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Contract Transparency

  • Briefing

  • 1 January 2010

What is contract transparency?
While treaties, laws, regulations, and other legal documents defining the relationship between governments and private companies are public documents, oil, gas and mining contracts between governments and the extractive industries are shrouded in secrecy. They are usually unavailable to citizens in the resource-rich countries where the extraction takes place and they often contain confidentiality clauses, sections of the contract that outline who has access to the information in the contract, that explicitly limit public access.  There is a growing international call to make the terms of extractive industry contracts available to the public, and to establish new norms for what information is and is not disclosed in deals between government and industry.

Why is contract transparency important?
Contract transparency is an essential precondition to ensuring that all parties benefit from the extractive industries.  Disclosure is a necessary precursor for the coordinated and effective management of the sector by government agencies.  It also allows citizens to monitor contracts in areas where they may be better placed than the government to do so, such as environmental compliance and the fulfillment of social commitments.  Contract transparency provides incentives to improve on the quality of contracting: government officials will be deterred from seeking their own interests over the population’s and, with time, governments can begin to increase their bargaining power by surveying contracts from around the world. Secrecy hides incompetence, mismanagement and corruption—but only from the public, not from the industry that typically comes to know the terms of a deal or even the text of the putatively secret agreement. 
What are arguments against contract transparency … and are they right?
1)  Confidentiality Clauses Do Not Permit Contract Transparency
This is part myth and part fact.  There are many ways in which confidentiality clauses  do not hinder contract transparency, thus making this statement a myth.  For example, the parties to a contract can always agree to make public information that would otherwise be covered by a contract’s confidentiality clause.  In other words, governments and companies can always agree to publish contracts and they can agree to modify the confidentiality clauses to allow contract transparency.  Even when the parties do not agree to make any information public, confidentiality clauses in extractive industries contracts almost always include an exception for disclosures that are required by law .  Thus, governments can require contract transparency by law. 
Therefore this argument is only correct when neither governments nor companies have the desire to adopt contract transparency.  Then, the confidentiality clause will prevent citizen access to contracts, unless some other legal mechanism is used to override the decision of the government and the company, such as a Freedom of Information law.
2)  Contracts Contain Commercially Sensitive Information, So They Must Remain Confidential
Governments and companies argue that contracts contain commercially sensitive information that could cause competitive harm if disclosed.  Information cited as confidential includes: financial terms, work obligation commitments, and environmental protection and mitigation measures to be undertaken. 
One problem with this argument is that much of this information is already known in the industry (financial terms, for example).  In such cases, information cannot be considered a commercial secret that deserves legal protection.  Another factor is that often, the information that is commercially sensitive is not in the main contract that activists seek, but in other documents, such as environmental management plans and costs.  Thus, contract transparency would not result in previously secret information being made available to competitors. Furthermore, any information that is highly sensitive can always be redacted prior to disclosure. 
Emerging practices for contract transparency?
Contract transparency is a relatively new advocacy goal.  There are very few countries that have adopted a contract transparency policy and now make all of their contracts easily accessible to citizens.   Some examples of countries with policies and/or accessible contracts are below in “Who Supports Contract Transparency.”
Who supports contract transparency?
An increasing number of diverse organizations and institutions are calling for contract transparency:
Civil Society: RWI and the Publish What You Pay campaign are promoting contract transparency to civil society, industry and policy-maker audiences, and Revenue Watch recently published a report on the issue with Columbia University Law School, based on a review of more than 150 extractive industry contracts.
International Financial Institutions: The World Bank, the IMF, and the IFC are beginning to encourage contract transparency.   The strongest proponent is the IMF, which has endorsed contract transparency as key to the good governance of extractives. 
“Countries have no justification for secrecy, “insists Rashad Kaldany of the IFC.  “All of these agreements will be made public in [the] future.”  
Governments: A number of countries require oil, gas, or mining contracts to be voted on publicly by the parliament.   Other countries have make contracts publicly available in one of more of their extractive sectors, including East Timor, Peru, and Ecuador.  A few countries have come out explicitly in support of contract transparency as a key principle of their extractive sector management, including Liberia in its EITI bill, and Ghana in official statements about its nascent, but rapidly developing, oil sector.
What are the outstanding questions and debates related to this topic?
Despite the huge number of contracts that are already public, many governments and companies remain reluctant to adopt contract transparency policies.  Some members of civil society have also questioned whether contract transparency is certain even to lead to better contracts and less corruption.  Even so, others argue that citizens have a basic right to this information, regardless of the utilitarian goals of the growing call for disclosures.