Select Committee on International Development Minutes of Evidence

Memorandum submitted by Balfour Beatty

  Balfour Beatty's position is set out in our statement on "Ethical Policy". This states:

    1.  Balfour Beatty is committed to operating all aspects of its business in an ethical manner.

    2.  This includes treating customers, suppliers and others with whom we deal in a fair and honest way.

    3.  Employees are expressly instructed to refrain from engaging in dishonest business practices and the terms of our agreements with agents and representatives contain similar prohibitions. Breach would be due cause for dismissal of an employee, or termination of an agency agreement.

  The Company's adherence to this policy—and to policies in allied areas such as Human Rights, Health and Safety, and Environmental matters—is today monitored by a "Business Practices Committee", consisting of non-executive directors and chaired by an independent non-executive director.

  On a day-to-day operating basis, our normal risk analysis procedure which is applied at the enquiry/tendering stage of potential contracts would be expected to throw up any potential problems in this area. Any doubtful cases are referred to the Board.

  Although we observe simple and straightforward rules there are, however, issues which could give rise to difficulties in practice, and we highlighted these to ECGD earlier this year when they were drafting their policy on corrupt practices. These include the following specific problems:

    (a)  Although (as shown above) our agreements with agents prohibit them engaging in dishonest practices, and we would terminate their contracts if they did so, in reality it is not possible to control what an agent may do with legitimate commission payments he receives, or indeed even to know what he may do or has done.

    (b)  On major contracts, a company may be a member of a consortium, joint venture, or partnership, consisting of other companies, either international or local, but may well not be the managing partner or the partner with prime responsibility for the sales and commercial aspects of the contract. The managing partner would normally take an earmarked part of the price to cover his cost of handling these aspects. Similar considerations to (a) above could therefore apply in this case also, notwithstanding whatever the consortium's internal agreements may be.

    (c)  In some cases a company may find itself as a sub-contract supplier on a major overseas project, where the business relationship is solely with the main contractor rather than with the ultimate client. In such cases it would be highly unlikely that they were aware, or could be aware, of the nature of commercial dealings between the main contractor and the client, and whether or not these may have involved any impropriety.

    (d)  On a "de minimis" level there can be problems with minor officials in some developing countries, affecting many simple aspects of day-to-day life.

  None of the above is intended to suggest that "conscious disregard" or "deliberate ignorance"—phrases taken from the US Foreign Corrupt Practices Act—are in any way an acceptable excuse.

  In practice, the main ways a company can project itself—apart from having proper rules and procedures—is by trying to select reputable people as agents or representatives; only working with reputable partners in joint ventures; and viewing with suspicion any demand by agents for levels of commission which seem out of the ordinary in terms of the services required. In addition there are parts of the world where business practices are known to be such that attempting to do business there on an honest basis is not possible, and sensible companies would accordingly shun these markets.

  The problems of corruption are unfortunately not confined to the process of obtaining a contract. For example, although a contract may be obtained in a perfectly legitimate manner, difficulties can arise in execution. It has been known in some countries for officials unjustifiably to withhold due payments, or refuse to certify completion or specified performance, or delay customs clearance and the like. This can pose a very difficult practical dilemma for a contractor, and it should be noted that the US Foreign Corrupt Practices Act permits, in such circumstances, exceptions to its conditions prohibiting payments to officials. Clearly there are other ways in which similar pressures, akin and close to blackmail, can be exerted on a contractor.

  At the start of this memorandum it is clearly set out what this company's policy is, and how in practice we monitor its observance. It is worth remarking, however, that there is one moral dilemma which neither any company's ethical rules, nor government legislation, nor indeed the search for an ethical foreign policy can address, and that is what might be called relative benefit or relative good. To illustrate it, if a poor country desperately needs, say, a hospital or a clean water supply and it is a corrupt country where such a project will only proceed if corrupt payments are made, does the satisfaction of sitting on the high moral ground and not participating, balance the misery in humanitarian terms the inhabitants will continue to endure?

  Finally, we would make two general points. Taking a long term view, there is no doubt that over the past few decades there has certainly been a marked improvement, taking developing countries as a whole, in the number of countries where irregular business practices occur and in their extent. Equally, observation suggests that most companies from developing exporting countries today take a much more robust view than was once the case. We do not therefore believe the whole issue is today such a critical one. Our opinion is that the most important reason for this improvement has in practice been the far more competitive market conditions which prevail today and as a result the tight margins on overseas business give little room for corrupt officials to seek payments or for weak minded companies to make them. It would be nice to think, but a delusion to think, it was mainly due either to stricter rules in exporting countries or to some sudden reduction in human frailty.

  Second, we take the view that there continues to be a varying attitude held by different developed exporting countries and their companies and authorities, towards the whole subject of corrupt practices. It would be invidious to give names and we would not do so, but this conclusion is simply based on observation and experience. Certainly there are countries who, in this respect and in other respects such as export finance, take a more pragmatic and mercantilist view than the UK does, towards doing business in developing countries regardless of what international rules these exporting countries purport to support.

  It therefore seems essential that if real progress is to be made, it should be done by agreements on a multilateral basis.

  We hope this memorandum will be of some help to the Select Committee, and that, at the least, it sheds some light on the practical issues involved in an area which is more complex than it may seem at first sight. We do not need to add that what we have written is from the perspective of a contractor who operates in many parts of the world.

Lord Weir, Chairman, Balfour Beatty

January 2001

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