engineering risks management & integrity building capacity building package on corruption...
TRANSCRIPT
Engineering Risks Engineering Risks Management &Management &Integrity BuildingIntegrity Building
Capacity Building Package on Capacity Building Package on Corruption Prevention for Construction Corruption Prevention for Construction IndustryIndustry
Suggested Programme For Contract Administration Staff and
Students Main Parties to a Construction ContractCorruption Prone Areas and Preventive
Measures Contract Letting Site Supervision Contract Administration
Integrity Issues ICAC Services for Private Sector
Main Parties to Construction Contract
Client:(Government / Public Body / Developer)
Client:(Government / Public Body / Developer)
Architect / Engineer (In-house Staff/ Consultant)
Architect / Engineer (In-house Staff/ Consultant)
Main Contractor
Sub-Contractor Sub-Contractor
Sub-Contractor Sub-Contractor Sub-Contractor Sub-Contractor
Sub-Contractor Sub-Contractor Sub-Contractor Sub-Contractor
Sub-Contractor Sub-Contractor Sub-Contractor Sub-Contractor
Corruption Prone Areas in Construction Process
Contract Letting Site Supervision Contract
Administration
Contract Letting
Preparation of Tender Documents
Invitation, Receipt and Opening of
Tenders
Assessment of Tenders
Contract LettingPreparation of Tender Documents
Corruption Risks
Inclusion of specifications of materials in the tender documents (e.g. specify by a brand name) that only one supplier in the market could provide
Preventive Measures
Avoid using brand names or restrictive specifications
Use functional/ performance specifications as far as practicable
If unavoidable, set up a panel to examine the reasons and approval
Include the term “or equivalent” after the brand name in the specifications
Contract LettingInvitation, Receipt & Opening of Tenders
Corruption Risks
Tender rigging among the limited number of tenderers
Preventive Measures
Broaden the pool of tenderers, (e.g. open tendering, remove unduly stringent eligibility criteria for tenderers, etc.)
If only a few tenderers are to be invited, draw up the tenderers list by more than one person
Include an anti-collusion clause in the tender documents
Contract LettingInvitation, Receipt & Opening of Tenders
Corruption Risks
Leakage of tender price information to the tenderer
Assist the tenderer to gain competitive edge through improper means (e.g. destroy other tenders received, alter his tender price and technical proposal after the tender closing date)
Preventive Measures
Implement security measures to prevent leakage of tender price information, e.g.
use a double locked tender box
open tender box by a tender opening team
register all tenders received and keep them in safe custody
Do not accept late tenders
Contract LettingAssessment of Tenders
Corruption Risks
Manipulate the tender assessment process (e.g. change the assessment criteria after the tender closing date)
Preventive Measures
Pre-determine the tender assessment criteria and prohibit any change of the criteria after the tender closing date
Disclose the tender assessment criteria and their weightings in the tender documents
(to be cont’d)
Contract LettingAssessment of Tenders
Corruption Risks
Manipulate the tender assessment process (cont’d)
Preventive Measures
Set up a panel comprising at least three members for tender assessment (at least one member from an independent department)
Subject the panel’s tender recommendation to the vetting and approval by a tender board comprising senior management members
Contract LettingAssessment of Tenders
Corruption Risks
Exert undue influence over other panel members during tender assessment to favour a colluded tenderer
Preventive Measures
Require tender assessment panel members to conduct tender assessment independently before deliberation of their views
Record members’ original marking/ assessment and any subsequent revisions, and views and deliberations during the tender assessment meeting
Site Supervision
Inspection Arrangement
Testing of Construction Materials
Site SupervisionInspection Arrangement
Corruption Risks
Site supervisory staff connive at substandard works of contractors
Lack of accountability and checks and balances in site supervision, resulting in lax supervision over the works executed by contractors
Preventive Measures
Put in place a quality site supervision plan system, setting out the work items to be inspected, inspection frequencies, and rank of inspecting staff
Require the inspecting staff to maintain detailed site inspection records and sign against them
Require supervisors to conduct regular site checks on the inspections
Site SupervisionInspection Arrangement
Corruption Risks
Undesirable relationship between site supervisory staff and maintenance term contractors built up over a long period of time while carrying out their inspection duties (for term maintenance contracts only)
Preventive Measures
Change posting of site supervisory staff periodically
Site SupervisionTesting of Construction Materials
Corruption Risks
Site supervisory staff manipulate the process for selection of test samples to ensure that only compliant samples are selected for testing
Preventive Measures
Issue guidelines on the number of samples to be selected and the sample selection procedures
Monitor compliance by regular supervisory checks and audits
Require test samples to be selected randomly, and document the sample selection process (e.g. location/batches of the samples selected)
Site SupervisionTesting of Construction Materials
Corruption Risks
Site supervisory staff connive at tampering with test samples by contractors (e.g. swapping of selected samples with compliant ones)
Preventive Measures
Implement security measures on the storage and transportation of test samples to the laboratory
Adopt, where practicable, unique identifiers to enhance the traceability and identification of test samples
Implement a stock identification/ control system on site to ensure only materials passing the tests will be used for the works
Site SupervisionTesting of Construction Materials
Corruption Risks
Contractors tamper with the test reports to ensure a pass before sending them to clients/consultants
Preventive Measures
Require laboratories to send the test reports to the clients/consultants and the contractors in parallel
Site SupervisionTesting of Construction Materials
Corruption Risks
Laboratories appointed by contractors are unduly influenced to prepare biased test reports with a view to covering up the use of substandard materials
Preventive Measures
Avoid direct employment of laboratories by the contractors
Engage the laboratories through the consultants or the clients themselves
Require the contractors to declare any conflict of interest with the laboratories
Arrange independent parallel tests on materials which are expensive or used in bulk
Contract Administration• Multi-layer Sub-contracting
• Issue of Works Orders (for maintenance term contracts only)
• Certification of Payments
• Issuing and Valuation of Contract Variations
• Certification of Extensions of Time/Monetary Claims
• Acceptance of Works uponContract Completion
• Certification of Contract Completion
Contract AdministrationMulti-layer Sub-contracting
Corruption Risks
Inadequate construction fee for sub-contractors at the lowest-tier to produce quality works
Adversely affects the accountability of site supervision as the main contractor’s supervision may be difficult to reach the sub-contractors at the lowest tier
Preventive Measures
Include contract provisions to control multi-layer sub-contracting, e.g.
prohibit wholly sub-contracting
limit the number of tiers of sub-contracting for specialist works, such as piling works, etc.
Contract AdministrationIssue of Works Orders (for Maintenance Term Contracts only)
Corruption Risks
Staff issue works orders selectively to favour contractors
Preventive Measures
Draw up updated standard rates for maintenance items
Group the items together as far as practicable
Lay down the upper/ lower limits for tender percentages
Require bidders to submit their tender percentages for the groups instead of individual items
Contract AdministrationIssue of Works Orders (for Maintenance Term Contracts only)
Corruption Risks
Staff issue works orders for unnecessary maintenance works to increase the business of the contractors
Preventive Measures
Require staff to provide justifications, cost estimates and supporting documents (e.g. written requests from users) when issuing works orders
Designate different authorities for approving works orders of different values
Contract AdministrationIssue of Works Orders (for Maintenance Term Contracts only)
Corruption Risks
Staff split high-value works orders into a number of lower-value ones to circumvent the approval of the higher financial authorities
Staff issue repeated works orders for the same maintenance items to facilitate the contractors in obtaining repeated payments
Preventive Measures
Regularly generate management reports on the works orders issued for scrutiny by management to deter and detect split and repeated works orders
Contract AdministrationCertification of Payments
Corruption Risks
Staff connive at the slow construction progress, but still pay the contractors for works which have not been completed
Preventive Measures
Lay down guidelines for making payments to the contractor, e.g. make interim payments monthly
based on the progress of works on site
make milestone payments based on the contract payment schedule
Require the contractors to provide detailed breakdown and supporting information together with their payment applications
(to be cont’d)
Contract AdministrationCertification of Payments
Corruption Risks
Payment for incomplete works (cont’d)
Preventive Measures
Verify the construction progress on site against the payment claimed by the contractors
Conduct regular supervisory checks on payment valuations certified by site supervisory staff
Contract AdministrationCertification of Payments
Corruption Risks
Staff accept advantages from contractors in return for early processing and release of payments
Preventive Measures
Specify the time limits for processing of payment applications and making payments to the contractors
Monitor compliance of payment by regular supervisory checks and audits
Contract AdministrationIssuing and Valuation of Contract Variations
Corruption Risks
Staff approve substitution of high quality construction materials with cheaper alternatives
Preventive Measures
Ensure availability of construction materials in the market before specifying them in tender specifications
Issue formal variation orders to cover any change of construction materials
Assess the cost savings for the use of cheaper alternative materials by an independent quantity surveyor, and adjust the contractors’ payments accordingly
Contract AdministrationIssuing and Valuation of Contract Variations
Corruption Risks
When contractors obtain contracts by submitting very low bids, they may compromise the project staff to obtain more payments through the issue of unnecessary and over-valued contract variations
Preventive Measures
Designate different authorities for approving contract variations of different values
Require staff to provide justifications, cost estimates and supporting documents (e.g. written requests from users) when issuing contract variations
(to be cont’d)
Contract AdministrationIssuing and Valuation of Contract Variations
Preventive Measures
Set a ceiling to the total value of contract variations allowable under a contract (e.g. 50% of the contract value)
Contract variations amounting to more than the specified ceiling should form its own contract to be let under a separate tender exercise
Corruption Risks Unnecessary and over-
valued contract variations (cont’d)
Contract AdministrationCertification of EOT/ Monetary Claims
Corruption Risks
Staff favour contractors through the approval of unjustified and inflated extension of time as well as monetary claims
Preventive Measures
Issue guidelines on assessment of time and monetary claims
Designate different authorities for approving claims of different magnitudes/ values and subject major claims to the approval of a committee
(to be cont’d)
Contract AdministrationCertification of EOT/ Monetary Claims
Corruption Risks
Approval of unjustified and inflated extension of time as well as monetary claims (cont’d)
Preventive Measures
Require contractors and site supervisory staff to maintain detailed site records of delays and prolongation costs
Appoint an independent quantity surveyor to assess extension of time and monetary claims
(to be cont’d)
Contract AdministrationCertification of EOT/ Monetary Claims
Corruption Risks
Approval of unjustified and inflated extension of time as well as monetary claims (cont’d)
Preventive Measures
Assess and certify claims strictly according to contract provisions and laid down guidelines
Document the details and justifications for claims approved or rejected
Conduct supervisory checks and audits on the assessment and approval of extension of time and monetary claims
Contract AdministrationAcceptance of Works upon Contract Completion
Corruption Risks
Staff accept defective or incomplete works to favour contractors
Preventive Measures
Require the inspecting staff to document their inspection results on standard checklists
Invite representatives of clients and consultants to join the completion inspections
Require the inspecting staff to sign for all accepted works
(to be cont’d)
Contract AdministrationAcceptance of Works upon Contract Completion
Corruption Risks
Accept defective or incomplete works (cont’d)
Preventive Measures
Document any outstanding/ defective works
Require the contractors to rectify outstanding/defective works before the specified time limits
Contract AdministrationCertification of Contract Completion
Corruption Risks
Staff certify contract completion pre-maturely to favour contractors to avoid liquidated damages for the delay in completion of works
Preventive Measures
Clearly define the works to be completed for the certification of contract completion
Require the staff to certify contract completion according to the contract provision, and provide supporting documents (e.g. OP issued by the Building Authority, site photographs illustrating completion of works, etc.)
Integrity Issues
Prevention of Bribery Ordinance Acceptance of Advantages and Entertainment Management of Conflict of Interest Handling of Confidential Information Use of Contract Cars Carrying Out Inspections Outside Hong Kong
solicits / accepts solicits / accepts
Any prescribed officerAny prescribed officer
advantageadvantage
without general / special permission of the CEwithout general / special permission of the CE
guilty of an offence
Penalty : $100,000 fine and 1 year imprisonmentPenalty : $100,000 fine and 1 year imprisonment
Integrity IssuesPrevention of Bribery Ordinance – Section 3(for government employees only)
Integrity IssuesPrevention of Bribery Ordinance – Section 4
without lawful authority or reasonable excusewithout lawful authority or reasonable excuse
offersoffers
to do/ not to do any act in his official capacityto do/ not to do any act in his official capacity
Offence – Max. Penalty : $500,000 fine and 7 years imprisonmentOffence – Max. Penalty : $500,000 fine and 7 years imprisonment
Public servantPublic servant Any personAny person
solicits / Accepts solicits / Accepts
advantageadvantage
guilty of an offence
(for public servants only)
Integrity IssuesPrevention of Bribery Ordinance – Section 9(1)&(2)
Penalty : $500,000 fine and 7 years imprisonment
Penalty : $500,000 fine and 7 years imprisonment
Agent (Employee)Agent (Employee) Any personAny person
without lawful authority/reasonable excusewithout lawful authority/reasonable excuse
solicits/acceptssolicits/accepts offersoffers
advantageadvantage
in relation to principal's (employer’s) businessin relation to principal's (employer’s) business
guilty of an offence
Integrity IssuesPrevention of Bribery Ordinance – Advantages
Gift, loan, fee, reward, commission
Employment, contract
Payment, release or discharge of loan or liability
Service, favour (except entertainment)
Exercise of any right or power
Integrity IssuesPrevention of Bribery Ordinance – Entertainment
Provision of food or drink for consumption on the occasion, and any entertainment provided at the same time.
Not ‘advantage’ but… sweetening process obligatory position conflict of interest
Integrity IssuesAcceptance of Advantages and Entertainment
Corruption Risks
Staff accept advantages from contractors/suppliers for conniving at sub-standard works or materials
Staff solicit advantages from workers seeking employment in contractors/sub-contractors under their charge
Preventive Measures
Issue guidelines to prohibit staff from soliciting or accepting advantages from contractors, suppliers and workers
Include a probity clause in contracts/ sub-contracts to prohibit the contractors/ sub-contractors’ staff from soliciting or accepting advantages
Integrity IssuesAcceptance of Advantages and Entertainment
Corruption Risks
Contractors provide frequent/ lavish entertainment to site supervisory staff, and over-socialise with them (e.g. high stake gambling)
Site supervisory staff solicit donations from contractors on behalf of their professional institutions or other organizations
Preventive Measures
Issue guidelines to prohibit site supervisory staff from accepting frequent/ lavish entertainment from contractors and over-socialising with them
Issue guidelines to prohibit site supervisory staff from soliciting donations/ sponsorships from contractors under their supervision
Integrity IssuesManagement of Conflict of Interest
Private interest !?
Official duties !?
when private interests compete or conflict with interests of organisation or official duties
What are Private Interests?
Financial and other interests of
the staff member himself
family or relations
personal friends
group with personal or social ties
any person owed favour or obligated
Integrity IssuesManagement of Conflict of Interest
Does a Conflict Exist? Public and/or third party perception
are the paramount considerations
The “Sunshine Test”
Onus of proof on the staff member himself
Integrity IssuesManagement of Conflict of Interest
Integrity IssuesManagement of Conflict of Interest
Corruption Risks
Conflict of interest of staff in contract letting, e.g. the chairman of the tender assessment panel has financial interest in a
particular tenderer
the staff responsible for drawing up the specification of a construction material is a relative of the sole supplier of the material
Conflict of interest of staff in site supervision and contract administration, e.g. the project clerk of works has financial interest in a sub-contractor employed
by the main contractor for part of the works under his supervision
the project architect and the site agent of the contractor are close personal friends
Integrity IssuesManagement of Conflict of Interest
Preventive Measures
Lay down guidelines on handling conflict of interest declared by staff, e.g. require the staff to abstain from handling the project
require supervisors to monitor the work of the staff who are not required to abstain due to the minor nature of the conflict of interest declared, etc.
Designate the authority (e.g. immediate supervisor, chairman of committee/ panel, etc.) for handling any conflict of interest declared by staff
Properly document the actions taken
Integrity IssuesHandling of Confidential Information
Corruption Risks
Staff leak confidential information (such as tender price information) for personal gain
Preventive Measures
Properly classify confidential information
Implement security measures to prevent unauthorised disclosure of such information
Require staff to sign an undertaking on keeping information in strict confidence
Follow the need-to-know principle in handling confidential information
Integrity IssuesUse of Contract Cars
Corruption Risks
Contractors order the contract car drivers to serve site supervisory staff for private use of the contract cars (e.g. to pick up family members or for personal use), with a view to sweetening them
Preventive Measures
Restrict the use of contract cars for work related duties only
Enlist public support in monitoring the use of contract cars to prevent abuse by making them more visible to the public (e.g. displaying in prominent positions and a conspicuous size the restriction on the use of contract cars and the contract information)
(to be cont’d)
Integrity IssuesUse of Contract Cars
Corruption Risks
Serve site supervisory staff for private use of the contract cars (cont’d)
Contractors sell under-priced contract cars or other valuable items to site supervisory staff
Preventive Measures
Maintain records on the use of contract cars (e.g. user, date, time, trip and purpose) to be signed by the users after use
Subject the records to regular checking
Prohibit staff from accepting advantages, including under-priced contract cars and other valuable items, from contractors
Integrity IssuesCarrying Out Inspections Outside Hong Kong
Corruption Risks
Improper conduct and practices while carrying out inspections outside Hong Kong for pre-fabricated construction components (e.g. accept lavish entertainment from contractors during the trip)
Preventive Measures
Require prior approval of supervisors on conducting inspections outside Hong Kong
Include the inspection arrangement as well as frequency in the quality site supervision plan
Keep the number of persons joining the inspections to the minimum necessary
(to be cont’d)
Integrity IssuesCarrying Out Inspections Outside Hong Kong
Corruption Risks
Improper conduct and practices while carrying out inspections outside Hong Kong for pre-fabricated construction components (cont’d)
Preventive Measures
Avoid requiring the contractors to directly pay for expenses incurred during inspection visits to avoid conflict of interest
Issues guidelines to prohibit the inspecting staff from accepting frequent/ lavish entertainment from the contractors
(to be cont’d)
Integrity IssuesCarrying Out Inspections Outside Hong Kong
Corruption Risks
Improper conduct and practices while carrying out inspections outside Hong Kong for pre-fabricated construction components (cont’d)
Preventive Measures
Lay down the standard of accommodation and transportation to be provided by the contractors
Require the inspecting staff to report to their supervisors when the standard is exceeded
Advise private companies on
corruption prevention controls and practices
Code of Conduct
Provide corruption prevention training to supervisory staff
ICAC Services Advisory Services Group ““Company’s Health Company’s Health
is Wealth”is Wealth”
Hotline : 2526 6363
Fax : 2522 0505
Email : [email protected]
PledgeResponse within 2 working days
ICAC Services Advisory Services Group
Declaration This Capacity Building Package aims at providing general guidance on the common corruption risks and preventive measures in construction and does not purport to deal with corruption issues that may arise in any given situation. Names of all characters, locations and incidents portrayed in the drama are entirely fictitious. Description and explanations of the legal requirements under the relevant Ordinances and the recommended procedures and practices are necessarily general and abbreviated to make this Package easy to understand from the layman’s angle. Users of this Package should refer to the original legislations or seek ICAC’s advice as and when necessary. While we endeavour to ensure the accuracy of the information in this Package, no statement, representation, warranty or guarantee, expressed or implied, is given by us as to the accuracy, completeness or appropriateness of such information for use in any particular circumstances. The ICAC, Construction Industry Council, Development Bureau and Hong Kong Housing Authority are not responsible for any loss or damage whatsoever arising out of the use of this Package or in connection with any information contained in this Package.
The copyright of this Capacity Building Package is owned by the ICAC. Interested parties are welcomed to produce any part of this Package for non-commercial use. Acknowledgement of this Package is required.