Integrity Pacts

Integrity Pacts are in the news because of the Rs.3600 crore VVIP Chopper deal.  As allegations of bribery have arisen, the GoI has warned of takin strict legal action invoking the integrity pact that provides for cancellation of the contract if bribes are paid and recovery of the money paid. 3

Integrity Pacts are a tool for preventing corruption in public contracting. They are essentially an agreement between the government agency offering a contract and the companies bidding for it that they will abstain from bribery, collusion and other corrupt practices for the extent of the contract.  To ensure accountability, Integrity Pacts also include a monitoring system typically led by civil society groups.

Integrity Pacts have been around since the 1990s, and have been applied in more than 15 countries.1

Purpose
It is intended to accomplish two primary objectives:
1.    To enable companies to abstain from bribing by providing assurances to them that (i) their competitors will also refrain from bribing, and (ii) the government procurement, privatisation or licensing agencies will undertake to prevent corruption, including extortion, by their officials and to follow transparent procedures.

2.    To enable governments to reduce the high cost and the distortionary impact of corruption on public procurement, privatisation or licensing. 2

The Key Elements

•    An undertaking by the principal that its officials will not demand or accept any bribes, gifts, etc., with appropriate disciplinary or criminal sanctions in case of violation;
•    A statement by each bidder that it has not paid, and will not pay, any bribes; 

•    A pre-announced set of sanctions for any violation by a bidder of its commitments or undertakings, including (some or all): 
•    Forfeiture of the bid security and performance bond;
•    Liability for damages to the principal and the competing bidders, and
•    Debarment of the violator by the principal for an appropriate period of time. 

Penalties for failure to implement IP Officials are subject to penal action and bidders have to face cancellation of contract, forfeiture of bond, liquidated damages and blacklisting. Action will, however, not require criminal conviction but be based on "no-contest" after the evidence is made available or there can be no material doubts. Disputes in Integrity Pact implementation are resolved by arbitration. Independent External Monitoring is a key aspect of Integrity Pact implementation. Public access to all relevant information is a necessity. It calls for a forum in which representatives of civil society can discuss the contract itself. 2

BENEFITS OF INTEGRITY PACTS

1. Ensure clean operations on the part of contractors and public officials during the execution of a project. 
2. Provide enhanced access to information, increasing the level of transparency in public contracts. 
3. This, in turn, leads to greater confidence and trust in public decision-making, less litigation over procurement processes and more bidders competing for contracts.
4. Integrity pacts can also encourage institutional changes, such as the increased use of e-procurement systems, simplified administrative procedures and improved regulatory action.

Sources:
1. http://www.transparency.org/whatwedo/tools/integrity_pacts
2. http://www.transparencyindia.org/projects.php?id=36

3. The Hindu, 16th February 2013.