Module 11:  Corruption dilemmas

Dilemma 4:  Appointment of supplier - Answer

There are two factors in issue here:

  • Is the NRA justified in rejecting Premium?
  • Is the NRA justified in requiring Buildwell to appoint Eagle?

The contract does entitle the NRA to reject a supplier.  However, this rejection would need to be for valid reasons.

The contract does not entitle the NRA to require the contractor to appoint a named replacement.  This would be unusual.  There are some circumstances where the project owner does nominate a specific supplier or sub-contractor.  This would normally be where the project owner has already undertaken a tender for a major supplier (e.g. of lifts), and wishes the lift supply contract to be transferred to the contractor for management purposes.   If this was the case, it would be expressly provided for in the contract.  In most cases, it is up to the contractor to choose its own suppliers and sub-contractors (subject to any contractual right of the project owner to object for valid reasons). 

While the motives of the NRA’s project manager may be honest and reasonable, there is a risk that the  project manager may be rejecting Premium and requiring the appointment of Eagle for corrupt reasons.  The project manager may, for example, have a secret shareholding in Eagle, or may have been offered a bribe by Eagle.  If this is the case, and you comply with the project manager’s recommendations without taking appropriate steps to satisfy yourself as to the legitimacy of the requirement, then you are at risk of facilitating a corrupt act.

Therefore, you should take the following steps:

  • In relation to the suggestion that Premium is in financial difficulty:
    • Discuss the concerns with the Chief Executive and Finance Director (or equivalent senior managers) of Premium.  Obtain assurance from them as to their financial stability.
    • Check the most recent accounts of Premium to ascertain its financial status (note that accounts can be quite significantly out of date, even if they are the most recent)
    • Obtain from Premium a copy of its latest monthly management accounts, showing debtors, creditors and cash flow.
    • Consider the implications for Buildwell if Premium were to become insolvent.  Could Buildwell continue to use Premium’s plant, or easily find replacement?  If so, the consequences of an insolvency would be minor.

If after the above enquiries you are satisfied with Premium’s financial status, or are easily able to manage the consequent risk, inform the NRA of your findings, and confirm that you wish to use Premium and request the NRA’s approval based on your assurances.

If after the above enquiries you are not satisfied with Premium’s financial status (i.e. the NRA was correct), then you need to identify a replacement supplier.  However, you should not simply appoint Eagle.  Even though you have identified that the NRA was correct in respect of Premium’s financial status, the requirement to appoint Eagle is not a contractual right, and may be corrupt.  Therefore, you should take the following steps:

  • Undertake due diligence on Eagle:
    • Are their available equipment resources and their financial stability suitable for your requirements? 
    • Is their any identifiable connection between Eagle’s owners and the NRA project manager?

Do not approve Eagle if there are any unresolved concerns.

Even if you approve Eagle, do not appoint them without a competitive process.  Identify at least two other plant suppliers, and undertake due diligence on their resources and financial stability if you have not previously done so (you are likely to already have several pre-approved suppliers available).

Then request at least three suppliers (which can include Eagle if they have passed your due diligence) to provide an offer to Buildwell for this project.

Select the most suitable offer, and send that to the NRA for approval.  This will only be Eagle if it has passed your due diligence and has submitted the best offer.

If you adopt the above approach, you will have acted reasonably in the face of a potentially suspicious act by the NRA Project Manager. 

                            9 of 19

January 2025
© GIACC