No, Blacklisting Corrupt Construction Firms is Not Unfair

construction_workerUnder Quebec’s new Integrity in Public Contracts Act (Bill 1), companies that want to bid on government contracts must pass a fairly stringent legal and ethical sniff test. In the wake of the ongoing Charbonneau Commission (the Commission of Inquiry on the Awarding and Management of Public Contracts in the Construction Industry, in Quebec) the government of Quebec has begun using Bill 1 to blacklist construction companies.

First on the chopping block was engineering firm Dessau. The company was blacklisted recently and so it won’t be able to bid on public-sector contracts in Quebec for the next five years.

Some say this is unfair. Dessau employs thousands of people, some of whom will surely be put out of work if their employer is unable to bid on big public contracts. And since the vast majority of those employees presumably have nothing to do with the company’s shady dealings, they are in effect being punished for someone else’s crimes.

There is undoubtedly some injustice, here. It is, on the face of it, a bad thing to suffer for someone else’s wrongdoing. But the question, really, is whether the loss that will be suffered by some Dessau employees is an intolerable injustice. And whether an injustice is intolerable or not very much depends on the qualities of the overall system under examination.

One of the key features of the legal status of modern corporations is that the liability of employees is limited. If the company you work for goes bankrupt, all you lose is your job. For most people, that’s not trivial, but it’s a far cry from having someone from the court show up to repossess your car or foreclose on your mortgage to help pay your employer’s debts. One of the things that makes large corporations — and hence, our entire economic system — viable is that in seeking employment with a corporation you are not thereby putting everything you own at risk. This makes the the legal situation of an employee quite different from that, say, of a partner in a firm. Partners are in principle personally liable for the financial effects of each other’s wrongdoing or mismanagement.

Second, it is worth considering that if injustice is being done to the employees of companies like Dessau, such injustice must be placed into perspective by comparing it to the prior injustice done by such companies to employees of other companies. When companies succeed through bribery and illegal political donations, they do so at the expense of honest companies and their employees. In order to understand the Quebec government’s penalties, you need to look not just to the interests of identifiable individuals like Dessau’s employees, but to the interests of the hard-to-identify individuals who are harmed by the corruption that penalties like this are intended to remedy.

Third, it is worth noting that the Quebec government’s decision here is not beyond appeal. There is a process for reinstatement, which includes things like a requirement stop (and presumably to show evidence of stopping) fraudulent practices, to dump executives implicated in wrongdoing, and to “implement sound management practices, good governance and an ethical framework.” So if jobs are in jeopardy, they are not in jeopardy forever. It depends on whether managers at Dessau can clean house, and do it quickly.

Ultimately, if the employees of companies like Dessau are being wronged, the blame lies at the feet of executives who mismanaged the company. And make no mistake: engaging in corruption is a form of mismanagement. It counts as mismanagement not just because it can result in legal penalties or because it can result in significant financial losses. Engaging in corruption counts as mismanagement because it amounts to an admission that managers were unable — insufficiently smart or talented — to win while sticking to the rules of the game.

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