Blacklisting public contractors as an anti‐corruption and racketeering strategy

Abstract

In New York City, the struggle against organized crime and the most recent round of corruption scandals have prompted a series of aimed at denying public contracts to individuals and firms that are mob-connected or otherwise corrupt. While the motivation behind these initiatives is understandable, the initiatives themselves raise complex and difficult issues of governmental ethics, fairness, and efficiency. For example: (1) Should government operating agencies attempt to punish corrupt individuals and organizations by denying them public contracts? (2) Does government have an ethical responsibility to avoid doing business with corrupt contractors? (3) Can blacklisting be implemented fairly and systematically so as not to jeopardize the efficient operation of government? Background In August, 1991, the New York City School Construction Authority (SCA)(1) announced that it was blacklisting for up to five years more than fifty construction firms. The policy was shaped by SCA's inspector general, Thomas D. Thacher II, formerly director of the joint Manhattan D.A. and NYS Organized Crime Task Force's strike force on corruption and racketeering in the New York City construction industry. Nearly half the disqualifications were based on purported mob ties or criminality--such as bribery of a union official or inspector, tax fraud, minority business enterprise fraud, and money laundering--not on poor performance on previous government contracts or inability to perform future contracts.(2) The SCA's move is the farthest in a progression of steps by City agencies to sanitize the multi-billion-dollar contracting process of any taint of corruption. It attests to the political strength of anticorruption reforms following the 1980s City corruption scandals,(3) and the growing influence of law enforcement agencies and personnel in all facets of public administration and public policy. The SCA prequalification procedure for would-be contractors includes a 30-page prequalification questionnaire which, among other things, asks: In the past ten years has the applicant firm, or any of its current or past key people or affiliate firms .. taken the Fifth Amendment in testimony regarding a business related crime? .. given or offered to give money or any other benefit to a labor official or public servant with intent to influence that labor official or public servant with respect to any of his or her official acts, duties or decisions as a labor official [sic]? ... agreed with another to bid below the market rate?(4) An applicant can be prosecuted as well as blacklisted for a false answer. Given the pervasiveness of payoffs to labor officials and building inspectors in the New York City construction industry, a large percentage of firms that answer these questions in the negative are making themselves vulnerable to administrative and criminal sanctions. Agencies subject to the New York City Charter operate under a similar, but somewhat less stringent, regimen. Under new contract procurement rules, each agency's contracting officer and chief administrator must determine whether a contractor or vendor is financially, operationally, and morally responsible. If the agency believes the would-be contractor to be corrupt, the contract must be denied. Even if the agency finds the contractor to be morally responsible, the City Comptroller has authority to review the agency's judgment and to object to the registration of a contract if it may reasonably be supposed that the contractor or the agency is corrupt.(5) However, the Charter does not define moral or corrupt, nor does it specify the grounds for the agency's or the Comptroller's objections. In the last few years, law enforcement agencies and anti-corruption units within city government have been exhorting government agencies to refuse to do business with criminals and racketeers and their companies. For instance, in late October, 1991, City Comptroller Elizabeth Holtzman (former Brooklyn District Attorney) urged Mayor David Dinkins to overrule his Chief Procurement Officer's decision to enter into a contract with a construction firm which had failed to report that it had once been investigated by the Occupational Safety and Health Administration for a workplace safety issue. …