Perspectives 2019 2020 Public Sector

6 New Transparency Principles for Infrastructure Transparency in the pre-award phase of infrastructure projects, and more generally in public procurement processes, has been widely addressed both at an academic and normative level. Several entities such as the Organization for Economic Co-operation and Development (OECD), Transparency International, the World Bank and the United Nations (UN) have published extensively on best practices for public procurement and developed indexes, datasets and benchmarks comparing procurement systems globally. Similarly, at the normative level, the OECD, the UN, and the Organization of American States have all articulated binding conventions that define corrupt behavior, require states to criminalize those behaviors, and suggest ways for governments to eliminate them through reforms. However, while this abundant knowledge and thought leadership is widely available, there are clear failings of enforcement and application of these principles. It is necessary to consolidate and leverage existing best practices and recommendations to pre-define rigorous guidelines for due diligence and transparency in the tendering process. Conversely, “corruption in the post-tender stage has attracted less research than corruption during auctions”. 4 But one of the main entry-points for corruption in infrastructure projects — contract renegotiations — occurs during the post-tender stage. According to the Global Infrastructure Hub, in a sample of 250 PPP projects globally, approximately 45% were renegotiated within 10 years of financial closing. 5 While contract renegotiation is typical given the complexity and uncertainties of infrastructure projects, it is difficult to distinguish between legitimate renegotiations and abusive ones. However, recent empirical data shows a direct correlation between bribes and the size of contract renegotiations. 6 An analysis of evidence from documents issued by courts and prosecutors shows that total investment in projects where a leading Brazilian construction firm paid a bribe grew by 80.9% after renegotiations compared to 11.8% in those projects where a bribe was not paid. 7 A novel approach to increase transparency in the pre- and post-award phases of infrastructure projects is to enforce independent third-party auditing of both the tender process and contract renegotiations. An integrity auditor can be engaged for the life of the project to certify the compliance with integrity principles and provide periodic opinions on transparency throughout the bidding, award and execution phases of a project. For example, in the pre-award stage it can be required that the integrity auditor provide a clean bill of health for the tender and certify that project sponsors have an adequate internal governance structure and anti-bribery and anti-corruption programs to reduce the risk of corrupt practices. The integrity auditor can also review contract execution on a periodic basis or on request of a contract renegotiation, triggered by modifications of a certain cost magnitude. The figure of the integrity auditor is being pioneered by the government of Argentina in the context of the Financial Assistance Trust for the Highway and Safe Routes Network PPP Program. The government, with the support of the Inter-American Development Bank, developed an Integrity Framework that concessionaires must comply with if they want to access bridge financing from the Trust. In order to be deemed as qualified borrowers, an integrity supervisor has to certify that concessionaires comply with a number of integrity qualification requirements, including representations and warranties that the sponsor is in compliance with anti-corruption, anti- money laundering and sanctions laws, is not being investigated or sanctioned in relation to such laws and has an integrity program in place consistent with international best practices in those areas. 8 The integrity supervisor monitors that the concessionaires uphold adherence to the transparency requirements established in the Integrity Framework throughout the life of the financing. 4 Nicolás Campos, Eduardo Engel, Ronald D. Fischer and Alexander Galetovic, Renegotiations and Corruption in Infrastructure: The Odebrecht Case , (2019), 6. 5 Global Infrastructure Hub, https://www.gihub.org/blog/ppp-contract-management-renegotiation/ 6 Campos, Engel, Fischer and Galetovic, Renegotiations and Corruption in Infrastructure: The Odebrecht Case 7 Ibid, 8 8 https://www.argentina.gob.ar/sites/default/files/archivo_ppp_final.pdf