Productivity, jobs, wellbeing: Making infrastructure deliver

2nd OECD Forum on Governance of Infrastructure 20 March 2017 – Paris

Session 3: Public investment in the public interest:

accountability and cost-effectiveness

Lessons from the Quebec Commission of Inquiry on the Awarding and

Management of Public Contracts in the Construction Industry

– The ‘Charbonneau Commission’ –

Prof. Geneviève Cartier Faculty of Law – University of Sherbrooke

Québec, Canada

A few words on the Commission itself

From 2007: series of allegations in print and electronic media: • Conflicts of interests in the process of awarding major public

construction contracts in the city of Montreal; • Bid rigging in the awarding of contracts in Montreal and a number of

other municipalities; • Infiltration of organised crime in the construction industry; • Involvement of engineering firms in the organisation of municipal

elections; • Illegal activities in the financing of political parties, and potential links

between this financing and the awarding of public construction contracts.

Creation of the Commission in October 2011, with a threefold mandate: 1. To examine the existence, and to paint a portrait, of stratagems involving possible

activities of collusion and corruption in the awarding and management of public contracts in the construction industry, including government and municipal bodies and enterprises, including possible links with the financing of political parties;

2. To paint a portrait of possible activities of infiltration of the construction industry by organised crime;

3. To examine possible solutions and to make recommendations with a view to developing appropriate measures to identify, eliminate and prevent collusion and corruption in the awarding and management of public contracts in the construction industry as well as infiltration of that industry by organised crime.

The mandate covered the period between 1996 and 2011.

Overview of the work of the Commission:

• Three teams: legal, investigative, research • Up to 110 people working full time • 261 days of hearing, between May 22nd , 2012 and November 14th, 2014 • 300 witnesses, among which 15 experts • Three weeks of consultation with the public, and 80 written submissions

from various stakeholders • 7 closed-door roundtables, gathering 50 experts from Canada, the US, the

UK and France • 1700 page report, filed on November 24th 2015, available in French: https://www.ceic.gouv.qc.ca/fileadmin/Fichiers_client/fichiers/Rapport_final/Rapport_final_CEIC_Integral_c.pdf

Main factual findings on collusion and corruption: • Collusion among entrepreneurs, among engineering firms and among

suppliers, whereby parties agreed to keep competition out, either through bid rigging or market foreclosure;

• Administrative corruption: • Senior managers from public institutions were bribed to favour particular firms; • Entrepreneurs and engineering firms developed close connections with municipal

public officers, and had them approve false claims; • Political corruption on the municipal level, through “turnkey elections”

stratagems; • In Montreal and another large city, a combination of collusion and

corruption, which allowed cartels to survive for many years.

Main factual findings on links with financing of political parties: • At the municipal level:

• direct link between a political contribution and a public construction contract, either through ‘turnkey elections’, or kickback schemes based on the value of contracts obtained;

• in large cities, the political party was the instigator of the corruption pact.

• At the provincial level: • no direct link between a political contribution and a public construction

contract; • disagreement among commissioners as to the existence of an indirect link

between a political contribution and a public contract.

Main factual findings on infiltration of construction industry by organised crime: • Takeover of construction companies facing financial problems by the

mafia; • Control of the mafia over a sector of the construction industry

through intimidation and violence; • Mediation and dispute resolution services offered by the mafia to

individuals or firms having formed illegal partnerships through collusion or corruption;

• Extorsion, through a form of taxation imposed on cartel members, based on the value of the contracts they obtained.

What lessons can be learned?

Understanding the causes underlying the

problems

… causes…:

• Nature and characteristics of the construction industry oA local industry oUnstable demand, low elasticity and no substitution products o Limited number of companies on the market and entry barriers oRelationships of proximity and collaboration among competitors o Limited technological developments

… causes…: • Procurement processes

o High value of public procurement o Weaknesses in procurement strategies o Criteria governing the award of public contracts leading to predictable results o Perverse impact of selection based on lowest compliant bidder o Insufficient time to respond to calls for tender o Inadequate control of selection committees o Dissemination of strategic information o Risks of political influence on the awarding of public contracts

Increase in financial needs of political parties Vulnerability of political actors having a role in relation to the awarding of public contracts

… causes…: • Governance of institutions and organisations:

o Culture of organisations Implication of high-level officers ‘Neutralisation discourses’

o Mishandling of conflicts of interests Relationships of proximity ‘Revolving door’ occurrences Plurality of functions and long terms of office

o Lack of transparency o Lack or loss of in-house expertise

Inadequate oversight of work Inability to estimate the cost of work

o Discretionary powers of public contracting authorities o Barriers to reporting abuses o Specificities of municipalities

… causes…:

• Significant shortcomings in control and monitoring oCompetition Bureau oPolice oPublic authorities oAdministrative controls within public institutions

Adopting the right strategies to prevent, detect and fight the

problems

Strategy #1 Modulating interventions

The best way to use government’s limited resources is to develop and use a variety of instruments adapted to the seriousness of the problems and the receptiveness of the individuals involved in those problems. Public interventions should be viewed along the model of a pyramid:

• soft measures like education and awareness raising being used first • followed by formal warnings, fines and penal prosecutions • and then by criminal prosecutions and severe sanctions.

Strategy #2 Acting in a systemic and coordinate way

Systemic approach: • Problems of collusion, corruption and infiltration of organised crime will not

disappear simply through getting rid of rotten apples within institutions (basically identifying guilty individuals and punishing or firing them).

• What is fundamental is to identify and address systemic institutional problems, which usually explain why individuals are able to act in a criminal or illegal way in the first place.

Coordinate approach: • A compartmentalised approach is to be avoided at all costs. • In addition, various institutions must make sure they work in the same

direction and collaborate.

Strategy #3 Focussing on improving the quality of state

intervention

State intervention must: • be efficient, • avoid cumbersome regulation and processes, and • avoid over-intrusive control mechanisms that have negative effects on

economic activity.

It must also: • be just and fair, and • avoid arbitrary decisions or actions.

Strategy #4 Intervening upstream

• A purely repressive approach will not help settle the problems on the

long term. • This is because those active in collusion, corruption and infiltration of

organised crime constantly adapt to changing circumstances and modify their modus operandi.

• State intervention must therefore insist on preventive measures, which include monitoring and research.

Strategy #5 Depoliticising the awarding of public contracts

Public institutions should be structured so as to clearly differentiate between: political decisions related to policy choices, and operational decisions related to the way in which policy is translated into

practice.

This involves clarifying the roles of all the actors concerned and making sure that proper distance is kept between incompatible functions.

Strategy #6 Encouraging appropriate transparency

Generally speaking, political and administrative processes should be made more transparent, with information allowing citizens to:

• understand what goes on, and • participate in legitimate criticism or deliberation.

However, public tendering processes involve the production of sensitive information which, if disseminated, favours rather than prevents collusion. Transparency should therefore be appropriately tailored.

Strategy #7 Engaging citizens

Collusion and corruption:

• are committed secretly between consenting individuals, • are embedded in highly complex schemes.

Therefore: they are extremely difficult to detect. The contribution of willing individuals acting as ‘whistleblowers’ is essential. Engaged citizens must be supported and protected when they voice their concerns, and this can be done without falling into a spirit of pure denunciation.

Strategy #8 Reflecting on the integrity of public actors

Integrity should be reinforced: • not only through learning formal codes, but • through reflecting:

oon the foundations of public actions, and oon the roles of individuals working within state institutions.

Particular attention should be paid to conflicts of interests. The approach should insist on a shared responsibility: public and private.

Thank you.