The elephant in the room. Why do some civil servants prefer to delegate tough decisions to tribunals?

Tuesday 24 October 2023

Credit: allvision/Adobe Stock

Eric Franco Regjo

Legal Delta, Lima

Many developing countries need help to narrow their infrastructure gap, and yet, despite such efforts, the gap in many countries is widening instead of closing.[1] The gap is even more significant if we consider the investment needed to reach a net greenhouse gas emissions-free economy by 2050 and reconstruction required following natural disasters. While it is estimated that the world will face a US$15tn infrastructure gap by 2040,[2] the transformation of the global economy needed to achieve net-zero greenhouse gas emissions by 2050 would require US$9.2tn in annual average spending on physical assets, US$3.5tn more than today.[3] If we take this figure, the investment needed would be significantly higher than the estimated infrastructure gap alone, increasing the challenge still further.

Whenever a developing country announces an ambitious plan to boost infrastructure development through public works, public-private partnerships (PPP) or other means, the key question is whether the state has the internal resources and governance to see this through. An observation raised in Peru and shared in other jurisdictions such as India, is that some civil servants prefer to delegate tough decisions to be decided by tribunals or dispute boards, and then even challenge the tribunal’s decision if they are dissatisfied, or even decide not to comply with it. We are referring to disputes without proper grounds which should not have been escalated to a formal dispute resolution mechanism. This attitude questions a state’s capability of achieving its ambitious infrastructure goals. In my opinion, such an attitude is the result of deeper causes.

Consequently, in this article, I comment briefly on what I consider the leading root causes deterring the development of public infrastructure in Peru, having the impression that at least some of these root causes can be found in other developing countries. My opinion expressed in this article summarises conversations with hundreds of civil servants and private practitioners over the years as part of my lectures on construction law in Peru and presentations to academic forums. While these discussions do not amount to formal empirical research, in practice they can be considered a representative sample of the honest opinions of people who deal with these matters on a daily basis. In any case, I hope this article serves as a basis to encourage further research and empirical studies to confirm, deepen or contradict what I am expressing. It would be relevant to explore to what extent these root causes are also applicable in other countries and whether there are other causes to consider.

it is typical in Peru to find civil servants who prefer to delegate tough decisions to be decided by tribunals or dispute boards.

Peru is an upper-middle-income country with enough money to close its infrastructure gap eventually.[4] The budget assigned for public infrastructure development is over six per cent of GDP (6.6 per cent in 2022), a proper amount, considering that, according to the Inter-American Development Bank,[5] the expenditure required for closing the gap shall be in excess of 5.2 per cent of GDP. Nevertheless, over the last five years actual spending has remained below 4.6 per cent of GDP, as the government has only been spending between 63 and 72 per cent of the budget.[6] In short, Peru’s infrastructure gap has been increasing rather than reducing, and this is without considering the investment required to reach net zero greenhouse gas emissions by 2050 and natural disaster reconstruction. Therefore, in a country with so many needs such as Peru, the biggest problem is not lack of budget but the capacity and quality of spending.

I consider there to be three leading root causes which deter the capacity and quality of spending. These are: (1) many public officials’ ‘fear’ in performing their duties in the best interest of the projects; (2) corruption, and (3) the low quality of the pre-investment phase, including project preparation, feasibility and other studies, and design and engineering.

Civil servants should act in the best interest of the project. They should therefore construe the contract and regulations reasonably, applying the principles embedded in the law, avoiding rigid literal interpretations which play against the project, seeking value for money and achieving public goals. Nevertheless, it is typical in Peru to find civil servants who prefer to delegate tough decisions to be decided by tribunals or dispute boards. This is mainly because the General Comptroller’s (Contraloría General de la República or CGR) role is focused on applying compliance audits rather than performance ones. Consequently, they often apply stringent criteria which do not consider the context of the decisions taken, value for money or the value that certain decisions may add towards reaching the public goals. Audits generally follow literal interpretations of the law and the contract, rather than favouring a more reasonable construction of the project documents. The CGR needs to modernise and audit performance rather than assessing whether the regulation has been literally applied. In fact, a literal interpretation of the regulations is legally inappropriate, as the law requires laws to be applied comprehensively, considering the rationality, principles and end goals. There have been proposals for the incremental implementation of performance audits. Yet they were rejected, arguing that the country needed a ‘strong and strict’ approach due to the high level of corruption. Social media and the abundance of electronic information available have made it easier to detect corruption cases worldwide, which is why we have seen an increase in scandals in the media in recent years. Probably it is not that corruption has increased, rather that it has become easier to detect. In the case of Peru, populist politicians have fostered even harder controls, reducing civil servants’ discretion in public procurement contracts, increasing the minimum and maximum terms for imprisonment in corruption cases and increasing the number of corruption-related crimes contemplated in law. All this has increased rigidity even more.

Moreover, civil servants can now be held personally liable for not complying with a rigid interpretation of what the public procurement regulations and the contract says, regardless of whether it is detrimental to the project. Consequently, they often prefer adopting a ‘conservative’ approach, even if it could be detrimental to the project. They are hardly held liable for negatively affecting a project, causing loss of public funds due to rigid decisions, or not achieving the public goals appropriately or on time, so the risk of taking such an approach is limited. In Peru, it is relatively easy to start an administrative or criminal investigation and groundless cases are not dismissed quickly, creating a burden for those involved which can last years. For example, in 2021, the CGR received 20,804 corruption complaints against civil servants, of which 41 per cent were admitted. If we compare this figure with 757 civil servants effectively sanctioned in 2022 or 1,684 in 2021, we notice that the number of sanctions is much lower than when the proceedings started. We can imagine the psychological, reputational, and economic damage caused to civil servants who have not been sanctioned after years of administrative or criminal proceedings.[7]

Moving more profoundly into the analysis of the causes, civil servants’ fear is inversely proportional to their knowledge of the law. The more they know, the more empowered they will be. In the case of Peru, there is a weak civil service career ladder and a lack of training, especially in small-to-medium-sized public bodies, so this contributes to worsening the situation. A positive aspect worth mentioning is that whenever there is a standing dispute board in place, there is significantly more room to review the law and the contract to clear doubts. More importantly, all involved are also forced to explain their reasoning to the dispute board and the rest of the team involved, increasing accountability and reducing the tendency to delegate tough decisions to the dispute board or tribunal. There are still cases where these decisions are delegated or dispute boards decisions taken to arbitration, but my experience is positive as I have observed a change in attitude.

The approach of the CGR is closely linked to the other root cause mentioned above, corruption. Peru is a country with a medium-high index of corruption.[8] Only a few civil servants are corrupt in practice, but that is enough to contaminate the whole system and create paranoia. It is estimated that 15 per cent of the budget spent on public projects is lost to corruption, so the problem is significant.[9] The CGR must combat a real problem which is very difficult to eradicate. Finding sensible policies to create control mechanisms is challenging, and rigidity tends to cause paralysis. Consequently, in Peru’s case, corruption is a deep root cause behind many civil servants’ fear of making decisions.

In order to tackle these problems, it is necessary to strengthen the public career ladder and have the CGR structured in such a way as to protect officials who apply contracts and the law sensibly, favouring performance, value for money and achieving public goals. This is extremely difficult to realise, as it depends on political consensus across several independent state powers, mainly the parliament, the CGR, which is independent according to the Constitution, and the executive branch. It requires a change of culture within the civil service, which can only be achieved with sustained far-sighted leadership over the long term.

Turning to the third root cause, a more feasible solution in the short term is investing in improving the quality of the pre-investment phase, which includes project preparation, feasibility and other studies, and design and engineering. This is within reach of the government in the short term and does not require significant regulatory or structural changes or significant budget increases. This would reduce the need for civil servants to deal with difficult situations, such as extra work or extensions of time, which may be used as evidence that someone has made a mistake or created complicated internal processes which could even stop the project. Moreover, as the need to exercise discretionary powers would reduce, there would be less risk of corruption.

As is well known in many countries, one of the main problems in public works projects is the relatively low quality of the pre-investment phase, design and engineering. The copy and pasting of drawings and studies is an unfortunate extended practice. This means that when the contractor verifies the drawings on site and progress is made with the work, a series of requests for information and extra work are generated, causing delays and disputes that can even lead to thwarting the project.

Part of the problem is also that, in some cases, there is corruption or at least negligence in awarding contracts to develop pre-investment studies or the design and engineering. These contracts are for lower amounts than the works contracts, so there are less stringent controls in place. Moreover, there are often poor-quality controls of the deliverables, possibly due to a lack of internal capabilities, lack of engagement or the poor thinking that any defect will be corrected during construction.

politicians pose a risk to projects as they rush to approve underdeveloped ones, creating fertile ground for disputes

Furthermore, politicians pose a risk to projects as they rush to approve underdeveloped ones, creating fertile ground for disputes. The technical teams try to take the necessary time to develop the pre-investment phase and engineering, demanding a degree of patience politicians and end users tend to lack. Politicians focus on setting the first stone, while the technical teams focus on commissioning the infrastructure. Regardless of the risk, politicians are critical for project development because public projects can only be implemented with their support. This is an eternal dilemma, unlikely to be fully resolved anywhere in the world, but it should be mitigated as much as possible. This is one of the root causes as to why we see excessive optimism in some contractor schedules, sometimes setting deadlines which are impossible to achieve or budgets that increase significantly during construction.

Another aspect which shows the poor attention that the pre-investment phase receives is the need for more investable projects, a problem that can be seen worldwide.[10] A study carried out in Peru shows that the total sum of the entire portfolio of identified projects was far lower than that of the infrastructure gap. For example, in the highways sector, it was determined that the five-year gap was US$31,850m, but the sum of identified projects only amounted to US$10,247m.[11]

If only one invested in improving the quality of the pre-investment phase, and the design and engineering, this alone, even without changing anything else, would make a big difference. It would increase the level and quality of spending, minimise budget increases, delays, and paralysed works, reduce the situations in which officials need to be flexible to make a project viable and reduce the margin for corruption. If other measures are added to this, it would be optimal, but the relevance of this factor leads me to conclude that it is the area in which more emphasis should be placed.

For this reason, if I had to suggest how to spend any additional budget that a state wishes to allocate to boost projects, part of it should be given to improve the pre-investment phase quality and the design and engineering. Undoubtedly, this would sustainably attack the root of one of the main problems and have an essential effect on the other root causes.

In Peru, the fear many public officials have in performing their duties for the best interest of the projects is the tip of the iceberg. The deeper problem relates to a system where the CGR implements rigid compliance controls to fight corruption and this creates paralysis, especially when mixed with a poor public sector career ladder, and lack of training and knowledge of law. It would be interesting to assess the extent to which some of the analysis in this article applies to other jurisdictions.


[1] The infrastructure gap of developing countries is calculated by comparing the investment required to raise the country’s infrastructure to that of the average of certain groups of countries, such as those of the OECD.

[2] See, eg, George, Anita and others, ‘The world is facing a $15 trillion infrastructure gap by 2040. Here’s how to bridge it’, WEF, 11 April 2019 https://www.weforum.org/agenda/2019/04/infrastructure-gap-heres-how-to-solve-it accessed 22 July 2023.

[3] See, eg, McKinsey Global Institute, ‘The net-zero transition: What it would cost, what it could bring’ mckinsey.com/capabilities/sustainability/our-insights/the-net-zero-transition-what-it-would-cost-what-it-could-bring accessed 22 July 2023.

[4] See, eg, SDG Goal ‘Data for Peru, Upper middle income’ World Bank Data https://data.worldbank.org/?locations=PE-XT accessed 22 July 2023.

[5] Clair Chalmers, BID Invest, Banco Interamericano de Desarrollo, Financiar con transparencia: Aumentar la inversión privada en infraestructura en Latinoamérica, p 6, https://publications.iadb.org/es/financiar-con-transparencia-aumentar-la-inversion-privada-en-infraestructura-en-latinoamerica accessed
22 July 2023.

[6] Data according to the Peruvian Central Bank and the Ministry of Economy.

[7] See, Anti-Corruption Watch, https://observatorioanticorrupcion.contraloria.gob.pe/indicadoresdecorrupcion/index.html accessed 22 July 2023.

[8] See, eg, Transparency International. Peru https://www.transparency.org/en/countries/peru accessed 22 July 2023.

[9] Contraloría General de la República, Incidencia de la corrupción e inconducta funcional, 2021, https://www.gob.pe/institucion/contraloria/informes-publicaciones/3709870-incidencia-de-la-corrupcion-e-inconducta-funcional-2021?utm_source=obant&utm_medium=enlacepublicacion&utm_campaign=obant accessed 22 July 2023.

[10] See, eg, Zelikow, Daniel and Savas, Fuat, ‘Mind the gap: Time to rethink infrastructure finance’, World Bank Blogs, 20 May 2022, https://blogs.worldbank.org/ppps/mind-gap-time-rethink-infrastructure-finance accessed 22 July 2023.

[11] AFIN and Universidad del Pacífico, Plan Nacional de Infraestructura 2016-2025, p 105.

Eric Franco is managing partner at Legal Delta in Lima and can be contacted at eric.franco@legaldelta.com.