Curbing Fraud, Corruption, and Collusion in the Roads Sector

THE WORLD BANK

1818 H Street, N.W. Washington, DC 20433

The World Bank Integrity Vice Presidency

Curbing Fraud, Corruption, and Collusion in the Roads Sector

The World Bank Integrity Vice Presidency

Curbing Fraud, Corruption, and Collusion in the Roads Sector

June 2011

2011 The International Bank for Reconstruction and Development/The World Bank

Integrity Vice Presidency The World Bank Group MSN U11-1100 Washington DC 20433



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Contents

A c k n o w l e d g m e n ts

v

Foreword

vii

E x e c u t i v e S u m m ar y

Ix

I . I n tr o d u ct i o n

1

Development Impact of Roads

1

II . W o r l d B a n k I n v e st i g at i v e F i n d i n g s

5

III . C o l l u s i o n i n R o a d T e n d e rs

11

A. Evidence from Non-Bank Projects

12

B. Cartel Theory

12

C. Developed Country Experience

13

D. Effect of Collusion on Tender Prices

13

IV. F ra u d a n d C o rr u p t i o n i n C o n tract I m p l e m e n tat i o n

17

V. C o m bat i n g C o l l u s i o n , F ra u d , a n d C o rr u p t i o n

19

A. Measures to Reduce Collusion

19

Punish cartelization severely

19

Create incentives for the exposure of cartels

20

Revise tendering rules

20

Require independent bid certificates

23

Retain an independent procurement evaluator

23

B. Measures to Reduce Fraud and Corruption

24

Strengthen the engineer

24

Hire a technical auditor

25

Engage civil society monitors

26

Develop accurate cost estimates

26

Check the wealth of key procurement agency officials

26

C. Longer-Term Capacity-Building Measures

27

Modernize the roads sector agency

27

Strengthen competition law enforcement

27

Curbing Fraud, Corruption, and Collusion in the Roads Sector

D. Experimental Measures

27

Impose ceiling on bids

28

Use competitive negotiation

28

Contract out procurement

28

E. Issues for Consideration by Bank Operations Staff

29

Trade-offs between Transparency and Collusion

30

Subcontracting as a facilitator of capacity-building and collusion

30

Customizing measures to address fraud and corruption in civil works contracts

30

Developing expertise on cost estimating and detecting collusive bidding

30

Reevaluate current contract management form

31

Target enforcement on engineering firms

32

Increase contingent of professional World Bank staff with road engineering expertise

32

Spend more on corruption prevention in projects

32

VI . C o n c l u s i o n

35

R e f e r e n c e s 3 7

A NNEX 1 : Pr o v i n g B i d R i g g i n g o n R o a d s T e n d e rs

45

A NNEX 2 : R e f o r m s t o P u b l i c Pr o c u r e m e n t i n OE C D C o u n tr i e s

47

Tables

Table 1. Misconduct Cases in World Bank Roads Projects: Sanctions Imposed

6

Table 2. Misconduct Cases in World Bank Roads Projects: Sanctions Pending or Not Sought

7

Table 3. Estimated Cartel Overcharges

14

Table 4. Results of Audit of Zambian Roads Projects

17

Boxes

Box 1. World Bank Definitions of Misconduct

2

Box 2. Collusion and Cartels

8

Box 3. Ten Indicators of Collusive Bidding

12

Box 4. Publishing Cost Estimates: the Trade off Between Transparency & Collusion

21

Box 5. Combating Collusion by Changing the Procurement Process

22

Box 6. Certificate of Independent Price Determination

24

Box 7. Using Competitive Negotiation to Circumvent a Cartel: the US Experience

29

Box 8. Reducing Fraud and Corruption in Civil Works

31

iv

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