At the June 2014 conference, the justice ministers of Germany's federal states called officially on the federal government to introduce nationwide corruption records. The introduction of records is expected to make a valuable contribution towards combating corrupt and fraudulent practices. Fair competition among bidders is expected to be advanced and the state, taxpayers and companies with integrity are expected to be protected. Simultaneously, it is anticipated that federal corruption records will encourage companies to implement effective compliance measures.
Discussions on the introduction of corruption records at federal level have been ongoing since 2002, but concrete legislative proposals failed in 2005 and 2013. The federal states' call is a clear signal to the federal government to complete its work on the corruption records.
Public contracts are to be awarded only to companies that are specialised, capable, law-abiding and reliable (Section 97(4)(1) of the Act on Restraints of Competition). In order to be awarded a contract from a public procurement agency, companies must meet these four criteria. When it comes to evaluating the reliability of a company, the contracting authority must make its own forecast. There must be scrutiny of whether the company – taking account of all circumstances of each individual case for consideration – can be expected to carry out proper and contractual execution of the services being tendered for, including performance of warranties. In the process of making this forecast decision concerning the specific contract, the company's business practices, contractual conduct and current behaviour must be taken into account.
The different public procurement regimes clearly state that it is particularly important, in evaluating the reliability of a bidding company, to consider whether the company has been guilty of serious misconduct in the past.
Accordingly, companies can be excluded from award procedures if they have been verifiably guilty of serious misconduct which puts a question mark over their reliability. The following offences are considered to be serious misconduct:
- active and passive bribery in both the public and private sector (Section 299 and Sections 331 and following of the Criminal Code);
- competition-restricting agreements (Section 298 of the code) and violations of the Act on Restraints of Competition;
- fraud and collusive tendering (Section 263 of the code); and
- black-market labour, non-compliance with the minimum wage and other mandatory working conditions.
Misconduct of responsible individuals in the company is ascribed to the company itself. A final judgment by a court is not required as verification of serious misconduct. Concrete and objective indications carrying some weight are sufficient.
Corruption records exist in various German states (eg, North Rhine-Westphalia, Hamburg, Berlin and Schleswig-Holstein). For certain threshold values, contracting authorities are obliged to obtain information from the respective public authority responsible for the blacklist about possible entries before awarding contracts. Entries in the corruption records are not publically accessible.
The contracting authority must make its own decision about the reliability of the company – independently of the entry in the corruption records. However, in practice, an entry in the corruption records also frequently leads to the imposition of an order ban on the company, since the contracting authorities only rarely affirm reliability if an entry exists. For many companies, exclusion from public contracts represents a threat to their existence.
According to the rules of the respective federal state, once the period of the order ban bas expired (in some cases stretching over several years), the entries are cancelled. However, upon verification of restored reliability, companies can apply to have an unfavourable entry deleted at an earlier date.
A company may have the following measures to restore its reliability under public procurement law (the individual case being always determinative):
- investigation of misconduct;
- HR measures (eg, dismissal or transfer of the individuals involved in the violations);
- organisational measures to avoid future violations (implementation of a compliance programme); and
- reparation for damage caused (the extent to which this criterion is a prerequisite for restoration of liability is disputed).
Through these measures, the company must ensure that repetition of the misconduct is prevented to the greatest possible extent. An effective compliance programme that is implemented by the company offers the greatest safeguard in this respect.
Practice shows that inclusion, or even threatened inclusion, into corruption records of the federal states is significant incentive for companies to put effective compliance mechanisms in place. The harmonisation of nationwide corruption records at federal level will increase the pressure on companies to protect themselves from blacklisting by means of effective compliance systems. In any event, one advantage of harmonised federal corruption records is the fact that the existing patchwork of different rules at state level will be eliminated by harmonising the law, thus creating legal clarity.
For further information on this topic please contact Tobias Teicke at CMS Hasche Sigle by telephone (+49 30 20 36 02 709), fax (+49 30 20 36 02 000) or email (firstname.lastname@example.org). The CMS Hasche Sigle website can be accessed at www.cms-hs.com.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.