combating corruption in public works in nepal

8/6/2019 Combating Corruption in Public Works in Nepal

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CENTER FOR INSTITUTIONAL REFORM AND THE INFORMAL SECTOR

University of Maryland

Center Office: IRIS Center, 2105 Morrill Hall, College Park, MD 20742Telephone (301) 405-3110Fax (301) 405-3020

http://www.iris.umd.edu/

COMBATING RURAL PUBLIC WORKS CORRUPTION:

Food-for-Work Programs in Nepal

February 2000

Patrick Meagher

Kumar Upadhyaya

Betty Wilkinson

Working Paper No. 239


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Combating Rural Public Works Corruption:

Food-for-Work Programs in Nepal

by

Patrick Meagher, IRIS CenterKumar Upadhyaya, HURDECBetty Wilkinson, IRIS Center

Final Revised VersionSubmitted to the World Bank

Poverty Reduction and Economic Management Network/Poverty DivisionFebruary 1, 2000


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Table of Contents

TABLE OF CONTENTS i

LIST OF TABLES AND FIGURES ii

PREFACE iiiEXECUTIVE SUMMARY v

TABLE OF ACRONYMS AND EXCHANGE RATES x

1. INTRODUCTION 1

2. WORKS CORRUPTION IN NEPAL: PATTERNS, STAKES, GENESIS 4

2.1 MODALITIES OF PUBLIC WORKS CORRUPTION 4

2.2 WINNERS AND LOSERS 7

2.3 SYSTEMIC ISSUES 10

3. ADDRESSING CORRUPTION IN NEPALS FOOD-FOR-WORK INFRASTRUCTURE

PROGRAMS 16

3.1 NEW APPROACHES: CHURIA FOOD-FOR-WORK PROGRAM, 1992 TO 1994 16

3.2 THE CHURIA GOVERNANCE MODEL 19

3.3 EXPANSION UNDER JOINT DONORS: RCIW 1995 TO PRESENT 23

3.4 REPLICATION ISSUES UNDER RCIW 24

4. RESULTS AND ANALYSIS 29

4.1 SUMMARY OF RESULTS 30

4.2 ANALYSIS 32

4.3 CONCLUSIONS 39

BIBLIOGRAPHY 44

ANNEXES

A. Public Works Governance: A Review of the Issues A-1

B. Nepal: Governance Context B-1

C. Food-for-Work Programs: Overview C-1


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List of TablesandFigures

Tables:

Table 1: Summary of Corruption in Nepal FfW Projects .......................................................... 14

Table 2: Responses to Nepal FfW Corruption Results ............................................................. 41

Figures:

Figure 1: RCIW- Program Organizational Chart ....................................................................... 28

Figure 2: Political Structure of Nepal (National Level) .......................................................... B-12

Figure 3: Ministry of Local Development ............................................................................... B-13

Figure 4: System for Public Sector Fund Flows and Control ................................................. B-14


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Preface

This paper documents an innovation in project governance mechanisms aimed atreducing corruption in local civil works programs in Nepal. The results show that enabling local

ownership, monitoring, and management of small civil works programs can substantiallyreduce corruption and raise the productivity of resources invested. Replicating such a processinnovation on a large scale is a difficult task, but can be successful if care is taken to ensureconsistent adherence to its main governance principles.

This document is based on over four years of work and observation by staff members ofHURDEC, a Nepalese NGO, and IRIS, an American research and technical assistance institute.A field study was carried out in October 1997 in the Eastern terai by a joint IRIS/HURDEC teamto confirm the findings reported in project documents. The scope of the fieldwork was wide. Wediscussed the specifics of this program with beneficiaries, members of local committees involvedin administering the program, Nepali consultants working on the program, civil servants and

elected officials from the local and national levels, donor representatives, and members of theaffected communities. Most conversations were held with the specific understanding that theindividuals concerned would not be quoted or referred to in the report, as they fearedprofessional and personal repercussions. The findings from that field study have been extendedand updated as a result of more recent fieldwork (September 1999) by a member of the IRIS staffand an independent Nepali consultant, with assistance from HURDEC.

There have been questions raised by the concerned aid agencies about the team findingsregarding the replication project. The team documented results based on field observation andinterviews of a number of key local staff of the project, as well as consultants and involved civilservants. However, at the time the program experience was being studied, the expatriate project

manager was in the field and thus unavailable for interviews. Also, the project was relativelynew, in its second year of operation. Since then we have met directly with that project managerand updated our information on the program. Also, the team is well aware that projectmanagement and officers are working to implement and to ensure integrity in the program across20 (eventually 45) districts, in sometimes difficult circumstances. They deserve enormous creditfor addressing this intractable area to begin with, and for opening themselves up to this kind ofexamination and criticism. Their cumulative efforts to date have brought important benefits toNepal. Therefore, although we take issue with certain aspects of their approach, we owe it tothem to be fair, and in the final documentation we have qualified our findings to take theircomments and concerns into account. This paper in no way purports to be an evaluation of theRCIW program.

The team would like to acknowledge the following persons for their kindness,commitment, and contributions to this activity: Giovanna Prennushi for her unwaveringcommitment to integrity and her facilitation of World Bank financing of this report; ChasCadwell of the IRIS Center, who funded the initial field research from IRIS core funding;Manfred Beier and Naveen Rai (then team leaders of the Churia Food-for-Work and Churia


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Executive Summary

Publicly-funded and administered civil works programs are known for accountabilityproblems around the world. In Nepal, as in many developing nations, local public works have

traditionally suffered from the intrusion of politics, resulting in sub-optimal project selection,cost over-estimation, non-transparent bid systems, inadequate technical and financialsupervision, and manipulation of labor rates. Using food-for-work as a payment mechanismaddresses some of the control problems associated with cash disbursement. However, it cancreate others, such as possible manipulation of rice quality and quantity, and the weaksupervision traditionally applied to relief programs, resulting in intensified problems ofmisappropriation. This paper examines these problems, focusing on reforms introduced in a sub-set of these programs, along with the lessons to be drawn from their successes and failures.

In traditional Food-for-Work (FfW) infrastructure projects in rural Nepal,1it is estimatedthat between 40 and 50 percent of program budgets are appropriated for personal gain. The

catalogue of corruption in these projects includes the following problems:

Unrestrained political discretion in the selection of works projects, both in termsof physical location and types of works, which undermines efficiency and distortsincentives.

Managed or non-existent bidding processes, in which particular contractors arefavored in return for gratuities.

Overestimation of civil works project costs, with intermediaries pocketing thedifference.

Misappropriation of construction materials and grain, and their sale, sometimes tothe target beneficiaries themselves.

Over-invoicing of construction costs, and kickbacks to auditors, engineers, andoverseers. National-local labor rate arbitrage, resulting in overestimation of aggregate costs

and the sharing of rate differentials among bureaucrats and intermediaries. Mis-accounting of cash, and payoffs to accounts staff to look the other way. Manipulation of rice quality, quantity, and loss levels from storage, measurement

at payment, and transit.

Several factors cause this situation to persist, despite both the criticisms of waste andmisappropriation, and an intensifying need for the poor to directly receive the benefits of ruralworks programs. First, the political economy of these programs created, in effect, a set of

expected entitlements for politicians, civil servants, village elites, and committees charged withrepresenting the beneficiaries. The absence of effective coordination and transparency of publicworks planning at the national level has meant that political calculation could easily take

1 The authors refer to those FfW programs that did not benefit from the innovative design features discussed in thispaper, including programs implemented prior to this experience and those carried out contemporaneously but underthe traditional arrangements.


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precedence over technical and development criteria in the distribution of projects. Rurallandowning classes and client groups at district and local levels have received projects andresources as patronage benefits under this system. User Committees have often been closelylinked to these client groups and have taken a share of the spoils, despite their titular role ofrepresenting the real needs of beneficiaries. A significant part of the spoils consists of

misappropriated resources and bribery, with each control point skimming an agreed percentage,from the national level to local overseers.

The most important losses imposed by this system are spread broadly across theeconomy, so the emergence and mobilization of opposition groups is difficult. These losses takethe form of wasted opportunities, high costs, distortions, and diminished returns to publicinvestment. While one could identify discrete harms to villagers, districts that lose out in thedistribution of spoils, and contractors harmed by collusion and unfair competition, theseconstituencies are quite weak, and appear incapable on their own of changing the system.

The larger-scale institutional arrangements under which FfW programs are implemented

in Nepal, both formal and informal, fail to impose effective control. In some cases, theadministrative systems can encourage corrupt behavior. Despite several decentralization andconstitutional reform initiatives since the early 1980s, local governments in practice remainlargely subordinate to the national administration. They are accountable to political patrons atthe center rather than to local electorates. Indicative of the weak authority at the localgovernment level is the fact that these governments levy and control only a very small fraction oftheir own finances, and depend on central grants and foreign aid, which are subject to discretionand delay. A new decentralization law enacted in mid-1999 may eventually help resolve anumber of these problems, but the work required to implement this law has only just gottenunderway.

The expenditure and financial control systems are too weak to impose real discipline inFfW program administration. National budgets for rural development do not either reflect orassist planning, expenditures are non-transparent, and the audit and anticorruption bodies fail toimpose accountability. A large part of this problem arises from civil service pay scales that setsalaries for many line bureaucrats at levels well below subsistence, and quite low in comparisonto staff and consultant salaries paid out of project funds for similar types of activities. Thissituation, and Nepals strong quasi-feudal cultural legacy, virtually guarantees significant levelsof graft in the bureaucracy. These illicit gains become an integral part of civil service rewardstructures, attract the interest of bureaucrats as sources of corrupt rents, and generate strongopposition to reforms that threaten those rents.

In this context, what can be learned from attempts to design rural works projects in waysthat counteract the worst of these incentives? The Churia Food-for-Work program provides anillustration of how such an effort might succeed. In 1993, a team of Nepalese consultants andGerman technical advisors under GTZ financing, confronted with a terrible drought and itsaftermath, tried to design a set of project mechanisms that would enable local people todetermine and manage their own infrastructure projects at the village level. They designed anadministrative structure that was introduced in 1993 in one district of the Eastern terai


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(lowlands), and repeated under normal weather conditions in two districts in 1994. The systemincluded, as its core elements:

Local determination of projects at the village level. Establishment of local labor rates for earthworks, to eliminate corruption-

inducing differentials. Free availability of public information, local record-keeping, and public audit, toensure effective local accountability.

Rice payment in tranches paid publicly, and monitored by User Committees withmembership from all major political parties.

Full authority for implementation and monitoring delegated to professionalsworking outside the civil service structure.

Sufficient resources available to staff to do their work properly.

The results of this approach in the 1993-1994 period were impressive, and includedsignificant decreases in misappropriation, improved cost-benefit ratios, all of which can be

attributed to the few straightforward changes in incentives and controls mentioned above.Among the achievements were the following:

Implementation of two to three times the targeted number of completed works athalf the cost or less.

Local selection of projects with local contributions, resulting in improved cost-benefit ratios.

Grain leakages reduced to the 1% range, and unaccounted-for cash substantiallyreduced.

Increases in the numbers of subsequent local projects, funded by sourcesincluding communities themselves.

Increases in the participation of women. Subsequent election of local leaders involved in the project to local public office.

After a thorough review, a replication of the program was negotiated between two donorsand the Ministry of Local Development in 1995, and field operations began thereafter. Whilesuccessful in many respects, it appears that the replication has not been able to match the initialproject in rigorously controlling leakage, as a result of variations from the Churia programdesign agreed to by the government and the donors. The central change was to make theMinistry an equal partner in the project. This meant, on the one hand, that resource contributionsby the participating levels of government would provide the program some element ofsustainability. On the other hand, this also meant that existing governmental norms andprocedures would apply, and that the project consultants would have substantially less controlthan in the Churia model. On the positive side, RCIW continued and indeed formalized inwritten guidelines the practices of public audit, public project books, and participatory projectselection. Even with the imperfect application of these guidelines across 20 districts, thisprogram appears to be significantly more efficient and less subject to graft than typicalgovernment programs. However, it is also broadly conceded that the approach adopted in RCIWhas not been as successful as the Churia model in controlling corruption.


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The RCIW approach suffers from the following governance weaknesses:

A policy, consistent with traditional practice, of using uniform national worknorms except where local norms are specified by agreement. Since the use of

local work norms was not encouraged, national norms have predominantly beenused. As a result, incentives and in some instances opportunities for skimminghave returned.

Control by the Ministry of construction materials acquisition and of rice transport,with resulting leakages.

Project selection subject to a much greater extent to political processes, with verylittle countervailing power in the hands of consultants and project personnel,resulting in greater political intrusion into selection and less adherence totechnical criteria.

Indications, at least early on, of a lack of open public selection of independentUser Committees, enabling cronyism in the selection process to return, and

causing some User Committees to become dysfunctional. A much larger number of projects in each program district, with insufficientresources and authority by consultants to identify and deal with proceduralbreakdowns and wrongdoing.

Difficulties implementing transparency mechanisms due to the insistence of thenational Ministry on adherence to traditional systems for FfW programs.

One might attribute the relative weaknesses in the RCIW program to an unwillingness bykey stakeholders, notably the donor community, to sustain the rigorous requirements of theoriginal Churia program in the face of strong opposition within the central Ministry of LocalDevelopment. GTZ and WFP suggest that this compromise was the unavoidable price ofexpanding the program from two districts to twenty, and of securing active partnership by thegovernment. Perhaps the most obvious weakness arising from this compromise has been thepredominant use of national work norms. Apart from a minority of districts, including theoriginal Churia project districts and a few others, RCIW saw a retreat to the use of nationalnorms, which create very strong incentives for civil servants and intermediaries to engage incorruption.

The implications of these experiences with project operation are clear. The Churiagovernance model was successful initially, but as amended under the subsequent replicationproject (RCIW), appeared to be less successful than before (but more than a traditional FFWproject). Strong and consistent requirements of transparency, public audit, and externalverification by independent agencies were key elements of Churias success, and theirsubsequent erosion partially explains the difficulties observed in the initial period of RCIWoperations. In order for the program to achieve its objective of removing corruption from theprocess, the original concepts should be reinstated and followed as faithfully as possible. Donorsand HMG should pay serious attention to the following issues in this area:

Concurrence of all parties on project roles, a simple and transparent system, and


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the operating agency. Use of local norms on a performance basis, public audit, a standard measurement

system, a User Committee with open selection and representation from variouscounter-balancing interest groups, and a project book which is up-to-date andavailable to any villager, strictly implemented and independently verified in the

field. Serious consideration of pay incentives (e.g. performance-based top-up payments)where possible to officials involved in the project activities, especially if theproject is implemented through the DDCs (local governments),.

A firm standard that corruption and cheating are unacceptable should beestablished and consistently applied by all parties.

Proper setup within DDCs and VDCs, through training on roles, responsibilities,and needed technical skills, as well as by disseminating the results of thegovernance experiment.

Direct implementation by the donor agency and its contractors, or at least by astaff of reasonably paid and accountable professionals outside the civil service

structure, may be required in the initial years of a program.

The successes of the Churia program, and the follow-on work under RCIW, suggest thatimplementing these design principles can substantially improve program governance and asmuch as double program benefits where these tenets are consistently followed. In a larger sense,signals of serious intent by international donors to demand effective governance acrossprograms, and sustained reform of the institutional framework within which these programsoperate, including expenditure controls and decentralization, can produce still more importantand durable benefits. Finally, insistence on transparency and broad public access to informationon procurement and program expenditures at all levels can improve project results.


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Table of Acronyms and Exchange Rates

AGETIP Agence Generale dExecution des Travaux dInteret Public

CDO Chief District OfficerChFDP Churia Forest Development ProjectCIAA Commission for Investigation of Abuse of AuthorityCTO Central Treasury OfficeDDC District Development CommitteeDfID Department for International Development of the UK GovernmentDSCO District Soil Conservation OfficeDTO District Treasury OfficeFfW Food for workGDP Gross Domestic ProductGNP Gross National Product

GTZ German Agency for Technical CooperationHMG His Majestys Government of NepalHURDEC Human Resources Development CentreIFI International Financial InstitutionsILO International Labour Organization of the United NationsIMF International Monetary FundIRIS Center for Institutional Reform and the Informal SectorLDO Local Development OfficerMLD Ministry for Local DevelopmentMoF Ministry of FinanceNGO Non-Government Organization

NPC National Planning CommissionNR Nepali Rupee(s)RCIW Rural Community Infrastructure Works ProjectUC User Committee(s)UN United NationsUNDP United Nations Development ProgramUSAID United States Agency for International DevelopmentUSGAO United States General Accounting OfficeVDC Village Development CommitteeWFP World Food Program of the United Nations

Nepali Rupee exchange rate: US$1 = NR 61.00 on April 25, 1998.


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1. Introduction

Worldwide, one of the areas plagued by the most endemic and persistentcorruption is local public works program implementation. Whether done for cash, food,

or some combination of the two, leakages of 30 percent or more of the total project costshave been documented in a global context. Some other estimates-- including those forNepal-- put the leakage above 50 percent of the total value in labor-intensiveinfrastructure works supported by Food-for-Work (FfW) programs.2 Since most capitalworks programs in developing and transition economies have substantial donorinvolvement, when corruption occurs the donors are also victims and may be, by theirsilence, supporters.

More severe losses have been possible in Nepal largely because of the significantdifference between official and actual market wage rates for unskilled labor andmaterials.3 The majority of the misappropriation occurs in four ways:

discrepancies between wages paid to laborers and budgeted amounts; over-estimation of the amount of work needed to complete tasks;

over-invoicing and/or theft of construction materials and equipment; and

completion of tasks at a technical level below that which was agreed, or inextreme cases, no work done at all.

In estimating the leakage figure at over 50 percent for these programs in Nepal, only thelosses through lower wages to laborers are considered; other losses have not beenmeasured. In other words, the estimate is a very conservative one.

When corruption occurs in civil works programs, particularly Food-for-Workprograms, there are significant social and economic costs. These include lower payments

to the poor laborers who need the resources most; creation of a low-quality, high costinfrastructure which is loosely planned, poorly constructed and inadequately maintained;and encouragement of public servants and others to appropriate public resources illegallyfor private gain. In such circumstances, the estimates of economically productive capitalinvestment are far overstated, and those of personal consumption understated.

In 1993 and 1994, the German Agency for Technical Cooperation (GTZ) fundedFood-for-Work programs in Siraha and Saptari, two Eastern terai (lowland) districts ofNepal, as part of the Churia Forest Development Project. The FfW was a public worksprogram, intended initially to cope with the severe drought in 1993. In its second year(1994), the program broadened its aims, seeking to decrease off-season deforestation by

providing funds for alternative labor uptake to improve rural infrastructure such as roads,fishponds, irrigation schemes, and river control measures. In both years, the programsoperated during the three-month period of the off-season, when labor demand is very low

2Beier et al (1993) pp. 5-6, discussions with CARE and World Food Program (WFP) Nepal.

3The mechanism of this manipulation has been illustrated in WFP documents, and the amount of

earthwork done by a laborer in a day for different types of soil has been recorded in GTZ documentation ofthe project.


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and family income is substantially reduced.

Project managers needed to confront significant operations problems based onhistoric FfW practices in Nepal before they could make the Churia program effective.The dangers of using the existing systems for FfW included difficulties in defining

program focus; lack of any mechanism for maintenance; inadequate control mechanismsfor food inflows and work output; politicized decision-making regarding aid levels andproject siting; and encouragement of a receiver mentality rather than a self-helpmentality. Further, the incentives at work in Nepals political and administrativehierarchy helped reinforce these shortcomings, and virtually ensured significantcorruption and performance problems if a new approach was not taken.

In response to this situation Nepali consultants4, working with German advisors,devised a simple mechanism for local civil works administration which included broad-based public engagement in managing and monitoring the works process, particularly theuse of public audits. In the first two districts, 482 community projects were set up in 165

Village Development Committees (VDCs) and one municipality, which implemented thissystem in two twelve-week efforts over two years. The result was a completion rate ofhigh-quality local civil works projects of over 90 percent, as well as rice loss rates of lessthan 0.5 percent. This is a remarkable record by world standards. There is a provision forsimilar public audits and related local involvement in the Food-for-Work Projectcurrently being implemented in 20 districts of Nepal, a joint venture of the Ministry ofLocal Development (MLD), the German Agency for Technical Cooperation (GTZ) andthe World Food Program (WFP). However, initial reviews of this revised system revealedsome modification problems that will be discussed in the pages that follow.

This paper will examine the problem of corruption in FfW programs in Nepal andan innovative initial response to this issue, particularly the introduction of public auditsystems. It will evaluate the effectiveness of these mechanisms as anti-corruptionmeasures, as well as the extent to which they provide a useful model for the governanceof rural public works and other types of infrastructure projects. The paper is based on afield study during October 1997 in the Eastern terai by a joint IRIS/HURDEC team, areview of the relevant literature, and follow-up work by IRIS and an independentconsultant in Nepal in September 1999. It is also the result of over four years of workand observation in this area by both IRIS and HURDEC staff, including directimplementation work by HURDEC on both the Churia and RCIW projects.

The paper begins with a brief overview and analysis of corruption in Nepalesepublic works administration, especially as it affects rural projects. The paper thendescribes how the corruption problem was anticipated in a FfW project design andimplementation process, and examines the solution that was adopted by both the Churiaand RCIW projects. In the concluding section, the results are evaluated, and an analysisof this experience provided, with some prospective recommendations about replication inother related types of projects.

4These consultants were provided by a local organization, Human Resource Development Centre(HURDEC).


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This paper was written with a tight focus on Nepals civil works corruption problemsand potential solutions. It assumes a significant degree of prior understanding of generalcorruption issues, civil works processes, and Nepals economic and governance

environment. For the interested reader, a short review of current theory and researchrelevant to governance and corruption concerns is included as Annex A. An overview ofthe economic and governance situation in Nepal, including the administrative frameworkin which civil works projects are carried out, is included as Annex B. A discussion ofFfW projects and their difficulties in Nepal is included as Annex C.


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2. Works Corruption in Nepal: Patterns, Stakes, Genesis

What patterns of public works corruption concern us in this report? Who gains

and who loses as a result of them? What do we know about the roots of these corruptionproblems in the institutional environment of Nepal? This chapter examines these issues,setting the stage for the analysis of program reforms in the chapters that follow.

2.1 Modalities of Public Works Corruption

Governance problems in public works vary widely. They flourish in anenvironment where information on program objectives and costs is highly restricted. Thefollowing mechanisms were found to be in operation in Nepal:

Selection of works programs. Selection of the type, location, and standard of publicworks is a matter for intense debate. Wheres my road? appears to be the bone of muchpolitical contention. Determination of placement, particularly of new roads or trails thatenable access to previously inaccessible areas, occurs largely on the basis of politicalhorse-trading, rather than social or economic analysis. The prevalence of this patternundermines the legitimacy of the public sector and tends to promote the exchange of non-transparent, including illicit, benefits. In addition, the pressures of competing interestsreinforce a system where budget allocations are made which are insufficient for projectcompletion but must be spent, opening additional windows for corruption.

Managed or non-existent bidding processes. A fair and transparent bidding processinvolves qualified contractors bidding openly for a project, and being selected on thebasis of openly verifiable criteria. In practice, payments are made to potentialcompetitors to ensure that they either do not bid, or bid in amounts higher than thebribing firm. In addition, the estimated cost of the job might illegally be made availableto bidding firms for a fee, and then all firms agree to submit bids at or above thiscosting level. In a variation of this, potential bidders agree not to bid, and the chiefengineer agrees to increase the cost estimate for the work. This margin is then sharedevenly through kickbacks (e.g. if the cost estimate is increased by 30 percent, the winningcontractor may keep ten percent and pay ten percent each to the engineer and the group ofnon-bidding contractors). There are stories that some contract bidders operate solely forthese kickbacks, and have never had to construct anything. Payments to the selectioncommittees and reviewers of firm qualifications can also occur, and hence unqualified orhigh-bid firms may still win contracts.

The benefits of a potentially competitive bidding system are foregone in the caseof a civil works program where, because of "developmental" considerations, the worksare to be implemented through User Groups (i.e. the community of prospectivebeneficiaries) and their representative User Committees. Such programs require that thefunds appropriated for civil works be handed over to the User Committees, and the use of


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contractors is not allowed. Regrettably, since formation of User Committees is left tothe village, User Committees largely consist of village-level contractors with specialleverage on the local power structure. Since there is no competition and littlesupervision, political manipulation and corruption are probable.

Intentional over-estimation of civil works labor and costs. In regular civil worksprojects, it is not uncommon for contractors to face strong competition and, as a result,bid the contract at less than half the estimated price. The magic" here lies in the formulaused for estimating the labor costs of projects (called "work norms" by the engineers).The standard estimation formula requires two to three unskilled laborers for a piece ofwork where actually only one laborer is needed. This is particularly true in the case ofearthworks, which generally constitute more than 70 percent of the total cost of aninfrastructure project. Similar practices are used for estimates of materials, transport, andskilled labor. Under these conditions, contractors have no problem going as low as 40 to50 percent of the estimated cost, carrying out the job, and satisfying the "stakeholders"with kickbacks.

In non-competitive projects managed by Users Committees at the village level,the slackness of work norms provides a major opportunity for misappropriation, in whichwork is reported to be measured and paid according to official work norms, but isactually done according to more demanding local norms. Thus, a given quantum ofearthwork may require one-half to one-third the number of workdays reported, and thewindfall is shared among the controlling stakeholders.

National-local labor rate arbitrage. This is closely related to the issue of work normmanipulation discussed above. Payments to labor can be made either on a level-of-effort(time) basis, or on the basis of achievement of certain tasks, i.e. deliverables. Themajority of work is done on a time basis, and the rates are set centrally, even though realwages vary greatly depending on the locale and the season. Local labor rates areincreasingly set on a performance basis. This is a major source of civil works corruption.The rate of payment to laborers is set high, then laborers are paid a much-lower localwage rate on the job. Differentials in productivity norms (see above) can increase thisappropriable surplus. Payments for ghost workers are made, as well as substandardpayments to actual laborers.

Misappropriation and sale of grant inputs. Governments will either accept free inputsfrom donors, or purchase them centrally and provide them as a free good toconstruction sites. Those with access to the granted inputs simply appropriate them andsell them to private sector contractors, who may or may not use them for a given civilworks program. In a variant of this problem, a government bureaucrat may take deliveryof an input such as steel wires, look the other way when half the number required areused in the scheduled works program, sell the remainder, and split the profits with thecontractor. A Japanese grant providing steel wires for river bank stabilization in Nepalhas been terminated, apparently because this practice was observed (although the precisereasons for this have not been made public).


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Over-invoicing and kickbacks. Before or during civil works projects, costs can beinflated far above actual construction costs. Payments for cost over-runs can beauthorized, even though such overage did not occur. The payments are split betweencivil servants and contractors. Payments during the construction process include those tosupervisors of works contractors to accept substandard materials, not to check costs of

materials or labor against claims, and to accept progress which may lag behind the agreedprogress schedule or fail to meet engineering quality standards. Payments can also bemade to supervisors to accept situations where work was never completed at all. Sincemonitoring is rarely done by project staff in government, as one villager put it, ourlandscape is littered with the bodies of unfinished projects, or projects which were paidfor but never started.

Misaccounting of cash, payoffs to accounts staff. Engineers are not the only persons whocan be bribed in civil works programs. Accounts staff have made payments to unrelatedthird parties and charged them to the contract account, made payments early, madepayments in excess of the agreed amounts, and given payments or advances with

inadequate or non-existent supporting documentation. These accounts staff are then paida portion of the illicit funds in return for regularizing or burying such records. In Food-for-Work programs, cash advances are made to pay for transport of rice and materials aswell as for purchase of materials.5 Payments for grain storage and transport are routinelyinflated over actual costs, as are other cash payments for the works activities, and theyare inadequately accounted for. Weaknesses in the financial and audit systems preventeffective countermeasures.

There are additional problems that occur when a civil works program providesgrain as the principal payment for labor, as in Food-for-Work programs. Such programsrequire that the total estimated funds be handed over to local User Committees, andcontractors are not allowed. Specific problems with FfW programs include thefollowing:

Grain misappropriation and sellback. Payments to laborers are supposed to be providedas a blend of grain and cash. The most common form of Food-for-Work bribery isinconsistency between the amount of payment to laborers that should occur on the onehand, and what is actually distributed to laborers on the other hand. As described above,the payment rate is often standardized, but what is actually paid to laborers is less, andUser Committee members appropriate residual grain and sell it for gain, sharing thewindfall with other stakeholders. In addition, laborers are sometimes not paid theircash due, but are simply given the grain. The contractor could benefit twice from this,once from the misappropriated cash, and in some cases a second time from the grainrepurchased from laborers at a low price.6

Watering rice/cutting quality/delivering wrong amounts. As part of the process of grain

5In the current RCIW program, cash for materials alone amounts to more than NR 40 million($656,000) for twenty districts.

6As laborers may need a small amount of cash for salt or oil or kerosene, they may resell the grainback to the contractor -- at a profit to the latter.


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delivery and payment to laborers, donors and governments agree on the type of grain,quality standard, moisture content, and amounts to be delivered.7 Commonly, rice isprovided in advance in tranches, based on the work schedule and anticipated time tocompletion. There is a great deal of variability in these areas, and bribes are paid inreturn for taking delivery of grain that may be substandard, higher in moisture content

than agreed upon, or short of the agreed volume. Amounts are delivered with the rest tocome later. An irony in this process is that donors commonly over-estimate the qualitylevel desired by laborers. Deliveries of substandard grain sometimes actually providewhat laborers want, while officials and contractors pocket illicit money from the resultingdisparity between donor estimates and what was delivered. In some locations, alreadywritten-off rice from previous years has been supplied to clients, even when it is notedible. The rice supplied for the current year is then sold off, and the resultant fundsshared among storekeepers and other collaborators.

Exaggerating rice losses at different stores. Storekeepers report losses of rice duringstorage. Some loss is natural due to changes in humidity and other factors. Nevertheless,

it has been reported that profiteers at the User Committee level and at the district storesappropriate the rice and report it as natural loss. Then they request that the authoritieswrite off the loss. Weaknesses in the current monitoring system make it difficult to detectsuch stealing.

2.2 Winners and Losers

In Nepal as elsewhere, the problems of inefficiency and corruption persist in alltypes of public works projects, ranging from large nationally-tendered projects to smallrural infrastructure programs. Much of this derives from a traditional feudal system in

which extraction at various levels was considered not only acceptable but appropriatebehavior.8 The full transition to a more transparent and accountable system is yet to bemade. In such circumstances, the winners include both village elites and thegovernment/civil servants with whom they interact. The losers are those who areexpected to benefit by such programs: women, the poor, and villagers whose livelihoodswould be enhanced by completion of quality local civil works. Table 1 at the end of thischapter summarizes the effects and causes of public works corruption in Nepal.

Between 40 and 50 percent of the total FfW civil works budget of Nepal is

believed to have been siphoned off for personal gain by those implementing traditional

7

A good sample of rice is provided for bidding purposes. However, once the delivery arrives, therice quality is often much poorer. If that rice is refused, better quality will usually be sent to replace it, butit becomes a matter of timing, since these programs are time-sensitive. In one district surveyed, out ofthree deliveries, the rice had to be returned once. The standard tenders are called nationally, and thedistricts do not have the equipment or capacity to check quality in terms of moisture content or rocks insidethe rice. In addition, since they do not control payments, it is harder to enforce quality. The parastatalNational Food Corporation generally has warehouses locally and the capacity to measure this, although thisis known to provide opportunities to solicit occasional bribes from rice suppliers. In a highly time-sensitiveactivity like FfW, delays in rice deliveries can be disastrous.

8See more detailed discussions on this in Annex B.


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programs.9 Of these funds, approximately one-third goes to either contractors or UserCommittee members, and the rest is paid to politicians, civil servants, and others atvarious levels. These have been known to include the LDO, the DDC, National FoodCorporation Staff, rice suppliers, and others. The corrupt practices used for suchpayments include kickbacks of various kinds, illicit sales of inputs, and improper

accounting of payments or advances. The authors and their organizations confirmed thisinformation through detailed interviews both in the capital and in three districts in thefield, from numerous politicians and civil servants who declined to be named butadmitted to the breakdown.

Village elites (e.g. landowners and business people) benefit from the payoffs,since they usually control either local civil works contracts or User Committeeoperations. These individuals are largely from higher castes, have relatively highsocio-economic status, are almost always men, and are a strong force in the local powerstructure. Elites are well-known not only by the local villagers but also by anydevelopment agencies working in the area. Given existing power structures in the village

or district, these are the people likely to be selected in any village-level committeesformed to carry out development works (in forestry, health, education and so on). Quiteoften, these groups are also contractors for village or district level civil constructionworks.

Civil servants and politicians are the other main beneficiaries. Certain Nepaligovernment departments have been identified as cream departments, where a civilservant is sure to make additional money from misappropriation and bribery. Positions inthese departments are highly coveted, and transfers/appointments require illicit paymentsto appointing officers within the civil service. According to informants cooperating withIRIS, the most lucrative jobs as far as public works corruption is concerned, are in theRoads, Irrigation, and Water Supply Departments, and the Ministry of LocalDevelopment all of which are agencies with major infrastructural developmentresponsibilities.

When illicit funds are received during the setup or implementation of any civilworks program, there are standard percentages that are paid to each group up the line, allof whom therefore benefit from corrupt practices and reinforce their operation andcontinuance. A typical system for distribution of this black money is as follows:

ten percent to the local audit office ten percent to local politicians; if not there, to local engineers and

overseers 25 percent to the direct overseer 15 percent to the district engineer 35 percent to the overseeing accountant, the department, and the ministry

in equal amounts five percent for entertainment costs10.

9i.e. other than those discussed in chapter 3.

10This information was obtained and confirmed in field interviews with informants having first-


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There are significant implications of this allocative structure. First, large localpayments create strong motivation at the field level to keep the system in place. Aswages for average civil servants are well below subsistence level, any threats to the flowof corrupt payments are also potential problems for the officials personal well-being, and

will be seriously resisted. Second, payments to local and national politicians translateinto a threat of overwhelming negative political consequences to those wishing to changethe existing system. Finally, payments to accounting and audit personnel strongly implycorruption well beyond the civil works programs, and overall sub-optimal use ofgovernment resources. This would encourage strong resistance to either timely andtransparent accounts, or punishment of offenders.

Who are the losers? The most clearly identifiable losers are:(i) villagers (including many poor populations) who lose valuable

infrastructure and employment opportunities;(ii) districts, officials, and political representatives who do not have access to

graft, or who do not participate in it, and find themselves ignored in theallocation of public works programs; and(iii) contractors who lose opportunities to participate in infrastructure programs

due to unfair and corrupt competition.

Other indirect losses may be quite large in the aggregate, but are diffuse andunlikely in themselves to trigger strong opposition. The under-supply of public worksand paid employment can be expected to have a ripple effect across the economy. Theshortfall in income , transportation, water, health and other types of infrastructure act asdrags on trade and productivity. Moreover, opportunities for graft in rural worksprograms draw more participants into the corruption game, thus potentially increasingstate intervention, leakages through corruption, and diminished productivity of publicinvestment more generally. Shortfalls in the quantity or quality of public works due tocorruption create a demand for additional treasury resources or international aid, thusdrawing down those resources further. Depending on how these additional resources arefinanced, this could increase public debt and put pressure on private financial markets.These ripple effects, however, are spread across large populations and can be difficult tounderstand, quantify, and combat.

Given this picture, where are the sources of support for reform andaccountability? The general population harmed by corruption is relatively powerless, forseveral reasons. First, information on the level of the corruption and the socialconsequences is very effectively concealed; few if any know that the situation is aproblem or, much more importantly, that it can be effectively addressed. Second, untilvery recently (1991 and thereafter) there were no democratic mechanisms available toaddress corruption. Even if the panchayats used extractive mechanisms, they could notbe voted out. Third, those who must champion reforms are very often dependents of theexisting corrupt system. Lastly, even apart from the preceding obstacles, any attempt to

hand knowledge. These percentages, along with the overall take from corruption, are said to shift over time the predominant tendency being toward larger sums being demanded and taken.


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deal with rent-seeking and misappropriation may face problems of collective action.Overall losses to the economy translate into individual losses that, in most cases, wouldbe counterbalanced by the costs to any individual of becoming informed and takingaction to cure the problem.11 However, because the scale of graft begins at a levelimmediately visible to villagers, and since corruption can easily arouse moral

indignation, attempts to mobilize local anti-corruption movements are sometimes metwith success. This is one of the advantages of devolving rural public works to the villageand User Group level.

2.3 Systemic Issues

What can we say about the genesis of the corruption problems described above?While the systems governing public works in Nepal do not differ dramatically from thoseelsewhere in the region, there are characteristics that specifically foster inefficiency andcorruption. One is the chronic lack of coordination in national works planning. Projects

are proposed either from the local level or from the center, and often from politicalsources or donors or both. They can include anything from massive national road andpower programs to small local works such as riverbank reinforcement.

Government engineers provide cost estimates for the projects. These are takeninto account in the budgeting. The bulk of the budgeted funds for civil constructionworks are allocated to the Ministry of Roads and Transport, Ministry for LocalDevelopment and the Ministry of Water Resources and Irrigation. The funding is thensplit by the central Ministries and allocated for individual projects. Quite often, smallamounts of funds are provided to each of many different projects on the largelyunrealistic expectation that if a start can be made, more funding in subsequent years will

enable these projects to be completed.

The official bidding process for standard public works involves open tender formost activities, and a review of tenders based on technical soundness, costing, andqualifications of the bidding firms. Once contracts are awarded, payments are madebased on progress reviews by government engineers. Unfortunately, as in many othercountries, the level of independence and transparency of the tender evaluation process,and security of key information such as the engineers cost estimates, remainsproblematic.

The rural works projects with which this report is concerned involve Food-for-Work. Food aid for use in public works programs has been a common thread indevelopment assistance in Nepal through the last thirty years. The WFP alone providedover 11 million dollars in food aid for the rural works sector between 1977 and 1992,when it stopped the program due to operational problems. These projects were centrallyexecuted through the Ministry of Roads and Transport. The mechanism for these projectsinvolved the procurement and provision of rice to the government. Road works selectionwas done through the Ministry. The projects were administered in the local areas by the

11See Olson (1965) and (1982).


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line Ministry. Contractors bid for work, or alternatively local User Committees were setup by the panchayat in order to run the village-level projects. A more detailed discussionand a chart depicting the structure of FfW administration are provided in Annex C.

A number of systemic features tend to weaken the integrity of rural public works

programs and to foster corruption. These features could be described in terms of formalstate institutions and informal cultural institutions. In formal terms, public officialsfrom the village to the central level are provided with little incentive to optimize themobilization and use of resources. First, despite the decentralization reforms through theearly 1990's, the VDC level continues to raise only a minute percentage of its publicfinances locally, rarely more than NR 50,000 (equivalent to ten percent of the centralgovernment grant). This problem arises from a combination of disparities betweenresponsibilities and tax assignments, the size of local tax bases, and the design andenforcement of available tax instruments. As a result, transfers from the centralgovernment and foreign aid play a dominant role. This strengthens the hand of the MLDand line ministries, district representatives of the center, deputies in the national assembly

who lobby to obtain a large share of resources for their constituencies, and local eliteswho help broker center-periphery resource flows. For these reasons, VDCs and localorganizations have a relatively weak voice in planning public works and in mobilizingresources. Without ownership at this level, local accountability is at best weak, andpublic works programs can easily become exercises in rent-seeking and the distributionof patronage spoils.

Four main weaknesses in the expenditure and control systems are equallyimportant. With no functional coordination on national or sub-national infrastructureplanning, resources are distributed on the basis of aggregated local and regional shoppinglists, with priorities fixed according to political calculations. Transparent planningcriteria do not exist in most areas and hence cannot enforce discipline on the process.Secondly, budgeting processes and know-how are rudimentary, and (at least at lowerlevels) result in category-wise distribution of available tax revenues rather than informedcapital and operations expenditures. Thirdly, a mass of underpaid and badly motivatedcivil servants presides over a lengthy series of planning and expenditure checkpoints that,for this very reason, tend to be ineffective or even a pretext for bribery andmisappropriation. Lastly, audit and public accounts review systems are weak (andprobably compromised), and fail to deter or capture most instances of misappropriationand collusion.

Local public finance transparency is non-existent in the current system. Underthe existing Nepali government processes, information is frequently not made public. Noone is aware, at the field beneficiary level, of how much a project will cost, nor howmuch work or resources are allocated to any given civil works activity. Since the districtand national level civil servants and politicians know, they can use this information totheir advantage. Because national government norms are used for costing labor,specialized labor, and materials, and these norms are far above actual costs, thetechnicians and the officials can benefit by paying local rates and pocketing thedifference.


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These formal features, discussed in more detail in Annex B, form the governanceenvelope within which the FfW programs operate. The incentive structures that tend tofavor politically-motivated planning and distribution, the subordination of local voice,and collusion between local and national authorities affect FfW works programs almost

to the same extent as they do traditional public expenditures. FfW programs suffer fromthe additional characteristic that they supply goods largely financed by international aid,which tends to weaken the governments commitment to probity and accountability withrespect to those goods. Also, the goods are in the form of commodities that can be stolen,debased, manipulated, and substituted.

There are also other informal rules and practices which reinforce corruption insmall civil works in Nepal. They include a culture of information control and a disparitybetween expectations of civil servants and the resources provided to them. Nepali societyviews groups as more important than individuals. These values are important to keep inmind when reviewing the following section on options to address corruption in small

local civil works programs.

Information in Nepal is made available on a need to know basis, or can bedistributed for cash compensation. This is widely accepted in the population as the norm,because no other option has been offered or considered viable. Bureaucrats are known tomake public inquiry difficult, whether this is necessitated by administrative procedures ornot. The need to submit requests or complaints in writing imposes barriers on the largenumber of poor, rural, and often illiterate citizens who interact with the public sector.Verbal requests, meantime, carry no weight and are largely ignored. On their side,villagers do not believe that outsiders are telling the truth, particularly anyone fromgovernment. When a government official starts to spend money, the automaticassumption is that he/she has received it from corrupt practices.

The other major complicating factor which reinforces systemic corruption is thestrong social pressure for engineers and other officials to take illicit payments tosupplement inadequate salaries. Wages for engineers, accountants, and leadingbureaucrats are often pitifully small. In Nepal, no one can be expected to support afamily on a government salary alone, and it has become an accepted social practice totake bribes. Honesty or not engaging in corrupt activities -- is not considered asimportant as acquiring assets and using them to improve ones social standing. In caseswhere bribes are taken and percentages passed up the line, which appears common, thosewho do not take money cannot pay upward, and their careers stagnate. As the network ofthose persons dependent on bribes for their living standard increases, the pressures oneveryone to conform to this norm grows.

These social pressures have important implications for the standards imposed bythe public or bureaucrats. For example, in the terai, dowry payment is based on thehusbands profession. This is implicitly linked to the expectation of both white money(salary) and black money (bribes, also called ghoosh in local parlance). There is awidespread social expectation that engineers and overseers will make black money.


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Nepali civil servants confirmed that they received, or knew of others who received,payments of 200 to 500 percent over their salaries, depending on the season.

Finally, in Nepal (as in most societies) it is very difficult for individuals todetermine that a given practice might be corrupt because it harms them as persons.

People do not distinguish between themselves as individuals linked to a system, and arelative or friend taking from that same system to their detriment. Since historically onlylarger landlords paid taxes, and those very minimally, villagers view governmentdecisions as being something outside their individual experience and control. As a result,villagers often doubt the stated rationale and rules of any government program, expectingit to be another mechanism for corruption, and therefore are themselves poised to getwhatever they can from it.

This section has examined the civil works system and its numerous corruptpractices, identified winners and losers, and analyzed other tendencies that reinforce theexisting system. Overall, the systems in place encourage non-transparency and

corruption in ways that present serious challenges to the integrity of rural worksprograms, however well-intentioned. The next section discusses a model developed byNepalis and others to counter some of these incentives and practices, and reviews theresults of attempts to expand and replicate its successes.


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Table 1: Summary of Corruption in Nepal FfW Projects

Activity Magnitude Winners Losers Causes

Politicized ProjectSelection

Contributes to 30-50% benefit/costdeterioration.

Pork politiciansCronies and favoreddistricts

Honest politiciansDisfavored districts

Selection at politicPlanning criteria l

Managed Bidding Contributes to 30-50% benefit/costdeterioration.

Dishonest contractors& officials

UsersCompeting contractorsTreasuryPublic

Inadequate standaprocurementContractor links to

Bribery and Kickbacks Contributes to 30-50% benefit/costdeterioration.

Dishonest contractors& officials

Honest politiciansDisfavored districts

Selection at politicPlanning criteria lWeak audit system

National-Local LaborStandard Arbitrage

Norm differentialcreates windfall ofapprox. 50-60% ofnational norm-basedtransfers.

Members of MLD,DDCs, UCs,

contractorson the

take

WorkersUsersVillagesPublic

Tolerance by donoEncouragement byArbitrage opportunorms

Mis-Accounting of Cash Unknown, perhapsUS $0.5 to $1million.


contractorson the

take

WorkersUsersVillagesPublicTreasury


Grain Misappropriation Short Amounts

SubstandardQuality

Exaggerated

Approximately 50%grain leakage.


contractorson the

take

WorkersUsersVillagesPublicTreasury



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Losses


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3. Addressing Corruption in Nepals Food-for-Work Infrastructure Programs

The story of FfW governance reforms in Nepal involves at least a six-year historyof relief program implementation, redesign, and resistance. At the heart of the story is an

effort to reform the structure to minimize the most severe forms of corruption describedabove.

3.1 New Approaches: Churia Food-for-Work Program, 1992 to 1994

In 1992 the GTZ-funded Churia Forest Development Project (ChFDP)commenced operations in the Churia catchment areas of eastern Nepal. This two-yearpilot, which was followed by a three year implementation phase, was meant to slow andreverse the rapid deforestation of this area, caused by a combination of landfragmentation, overpopulation, and lack of sustainable forestry management systems bythe local people. One project mechanism included the creation of other, non-forest

employment options for local people.

In 1992/3 there was a severe drought in the Churia project zone, which causeddramatic declines in available work for the 40 percent of the population of this area whoare landless. In response to a request from HMG for disaster assistance, the projectmanagement hired HURDEC (Human Resource Development Centre), a Nepaliconsulting firm, to assess the drought situation and provide some options for relief.HURDEC used a multidisciplinary team to complete a participatory rural appraisal,documenting the precise area and the circumstances of those affected. The clear problememerging was not so much a drought-driven food deficit, but a lack of available work, forwhich strategies to increase off-season employment would be crucial. HURDEC and the

Churia project managers, with the support and guidance of GTZs Manfred Beier, starteddeveloping a mechanism which blended Food-for-Work with local participation andsustainable civil works operations. It was critical to use resources carefully and empowerlocal people. Hence, public mechanisms for participation that carefully safeguarded theuse of both money and rice were paramount in the initial design process.

The study recommended provision of a timely and rapid Food-for-Work programin simple, locally determined and managed systems, exchanging food aid for local civilworks, particularly ponds, irrigation canals, riverbank protection, and rural roadsinvolving a high proportion of earthworks. The Churia project managers agreed, andhired HURDEC to design and implement the relief scheme (with key input from Beier),

called the Churia Food for Work Programme (ChFWP). In this first year, 180 villagelevel projects (fishponds, irrigation schemes, rural roads and riverbank protection) wereidentified, assessed, designed and implemented in 108 VDCs and one municipality ofSaptari district during the twelve weeks of the early 1993 off-season. Cost estimates wereprepared by HURDEC using local work norms and costs. The VDC Chairmen andSecretaries took responsibility for implementation, work organization, record keeping,rice storage, and distribution through publicly-formed User Committees made up ofdifferent village interest groups. The DDC was responsible for policy formulation, while


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the VDC handled selection, overall monitoring, and dispute resolution. GTZ provided fulltechnical and financial support for all aspects of project implementation throughHURDEC.

Following the 1993 exercise, an evaluation showed that the program was highly

successful. The managers of the Churia project decided to try this system a second timeduring the off-season, to see if it would reduce the numbers of poor Nepalis who cut treesfor income during the slow agricultural periods. This decision was consistent with animplicit commitment made to villagers that if the program worked, it would be continued.The successful experience of the 1993 FfW program in Saptari district then formed thebasis for the 1994 FfW program in Saptari and Siraha districts.

In this second round, the previous program was reviewed and some correctionsmade. A set of guidelines for program implementation was written and widelydistributed. The project professionals improved the layout and structure of the projectbook containing the essential features and costs of the program, and printed it, and trained

more local people in its use at the commencement of program discussions. A detailedmap of each project within the village area, along with measurements, input and costestimates, and projected changes, was included in its project book.

Other improvements made in the second year included a detailed briefing on theworking principles of the programs, the process, and the role of stakeholders for VDCand DDC staff. Additionally, wage norms were revised to account for soil types anddistance of soil moved, and VDC staff and users were trained in how to measureearthworks. General information on construction and payments of costs on projects wasprovided to the public as well as to civil servants. This orientation took place beforeproject selection. User Groups were more carefully identified and confirmed with allvillagers, and management analysis of the projects was conducted before commencementof work. A small amount of cash was made available to the User Committees for inputssuch as pipes, and payment to them for their work was formalized. Experiments wereconducted using local contributions for the projects of 20 percent in the form of materialsor labor. Finally, the public audit process was discussed in each area in a series of openmeetings with laborers and other villagers, and it became a firm pre-condition ofdisbursement of future tranches.

In 1994, the Churia project provided all construction materials, all skilled labor,and performance-based wages of one rupee plus one kilo of rice per agreed local measureof earthworks. The project drawings, technical directions, cost estimates, andmanagement advice were provided in simple Nepali language and entered into the projectbook, with numerous public consultations on how they were developed. For the publicaudit, at least half of all identified users had to be present. Experiments with cash forwork were conducted. At the outset of each project, a detailed project orientation washeld for the villagers. The users in the village identified projects, and then had tocontribute 20 percent of the project cost up-front, either in cash, materials, or labor. Theusers selected their committees publicly in the presence of the project consultants.Inevitably, there were some difficulties in implementing this system, but it broadly


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succeeded in establishing effective project governance.

The main features of this program were:

Development of projects based on priorities set by villagers themselves.

Technical plans and costing done by consultant staff in consultation withvillagers, based on local norms, placed in a book at the village level, andexplained carefully to any villager who wanted this information.

Local contributions of 20% of project costs in labor, rice, money, or materials,publicly accounted for.

Local supervision done by a publicly-elected User Committee representing abalance of interests, conducting its activities openly and documenting them inthe project book.

Public audits of all work, all payments, all activities; public access toinformation on any and all aspects of the project, at any time, in the villagearea.

Mechanisms for exposing corruption and placing the project back on track,with reinforcement from outsiders without local connections or interests.

Rewards to those completing projects: priority consideration for follow-onprojects.

The results of this new system were startling. In 1993 alone, the target was tocomplete up to one project in 114 VDCs and one municipality, and supply work to 7,000persons. Actually, in ten weeks of field activity, the program supported 180 projects in108 VDCs that were independently certified as complete. This was several times theusual pace and completion rate for traditional civil works programs in Nepal. Over80,000 poor persons benefited from over 370,000 work-days paid during the program.

For this, the program paid out 1,300 tons of rice, stopped only ten percent of projects dueto local level inertia or loss of rice tranches, suffered net losses of less than one percent ofrice, and completed the civil works projects at less than half the usual cost. This can becompared with worldwide Food-for-Work results showing poor reporting, achievementof less than 30 percent of the target activities, food losses of 30 to 50 percent, and verysubstantial cost overruns on such relief projects.12 The results in 1994 were even better:the program covered 118 VDCs (out of 120 initially planned), spent over 2,700 tons ofrice, and implemented 300 village level projects. Overall cost-benefit estimates for thetwo ten-week periods include: total management costs of 12 percent, rates of return oninvestment of over 42 percent per year, and unit costs of less than 50 percent oftraditional estimates.13

12Beier et al (1993) pp. 5-6.13

HURDEC (1994b).


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3.2 The Churia Governance Model

A successful model of project governance emerged out of the Churia experience,which reflected many of the concepts embodied in the approach known as

coproduction.14

The main features of this model have already been mentioned. Here,we look at these in more detail:

Local determination andownership of projects. In the 120 VDCs in Siraha andSaptari districts where the project was operational, project professionals visited thevillages. After this, an orientation training was completed on-site in the village. EachVDC then had to determine the available labor force in its area, and hold a mass meetingto choose a list of potential projects in the area based on needs and demands of theirconstituencies. Of the original 120 VDCs, 118 did so, focusing largely on regenerationof dilapidated ponds, irrigation canals, riverbanks, and roads. Following this, consultantsfrom HURDEC (less than a dozen, consisting mainly of engineers/overseers and social

science professionals) worked with each VDC to identify users and facilitate theestablishment of a democratic and representative User Committee (UC). The consultants,VDC staff, and villagers jointly assessed the cost and labor requirements, and prioritizedthe works requests in terms of feasibility and land availability/benefits to users. Whilethe DDC made the ultimate determination regarding the projects, the establishment ofselection standards and independent enforcement of these standards by GTZ andconsultants (and later by the VDCs themselves) ensured selection more by developmentalthan political criteria.

Users, defined as those who are expected to gain long-term benefits from thepublic works, were vested with the responsibility of achieving project goals. These User

Groups ranged from 200 to 2,000, depending on the type of project. However, the entirevillage was expected to watch over the projects, and user field meetings often wereattended by the entire village. The laborers came first from the User Group (UG), thenthe surrounding village, then the VDC, and finally from adjoining areas if the local laborpool was not sufficiently large.15

Four elements of the local determination process proved essential to its success.First, the prioritization and selection of projects took place at the local level in publicmeetings, discussions included all salient details, and agreements were signed in public.

14See Annex B.

15

It is important to distinguish between a user and a worker. A user in the context of Food-for-Work has been defined as the person/family who gets long-term benefit from the asset/infrastructurecreated through FfW. A worker, on the other hand gets only a short-term benefit in the form of wages (riceand cash). In the hill/mountain districts, users are also workers in many cases, whereas in the terai, most ofthe workers are not users, as they do not have access to assets in the form of land. A User Group consists ofall the users benefiting from the infrastructure created/rehabilitated in the long run via increasedproduction, houses protected from rivers and land slides, etc. In the case of roads, it is difficult to identifythe users, as they are widely scattered and are highly heterogeneous in terms of interests and socio-economic conditions.


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Second, the works were selected (at least partly) based on the ability of the localcommunity to participate, which meant using local labor for earthworks and other tasks,rather than using more complicated or mechanized options. Third, the project staffensured that the local people had virtually all the necessary tools and knowledge tocomplete these projects themselves, increasing the level of ownership and pride at the

local level.

Finally, the establishment of the two governing committees was fundamental inproject operations. The User Committees were made up of trusted individuals selectedby village public meetings. This group managed the physical implementation of theproject, organizing laborers, and measuring earthworks progress. For example, in onevillage, the local people selected two laborers, two women, two farmers, and twobusinessmen to be members of their User Committee and to represent diverse localinterests. Rice Control Committees were to be made up of representatives from opposingpolitical groups, keeping an eye on each other and managing the rice stocks andpayments.16 These two committees gave project control a local nexus, ensured relative

political neutrality, kept information flows open to the public, and entrusted resources topeople at the local level, giving them the opportunity to prove their capacity to achieveresults locally. By far the majority lived up to this challenge.

Establishment of local norms and rates for earthworks labor. Government policy inNepal sets labor productivity norms and daily wage rates on a national basis. The worknorms used in estimations for various types of labor in infrastructure projects wereestablished over 30 years ago and have not changed since. In the case of earthworks, theofficial norms are estimated to be one-half to one-third of average labor productivity inthis type of work. Similarly, official daily wage rates are much higher than actual ratespaid to laborers locally, again as much as two to three times as high. These differentialshave encouraged a great deal of embezzlement.

In the Churia program, local work norms and wage rates were established in eachdistrict. After a brief failed experiment with daily local wage rates, a piece-rate systemwas set up at between 10 and 25 percent above the prevailing local wage rates (i.e. localpiece-rates), following lengthy discussions with laborers and local User Committees.This performance-based system measures both the amount of earth removed and thedistance of the movement, and pays accordingly. Such systems already exist locally, andare used by landowners. Work norms and wage rates were established with DDCapproval, publicized widely in mass meetings, and reinforced by project consultants inregular discussions with villagers. These local piece-rates and the underlyingproductivity norms ("local norms") became the basis for estimating costs of projects,instead of the officially prescribed national norms. Due to this radical approach, it waspossible to generate two to three times the normal physical work output with the samefinancial and/or grain resources.

The standard mechanism developed to determine local norms for new projects

16In practice, the Rice Control Committees played a much less important role than the UCs, and

indeed were mere formalities or even non-existent in many cases.


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was to ascertain local wages paid in a variety of VDCs in recent seasons, determine thehighest of these rates, and pay about ten percent above that rate. This was then used asthe standard throughout the district. Since migration for labor between VDCs within adistrict is quite easy and information travels fast by discussions on the road and inmarkets and tea stalls, inter-VDC labor rates tend to be quite close in value. Therefore,

the selection of district-wide rates was possible without too much inter-VDC variationfrom usual private sector practices. Interestingly, sometimes laborers viewed donorfunds as a mechanism for cheating. They themselves demanded very high wages, up tothree times the norms, unless they understood that the alternative was not to have theproject proceed. This suggests that prior experience with donor-funded projects taughtvillagers that project staff tend to place higher priority on fund expenditure than onfairness and integrity in project management.

Public information, and public audit. An integral part of this program was informationon the project was publicly declared, so that villagers could become their own monitors.The project book was kept with the VDC secretary or the UC secretary and available to

anyone on demand from the start of the project in any village. It included:

a short description of the activity and works;

estimation methods and engineering standards used;

rates for all categories of labor to be used;

a complete and detailed budget, including a list of materials purchased;

a list of the Rice Control and User Committee members as well as the full set ofusers;

a list of those who worked as laborers and their payments in rice and cash;

a comments section on progress and certification of measurements and ricepayments by project consultants and User Committee members; and

minutes of public meetings where progress was reported.

At the end of each tranche of work, the project book was read; measurementswere made and discussed; payments were made, recorded and read; and discussion of anyissues or problems encouraged. These meetings were open to anyone who wished toattend, along with laborers, the project staff, and the User and Rice Committees.Completed project books dating back to 1993 and 1994 were commonly found availableduring the field visits in late 1997, and villagers were quite proud to show them. Inaddition, we found school children who read them to parents.

Other dimensions of transparency were:

(i) a project agreement between the resource-contributing agency (in thiscase, GTZ) and the VDC, reviewed and signed publicly;

(ii) all project information made fully available to interested persons;(iii) bi-weekly inspection visits by donor representatives (or consultants) to

check progress, ascertain successes and problems, and agree with theimplementors on corrective actions to be taken before the next visit;

(iv) the piece-work system, which was intended to make labor supervisioneasier; and


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(v) public audits, in which all records, payments, and physical works progresswere thoroughly reviewed for consistency in a public meeting before thenext phase of a project could proceed.17

Rice payments in tranches, monitored by committees with membership from all major

political parties. Project professionals set up storage in the districts and subdistricts forrice distribution to VDCs, and arranged for pre-checks on rice quality and weight. Workwas divided into sections, and rice allocations made in advance for each section, withbetween two and four tranches provided per project, depending on the history of the VDCand User Group. Rice was moved by bullock carts hired from villagers in rotation, sothat people could easily see how much was coming. A member of the Rice ControlCommittee kept the rice locally under lock and key. Rice distributions were carried outonce a week or every two weeks, if rice tranches were available on time. The selection ofcommittee members from various interest groups was reasonably effective in keeping thesystem honest.

Rice payments were made in public before the User and Rice Control Committeemembers, and often in the presence of project consultants. Payments were accounted forin full during public audits. If all rice could not be accounted for, the next tranche wasnot paid. In case of overpayment to workers, laborers made up the difference involunteer labor. If there were underpayments, the VDC or UC head was shamed publiclyin an audit meeting and made to pay back the shortfall. Villagers worked hard to receivetheir rice, and projects were completed quickly, provided clear plans existed for projectwork and payments. Villagers exerted a great deal of pressure on UC members or RiceControl members who cheated, and beatings were not unknown.

Implementation and monitoring authority fully delegated to an external agency.Although both politicians and civil service officers were involved in the program, theactual cash and rice was under HURDECs control, and the consultants had full authorityover design and estimation approval, purchase of materials, and overall monitoring. Thishelped reduce the scope for corruption, and enabled the project to be responsive toproblems as they emerged in the field. The HURDEC consultants were timely andreliable. They showed up at times and places agreed upon with villagers, and helped thelocal VDCs do the work properly. In addition, they set firm standards by refusing to taketea or any other free item from the local people. In this way, a long history of distrustand fear of government officers by villagers could start to be overcome.

The nature of problems in the 1993/94 Churia Food for Work Program werelargely consistent with usual corrupt practices, which those in power tried to perpetuate.In one location, laborers were underpaid by half a kilo per measured amount of earthmoved, because the workers did not show up to the public audit and have it corrected.Interestingly, a villager made his way to the HURDEC district office to report this, and sothe theft was discovered. The relevant VDC chairman was fined by the Chief DistrictOfficer. This type of problem and solution -- occurred in several locations.

17Beier, Upadhyaya and Acharya (1993) pp. 24, 45. HURDEC (1994b) p. 23.


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In other locations, the User Committees/VDCs became inactive, and the projectscould not proceed. Some user Committees, VDCs, or storekeepers who misappropriatedrice were forced to repay under public pressure, but in other cases they were not. Whenthe latter occurred, projects did not proceed. The word spread that successful projectcompletion led to new projects, that cheaters did not prosper, and neither did their

villages. The total amount of rice embezzled was less than ten tons out of over 2,700tons, affecting only 11 out of the 118 projects. The Chief District Officers of the twodistricts fined the offending VDC Chairpersons or UC members and recovered virtuallyall of the missing rice or its equivalent.

3.3 Expansion under Joint Donors: RCIW 1995 to Present

The successes of the Churia program did not go unnoticed, particularly by theWorld Food Program, which had been operating small Food-for-Work programspreviously but had numerous problems with them, including large grain losses and

frequent failure to complete works projects. After a detailed evaluation of the ChuriaFood-for-Work Program, GTZ, WFP, and the Ministry of Local Development begandiscussions about the expansion of this type of program as a poverty alleviation measure.Ultimately the RCIW (Rural Community Infrastructure Works program) emerged undera trilateral agreement between these parties.

The RCIW program was signed in December 1995. The RCIW program aims tomobilize approximately 15 million workdays of seasonal employment for unskilled ruralworkers in 45 of Nepals 75 districts over five years.18 During its period of operations, itis expected ultimately to benefit 30,000 families through the provision of labor for thecreation of infrastructure. The $ 17 million program budget for the first three years

(1996-8) included inputs from HMG and the two donor agencies, and makes RCIW thesingle most important poverty-alleviation program in Nepal.19 Over the full five years,WFP will furnish approximately 45,000 tons of rice, 420 tons oil, funds for transport andinsurance of the grain, funds of about $280,000 for materials, and training funds of$220,000. GTZ will provide two long-term advisors and several short-term consultantsalong with vehicles and office equipment for MLD, as well as contracts with localfirms/NGOs to provide local project advisory services such as engineering and UserCommittee training. It will also perform some studies and monitor overall fooddistribution and the laborers involved, and collect detailed information on the workscompleted.

According to the project documentation, MLD will select the districts that canparticipate. Areas are to be selected on the basis of food deficit

combating corruption in public works in nepal

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