I read an article from the Katmandu Post the other day which talked about the large number of contractors who have been blacklisted by the Nepalese government.  The article states that since 2016 one hundred and seven (107) contractors have been blacklisted.  The article also points out that while over 100 contractors have been blacklisted, the top 5 construction contractors in Katmandu have somehow not been added to this list despite a number of them having failed to deliver work on time or making commitments they could not keep.  Both of these infractions being actions that according to the Public Procurement Act are grounds for blacklisting.

If you’ve read my previous article on this subject, you know that I err on the side of caution when it comes to blacklisting.

However, I also know that there are circumstances where contractors should be disallowed.

The circumstances for when that occurs should be clear and unambiguous.

The Procurement Policy of Katmandu is anything but clear and unambiguous.  It includes a long list of broad language that could be interpreted to include almost anyone.  You can take a look at Katmadu’s Section 63 here.

Katmandu may be a distant place and their country may not be one of the prevailing superpowers of our global economy, but this phenomenon is not unique to them.  In fact, I know that many corporation also maintain blacklists.   These list are unwritten and never published, but this practice is alive and well in construction circles everywhere.

So Today I wanted to share my thoughts on which criteria could be used to blacklist firms and some best practices that should accompany your blacklist if you decide to have one.

Blacklist criteria

Developing a list of criteria for blacklisting suppliers sounds like an unpleasant task, but it if your Company practices blacklisting suppliers, it is an essential one.  If your organization plans on disallowing or excluding suppliers from your bids, you should have clear and unambiguous criteria for doing so.

Minor Infractions

The list of things that could go wrong on a construction project is endless, but the severity of those things varies.  I recommend categorizing infractions into two levels.

The first level of things that could go wrong can be referred to as “minor infractions”.

These can be; failing to execute an agreement, minor bid irregularities, violating corporate policies, violating minor safety regulations, etc.  To me, these kind of infractions could happen to anyone for any reason.  Often these are offenses committed by a single individual worker which may mean they should be removed from the job, but does not rise to the level of blacklisting an entire firm.

For these kind of things, I recommend that you observe a recurring infractions policy.  This means that if the firm commits recurring infractions of one of more of these items (say three recurrences) then this could be determined as grounds for blacklisting the firm.

To make this an effective policy, you will need to document each instance and make sure you give proper notices to the firm.  After the third infraction notice, you may then issue a notice of intent to disallow which may trigger a process for disallowing the Vendor from future work.

Major Infractions

The second level of infraction can be referred to as “major infractions”.  These are acts that are so intolerable that a single occurrence is grounds for termination of a contract and blacklisting of the firm.

Evidence of Fraud

Any form of fraud should be grounds for termination and blacklisting of a firm.  Fraud committed by a firm is rarely the action of a single individual.  Often when a firm commits any form of fraud it is a sign that the leaders of the organization are a party to the crime.  For this reason, any evidence that a firm has committed fraud should be grounds for immediate termination and blacklisting of the organization.

Committing a Crime

The integrity of your firm and the safety of your employees is one your greatest responsibilities, no matter what role you have in the company.  Any Vendor who’s staff is responsible for committing a crime places your Company at risk.  Drug use, assaults, theft, unlawfully carrying weapons, sexual offences, these are all intolerable acts that demand swift action.  Any Vendor who’s staff is responsible for such acts must be removed from your workplace immediately.

Major Safety Violations or Job-site Fatality

Earlier, I mentioned violating safety regulations as a minor infraction.  Safety violations themselves can be classified as minor or major.  A worker neglecting to where safety goggles is an example of a fairly minor safety violations, but when a Vendor allows behaviors that risk lives such as; failing to provide fall protection for elevated work, allowing electrical work on live circuits, or using equipment improperly, it’s a sign that the Vendor does not value the welfare of it’s employees.  This kind of neglect may extend to others as well and may place building occupants and the public at risk.  This kind of general neglect for safety practices places your Company at an elevated state of risk and should be terminated immediately.

Blacklisting versus ineligibility

There are a number of circumstances where a Vendor may be deemed ineligible to bid a project, but they are not necessarily blacklisted.  Your policy should differentiate between these two clearly and define when a firm is ineligible but not necessarily blacklisted.  Having insufficient insurance or allowing a license to lapsed are reasons why a firm would be ineligible to bid on a project.  You may also deem any firm with whom your Company is in active litigation as a cause for ineligibility.  I would not make active litigation grounds for blacklisting because there may be circumstances where a Vendor may have a legitimate claim against you and why they were obligated to file suit.  Blacklisting just on the basis of any kind of legal action can also be viewed as punitive.

Change Orders and Schedule Delays

I’m sure many of you are wondering whether excessive change orders and schedule delays are grounds for blacklisting.

In my mind the answer is no.

Excessive change orders are not always a reflection on the GC.  You need to look at the entire circumstances and identify why the changes occurred.  A genuine change order request may well be a sign that your drawings are defective or that you failed to properly document existing conditions.

Schedule delays are also not necessarily a reflection on the GC.  Consider whether you provided enough time for the work to be performed?  If your schedule was too aggressive and the Contractor failed to meet your schedule, that points to poor planning and not a defect from the Contractor.

Since changes on a project could be caused by others, I don’t recommend including these in a list of reasons for blacklisting suppliers.  That is not to say that you have to continue to work with GC’s who are consistently missing dates and asking for more money.  This kind of behavior should be documented and tracked as a measure of performance.  You can then use such tracking in your evaluation criteria, but I would not suggest blacklisting suppliers unless the changes they request are the result of one of the other behaviors we have documented.

Process of Blacklisting

Once a supplier has been deemed as a disallowed Vendor, you should have some kind of approval process that flows through several layers of management before the Vendor is disallowed.  This removes the potential for bias and ensures that your criteria is being applied fairly.  The specific approval flow will vary depending on your organization, but I would be sure it includes someone from Facilities, someone from Procurement, and someone from Legal.  You should then also be sure to provide the Vendor with a communication that states they have been blacklisted and the reasons for the action.

Remedy and Removal from List

If you decide to implement a blacklisting policy then you should also consider a process for Suppliers to be removed from the blacklist.  This process should first require that the behavior that caused the supplier to land on the blacklist is corrected.  This may mean significant changes in leadership or implementation of new policies and training by the Vendor.  Once measures are taken to correct the behavior then the Vendor should have a means of applying for removal and you should have a process for evaluating the request.  I would suggest that unanimous approval from all reviewing parties is a must for something like this.

Closing

So there you have my view on how you can implement a blacklist policy in your organization.  This is not a topic to be taken lightly.  Above all else, I strongly urge you to consult with a Lawyer.  I’m sure there are legal implications to this which I am not qualified to comment on.

For the government of Nepal, they decided to create a policy.  Unfortunately, the language they chose is broad and subjective.  Their policy has creating a situation where a large number of contractors are now disallowed from bidding on their projects.  Perhaps this is intentional and there is more going on here.

The vast majority of organization that blacklist suppliers do so quietly and privately.  I find this to be a terrible practice because it allows for random biased action from a small subset of individuals.  In my opinion this opens you up to greater scrutiny.  If your organization feels the need to disallow suppliers, better to do so in an open and well-defined policy that allows for unbiased application.

What about you?  Does your company have a blacklist?  Are suppliers aware when they are blacklisted or is the list managed quietly?  Tell me your stories.

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