The case for debarment

Losing a contract because something goes wrong is a business headache that most organisations strive to avoid. This doesn’t just apply at a business-to-business level but forms, in theory, a crucial element of law enforcement. Under the EU Procurement Directive companies convicted of economic crimes such as bribery, fraud or money laundering are excluded from public tendering.

Until February 2015, this was a permanent exclusion, however, new EU regulations stipulate that only a period of debarment is allowed. During this time the company must undergo a ‘clean-up’ operation, which when deemed satisfactory, will enable the company to recover their eligibility to bid for public contracts.

Where the convicting court has not set a specific time period, mandatory debarment is for five years, while discretionary debarment is for three.

Where enforced, this is powerful and drives change. We know from our work that when companies lose a contract through misconduct or a breach of regulation, they work rigorously to put the necessary systems and processes in place to change behaviour and win back business.

What must be frustrating for the many organisations that invest in robust systems to prevent misconduct is to see the lack of international co-operation between governments when it comes to punishing the miscreants. Last year, the African Development Bank debarred Hitachi for paying multi-million dollar bribes in South Africa. This is a one-year conditional debarment requiring Hitachi to enhance its integrity compliance programme. So far so good, but given the international ownership of the ADB this could go a lot further.

As a shareholder, the UK Government should push the other development banks in which it is also a shareholder to apply the same debarment and consider omitting such companies from its own public tenders. The UK should also insist on scrutiny of Hitachi’s clean-up efforts, creating an opportunity to make it clear to Hitachi and others that contracts will not be awarded where there is a risk of malpractice or non-compliance.

Eighty-one countries are shareholders in the ADB. If all of them supported the debarment and upheld it in their own jurisdictions, the message would be extremely powerful and would help to seriously crack down on corruption. Most importantly it would provide a genuine competitive advantage to the many GoodCorporation clients and others that are sincere in their attempts to work with integrity and avoid corruption in the first place.

Blog post – January 2016