DFID'S "COST" INITIATIVE: MORE QUESTIONS THAN

UNCLAS SECTION 01 OF 02 LONDON 002587

SIPDIS

SENSITIVE
SIPDIS

EEB/IFD/OMA FOR ABESMER

E.O. 12958: N/A
TAGS: ECON EIND ETRD EFIN PINS KCOR UK
SUBJECT: DFID'S "COST" INITIATIVE: MORE QUESTIONS THAN
ANSWERS

REF: SECSTATE 84287

LONDON 00002587 001.2 OF 002



1. (SBU) Summary: Participants from government, industry and
the private sector agreed that transparency is a concern in
the construction sector but questioned the value added by
DFID's Construction Sector Transparency Initiative (CoST).
Econoff raised reftel concerns widely at a June 20, DFID-
hosted informational meeting to gather support for the
initiative. DFID plans to incorporate participants' feedback
in an updated project outline that will form the basis for
interested countries to press forward with pilot programs in
the fall that will determine if the initiative is viable.
The UK announced at the meeting that it would be one of the
pilot countries. Vietnam and Tanzania also showed interest.
End Summary.

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The CoST Initiative
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2. (U) DFID created this initiative to improve transparency,
and thereby reduce opportunities for corruption, in the
construction sector. DFID argued that some progress has been
made to improve transparency and accountability in
international tendering, but this initiative is needed to
help in the post-contract period. CoST seeks to build upon
the "success" of the Extractive Industries Transparency
Initiative (EITI),under which companies and governments in
the extractive industries publish what they pay/get for these
resources.


3. (U) DFID argued that CoST differs from existing
anti-corruption initiatives since it brings in a
multi-stakeholder approach (governments, companies, civil
society). Further, a sectoral approach is necessary because
issues differ by sector. Construction is a sector countries
and the development banks recognize has great problems.
Finally, CoST involves downstream transactions that are not
currently addressed through multilateral agreements.

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Questions and Challenges
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4. (U) Discussions at the June 20 meeting raised more
questions than answers. The group of government
representatives from countries considering piloting the
initiative questioned the boundaries of the initiative )
which construction contracts would be covered and how would
the initiative mesh with existing country policies and
structures? They also questioned the extent of financial
disclosures that would be required and the process of
implementation (e.g. at country level, what is the
appropriate level of authority for the review group within
the government?).


5. (U) The construction industry group focused on the
potential costs of the initiative and questioned the capacity
of governments and the construction sector to implement the
initiative. They wanted to make sure the initiative did not
duplicate existing structures or delay construction projects.
They also questioned the level of authority of the review
group and if information disclosed as part of CoST could be
used as evidence during contract disputes. If implemented,
the industry group thought the oversight group should be
independent and have influence, but their material should not
be used for audits or prosecutions.


6. (SBU) Potential donors echoed reftel concerns both during
the breakout session and, individually, on the margins of the
meeting. They sought more definition of the objectives of
the initiative (e.g. how does increased transparency
translate into less corruption?). They questioned the value
added of the initiative and were concerned that the
initiative would divert attention, funds, and human resources
from existing initiatives. In terms of implementation, they
challenged countries' capacity to carry out the initiative
and the complicated structure of the proposed review
mechanism. Econoff urged pursuing CoST's goals through
existing anti-corruption and transparency initiatives within
the WTO and the UN Convention on Anti-Corruption. While many

LONDON 00002587 002.2 OF 002


agreed duplication was a concern, none were familiar enough
with these organizations to assess the viability of this
suggestion in practice.

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DFID's Perspective
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7. (SBU) Econoff met with Mary Hunt, Policy Analyst in DFID's
Business Alliances Team (responsible for CoST),in advance of
the June 20 meeting. In response to reftel points, Hunt
recognized some of the challenges of CoST, but argued that
the point of the pilots was to determine if the initiative is
viable. Hunt agreed that there are far more companies and
countries involved in construction than was the case for
EITI, but responded that only interested countries would
participate. She concurred that building new international
structures is cumbersome, but argued that current
anti-corruption agreements have not led to better outcomes,
and it is envisioned that the initiative would only need to
run for a couple years until its concepts are accepted as the
norm. Finally, there would likely be costs to donors similar
to those for EITI. Hunt's overall argument in response to
reftel concerns was that CoST is still in the very early
stages, so it should continue to be developed and tested via
pilots before deciding if there is sufficient international
interest to pursue it further.


8. (SBU) The UK announced at the June 20 meeting that it
would be one of the pilot countries. It remains unclear
which UK government agency will lead this process, which
companies will participate, or what types of information will
be disclosed. Ben Mellor, Head of Director's Office for East
and Central Africa at DFID told EconOff that DFID would like
the UK pilot to be applied to construction projects related
to the 2012 London Olympics, but this may prove too difficult
to do within HMG.


9. (SBU) Hunt was open to the idea of working with other
organizations seeking to achieve the same goals as CoST, but
she viewed CoST as a way to help countries fulfill
transparency commitments made in large international fora,
rather than these agreements providing the impetus to get
countries to improve transparency in construction. She
asked: (1) What specifically do UNCAC and WTO do to encourage
transparency in procurement? (2) How do these initiatives
lead to better outcomes at the country level? (3) Is there
anything specifically focused on implementation of
construction projects?; and (4) Is there any flexibility
within these structures to employ the multi-stakeholder
approach?

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Comment
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10. (SBU) While there was wide skepticism of the viability
and usefulness of this initiative, meeting participants
agreed with the goal and were generally willing to let DFID
try out the proposal in the pilot countries. None offered
financial support for this endeavor, however, and DFID made a
point of leaving the discussion of costs for future meetings.
DFID participants did say that DFID plans to provide some
funding. The UK decision to implement a CoST pilot program
in the UK could demonstrate the viability ) or lack thereof
) of this initiative most quickly. The UK will need to
address the host of practical questions raised in order to
carry out its own pilot. If successful, this could provide a
guide for other countries with less institutional capacity.

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