovar Narmada Nigam Limited (SSNNL) and Panchayats, Rural Housing & Rural Development Department (P,RH&RDD) have already decided to introduce the IP and the GSFC had also made a very good beginning in the form of 'Ethics Pact'.

            Shri P. Shankar, CVC gave the valedictory address giving the detailed account of the initiatives taken by Transparency International and CVC in ensuring transparency and mutual trust in the fields of public contract. He noted that many useful points had been made in the seminar and a better climate for introduction of IP has been created in Gujarat. He was also happy to note that SSNNL and P,RH&RDD have already decided to introduce the IP and many others are likely to fall in line. Things could not be changed overnight but the concept has to grow and gradually create a proper environment

            The seminar ended with the vote of thanks from Shri B.K. Bhatt, Secretary of the Gujarat Vigilance Commission.

The seminar ended with a cordial vote of thanks.

List of participants is at AnnexureV

As approved by the Vigilance Commissioner, Gujarat.
( B.K. Bhatt )
Secretary
GUJARAT VIGILANCE COMMISSION
Gandhinagar.