Managing Political and Supply Chain Risk in Major Projects: navigating tender processes and debarment risk

A major project will often involve some form of regulated tender process – whether governed by national law or the rules of an international organisation or multilateral development bank – and it is critical for investors to understand the potential pitfalls these give rise to. 

Our top five tips in this area are:

1. Ensure the project company complies (or has complied) with applicable procurement rules and tender requirements. Failure to do so raises the risk of challenge by competitors, which may lead to contract cancellation or shortening – along with attendant reputational damage.

2. Beware that withdrawing from a tender process could trigger a call on the bid bond (which is typically an on demand instrument) and, depending on the terms of the tender documents, wider contractual exposure.

3. Grounds for debarment and exclusion are expanding, while regulators are stepping up their enforcement activities. ABC remains a key risk area, particularly where a project involves local supply chain and/or JV partners, but tender rules increasingly pursue wider policy objectives, such as penalising tax non-compliance. These issues can contaminate an investor’s portfolio – so they need to be examined thoroughly in project due diligence and addressed in a corporate compliance programme.

4. There is a trend towards greater inter-agency co-operation in enforcing the rules. World Bank financing (at any level) imports jurisdiction to investigate and sanction misconduct throughout a project and, through a cross-debarment agreement, the Bank and other major multilaterals mutually enforce each other’s debarment decisions. Regulators share information and resources in international investigations, leading to more criminal prosecutions arising from international projects.

5. NGOs are increasingly scrutinising major projects and seeking to target campaigning against international investors, particularly in relation to transparency, corruption and human rights concerns. Such campaigns often attract media attention and responding can require significant management resource.

Delivering complex projects in the context of global regulation is challenging, and success will often require skilful navigation of the regimes governing public tendering.

For further information, please contact:

Jane Jenkins, Partner: jane.jenkins@freshfields.com

Dominic Jones, Senior Associate: dominic.jones@freshfields.com