development through partnership cidb

Promoting Integrity Systems for the construction industry

15 November 2011

Inba Thumbiran Programme Manager: Procurement & Delivery inbat@cidb.org.za

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Global perception of corruption…

• www.usaid.gov • Corruption is a universal problem

– undermines growth and development – diverts resources away from development programs – increases poverty / inequality / under development – hits the poor particularly hard – slows economic progress

• Corruption fundamentally weakens the legitimacy and effectiveness of new democracies

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Corruption in the construction sector

• Transparency International Corruption Index – In 2007, SA rated 43 out of 180 countries – In 2008, 54 out of 180 countries – We slipping!!!!!!!!!!!!!!!!!!

• Transparency International (2008 Bribe Payers Index) – Construction / Public Works - bribery of public

officials was most common (followed by real estate and property development)

– Construction / Public Works perceived to have the highest level of bribery

– Surpasses both the arms industry (Defence) and the Oil / Gas sector

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Corruption – the effect on quality

Construction Quality in SA; A Client Perspective - A Discussion Document: • This report has shown that the major

contributors to poor quality of construction in South Africa are likely to be procurement related barriers. Such procurement related barriers include:

• fraud and corruption, or “political interference” (including cronyism and nepotism);

• Weak implementation of procurement systems

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Client dissatisfaction with quality

• Largely attributed to – INSTITUTIONAL BARRIERS

• skills & competence • Institutional weaknesses

– PROCUREMENT SYSTEMS • Use of procurement systems based on price and

preference only, and not taking into account functionality (or quality); and/or

• Insufficient information to be able to select professional services and/or contractors based on quality criteria.

• Lack of accountability of actions

– CORRUPTION • Fraudulent award of tenders • Political interference • Lack of transparency

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Corruption on construction projects

• Bribery • Extortion • Fraud • Deception • Cartels • Collusion • Abuse of power • Embezzlement • Money laundering • Lack of transprency • ……………

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Some features of construction prone to corruption

• Size of projects • Uniqueness

• Govt involvement

• The no. of contractual links

• Easy to hide a bribe • Once off – costs difficult

to compare • Insuffient controls re

behaviour of govt officials

• Contractual cascade

could easily have more than 1000 links – opportunity for bribes @ each link

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cidb Mandate

• promote the standardisation of the procurement process

• initiate, promote and implement national programmes and projects aimed at the standardisation of procurement documentation, practices and procedures.

• determine and establish best practice that promotes procurement and delivery management reform

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Procurement reform in SA • Basis of the model:

– Good governance (application of a system that is fair, equitable, transparent, competitive and cost effective)

• POLICY / PROCEDURES / PROCESSES / STANDARDS

– Procurement as an instrument of Social and Economic policy (social considerations)

• Preferencing…PPPFA / BBBEE Act • Contractor Development…NCDP Framework • Skills development • Job creation

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Procurement & Delivery mandate

• Improving client performance – Standard for Uniformity (SFU) – Register of Contractors (RoC) – Register of Projects (RoP) – Code of Conduct for all parties engaged in

construction procurement – Best Practices for performance improvement

• Compliance and enforcement – Monitoring client performance – Diminishing fraud & corruption – Investigating and prosecuting offenders

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SFU…..reference cidb Practice Note 24

• Minimise opportunities for increased risk related to: – Corrupt practices: the offering, giving, receiving or soliciting of

anything of value to influence the action of the employer or his staff or agents in the tender process.

– Fraudulent practices: misrepresentation of the facts in order to influence the tender process or the award of a contract arising from a tender offer to the detriment of the employer, including collusive practices intended to establish prices at artificial levels

– Fruitless and wasteful expenditure: expenditure which was made in vain and would have been avoided had reasonable care been exercised.

– Irregular / unauthorised expenditure: expenditure not in accordance with a requirement of the applicable legislation.

– Overspending: expenditure in excess of a voted (sanctioned) amount or a main division of a vote.

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Promoting transparency and integrity in

construction procurement

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Compliance and Enforcement

• Quality report highlighted that – cidb has progressed well in investigations

into reports of fraud & corruption against contractors transgressing the rules

– cidb has not adequately dealt with the broader issue of developing and implementing mechanisms to proactively prevent and/or identify corruption within construction procurement

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Monitoring / Enforcement of compliance

• Focus – Contractor Compliance

• cidb Regs Part 2 (Requirements for registration on the cidb Register of Contractors)

– 2010/11 a total of 57 contractors were convicted for transgressions to the cidb prescripts

– The 2 highest categories of non-compliance is » False Financial Statements » False Track Record

– Client Compliance (Audit Blitz) • cidb Regs Part 3 (Register of Projects) • cidb Regs Part 4 (Invitation, award and

management of construction projects) 14

Forensic Project

• REACTIVE: investigations into reports of transgression to the cidb prescripts (published) – Hotline Number: 0800 112 452 – Website: www.tipoffsatwork.co.za – Email: cidb@tipoffsatwork.co.za

• PROACTIVE: random audits of compliance to the cidb prescripts – Gazette notice to public sector clients issued in April

2011 – Compliance to iTender System / RoP – 97 public sector clients audited across the country

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cidb Audit Blitz The cidb Act requires, amongst others, the establishment of a Register of Projects to gather information on the nature, value and distribution of projects as the basis for the promotion of the performance of clients in the development of the construction industry

• Recommended process for compliance to iTender System – Advertisement of tender – Client selects grade / class of works – Client registers info on the iTender System – Cidb notification sent (email / sms) to contractors

registered on the RoC

• Recommended process for compliance to RoP – Award of contract – Clients registers info on the RoP – cidb publishes information on the cidb website

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Sample 1 = 97 Clients – Phase 1 of Audit Blitz

• Gauteng • Western Cape • Eastern Cape • KZN • Northern Cape • Limpopo • Mpumalanga • Free State • North West

• 36 clients • 10 clients • 8 clients • 15 clients • 2 clients • 5 clients • 10 clients • 7 clients • 4 clients

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Interim finding – Audit Blitz

• Desktop study reveals 100% non-compliance to the cidb prescripts for use of iTender / Register of Projects

• Letters have been issued to every client to challenge or refute our finding before a charge is finalised – Eg, system updated in the interim – Projects cancelled

• Next steps by the cidb – Charge finalised and issued – Disciplinary hearing – Sanction ( Up to R100 000 fine) – Report all guilty verdicts to the Office of the Auditor-General – Qualification issued by the AG to that Client

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Construction Sector Transparency (CoST)….2012 /13

• Construction Sector Transparency (CoST) – Summit held in May 2011 – Disclosure of material project information on

a selection of construction projects – Development of an SA CoST Model

• Multi-stakeholder group • Champion • Administrator (cidb)

• Another tool in our arsenal to mitigate corrupt activities?!!

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Integrity Pact

• Project Anti-Corruption System (PACS) – Prevention & detection of fraud and corruption

• Busa Anti-Corruption Forum – 21 October 2011 – Mrs Futhi Mthoba said: “…the time has come for

transaction based agreements….such as the integrity pact that seeks to ensure individual transactions are free of corruption”

• Commitment to implement all measures necessary to prevent corruption – Declaration to prevent any form of tender- rigging,

collusion and corruption during the tender process and during the execution of the contract

– Returnable cidb tender document rather than each voluntary association promoting the pact on their various platforms

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CHANGE MANAGEMENT??

Cidb Anti-Corruption Strategy

• Draft for public comment – early 2012 • Regulated / cohesive / aligned approach

to anti-corruption measures for the construction industry

• Silo’s wont work……the further apart we work on the issue of fraud/corruption the greater momentum is created to the “sick” agenda!!!

• Stop the pillage and looting……now! • Govt is not an ATM!!!

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Minister Trevor Manuel……2030 Development Plan

• National Planning Commission (NPC) unveiled its 2030 development plan on 11 Nov 2011 (444 pgs)

• Aimed at the following priorities by 2030 – Elimination of poverty – Halving unemployment – Reducing inequality

• 9 areas of focus – Jobs – Education – Health – Socio economic infrastructure – Spatial planning – Economic structure – Public service – Corruption – Social cohesion

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On corruption………2030 Development Plan suggests….

• Centralisation of large tenders • Banning the participation of civil

servants in certain types of business activities……..

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Co-operation between cidb and State Institutions…

• Public Protector – Has instructed the Limpopo government to suspend

contracts awarded to On Point Engineering, after allegations of commission received for facilitating state contracts in Limpopo. The allegations are being investigated by the Hawks unit.

– Also investigating how the contracts were awarded to such companies.

– cidb prescripts for the awarding of such contracts will be audited

• Special Investigation Unit (SIU) – Proclamation to be issued on investigations into

corrupt activities in certain govt depts 26

Partnerships / MoU’s

• CESA • SAFCEC • MBSA • ……..

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Be informed…….

• www.cidb.org.za • Subscribe to cidb News Alerts

– subNewsAlerts@cidb.org.za • Contacts

– Training on cidb prescripts • kwenam@cidb.org.za • richardr@cidb.org.za

– Delivery Management (IDIP) • kabelon@cidb.org.za

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Let’s get going…..so much to be done!

development through partnership cidb29