Construction companies tainted by corruption: Is it possible to ban them from public tenders?

MadridTo keep construction companies implicated in corruption, whether through bribery, bid rigging, or other malpractices, away from public works. This is the proposal that some political parties, including Sumar, a minority partner in the Spanish government, have put back on the table in the wake of the Cerdán case and the involvement of companies such as Acciona and Servinabar 2000 in the alleged kickback scheme surrounding the last two PSOE organizational secretaries, José Luis Ába.

In Spain, many construction companies rely largely on public funds from bidding for infrastructure projects, from roads to railways to public buildings. While we wait to see whether Pedro Sánchez takes up the challenge of these proposals—the Spanish president is expected to announce measures to combat corruption this Wednesday, coinciding with the plenary session in the Congress of Deputies—it is important to keep in mind that Spain is not starting from scratch when it comes to the possibility of applying this ban on certain companies when it comes to accessing contracts. Since 2017, the public sector contracts law, which is inspired by European directives, has included this penalty. In fact, the European Commission is reviewing its directives and is expected to release its analysis, and therefore any possible modifications, in the last quarter of the year.

There are many reasons that open the door to applying this ban, whether through criminal proceedings (because it is issued by a judge) or administrative proceedings, that is, at the request of a competent public body or the Ministry of Finance. For example, if a company has been sanctioned for misrepresentation of competition, the National Commission of Markets and Competition (CNMC) intervenes, and from 2023 it can set the duration and scope of the ban based on certain criteria. "The aim is to increase legal certainty and strengthen compliance programs and a culture of competition in companies," argued the body responsible for ensuring the defense of competition in the Spanish state two years ago.

However, this is not the only reason why a ban may be necessary. A ban may also be imposed if there have been very serious violations in labor or social matters, or even for reasons of whistleblower protection (when a person reports malpractice by a company or the public administration where they work). In the latter case, if retaliation against the person who reported the malpractice is detected, the Catalan Anti-Fraud Office (in Spain, it would be the Independent Authority for the Protection of Whistleblowers) can impose a ban on contracting for a maximum period of three years. Sumar, for example, has proposed a 20-year ban on "corrupt" companies signing contracts with the public administration.

European Warnings

Despite this regulatory framework, there are various voices warning that the system is not working in terms of the sanctions companies face, and in particular, with regard to the prohibition of hiring. In fact, the European Commission itself has warned the State, but also other countries, of the need to improve regulations by tightening control, especially given the historical trickle of cases: from the Liceu case to the 3% case to the Gürtel case. "In general terms, the obligations to prevent corruption in Spain have not been taken seriously. They are often seen as mere impositions that must be formally fulfilled, but without a strategic vocation or a real will to eradicate bad practices," reflects Òscar Capdeferro, professor of administrative law at the University of Barcelona.

One of the complaints when a ban is proposed is the legal hurdle that opens up, which, in the eyes of some experts, ends up weakening the penalty. "There is a belief [among regulatory bodies] that if the fine is too high, the courts will eventually overturn it, but that shouldn't be the case," adds a source familiar with the CNMC, who points out that when a company files an appeal, the process is usually halted (precautionary measures are always accepted). The body's president, Cani Fernández, herself reported it a while ago: "[The National Court] prioritizes the harm that the fine [penalty] could cause to the company over the general interest." "This is one of the reasons why the injured company can continue to submit applications for public tenders," he added.

"This slows down many actions that the competent public administrations and bodies should take decisively, because the law allows them to do so. If the judicial body later considers that this administrative power has been misused, it will correct it," adds the UB professor. However, a linked element is the potential claims in the event that contracting with the government is prohibited for a period of time, but the court subsequently acquits.

Sumar's proposal, specifically, proposes modifying the Penal Code to allow investigating judges to impose the temporary disqualification of a legal entity from contracting with the government from the start of the criminal case and to also include the measure in the public procurement law.

Access to information

The same source as before also points to the difficulty in accessing company information: "Normally, you can stretch the thread either because someone has raised the alarm, or because a Spanish company ends up in the hands of a foreign company, especially an English one, which detects some irregularity and in the case of Anglo-Saxon law, they are much more demanding than in Spain. It also points to a gap in terms of "adequate control": "For example, one could think about assigning the Anti-Fraud Office to periodically review the adequacy of the measures being taken by the contracting bodies, or that the contracting bodies should be accountable for the measures they have implemented in this regard," he explains.

This idea has always raised eyebrows among construction companies, especially because "quite a few companies practically make their living solely from executing public works or other contracts with government agencies," Capdeferro recalls. Julián Núñez, president of Seopan, the association of large construction companies, indicated a few days ago that "the solution is not to veto" those affected by contract awards and classified cases tainted by alleged corruption as "specific and personal."

Is a ban the only way out?

However, it's worth remembering that the ban is often in addition to an administrative sanction. Experts point out that it's not just a matter of how this penalty is aggravated, but also of the control mechanisms before, during, and afterward: "Is there sufficient control over whether a company that is the successor to the company with the ban is being contracted?" Capdeferro asks. Likewise, depending on the measures, they can have undesirable results: "We must keep in mind that quite a few companies practically only make their living by executing public works or other contracts with government agencies, which can foster ongoing relationships between a few business owners and certain public sector officials or managers."