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Ethics; Integrity; Fraud & Penalties in Public Procurement Prepared by Haron Moti 1 Ethics; Integrity; Fraud & Penalties in Public Procurement Prepared by Haron Moti 1

SESSION OBJECTIVES By the end of the session, the participant should be able to SESSION OBJECTIVES By the end of the session, the participant should be able to understand: • The terms ethics & integrity • Manifestation of lack of integrity • The ways of enhancing integrity in public procurement • Provisions of the procurement law on unethical conduct • The adverse effect to the public sectors of unethical practices related to public procurement • How to map out corruption risks in the procurement cycle • Measures of eradicating unethical practices in the public sector • Rights & Obligations of the suppliers • Offences & general penalty 15 March 2018 2

ETHICS – MEANING • Ethics means values, practices and customs that guide the behavior ETHICS – MEANING • Ethics means values, practices and customs that guide the behavior of an individual • Ethics is a matter of behaving within the stated standards of the group to which one belongs. It is a code of conduct acceptable by the group • Conduct is the conscious or purposeful action directed to an end 15 March 2018 3

What Is Integrity? Integrity can be defined as the use of funds, resources, assets What Is Integrity? Integrity can be defined as the use of funds, resources, assets and authority, according to the intended official purposes and in line with public interest • Integrity in public procurement is a powerful tool for effective service delivery and as such it increases trust in state institutions • Government activities are viewed as most vulnerable to waste, fraud and corruption 15 March 2018 4

Absence of integrity is manifested through: 1. Corruption including bribery, ‘kickbacks’, nepotism and misuse Absence of integrity is manifested through: 1. Corruption including bribery, ‘kickbacks’, nepotism and misuse of public office for personal interest 2. Product substitution in the delivery which results in lower quality materials 3. Conflict of interest 4. Collusion 5. Abuse and manipulation of information 6. Discriminatory treatment in the public procurement process 7. The waste and abuse of organizational resources 15 March 2018 5

Provisions in the Act that relate to unethical conduct • Section 30: • Section Provisions in the Act that relate to unethical conduct • Section 30: • Section 38: Splitting or inflating procurement Inappropriate influence evaluation Unsolicited on and communications, unauthorized persons shall • Section 40: person, No employee or agent corrupt practice in any procurement proceedings • Section 41: No fraudulent practice • Section 42: No (propose than have collusion price would a higher been acceptable, refrain from submitting, withdraw or change a tender, etc. ) • Sections 43: No conflict of Interest • Sections 44: Confidentiality in procurement proceedings • Sections 135, 136 & 137: Offences 15 March 2018 6

Effects Of Unethical Practices • • Disregard for standards and virtues of integrity Moral Effects Of Unethical Practices • • Disregard for standards and virtues of integrity Moral decay Loss of goodwill from the public Slows down economic development Withdrawals of international (Donors) support Loss of public/stakeholders’ confidence in public procurement May lead to escalation of corruption risks in procurement 15 March 2018 7

1. Corruption risks: Need identification & sourcing • • Overstated physical requirements Exaggerated price 1. Corruption risks: Need identification & sourcing • • Overstated physical requirements Exaggerated price projections Procurement initiated to favor previous suppliers/contractors Specifications designed to favor a particular provider or vague specification Inappropriate use of a tender method other than open tendering Restricted advertising or insufficient notice Advance release of bid documentation or relevant information to a particular supplier • Failure to provide security for bids documents received 15 March 2018 8

2. Corruption risks: Suppliers and contractors • Bid Suppression: some competitors agree to refrain 2. Corruption risks: Suppliers and contractors • Bid Suppression: some competitors agree to refrain from bidding or withdraw a previously submitted bid • Divide the pie: Competitors agree in advance the winning bid • Complementary bidding: Bidders agree to submit bids that are either too high to be accepted or contain special terms that will not be acceptable to the buyer • Bid rotation schemes: Bidders collude to take turns being the lowest bidder 15 March 2018 9

3. Corruption risks: Evaluation & awarding • Substitution of evaluation criteria • Delays in 3. Corruption risks: Evaluation & awarding • Substitution of evaluation criteria • Delays in evaluation • Bid evaluation committee members not having the “technical expertise necessary” to properly evaluate bids • Substitution of evaluation members during evaluation process • Entertainment of vendor intermediaries during the procurement process 15 March 2018 10

3. Corruption risks: Evaluation & awarding (continued) • Placing orders for same goods to 3. Corruption risks: Evaluation & awarding (continued) • Placing orders for same goods to different suppliers- order splitting • Placing orders above tendered prices and quantities • Unjustifiably high number of contracts awarded to particular suppliers. • Award of tenders to suppliers/ contractors with pending jobs and poor completion history • Retrospective approvals e. g. ratifications 15 March 2018 11

3. Corruption risks: Contract Implementation • • • Accept/receive less quantity or quality or 3. Corruption risks: Contract Implementation • • • Accept/receive less quantity or quality or type other than what was ordered Partial delivery Diversion of goods for personal use or resale/“sister projects” Unjustified variation of the orders Delay in acceptance of goods 15 March 2018 12

4. Corruption risks: Payments • • • Payment before delivery Payment for goods, services 4. Corruption risks: Payments • • • Payment before delivery Payment for goods, services or works not received Selective payment of suppliers Full payment for partial delivery Delayed payment Excessive number of signatures required to approve progress of payments 15 March 2018 13

5. Corruption Risks – Disposal • • • Disposal of items not worth disposing 5. Corruption Risks – Disposal • • • Disposal of items not worth disposing Non disposal of disposable items Disposal to favoured buyer Disposal to staff without involving competition Disposing item at lower than its real value Releasing item before full payment is received 14

Corruption prevention • • • Placement of procurement function at a strategic level Evaluation/appraisal Corruption prevention • • • Placement of procurement function at a strategic level Evaluation/appraisal of suppliers’ and contractors’ performance Putting procurement governance instruments in place involvement of users in the process Move towards e-procurement 15 March 2018 15

Corruption prevention (continued) • Involvement of users in preparation of Procurement Plan, Specifications, BOQs Corruption prevention (continued) • Involvement of users in preparation of Procurement Plan, Specifications, BOQs and To. Rs • Consolidating contracts for similar goods • Pre-determined evaluation criteria and award • Involvement of technically competent evaluation committee members • Involvement of experts and observers during the tender award • Conduct due diligence • Establish clear payment procedures • Involvement of independent experts and monitors 15 March 2018 16

MEASURES TO ENHANCE ETHICS & INTEGRITY Good governance principles that may enhance integrity in MEASURES TO ENHANCE ETHICS & INTEGRITY Good governance principles that may enhance integrity in public procurement include elements of transparency, good management, prevention of misconduct, as well as accountability and control • Maintaining high standards of integrity in all business relationships both inside and outside the organization in which they are working • Considering the interest of the organization first and seeking to carry out its policies • Fostering the highest possible standards of professional competence amongst those for whom they are responsible • Optimizing the use of resources for which they are responsible to provide the maximum benefit to their employing organization. This can be achieved by buying without prejudice and seeking to obtain maximum value of each shilling spent 15 March 2018 17

MEASURES TO ENHANCE ETHICS & INTEGRITY (continued) • Complying both to the letter and MEASURES TO ENHANCE ETHICS & INTEGRITY (continued) • Complying both to the letter and spirit of law of the country and contractual obligations • Rejecting all forms of commercial bribery • Being aware of ethical standards and good practice in all sectors of the economy and how ethics are relevant to the growth of business. • Formulation of a transparent and clear procurement policy addressing ethical considerations and commitments • Formulation of clear supplier selection principles with regards to social, ethical and environmental criteria 15 March 2018 18

MEASURES TO ENHANCE ETHICS & INTEGRITY (continued) • Regularly enforcing and monitoring standards regarding MEASURES TO ENHANCE ETHICS & INTEGRITY (continued) • Regularly enforcing and monitoring standards regarding gifts and entertainment • Being sure that ethical commitments are being lived up to – for example, considering ethical audits of your supply chains and including ethical practice in staff performance reviews • Recognizing the right of suppliers to make profit too • Enforcement of legislations such as: – Suppliers Practitioners Management Act, 2007; – Public Officers Ethics Act, 2003; – Economic Crimes Act, 2003; – PPDA, 2005 & PPDR, 2006 15 March 2018 19

Guidelines in ethical and professional conduct • Declaration of Interest: Any personal interest, which Guidelines in ethical and professional conduct • Declaration of Interest: Any personal interest, which may interfere or might reasonably be deemed by others to interfere with official’s impartially in any matter relevant to his or her studies, should be declared. • Confidentiality and accuracy of information: All information received in the course of duty should not be disclosed to unauthorized persons and should never be used for personal gain. Information that one gives in the course of duty should be true and fair and never designed to mislead. 15 March 2018 20

Guidelines in ethical and professional conduct (contined) • Competition: Any arrangement, which might in Guidelines in ethical and professional conduct (contined) • Competition: Any arrangement, which might in the long term prevent the effective operation of fair competition, should be avoided • Business gifts: Should be handled as stipulated in the Public Officers’ Act- An entity may have its own policy on how gifts should be treated/handled 15 March 2018 21

Rights of the suppliers 1. To participate in public procurement fairly and get non Rights of the suppliers 1. To participate in public procurement fairly and get non discriminatory treatment in the tendering process-S. 31(6) & 39(1) of the Act, 2005 2. Right to attender opening session if a candidate 3. Right to be awarded tender if one meets requirements/lowest evaluated 4. To seek clarifications and get response from PE, addendum, notice of extension of tender validity-61(2), notice of termination of procuring proceedings-S. 39 (2) 5. To get reasons why his/her bid was not successful, upon request-Reg. 66(2) of Regulations, of 2006 15 March 2018 22

Rights of the suppliers (continued) 6. To seek administrative review on PE’s decisions-ARB Review Rights of the suppliers (continued) 6. To seek administrative review on PE’s decisions-ARB Review S. 93(1) & Reg 73 of Regulations, 2006 which is additional to other legal remedy the person may have. S 99 7. To be represented by an advocate or person of your choice in review under ARB-Reg. 76 8. Seek Judicial Review-S 100 9. To modify or withdraw bid before deadline for submission 10. To get a copy of tender opening register upon request-S. 60(6) 15 March 2018 23

Rights of the suppliers (continued) 11. To be notified of the tender outcome-section 67 Rights of the suppliers (continued) 11. To be notified of the tender outcome-section 67 of the Act 12. To be paid promptly or in accordance with the terms and conditions of the contract and be paid interest on over due payments if provided(S. 48) 13. To get records for the procurement after the contract has been awarded or the procuring proceedings have been terminated upon request-S. 45(3) 15 March 2018 24

Obligations of the suppliers • To obtain and submit bid documents in the manner Obligations of the suppliers • To obtain and submit bid documents in the manner prescribed in the tender notice, tender documents-closing/opening, venue of submission, language, form and amount of bid security if required etc. • To adhere and follow bidding instructions e. g. proper filling of documents • To demonstrate that they are qualified for the tender awarded - S. 31 • To supply the right quantity and quality and deliver at the right time • To maintain confidentiality • To perform the obligations of the contracts • To offer indemnity • To avoid corruption, inappropriate influences (e. g. on evaluations) , collusive and fraudulent practices-S. 38, 40, 41, 42. 15 March 2018 25

Offences: • Obstruction • Lying or misleading • Delay in opening of tenders or Offences: • Obstruction • Lying or misleading • Delay in opening of tenders or evaluation or award of contracts • Exerting unduly influence or pressure on any member of a tender committee, an employee or agent of a PE to take a particular action which favours or tend to favour a particular bidder • opening bids prior to appointed time 26

General Penalty: • Fine not exceeding KSh 4 million or imprisonment for a term General Penalty: • Fine not exceeding KSh 4 million or imprisonment for a term not exceeding 10 years or both for an individual • If corporate body, fine not exceeding Kshs. 10 million. • Public officer shall be disqualified from public office. • Private individual shall be debarred • Protection from personal liability: - Code of ethics All procurement and disposal to be carried in accordance with the code of ethics specified by PPOA - Minister to issue regulations to implement the Act 27

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