Governance and Integrity in the Transport Sector

1. Governance and Integrity in the Transport Sector SSATP Annual Meeting Lilongwe, Malawi Discussion Brief October 20, 2009

2. Topics • Introduction • Major Risks/Concerns • Action Plans to Improve Governance and Integrity • Example of Actions to Improve Governance and Integrity in the Roads Sector • Monitoring Indicators (Roads Sector) • Agenda for SSATP

3. Introduction • Governance: Country’s exercise of political, economic and administrative authority in managing its affairs at all levels • Good Governance: Leads to faster, private sector-led growth with more pro-poor development outcomes • General adherence to rule of law • Transparency, predictability and accountability in government decision-making

4. Introduction • Decision-making consistently achieves effective and efficient development outcomes for society; and • Decision-making processes that allow public participation, responsiveness, consensus orientation, equity and inclusiveness • Poor Governance: Leads to inequality, slower economic growth and greater scope for corruption leading to development ineffectiveness • C (Corruption) = M(Monopoly) + D(Discretion) – A (Accountability); • Where, (M+D) = Fn (Transparency)

5. Major Risks/Concerns • Collusion and Bid Rigging • Fraud and Corruption in the Construction Industry • Lack of Enforcement of Regulations • Weak Due Diligence on Service Providers (assessing past performance and level of integrity)

6. Major Risks/Concerns • Absence of Robust Cost Estimates and lack of Value for Money • Weak Capacity to Detect and Deal with Corruption • Weak Complaint Handling Mechanisms • Weak Sector Management Capacity • Poor Overall Transparency and Social Monitoring of Construction Industry

7. Action Plans to Improve Governance and Integrity • Transport Infrastructure is a public good and usually without competitive alternatives. Hence users can only demand good services without the option of paying for alternatives that suit them. • Governance affects all three major themes of SSATP work program, namely: pro-poor growth strategies, sustainable institutional and financing arrangements, and transit transport

8. Action Plans to Improve Governance and Integrity • Focus on assessing critical governance and corruption risks sector level and developing measures and policies to mitigate those risks • Key Elements: Address major risks/concerns so as to provide- • Value for money • private sector involvement in delivery and management of services • transparency, accountability and participation in decision-making • sustainable reforms

9. Example of Actions to Improve Governance and Integrity in Roads Sector Collusion and Bid Rigging • Use post-qualification, instead of pre-qualification to avoid advance knowledge of the firms invited to bid; • Public dissemination of the overall roads program and business opportunities in the road sector; • Engage an Independent Procurement Adviser charged with reviewing bid specifications and bids for sample contracts; • Include Employer/Financier’s audit rights in the works contracts; • Ensure works contracts are large enough to attract international and large domestic firms to bid;

10. Example of Actions to Improve Governance and Integrity in Roads Sector Fraud and Corruption • Establish a transparent, well documented and consistently implemented system for debarment of poor performers and contractors engaged in fraudulent and corrupt practice; • Strengthen Ministry’s capacity to design and supervise the construction of roads with particular emphasis on quality; • Independent technical audit of the implementing agency; • Strengthen use of contractual remedies, such as performance bonds, in case of project delays and poor performance; • Review on-going or recently completed contracts to check for fraud such as unbalanced bid, use of substandard materials, lower quantities used than paid for, and other non-compliance with specifications.

11. Example of Actions to Improve Governance and Integrity in Roads Sector Truck Overloading – Lack of Enforcement • Review current efforts to address corruption in control of axle loads; • Recommend appropriate measures to mitigate against such risks and examine need for additional weight control infrastructure, preferably automated; • Ensure that road designs are commensurate with the prevailing traffic and axle load projections; • Institute a fine that is commensurate with damages to the roads plus an additional element to provide incentives for compliance.

12. Example of Actions to Improve Governance and Integrity in Roads Sector Weak Capacity to Detect and Deal with Corruption • Facilitate training workshops focused on identifying red flags in procurement, financial management, quality assurance systems and human resource management Absence of Robust Cost Estimates • Develop cost estimates from the actual costs and the market prices and comparable to markets in the region; • Hire a consultant to develop new, robust cost estimates based on first principles; • Exercise the audit rights under the contract to review true cost structure of recently completed project.

13. Monitoring Indicators (Roads Sector) • Increase in the number of qualified bids obtained • Percentage of government-funded projects completed on time, within budget, and in compliance with specifications • Decrease in the percentage of overloaded trucks traveling on particular routes • Due diligence in verifying qualifications and past performance is carried out on all preferred bidders • Robust cost estimates are developed;

14. Monitoring Indicators (Roads Sector) • Capacity developed in National Roads Agency to monitor actual costs obtained in the field; • Number of people from road sector trained in good governance; • Internet-based complaint lodging system established;

15. Monitoring Indicators (Roads Sector) • National Construction Authority, Engineers Registration Board, etc. established and functioning satisfactorily; • Key staff in the National Roads Agency trained in work program and budget planning, execution, monitoring and evaluation; • Annual work programs, budgets and progress reports are prepared published.

16. Agenda for SSATP • Scale up existing good practice in engaging with multiple stakeholders to promote good governance and integrity (GAI), including by strengthening transparency, participation, and third-party monitoring • Develop policies to strengthen rather than by-pass country systems — better national institutions are the more effective and long term solution to GAI challenges and to mitigating fiduciary risk for all public money.

17. Agenda for SSATP • Diagnostic work at the national and sector levels focused on concrete issues that are impeding development outcomes • Working groups on key aspects • Action plans & results framework • Guidelines and diagnostic methodologies • Actionable indicators • Training and dissemination

18. THANK YOU