Resumed Fifty-fifth General Assembly

Fifth Committee

46^th Meeting (AM)

MANAGEMENT OF SECRETARIAT DEPARTMENTS, PROCUREMENT-RELATED ARBITRATION

AMONG ISSUES DISCUSSED IN ADMINISTRATIVE AND BUDGETARY COMMITTEE

The Fifth Committee (Administrative and Budgetary) this morning discussed a number of issues, including:  reports of the Office of Internal Oversight Services (OIOS) on the management of several Secretariat Departments; procurement-related arbitration; and the investigation into possible fee-splitting arrangements at the International Criminal Tribunals.

During its consideration of the OIOS reports, the representative of Canada stressed the crucial role of the Department of General Assembly Affairs and Conference Services -- the second largest department in the United Nations.  He was, therefore, pleased that an inspection had been undertaken.  Also, in light of commitment to an “E-United Nations,” he was concerned by the failure of some departments to submit documents electronically for translation.

When the Committee turned to the question of procurement-related arbitration, the representative of the Russian Federation said the issue had been addressed by the Committee for five years.  During that time no convincing answer had been given to such questions as the cost to Member States of procurement-related arbitration, to what extent the Organization had been successful in those cases and how legal companies were selected.  The report of the Board of Auditors and the answers of the Secretariat had finally given a much clearer picture of the question.

The representative of the United States said that with the Board’s reports there was now a full accounting of the issue so that it could be analysed and the proper improvements made for carrying out procurement in a more cost-effective manner.  He endorsed the Board’s recommendations and hoped they would be carried out expeditiously.

As the Committee concluded its consideration of the possible fee-splitting between the defence counsel and detainees at the two International Tribunals, several speakers expressed concern over such a corrupt practice, which led to unjustified protraction of proceedings and frivolous appeals.  They expressed support for the continued investigation of such practices and implementation of recommendations in that respect.

The Committee also took up administrative and budgetary coordination of the United Nations with the specialized agencies and the International Atomic Energy Association (IAEA).  On that subject, it decided to prepare a draft decision by

the terms of which the Assembly would take note of the statistical report on the budgetary and financial situation of United Nations bodies (document A/55/525).

Also speaking this morning were the representatives of Sweden (on behalf of the European Union), Syria, China and India.

Reports before the Committee were introduced by the Director of the General Legal Division of the Office of Legal Affairs, Bruce C. Rashkow, and the Chairman of the Advisory Committee on Administrative and Budgetary Questions (ACABQ), Conrad S.M. Mselle.  Both Mr. Rashkow and Mr. Mselle responded to questions from the floor, as did Dileep Nair, Under-Secretary General for Internal Oversight Services, and Qazi Shaukat Fareed, Director of the Office for Inter-Agency Affairs.

The Committee will continue its work at 10 a.m. Friday, 16 March, when it is scheduled to conclude its general discussion of the question of procurement-related arbitration.

Background

The Fifth Committee (Administrative and Budgetary) met this morning to conclude its general discussion on the Office of Internal Oversight Services (OIOS) reports on procurement reform, on the Department of Economic and Social Affairs and the Department of General Assembly Affairs and Conference Services, as well as its agenda item on the financing of the International Tribunals.  (For background on these, see Press Release GA/AB/3427/Rev.1 of 14 March). 

The Committee was also expected to hear the introduction of reports on procurement-related arbitration.

A report of the Secretary-General on procurement-related arbitration, (document A/54/458), indicates there are currently four pending arbitration cases.  Since 1995, there have been a total of 12 such cases, 11 of which relate to peacekeeping activities and one to the construction carried out by the United Nations Development Programme (UNDP).  When compared to the total value of procurement contracts awarded by the Organization, the number and monetary value of arbitration cases has been very small.  Thus far, disciplinary action has been taken against one UNDP staff member in connection with an arbitration case.

The Secretary-General does not dispute the reasons for the arbitration cases, including:  inadequate contract administration; lack of experience on the part of programme managers; unclear contractual terms; and non-compliance with rules and procedures by mission staff.  In large part, those cases resulted from the sudden growth in peacekeeping activities and the switch from support services provided by governments of Member States to the use of commercial vendors.

Contractor claims or disputes have been handled in an ad hoc manner up to now, the Secretary-General states.  First, the operational unit -- such as the peacekeeping mission -- responsible for contract administration attempts to resolve the matter with the contractor.  The Procurement Division and the Office of Legal Affairs are brought in for contractual or legal issues, respectively.  Settlement discussions take place under the authority of the Under-Secretary-General for Management and the Controller.  Every effort is made within the various offices of the Secretariat to reach an amicable settlement of claims and disputes, which arise in normal commercial relationships.

According to the report, the amount of an award or settlement and the cost of arbitration are charged to the budget of peacekeeping missions in question.  As a matter of budgetary principle and practice, no provision is made in peacekeeping budgets (or the regular budget, for that matter) to cover the possible cost of arbitration cases that might occur, since such expenses represent contingent liabilities.  At the same time, once it is known that a dispute might be proceeding to arbitration, where feasible the validity of available obligated funds in approved peacekeeping mission budgets for non-governmental liabilities is extended to cover the potential liability.

As many of the arbitration cases to date have involved closed or completed peacekeeping missions, payments for legal fees incurred, settlements and awards have been charged on an ad hoc basis against available residual funds of such missions.  Information on other future payments of this nature will be provided on a consistent basis in future financial performance reports of individual peacekeeping missions, as applicable.

Also according to the report, outside legal counsel is selected through a transparent and competitive process.  Contracts are awarded by the Chief of the Procurement Division or the Assistant Secretary-General for Central Support Services, according to standard rules and procedures.  Legal litigation services are highly specialized and firms are invited from a roster maintained in the Office of Legal Affairs.  Thus far, most arbitrations have taken place in the host city.  The Office of Legal Affairs closely supervises all law firms to ensure that the interests of the Organization are protected, including avoidance of conflict of interest.

The Secretary-General has taken a number of steps that are consistent with the recommendations in the OIOS report, the report states.  The keys to avoiding arbitration are clear and sound contracts and effective contract administration, which will prevent disputes from arising in the first place.  The Secretary-General also supports the introduction of staff training in contract management and claims negotiation.  A system for contractor evaluation has been introduced.  Contractors can now raise complaints on the Procurement Division Web page.  Regular reviews of arbitration cases take place, and alternate methods of dispute resolution, such as conciliation, are being explored.

In a related report (document A/55/829), the Advisory Committee on Administrative and Budgetary Questions (ACABQ) explains that to assist in the examination of the Secretary-General's report, it requested the Board of Auditors to examine the practices and procedures of arbitration cases.  The document before the Committee contains both the comments by the Advisory Committee and the report of the Board of Auditors on the matter, in which the United Nations administration handled arbitration and claims cases from 1994 to 1997.

The Board of Auditors main recommendations include suggestions:  that the Office of Legal Affairs and the Field Administration and Logistics Division should clarify the exact meaning of the "overflight" charges with regard to flights of aircraft on mission; the scope of services and the nature of costs to be reimbursed should be clearly defined when entering into "cost plus fee contracts"; the United Nations Children's Fund (UNICEF) should prepare a proper business assessment before entering into major contractual commitments; and offices away from Headquarters should be advised to exercise caution in giving authorization for contractors to provide goods and services prior to the finalization of contracts.  The Office of Legal Affairs and the Procurement Division should coordinate their procedures to ensure that proper internal controls are in place in respect of outside counsel.

The Board also recommends reviewing the "proviso" clauses and clarifying the circumstances in which they can be used; and ensuring that settlement agreements include a clear provision concerning the applicable rate of interest due on claims.  A clear definition of ambiguous terms and incorporation into the contracts of a period of limitation on the filing of claims are also important. 

According to the report, greater attention to the processing of contract negotiation might have minimized the unnecessary risks of subjecting the Organization to claims that could have otherwise been avoided.  The Advisory Committee believes that the respective roles of the Office of Legal Affairs and the Office of Central Support Services were not fully coordinated, which, in many instances, exposed the United Nations to claims, since there was a lack of sufficient rigour in negotiating, reviewing and managing contracts.  The Advisory Committee fully endorses the Board's recommendations and requests that a comprehensive report on the results of the implementation of the Board's recommendations be submitted to it in February 2002, in the context of the review of the peacekeeping budgets.

The ACABQ also recommends that all claims, names of claimants and the amounts involved should be disclosed in the peacekeeping performance reports and that specific information on the circumstances that led to the claim be provided to the Advisory Committee.  The report also emphasizes the need to rigorously apply all procedures designed to prevent a conflict of interest and to effectively monitor the cost to the United Nations of fees to outside counsel.  From the outset, it is important to clearly define the scope of any action proposed and to be aware of the possibility of a contractor submitting a low initial bid, making up for it later through a series of contract renegotiations.  The contracts should ensure the strictest adherence to fee caps.

In conclusion, the Advisory Committee recommends that the General Assembly take note of the report of the Secretary-General on procurement-related arbitration and stresses the importance of fully implementing the recommendations of the Board of Auditors.

Statements

The Committee began by continuing its consideration of reports on the follow-up audit of the implementation of procurement reform (document A/55/746); the inspection of the outcome of the consolidation of the three former economic and social departments in the Department of Economic and Social Affairs (document A/55/750); and the inspection of the consolidation of technical support in the Department of General Assembly Affairs and Conference Services (document A/55/803).

MAGNUS LENEFORS (Sweden), on behalf of the European Union, said the Union welcomed the findings of the report on procurement activities, which showed that there had been significant improvement in the Department’s activities.  There should be continued efforts to increase its effectiveness.  The report on the Department of Economic and Social Affairs showed that the Secretary-General’s consolidation had been a success.  The Department was absolutely fundamental to the work of the United Nations. 

The report on the Department of General Assembly Affairs and Conference Services showed a successful outcome of the rationalization exercise undertaken by the Secretary-General, he said.  The Union supported the recommendation on cost-effective utilization of the services in New York, Geneva and Vienna and the need to avoid over-long meetings. 

JOHN ORR (Canada) said the Department of General Assembly Affairs and Conference Services was the second largest department in the United Nations.  Its role was crucial in enabling Member States to carry out their work, and Canada was therefore pleased that the inspection had been undertaken.  The report had focused largely on the work of the Department in New York.  It would be useful to make a comparison between the major duty stations. 

He noted the comment in paragraph 20 of the report regarding the lack of control over financial resources by New York over other duty stations and asked if that extended to areas beyond resources.  Canada had replied to the survey conducted by the OIOS to determine Member States’ satisfaction with services provided by the Department, but certain aspects of its design made it difficult to provide answers.  He hoped that delegations would be consulted with before the next survey was undertaken.  In light of commitment to an “E-United Nations” he was concerned by the failure of some departments to submit documents electronically for translation.  He asked for further clarification on the financial implications and resultant delays of that failure. 

BERYL BENTLEY-ANDERSON (United States) said that her delegation was taking the floor on the issue today because the report on Department of General Assembly Affairs had been submitted late.  On the subject of electronic documents submission, she said that the departments that did not submit the electronic version of documents should not be allowed to submit ordinary copies of those documents for translation.  Regarding the questionnaire that had been distributed among the delegations, she commented that it was important for Member States to help the Department to discern if responses testified to a high level of satisfaction or apathy towards the work of the Department.

ABDOU AL-MOULA NAKKARI (Syria) said that he supported the position expressed by the representative of Iran on behalf of the “Group of 77” developing countries and China and added that reports should be submitted in accordance with the six-week rule to allow delegations time to study the documents prior to expressing their views on them.

DILEEP NAIR, Under-Secretary-General for Internal Oversight Services, thanked the speakers for their comments.  Turning to the work of the Department of General Assembly Affairs, he said that the report before the Committee concentrated on the situation in New York.  However, comparisons and benchmarks would be used to see if the efficiency at other duty stations had risen to the same level as in New York.  There was an intention to ensure submission of documents electronically, and in the follow-up it was necessary to see if the departments had made progress in that respect.  The Secretary-General was monitoring the implementation of recommendations in all departments, and the extent to which the Performance Appraisal System (PAS) was applied was part of that process. 

The Committee then turned to the possible fee-splitting arrangements between defence council and indigent detainees at the International Tribunals for Rwanda and the former Yugoslavia (document A/55/759).

NIKOLAI V. LOZINSKI (Russian Federation) said that the subject of serious abuses in the Tribunals was not new, and the investigation of possible fee-splitting was commendable.  He concurred with the concern that certain attorneys, above all at the Yugoslav Tribunal, engaged in fee-splitting.  That, in essence, was an illegal and unsanctioned use of the United Nations resources.  As seen from the OIOS report, fee-splitting led to unjustified protraction of proceedings and frivolous appeals.  The question of fee-splitting was connected with many other issues of the operation of the courts, and he commended the fact that the report recommended many measures to rectify the situation.  It was important to actively pursue the investigation and review the functioning of the International Tribunals, as the question of their effectiveness in their current state was becoming quite timely.

ZHOU QIANGWU (China) said his delegation welcomed the report on fee-splitting. China was very concerned about the fee-splitting arrangements in both Tribunals.  Since their establishment, the budget of the two Tribunals had increased yearly and it was very disturbing that such arrangements were being entered into.  China had noted the hard work of the OIOS in investigating the matter.  He noted, however, the presence of imprecise language in the report, specifically in paragraphs 71, 72 and 75.  He hoped that could be addressed.  He called on the Tribunals to increase their trial efficiency and to speed up the trial process.

ELIZABETH NAKIAN (United States) was seriously concerned by the findings in the report, which was thorough and informative.  She was alarmed by indications of corrupt practices undermining the effectiveness and credibility of the Tribunals.  The recommendations of the OIOS should be implemented as soon as possible, she stressed.  The matter of fee-splitting should be kept under review. 

Mr. NAIR said that the matter was under review and investigations were continuing.  The language in the mentioned paragraphs was not precise because conclusive evidence had not been found.  Investigations were ongoing and he would report back to the Committee.

The Committee then took up the resource implications of the use of ad litem judges for the former Yugoslavia Tribunal (documents A/55/517/Add.1, A/55/756 and A/55/806.)

Ms. NAKIAN (United States) said her delegation had reviewed all the relevant reports of the Secretary-General.  She said the ACABQ’s consideration had led to balanced and reasonable recommendations, which the United States could support in totality.

The Committee then took up administrative and budgetary coordination of the United Nations with the specialized agencies and the International Atomic Energy Association (document A/55/525).

Mr. ORR (Canada) said Canada found the report rather useful.  It was helpful for the Committee to do a wide analysis of the system.  He asked for the Administrative Committee on Coordination (ACC) to have a look at the lines in the report concerning the approved United Nations budgets.  They seemed inaccurate. 

QAZI SHAUKAT FAREED, Director, Office of Inter-Agency Affairs, said the Secretariat was taking note of the comments by the representative of Canada. 

The Committee’s Chairman, GERT ROSENTHAL (Guatemala), said that the Secretariat should prepare a draft decision, by the terms of which the Committee could recommend the General Assembly take note of the budgetary and financial situation of the United Nations bodies, contained in document A/55/525.

RAMESH CHANDRA (India), Vice-Chairman of the Committee, speaking in his national capacity, said that he completely agreed that the document under consideration was the only report containing details about system-wide contributions to funds and agencies.  It would also be helpful if contributions from Member States to the funds, programmes and agencies were shown alongside investments made by those funds and programmes.  That would provide useful reference, and all information would be contained in a single document.  All delegations were likely to benefit from such data.  Another issue that needed to be addressed was a trend of the core resources dwindling within various bodies.

The Committee agreed to prepare a draft decision on the issue.

The Committee then turned to the report of the Secretary-General on procurement-related arbitration (document A/55/458) and a related report of the ACABQ (document A/55/829).

Introducing the Secretary-General’s report, BRUCE C. RASHKOW, Director, General Legal Division of the Office of Legal Affairs, said that in developing the report, the Secretary-General had taken into account the recommendations of the OIOS and the views expressed by Member States during the fifty-third session of the General Assembly.  The reasons for arbitration, the roles and mandates of various United Nations units in that process, the sources of funding for settlement payments and use of outside counsel, as well as disciplinary action and measures to reduce contract disputes were among the issues addressed by the report. 

Two additional audits had taken place since the report of the Secretary-General had been prepared, he continued.  The Secretary-General had also issued additional comments on the subject, which were contained in document A/55/380.  The fourth audit just completed addressed 42 cases relating to either settlements or arbitration.  It was useful to view those cases in the context of the total procurement of the United Nations for the period 1994 to 1997, which exceeded $5 billion.  The claims were not significant, compared with the total amount, and claimants had recovered approximately 10 per cent of their claims.  Those figures helped to put the problem in perspective.

The Organization’s record in that respect was comparable to that of other bodies, he said.  However, mistakes had been made and it was possible to improve the way business was conducted.  While not agreeing with all the findings and recommendations that resulted from the audits, he said that many of those recommendations were being implemented, and constructive proposals were appreciated. 

C.S.M. MSELLE, Chairman of the ACABQ, introduced his Committee’s report (document A/55/829).  He said the subject of litigation of claims against the Organization had been of interest to the Committee for a number of years.  He commended the Board for preparing two excellent reports, which would be of great use to the Committee in its deliberations on the matter.  He noted that the subject of procurement-related arbitration concerned the Secretariat as a whole. It would be simplistic to say that the cost incurred was minimal. 

He said the cost to Member States was more than the approximately $42 million for the period 1994 to 1999, because, among other reasons, the claims were not all settled.  Contract processing and management, among other things, must be urgently improved.  If the Board’s recommendations were implemented, the United Nations exposure to litigation in the area under discussion would be minimized. 

Mr. LOZINSKI (Russian Federation) said his delegation was grateful to Board of Auditors for their in-depth audit of all the problems related to procurement-related arbitration in the United Nations.  He was also grateful to the ACABQ for its report.  The problem of procurement-related arbitration had been addressed by the Committee for five years and during that time no convincing answer had been given to such questions as the cost to Member States of procurement-related arbitration, to what extent the Organization had been successful in those cases

and how legal companies were selected.  The report of the Board and the answers of the Secretariat had finally given a much clearer picture of the question.

The fundamental conclusion was that the reason for procurement-related arbitration was a lack of qualified experts in the procurement area of peacekeeping operations, he said.  A possible improvement of their professional training should be considered, as well as better coordination between the relevant departments.  Serious lessons should be drawn from the in-depth analysis by the ACABQ and the Board.

THOMAS REPASCH (United States) said that, as the representative of the Russian Federation had said, there was now a full accounting of the issue so that it could be analysed and the proper improvements made for carrying out procurement in a more cost-effective manner.  He endorsed the Board’s recommendations and hoped they would be carried out expeditiously. 

Turning to specific aspects of the ACABQ report, he said he wished to hear from Mr. Mselle on what an appropriate level of risk would be for the Organization.  That was important for determining the cost-effectiveness of activities aimed at lowering risk.  He cautioned that, in most cases, it was cost ineffective to eliminate risk totally.  The United States would expect the Secretariat to reduce risk, but did not believe it was cost-effective to eliminate risk completely.  He asked for clarification regarding the purchase, as set out in the Board’s report, by UNICEF of a great number of scales.

Responding to the questions, Mr. MSELLE said that he could not answer the question regarding “the appropriate risk” that the Organization could take.  As far as Member States were concerned, the claims and litigation involved considerable amounts of money.  Even if someone said that $40 million involved in claims and arbitration was not much, it would be good for the Organization if that amount was reduced.  On “processing contract negotiations”, he said that if there was an improvement in contract formulation, award, management and negotiations, the potential for claims would be minimized.  The Advisory Committee was not saying that the objective was to eliminate risk.  That was impossible.  The ACABQ was talking about minimizing it.  As for the scales purchased by UNICEF, he would further research that issue.

Mr. RASHKOW said that the question about an “appropriate risk” raised a number of legal questions.  The risk needed to be identified and minimized.  He welcomed suggestions regarding the means of achieving that.  He welcomed the recommendations by the fourth audit, but some of them needed to be further discussed.

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