The Hindu Business Line : `Integrity pact' to arrest over-speeding corruption

It was a pained Prime Minister Dr Manmohan Singh who recently spoke of how corruption in road construction had spread like a cancer through the economy. The problem is endemic in developing countries, with leakage from corruption ranging from 5 per cent to 20 per cent of transaction costs, acknowledges a recent publication of the World Bank.

With road-building constituting 10- 20 per cent of the national budgets of emerging economies, the sector is irresistible to the corrupt. "Additionally, the large numbers of tangible goods and services in the transport sector — such as permits and contracts with multiple points of entry at central and local levels — lend themselves to corruption," write William D.O. Paterson and Pinki Chaudhuri in one of the essays included in `The Many Faces of Corruption' edited by J. Edgardo Campos and Sanjay Pradhan (www.worldbank.org).

Corruption entails direct financial costs; but larger impact may be other economic losses, cautions the essay. "Corrupted construction is often substandard, reducing project sustainability and increasing the need for maintenance and rehabilitation." Again, as if to affirm Dr Singh's apprehensions, "the effects of corrupt practices in the transport sector are likely to spill over to other sectors and the broader economy," the authors observe.

Corruption, defined by the Bank as `the abuse of public funds and/or office for private or political gain,' may manifest in many forms in the transport sector. A `bare-bones typology' suggested by the authors comprises state capture, and administrative corruption. The former is `grand'; it involves "a high level of political discretion over transport expenditures, poorly defined entities and structures, and subversion of public entities and resources." State capture may happen through aggressive lobbying processes, along with `quid pro quo favours, kickbacks, and outright bribery'.

Bid-rigging

Administrative corruption in transport includes "pilferage of materials and equipment; manipulation of contracts for works, goods, or services; or award of concessions for private sector operation of rail, port, air, or road facilities and services."

Paterson and Chaudhuri describe in detail the many types of corrupt activity prevalent in the transport sector. And there are sub-types too! For instance, bid-rigging, a corrupt practice that influences the bid price in a non-competitive way, may be collusive or non-collusive.

"In bid-rigging involving collusion, parts of a bid may be deliberately raised in order to create a losing bid. The `winning' bid may be set above the known cost estimate (`highball') in order to finance kickbacks after award."

The non-collusive variant has contractors submitting a `lowball' bid, "where the price is set low to win the contract, only to be increased after the contract award through change orders or addenda, often with the help of officials."

Twin-track Strategy

To combat corruption, the essay offers guidance on a `twin-track strategy': strengthen enforcement, and put preventives in place. Using the power of information, and providing external accountability, transparency, and incentives are among the suggested preventives.

The integrity pact instrument developed by Transparency International is relevant to the transport sector, say the authors. Under such a pact, all bidders and the principal agreed to refrain from all corrupt acts and also submit themselves to effective sanctions in the event of non-compliance. Not merely a wishful concept, this, because the Korean Public Procurement Service has implemented the pact idea for all contracts.

"The Korean Integrity Pact is unique as it requires contractors to submit an `integrity pledge' within 10 days of award of the contract, or forfeit the contract award. Contractors must also agree to strict penalties for violation of the integrity pact, including debarment."

Worth emulating closer home?

D. Murali

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