World Bank debarment of engineering consulting firm underscores importance of compliance in public procurement
Businesses that fail to comply with relevant legal and regulatory obligations face a multitude of risks – legal, reputational, and economic. These risks, and the compliance obligations associated with them, are heightened for companies such as those in the construction, defence, infrastructure, and technology industries that routinely work with government. Companies must tailor and strengthen their internal compliance processes to keep up with the high standards expected of them when dealing with the public sector, or risk getting left out entirely.
The recent World Bank debarment of Consultores en Ingeniería S.A. de C.V. (CINSA) – a Honduras-based engineering consulting firm – for misrepresentations in bid documents underscores the need for compliance processes in public procurement, and the resulting business impacts where those processes fail. CINSA’s debarment is notable in that it resulted from breach of the tender requirements in a procurement process, rather than a conviction under applicable law. As similar regimes and requirements are applicable to Canadian companies, the case is illustrative of how issues such as conflicts of interest, non-disclosure of relevant facts, and other procurement issues may also lead to significant business disruptions for companies that fail to prioritize compliance in their tendering processes.
World Bank’s debarment of CINSA
On October 4, 2023, the World Bank announced it had debarred CINSA for a period of 18 months, making the firm ineligible to participate in projects and operations financed by the World Bank during that period. The decision arose from bid documents prepared by CINSA for a climate-resilience project for the Honduran government. According to the World Bank’s investigation, CINSA misled procurement officials to obtain a contract under the project by failing to disclose a conflict of interest, despite an obligation to do so under the tender requirements and World Bank procurement regulations – constituting a ‘fraudulent practice’ under the World Bank’s 2016 Anti-Corruption Guidelines. CINSA must meet certain conditions to be released from the debarment, including developing and implementing: i) a Code of Conduct that reflects the relevant principles set out in the World Bank’s Integrity Compliance Guidelines [PDF]; and ii) a corporate ethics training program.
Importance of compliance in procurement processes
The World Bank’s debarment of CINSA underscores the importance of maintaining integrity organization-wide during procurement processes, which require careful attention to tracking compliance with tender and procurement requirements. Canadian companies must carefully review the relevant procurement policies on a project-by-project basis. In the Canadian public sector, those may include:
- Suppliers to the federal government must comply with the Code of Conduct for Procurement. The Code consolidates the federal government’s measures on conflict of interest and anticorruption, as well as other legislative and policy requirements relating specifically to procurement, and provides a statement of mutual expectations to ensure a common basic understanding among all participants in procurement. If a supplier is unable or unwilling to comply with the Code, the government may investigate, deem a bid-non-responsive, and terminate a contract.
- Provincially, government ministries and departments and, in certain provinces, entities that are funded by government, are required to comply in accordance with binding procurement policies. For example, Supply Ontario is an agency created under the Supply Chain Management Act (Government, Broader Public Sector and Health Sector Entities), 2019 that provides and supports procurement activities for Ontario ministries as well as other governmental entities, broader public sector entities, and health sector entities. The Ontario Public Service (OPS) Procurement Directive outlines mandatory requirements for the procurement of goods and services and was recently updated as of September 1, 2023. A wide variety of entities (including many hospitals, school boards, and provincially funded agencies) must comply with the Broader Public Sector Accountability Act, 2010 and the Broader Public Sector Procurement Directive, which is also being updated with the latest version [PDF] to take effect on January 1, 2024. In addition, municipalities and other public sector entities may also implement their own procurement policies.
The procurement guidelines of foreign jurisdictions may also be applicable to Canadian companies when bidding in those jurisdictions. Ultimately, each public entity will have its own unique procurement policies and codes, with distinct obligations for bidders. Canadian companies should carefully review and adhere to the applicable laws, codes, guidance and other requirements in the jurisdictions in which they seek to do business.
Debarment regimes and business risks of non-compliance
As we have previously written, where companies fail to take appropriate compliance measures, they may face not only legal and reputational risks, but also significant business disruptions. CINSA’s debarment is illustrative of one such risk – being precluded from public tendering projects in the future.
The World Bank’s Sanctions System, under which CINSA was debarred, precludes firms or individuals found to have engaged in fraudulent, corrupt, collusive or obstructive practices in connection with a World Bank-financed project from bidding on future projects. Companies sanctioned under the World Bank’s “Listing of Ineligible Firms and Individuals” include several Canadian firms, and similar debarment regimes exist domestically and internationally that are potentially applicable to Canadian companies bidding in those jurisdictions. Within Canada, those include:
- Under the Canadian federal government’s Integrity Regime, suppliers who have been (or whose affiliates have been) convicted of specified ‘integrity offences’ – including for fraud, corruption and certain anti-competitive conduct – may be debarred by Public Services and Procurement Canada (PSPC) from contracting with the federal government for a designated period of time ranging from 5-10 years.
- Certain Canadian provinces have their own debarment regime. For instance, suppliers in Québec must apply to the Autorité des marchés publics (AMP) to obtain authorization to contract with a public body. Convictions of certain offences render applicants ineligible for five years, and the AMP also has wide discretion to refuse to grant or to renew an authorization or may revoke an authorization if a supplier fails to meet high standards of integrity.
- In recent years, a practice of inserting private debarment clauses in tenders and requests for proposals (RFPs) has developed among Canadian municipalities to debar companies previously involved in litigation with the relevant municipality, among other circumstances. A 2018 decision of the Ontario Superior Court of Justice confirmed municipalities’ broad discretion to debar contractors, with a limited duty of procedural fairness to the contractor in coming to a decision.
Public bodies internationally also maintain similar regimes. For instance, each European Union member state is required to maintain a debarment regime in accordance with the Directive 2014/24/EU5 of the European Parliament and of the European Council of 26 February 2014 on public procurement – pursuant to which certain offences automatically lead to mandatory debarment, including corruption, fraud, money laundering, terrorist financing, and child labour. Canadian companies bidding in Europe would potentially be subject to those regimes.
Public procurement presents unique compliance risks for businesses. Companies that regularly deal with government (or multilateral agencies like the World Bank) face higher risks in relation to corruption, sanctions violations and other forms of economic crime. As CINSA’s debarment illustrates, compliance in tendering processes themselves is also paramount.
Compliance policies and procedures for companies regularly contracting with the public sector should be tailored to these heightened risks and obligations. Appropriate policies and procedures may include Codes of Conduct, anti-corruption, sanctions and other compliance policies, and procedures such as training and communication by management. Companies are expected to set a “tone at the top” emphasizing a culture of compliance throughout the organization. Formal tendering and procurement policies also should be implemented to ensure all individuals within the organization understand the importance of compliance. As part of these policies, it is paramount that companies carefully review and follow the procurement requirements of each entity and in each jurisdiction in which they contract. Ultimately, it is management’s responsibility to ensure compliance is prioritized throughout the organization.
The price of doing business with public entities domestically and abroad often takes the form of heightened diligence, disclosure, and certification obligations. When businesses fail to live up to the high standards expected in public procurement, the consequences can be costly. By prioritizing compliance throughout the organization, including in procurement processes, companies can mitigate significant risks and costly business disruptions.