PPPs: Adopting Ethical Best Practices

“Corporate executives and business owners need to realize that there can be no compromise when it comes to ethics, and there are no easy shortcuts to success. Ethics need to be carefully sown into the fabric of their companies.” Vivek Wadhwa

"The truth of the matter is that you always know the right thing to do. The hard part is doing it."  General H. Norman Schwarzkopf

A Personal Quandary

A few weeks ago I was approached by a reputable international consultancy that asked me if I was willing to be part of a proposal for a PPP project that was being procured in a severely dysfunctional country. The opportunity would have been lucrative and was being funded by a reputable donor. However the target country that was going to be the recipient of the largess of the donor, and indirectly the tax payers of that country, is far from ready for PPPs. The unreadiness extends to the stability of the country, disregard for democratic principles, the lack of law and order, poor governance and leaders, institutional capacity to support PPP programs, and the nationwide predilection for corruption. The PPP enabling environment in the country also leaves much to be desired and would place the project in a precarious position from day one.

In addition, when I consulted the World Bank's 2017 PPP Benchmarking Report, my concerns were bolstered by the poor scores that the country received for the preparation of PPPs, unsolicited proposals, and PPP contract management.

This request placed me in an ethical dilemma. I could participate in the project and earn a good commission, but I also felt (admittedly on a personal ethical level) that any PPP projects in this country were doomed to failure unless comprehensive reforms were to be initiated in the country that would include considerations of ethical best practices.

Because of my ethical concerns I declined the offer, even though the personal benefits could have been quite attractive to my wallet.

Introducing the element of ethics into PPPs is a subjective discussion and a sensitive one, but one that I feel very strongly about. Ethical PPPs based on universal best practices need to become the gold standard.

The Notion of Ethical Best Practices

The notion of adopting and applying ethical best practices to Public Private Partnerships (PPPs) is implicitly understood, yet it can easily be forgotten in the enthusiastic rush to close PPPs deal in a competitive market. This is particularly the case in new PPP markets where ethical standards can be left to the interpretation and where the typical procurement process can be circumvented in an effort to expedite a pressing or innovative collaboration. 

No matter what, adoption of ethical business conduct is tied to the conduct of institutional leadership, individual employees, subcontractors, and the entire organization at all times. It can never be compromised.

Unfortunately, it takes only one bad decision or one bad apple in an organization to tarnish its reputation with donors, multilateral investment banks, and governments.

In essence, failure of the ethical and moral compass of leaders or individuals is not an option because of the negative ramifications for all partners and stakeholders involved in the implementation of a PPP project. Lapses in ethical behavior will have legal ramifications which could result in organizations being barred from participating in large institutional PPP projects or which can harm national and sectoral PPP programs.

All countries are prone to corrupt practices, and therefore ethical business behavior is of particular concern. As a consequence, international donors are increasingly focusing on procurement best practices that include transparency and competitive bidding so as to inhibit unethical behavior. Luckily, many countries have recently, or are currently introducing PPP Laws, guidelines and best practices that will enforce ethical behavior for all partners in a PPP. 

Until ethical best practices are universally adopted, international laws such as the Foreign Corruption Practices Act (FCPA) will be necessary to ensure that non-compliant ethical outliers are reigned if they are unwilling to comply.

Hopefully, we can look towards PPP environments when government and businesses adopt ethical best practices voluntarily, and do not see its acceptance as giving unscrupulous businesses an unfair competitive edge.

The Value of Ethical Best Practices

While living and working in the developing world for many years, I have become attuned to the destructive forces that can be unleashed by unethical behavior. Corruption undermines the hope and future of the citizens of every country where it occurs. If an uncompromising commitment is adopted by both public and private sector partners in PPP programs, scarce resources can be used judiciously and mitigate one of the biggest risks that undermines the sustainability and success of PPP projects.

As the public and private sectors develop better governance practices it is important that declarations of social responsibility, economic responsibility, and political responsibility are not window dressings that hide serious shortcomings that can undermine the viability of the projects.

Applied From the Conception to the Closure of Projects

Ethical best practices need to be introduced from the conceptual phase of the project and must be an underlying factor that addresses the assessment of Value for Money of projects, bankability, and the benefits that are being pursued by the project proponents during the planning and feasibly stages of a project. Once projects are launched and enter the operational and maintenance phases, it is equally important that project management protocols includes measures to ensure ethical behavior, especially in PPP projects that create revenue and which are prone to corrupt practices.

Potential Ethical Problems Facing PPPs

There are many areas where ethical practices are challenged during the lifetime of PPP projects. Unethical practices include:

• Subversion of project team selection process where companies can influence selection through bribery or kickbacks to decision makers
• The conscious provisioning of substandard products and services
• Efforts that maximize profits through unscrupulous cost-cutting measures
• The paying of “facilitation fees” to expedite bureaucratic authorization processes
• Bribing public officials to lower land values for illicit profit taking and tax evasion
• The exploitation of the “discretionary powers” of public officials
• Not declaring conflicts of interest by public officials, consultants, and contractors
• Gaining unfair access to project critical information that allows parties to manipulate the PPP procurement process
• The payment of “facilitation” fees to government officials
• The varying cultural perceptions of different societies as to what ethical behavior entails
• Courting public officials in the pre-award phase with gifts to gain the upper hand.

Unethical behavior can result in unwanted outcomes that include the:

• Selection of unneeded, unfeasible and unaffordable projects
• Imposition of future project costs on society that are unaffordable
• Selection of projects which serve not wider purpose
• Imposition of serious economic and environmental impacts
• Promotion of unwanted party political agendas
• Usurpation of fair and competitive procurement standards so that no one is unfairly favored

What Must be Done?

So, what can be done to ensure that ethical practices become a core practice in all PPP planning and negotiations? 

The following actions and strategies should be considered to ensure the implementation of ethical PPP best practices:

• Having anticorruption strategies that can be shared with the public through awareness programs
• Introducing accountability mechanisms that are actually enforced
• Promoting transparent and competitive procurements
• Widely advertising procurements so that all qualified parties can bid
• Enforcing full disclosure of any conflicts of interest
• Including ethics language in contract terms
• Including clear criteria and policies that are not open to interpretation
• Having unambiguous language that leaves no opportunity for nefarious interpretation of the rules
• Harmonizing PPP laws with other laws to prevent conflicting approaches
• Strengthening the institutions that enforce ethical best practices
• Enforcing and enhance monitoring of standards through electronic platforms that cannot be manipulated
• Limiting discretionary decision making
• Seeking partners that have strong corporate social responsibility practices
• Building public trust in the institutions that should enforce ethical behavior
• Promoting institutional autonomy so that procurements cannot be influenced by politicians
• Prosecuting unethical behavior instead of ignoring it

Conclusion

Example after example of unethical behavior points to the need to systemize and enforce ethical best practices in PPPs. Addressing challenges head-on will strengthen personal and institutional professional ethics. PPPs and the partnerships that they promote will have the effect of opening up all parties to scrutiny and create an operational milieu where all are forced to think ethically about corruption.

People inherently know what is right and there should be no excuses for lapses in ethical behavior. General H. Norman Schwarzkopf hit the nail on the head when he said - "The truth of the matter is that you always know the right thing to do. The hard part is doing it." 

I felt I knew what the right thing was to do when I declined the offer to participate in the PPP offer mentioned at the beginning of this post. So, it is up to you to do what you know is right.

References

Bianca Cobarzan and Roger E. Hamlin - Corruption and Ethical Issues Regarding Public-Private Partnerships

Center for Disease Control - Ethical Considerations for Public Private Partnerships Workgroup

OECD - Promoting Ethical Business and Public-Private Partnership for Development