Corruption and Fraud in International Projects

THE PRIMARY RED FLAGS OF CORRUPTION AND FRAUD

The Primary Red Flags of Bribes and Kickbacks

• The appearance of local "agents" that provide ill-defined, generic, or unneeded services. Many of the warning signs are rather obvious and include:
  • The agent operates in a country with a reputation for corruption · Government or project officials recommend or insist on a particular agent
  • The agent's fee is too large for the services to be provided
  • The agent provides little or no useful services or work product
  • The agent's compensation is calculated as a percentage of the contract value rather than on a time or services basis
  • The agent's contract is boilerplate and only vaguely describes the services to be provided
  • The agent has no permanent business premises or staff
  • The agent requests payment to an account in a secrecy jurisdiction
• Unexplained or unusual delays in the procurement process (as kickback amounts are negotiated or project officials try to defeat the controls)
• Unjustified or repeat sole source awards
• (Repeated) selection of high priced or unqualified contractors
• A project official insists on the use of certain local subcontractors or suppliers
• Project employee lives beyond his or her means
• Close socialization; gifts and gratuities to project officials

Primary Red Flags of Bid Rigging

Red flags of bid rigging as the result of collusion between contractors and project officials include:

• Reputation or history of corruption in the country or business line
• Bid specifications are too narrow or too vague
• Unreasonable pre-qualification requirements
• Unreasonably short time to submit bids
• Selection of unqualified (local) contractors
• Selection of other than the low bidder
• Selection of low bidder followed by a change order increasing price or scope;
• Extending an expired contract rather than re-bidding
• Questionable disqualification of winning bidder and re-bidding

Red Flags of bid rigging as the result of the existence of local bid-rigging cartels or collusion between bidders include:

• Persistent high bid prices
• Few bidders, same bidders
• Rotation of winning bidders; losing bidders become subcontractors
• Use of bid protests or other means to exclude new bidders
• Bid prices drop when new bidder enters
• Apparent connections between bidders affiliated companies, same fax numbers on bidding documents, etc

Primary Red Flags of Fraud

• Poor quality works, frequent repairs, early replacement; e.g., roads scheduled to last ten years fall apart after two
• Repeated failed tests or inspections
• Delays or refusals to allow tests or inspections, or contractor or project officials conduct tests or choose sites
• Complaints from users or beneficiaries
• Services provided by unknown or unqualified vendors
• Corruption of inspectors and site supervisors

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