Dissecting PPP contracts #3: Anticorruption warranty

One of the longest clauses in a public-private partnership (PPP) agreement, or any agreement for that matter, but oftentimes glossed over, is the one on Representations and Warranties.

When a party represents, it makes a statement or asserts a fact. When a party warrants, it makes a promise and assures the other party that it will do or not do a certain act. So an
“anticorruption warranty” is simply a promise not to engage in any dishonest or unethical behavior or an assurance to be honest and ethical.

LET us now dissect this seemingly innocuous, but value-laden, provision:

(1) Who is the warrantor? Typically, in a PPP contract, the warrantor or promisor is the private-sector proponent (PSP), not the government agency. But this columnist submits that both parties must make such a promise. Corruption goes both ways.

(2) What if there is no such contractual warranty? Not en­gaging in any corrupt practice can be an express or implied warranty. While it is better that said war­ranty be stated in the PPP contract, failure to make such an express promise does not excuse the parties. All laws, the Anti-Graft and Corrupt Practices Act included, are read into every contract.

(3) What is being promised? The PSP-warrantor promises that it or its officers and representatives  will not bribe, engage in any corrupt practice, or exert any undue influence on the government agency and its of­ficers. The promise can also include prohibiting the PSP and its agents and contractors from hiring, engag­ing or contracting officials and con­sultants of the government agency for the PPP project.

The assurance may also cover acts prior to the signing of the PPP con­tract. The PSP may also represent, not really warrant, that it secured the PPP award without doing some­thing unlawful.

(4) For how long is the assur­ance? The parties are bound to be “clean” during the life of the contract and project, and depending on the covenant, even prior to signing the same. This is considered a continu­ing warranty.

(5) What is the effect if the warrantor breaks its promise? The effect of a breach of this war­ranty extends to the act (i.e., con­tract) and/or the actor (i.e., the party, its officers and agents). Thus, the consequences can range from contract cancellation, blacklisting in future PPP projects, forfeiture of the performance security, payment of damages and/or civil and penal liabilities for the actors.

(6) How can this warranty be enforced? The breadth of the im­pact, therefore, determines whether the breach is material or formal. For rescission of the contract, this may be self-executing or when contested, may be subject of arbitration or ju­dicial action. For personal liabilities, the courts will determine innocence or guilt after complying with due process requirements.

PPP contracts are therefore ethi­cal arrangements, both in terms of content and process. PPP contracts are public good-driven and must be ethically pursued. We hope that anti-corruption warranty clauses will not remain dead letter.