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05
JUL
2017

New release – Preventing corruption in infrastructure projects

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Infraestructure

The recent transnational bribery scandals highlighted some loopholes on public procurement laws all along Latin America. However, the region is now moving towards the prevention of these kind events in the future.

Colombia is not the exception: the Congress is currently discussing two draft laws that have been called to strengthen the existing legal framework on public procurement.

Those draft Laws tackle four issues rendered as critical in the light of those scandals:

  • Liability of the supervisors and external consultants
  • Compensation to which are entitled the contractor and the creditors when the contract is declared void
  • Rights of good faith third parties in the event of an early termination by the Government of a PPP contract
  • Private talks held by public servants and interested private parties

 

Draft Law No. 84 of 2016 focuses on the liability of supervisors and external consultants. Through an amendment of the General Public Procurement Statute (Law 80 of 1993), it is intended to clarify and strengthen their liability in front of the disciplinary, public budget surveillance and criminal prosecution authorities. Consequently, the scope of their responsibility its extended from the compliance of their consulting or service contracts, to even the obligation to point-out the acts or omissions on the supervised contract that can lead to damages to the public budget.

In addition, the draft prohibits the direct hiring of designs and studies for infrastructure works. Therefore, a public bid will be required to hire those services. It is paired with the introduction of a model term sheet to all contractor selection processes. As a reaction to cases where the conditions established on those term sheets illegally direct the grant of the contract to a certain individual, it is envisioned that standard requirements on experience, legal and finance capacity, etc., will lead to a more transparent and fair result.

Finally, a proposition inside the draft has been made in order to modify Article 32 of PPP Law (Law 1508 of 2012). This provision regulates the early termination of PPP contracts. Thus, the intention of the amendment is to protect the rights of good faith third parties in case the public contract is declared void. It clarifies that the termination compensation must recognize the investments made by the contractor as long as they result in an improvement of the service intended to be attended with the contract. Moreover, the protection of third parties would be implemented through the intervention of the corporations surveillance authority (“Superintendencia de Sociedades”) on the liquidation of the contract.

Consequently, creditors would have a privileged position when payments are made, also being provided that remaining monies are to be held as a guarantee to respond for additional and future claims against the contractor.

The draft law has been already approved by the Senate and it is now in the agenda of the House of Representatives to be discussed on the first of two debates.

On its side, Draft Law No. 211 of 2007 tackles the private talks between public servants and interested private parties. Several convictions have shown that are those private talks where corrupt practices are planned. Therefore, the draft strengthens the transparency of Government day-to-day activities. While it is not the intention of the draft to prohibit meetings with public servants, a public registry of those meetings (in Spanish “Registro de Agenda Pública – RAC”) is proposed. The RAC should show all the approaches from private and public parties to the national, regional or local authorities involved in the procurement processes. Failure to report to the system could result in the destitution of the public servant.

Besides, the draft law introduces amendments on the Criminal Code, removing some conviction benefits to the individuals involved in corrupt practices (no domiciliary reclusion, limitation on the prison sentence reductions), as well than enhancing the incentives to whistleblowers. It is paired with the insertion of additional and more severe conduct standards to public servants, prohibiting the reception of presents and payments in kind.  This draft law is waiting for first debate on the Senate.

All in all, while corruption is a complex and dynamic phenomenon that takes advantage of loopholes on public procurement framework around the world, at GPZ we are looking forward for the approval of the analyzed draft laws. We believe that they address some gray areas on the local regulation, providing certainty and clarity to all the parties involved in infrastructure projects.

 

More information :Paola Larrahondo 
Senior Associate
Email: plarrahondo@gpzlegal.com

 

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