The fourth category of conflict (that is, “conflicting clients”) includes consultants working simultaneously for two or more clients whose interests are in conflict.
For example:
•
Financial consultants work for the government in privatizing assets and for potential purchasers of the same assets, or the financial consultants advise the government on the sale of an asset and subsequently become an investor or an adviser of investors for these same assets.•
Consultants work for a public water authority and an electricity company, both of whom are compet-ing for the use of the same water resources.The above-described COIs tend to become more problematic and complex for large, multifunctional consulting organizations that are likely to serve the same client with different types of service or that may have interests in common with third parties serving the same client. These conflicting interests can be dif-ficult to identify and control, especially when the client does not have previous experience in dealing CONFLICTS OF INTEREST 17
Fourth Category of Conflict: Conflicting Clients 4 . 3 . 4
with them or when the consultant is not ready to be open about them.
Table 4.1 lists situations that may place consult-ants in a COI, the associated risks for the Borrower, and the way the COI may be addressed.
4.4 Prevention of Conflicts of Interest
Independence is the condition that allows consultants to perform their assignment in an objective manner.
The potential effects of consultants’ COIs on Bank-funded projects must be addressed early and moni-tored at every stage of the consultant selection process and contract execution. If it cannot make a fully in-formed decision about a consultant COI, the Borrower should seek advice from the Bank, which also has an interest in preserving the impartiality of consultants to achieve the highest possible project quality for its Borrowers.
To assess its materiality (that is, the relevance of its consequences for the Borrower), a COI has to be analyzed, taking into consideration the source, nature, and potential impact of a conflict and the circum-stances under which it arises.
The most common situations of COI in Bank-funded consulting assignments and the related provi-sions for the avoidance or mitigation of COIs are identified in para. 1.6 of the ITC and in the Standard Forms of Contract attached to the RFP.
Because the safeguards put in place by the Borrower may not be sufficient to eliminate or acceptably mitigate the COI, consultants have an obligation to disclose any potential COIs that they consider could affect their serv-ices (also see para. 1.6.2 of the ITC attached to the RFP).
This is particularly important if the Borrower lacks the capacity to thoroughly assess consultant qualifications and performance or if the Borrower’s regulatory frame-work about COIs is not sufficiently robust.
4.4.1 Request for Expressions of Interest
In some situations, the Borrower can identify a po-tential COI very early and adopt appropriate safe-guards. One example is when a Borrower intends to appoint consultants for two related assignments: the first is to carry out an evaluation of assets to be auc-tioned to private investors while the second is to assist the Borrower with the auction of those assets. In sucha case, the Borrower’s invitation to submit expressions of interest should alert potential candidates of the im-possibility of being appointed to both assignments.
Consultants could be asked to indicate their prefer-ence for either of the two assignments.
4.4.2 Terms of Reference
When preparing the Terms of Reference, the Borrower should carefully consider whether the assignment could create a COI and address or correct situations such as those outlined under para. 4.3.2. An agreement may be entered into that defines a satisfactory com-promise (for example, a water authority and a power company may agree in a multipurpose project to share the water from the same river for their respective uses before the Terms of Reference are issued). In this man-ner, the design consultants will know how much water they have to allocate to each purpose.
To prevent COIs from affecting the independence of the consultant’s work and the quality of the down-stream competition, the consultant under assignment should not be asked to prepare the TOR for the down-stream assignment if the Borrower wishes to include this consultant in the short list.
4.4.3 Shortlisting
When preparing the short list, Borrowers must review the qualifications of each of the consultants, deter-mine any conflict of interest that may afflict the con-sultant, and make an informed decision about its eligibility for the short list. If a qualified consultant is found conflicted, before deciding for its exclusion, the Borrower should thoroughly analyze the conflict, its nature, and the possible extent of damage that this COI could do to the Borrower itself. At the same time, the qualified consultant, if it believes that it is or may be in a COI situation, has a duty to disclose the con-flict and explain to the Borrower in a straightforward manner how it plans to deal with the COI. The final decision on whether to exclude or admit the consult-ant to the short list remains with the Borrower.
A Borrower in doubt about the materiality of a consultant COI should inform the Bank before asking for its “no objection” to the RFP in which the short list is included. The Bank will provide or withhold its “no objection” based on the rules explained in the Con-sultant Guidelines and of its experience in dealing with similar cases.
18 CONFLICTS OF INTEREST
Fourth Category of Conflict: Conflicting Clients 4 . 3 . 4
19CONFLICTS OF INTEREST
Table 4.1 Consultant Conflicts of Interest: Range of Possible Cases
Is the consultant Risk for borrower:
Category of conflict of interest Example allowed to take part? consultant may Mitigation of risk
Note: n.a. = not applicable Supply of goods and works whose specifications were prepared by the consultants Continuation assignments
Conflicting assignments
Related assignment other than continuation
Related assignment for competing clients by the same consultants Restructured study of a public asset after prepar-ing privatization plan Study of a project com-peting with another client’s project Study of superfluous alternatives
Study of future projects A consultant’s staff has a family relationship with a client’s staff involved in the selection process The consultant includes a client employee in its technical proposal
No
Yes
No
Yes (permissible upon conditions)
No (permissible upon conditions)
No
Yes
No (permissible upon conditions)
No (permissible upon conditions)
Favor its associates
Influence TOR, bias feasibil-ity study recommendations Apply partiality in assess-ing its own designs
Unduly influence TOR of related assignment
Advice to client(s) may be biased
“Featherbedding”
n.a.
Be unduly favored in the proposal evaluation process
Be unduly favored in the proposal evaluation process
Disqualification of consultant and affiliates
TOR of continuation drafted by third party who validates feasibility Disqualify the consultant
Have third party draft TOR, or disqualify the consultant
Disqualify the consultant, or both clients agree on scope of work
Disqualify the consultant
n.a.
Exclude the client’s staff from the selection process, or disqualify the consultant
The consultant shall attach to its proposal a client’s certification stating that the involved client’s employee is on leave without pay
4.4.4 Single-Source Selection
The Borrower may retain consultants on a single-source basis when the conditions set forth in paras 3.10, 3.11, and 3.12 of the Consultant Guidelines are met. To prevent a COI, the TOR of the continuation assign-ment shall not be prepared by the incumbent.
4.4.5 Evaluation of Technical Proposals
During the evaluation of technical proposals, the Borrower should ascertain that no new COI situations have arisen since the consultant was shortlisted (for ex-ample, that staff proposed by the consultant does not include any Borrower’s personnel or subconsultants and others already under contract with the Borrower for related services, works, or supplies).If the Borrower identifies a COI at this stage, it should determine whether the specific conflict is sub-stantive and take action. This can be accomplished by reducing the scope of work of the assignment, asking the consultant to remove the conflict, or (if the COI cannot be mitigated) by declaring the consultant not eligible for the assignment. If unable to make a fully informed decision, the Borrower could seek advice from the Bank.
If a consultant has misled the Borrower by ne-glecting to provide information or by denying the ex-istence of a major COI situation, the consultant’s proposal should be rejected, and the opportunity for further sanctioning by the Borrower and the Bank could be considered.
4.4.6 Contract Negotiations
Before completing the contract negotiation, the Borrower should review the draft contract to identify COI situations that may not have been disclosed or may have arisen after the proposal was submitted. For ex-ample, in a change-of-ownership situation, a winning consultant could have been absorbed by a financial in-stitution interested in participating in the Borrower’s project. In such a case, the Borrower would have to dis-regard proposals from that institution or disqualify the consultant or both (if it is found that the two had been conniving at the expense of the Borrower).
4.4.7 Implementation of the Assignment
During implementation of the assignment, while mon-itoring or reviewing a consultant’s work, the Borrowershould check for any new circumstances that could cre-ate downstream COIs. The most common COI during this phase of a project stems from affiliates of the con-sultant showing an interest in offering goods, works, or services (other than consulting services) related to the services given by the consultant to the Borrower.
When a substantive COI situation emerges (or is discovered) during execution of an assignment, the matter should be referred to the Bank to examine pos-sible corrective action.