Anti-Corruption Tools
Contract Terms
One of the primary ways in which an organisation may become involved in corruption is through the actions of its business partners. It is, therefore, essential that, as part of its anti-corruption programme, an organisation includes terms in the contracts with its business partners which will assist the organisation to limit its involvement in corruption and to mitigate the loss or damage caused by any such involvement.
It is recommended that contracts in relation to a project or other business transaction should include the following features:
- Essential contract terms: All essential terms of the contract should be set out in the contract.
- Services: All services to be provided by all parties under the contract should be legitimate and should be expressly stated and described in the contract.
- Fees: All fees or other compensation payable in respect of the contractual services should be expressly stated in the contract and should be proportionate to the services being provided. Fees or compensation which appear to be larger than is warranted by the services specified in the contract may indicate that the fees or compensation are being used to conceal a bribe.
- Payment methods: Payment methods for fees or other compensation should be expressly stated in the contract and must be capable of legitimate justification. In particular, bank accounts for receiving payments should clearly belong to the relevant contracting party and should, unless there is good reason to the contrary, be located in the country of residence of the relevant contracting party. Any payment in a currency or into an account which cannot be properly justified (for example, payment into an off-shore bank account) may facilitate a corrupt transaction or, at the very least, may give rise to suspicion of a corrupt transaction.
- Definition of corruption: Corruption should be defined to include bribery, extortion, fraud, deception, collusion, cartels, abuse of power, embezzlement, trading in influence, money laundering, and any similar criminal activity.
- Warranties: Each party should provide anti-corruption warranties that:
- it will not participate in any corrupt practices in relation to the contract or project;
- it will ensure that its officers and employees, subsidiary and related companies, do not participate in any corrupt practices;
- it will take reasonable steps to ensure that its agents, joint venture and consortium partners, sub-contractors, suppliers and consultants do not participate in any corrupt practices.
- Passing on obligations: The contract should pass on to the other contracting party any relevant anti-corruption obligations assumed by the organisation in its other contracts in relation to the same project or transaction. For example, if a contractor has given the above anti-corruption warranties to a project owner, then it should require similar warranties from all of its subsidiary and related companies, sub-contractors, suppliers, agents and consultants.
- Claims: Each party should undertake that, in the event of claims between the parties, it will comply with a claims code which requires integrity in the event of contract claims. The code would oblige claimants to take reasonable steps to ensure that all claims submitted by it are genuine and accurate. The recipients of claims would be obliged to take reasonable steps to review the claims diligently, objectively and in good faith.
- Compensation: Each party should be entitled to compensation in the event of any loss or damage suffered as a result of corrupt activity by another contracting party.
- Termination: Each party should be entitled to terminate the contract in the event of a corrupt act by another contracting party where the corrupt activity goes to the root of the contract. For example, a project owner should be entitled to terminate a contract which has been won through bribery. Similarly, a contractor should be entitled to terminate a contract with the project owner if it discovers that the whole purpose of the project is corrupt.
- Legitimacy of terms: Parties should test the legitimacy of each contract term by asking whether, if it was being prosecuted for corruption, it could legitimately justify the existence or omission of a particular detail from the contract.
Sample Anti-Corruption Agreement
The Anti-Corruption Agreement (pdf) (word) (Template 2 of the Project Anti-Corruption System (PACS)) is a sample agreement which deals specifically with corruption issues, and which is intended to be used in conjunction with the main contract between the parties. The agreement may be used as is, or may be modified to suit the particular requirements of the project. It applies to both tender and project execution phases. In this agreement, each party undertakes to the other parties that it will act with integrity in relation to the project. The undertakings cover key integrity issues, such as commitments not to pay or receive bribes, objective assessments of pre-qualifications and tenders, and fair procedures for certification and claims management. The parties agree to appoint a suitably qualified and experienced independent assessor whose duty is to assess on an independent and objective basis the extent to which the parties comply with their obligations under the agreement. The agreement contains enforceable sanctions, including the right to terminate and/or claim damages. Disputes under the agreement are referred to arbitration. In appropriate cases, relevant government departments and funders would also join in the agreement. There are accompanying Notices of Breach
(pdf) (word) (Template 3 of PACS) which can be used in the event of breach of the agreement.
While the project anti-corruption agreement has been designed to deal with a project, specific terms and conditions could be adapted for use in other types of agreement.
Other Resources
If you have published guidance which is relevant to the above recommendations, and if you are willing to provide a link to your website, please send details to GIACC for listing on this page. Only services and tools which are available free of charge will be listed.
Page updated on 1st May 2008
© 2008 GIACC