Apples don't fall far from the tree

Mexico awards road project to sons of banned contractor (Read the whole story at the link.)

Mexico has awarded a $75mn highway contract to a company closely linked to a contractor that was banned from government work after botching two projects, including a job on the same highway.

Mexico’s Federal Audit Office in 2012 found that Gutsa bungled a $30mn Pemex contract to build a monument to mark the bicentennial of Mexican independence. Gutsa did not finish the monument, known as the Estela de Luz, in time for the anniversary, and the costs ballooned to more than $90mn, the office found. Investigators later found that Gutsa won the monument contract by taking advantage of a regulatory loophole. The company received that contract while it was appealing a previous ban over shoddy work on the Mexico City-Acapulco highway.

Epccor is owned by the sons of Juan Diego Gutierrez Cortina, who controls a company that is on the government’s list of banned businesses. Among the ties between the two companies, one of the sons serves as a director of both firms, a public filing shows. Epccor itself hasn’t been banned.

Gutsa and Epccor “are completely different companies,” said Epccor vice president Adolfo Gomez. He said Gutsa was a major construction firm with many employees, and it is only natural that some should have joined Epccor. Gomez himself once worked at Gutsa.

One of Gutierrez Cortina’s sons, Ignacio Gutierrez Sainz, is a director of both Epccor and Gutsa, according to a public financial document from last year. Gutierrez Sainz and two of Gutierrez Cortina’s other sons are shareholders in Epccor.
Epccor has shared an office address and a legal representative with Gutsa, according to documents reviewed by Reuters. Six Epccor employees on the website LinkedIn list Gutsa as their previous employer.

A Reuters investigation earlier this year found Gutierrez Cortina’s company, Gutsa Infraestructura, is among dozens of contractors that have won work with state oil company Pemex even after being barred from contracting by the public administration ministry. Some banned companies have changed their names and shareholders in order to win new contracts.

Mexican law prohibits government entities from contracting with companies that have shareholders directly or indirectly in common with banned contractors. A spokesman for the transport ministry said it does not sign contracts with banned companies.

Mexico’s public administration ministry, which maintains the list of banned contractors, said in a written statement that an independent auditor oversaw the bid process for the Cuernavaca bypass. The independent auditor who reviewed the highway contract recently won by Epccor did not find any irregularities in the process of awarding the deal. But he warned the transport ministry of potential problems, noting that there was confusion in the contract proposal over the degree to which the road was to be widened.

“This bid process is happening without the certainty that it can be completed in the time and within the originally considered budget,” he added.

This case does not illustrate a conflict of interest, as that is defined in the usual US law. See, Organizational Conflicts of Interest: A Growing Integrity Challenge.

Rather, this illustrates the requirement that a government should not do business with a non-responsible contractor. See, Agility Defense & Government Services v. U.S. Department of Defense, No. 13-10757 (11th Cir. Dec. 31, 2013); also, GAO Decision in Matter of: USS Chartering, LLC, B-407601 January 15, 2013.

Stefani Bonato provides a useful discussion of this topic in Death by Affiliation: The FAR Reach of Suspension and Debarment.