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Concerns Rise About Government’s Due Diligence With Private-Sector Consultants

Local Businesspeople And Consultants Question Why Firms With Alleged Corruption And Legal Problems Are Chosen


December 11, 2003
Copyright © 2003 CARIBBEAN BUSINESS. All Rights Reserved.

In light of the government’s revision (or future cancellation, depending on whom one believes) of Ondeo de Puerto Rico’s contract to operate the Puerto Rico Aqueduct & Sewer Authority (Prasa), sources in the business community are wondering if Gov. Sila Calderon’s administration understands the meaning of due diligence in selecting contractors or consultants and signing contracts.

In business, due diligence means acquiring objective and reliable information on a person or company before a specific event. Informed decision-making enables companies to protect assets, meet best-practices requirements, protect themselves from civil or criminal liability claims, promote integrity and customer-shareholder confidence, and meet or exceed legal and regulatory obligations.

Lack of due diligence in Prasa’s choosing Ondeo

Ondeo is just one of several examples of the Calderon administration’s apparent lack of or extremely poor due diligence. It didn’t help that the previous contract with a private operator, Vivendi’s Compañia de Agua, wasn’t renewed. Vivendi’s problems included poor communication between the French executives and local union workers and increasing turmoil in Vivendi’s global finances as it went on a spree selling noncore assets to raise capital.

In May 2002, Ondeo’s contract with Prasa was signed. All everyone focused on was the projected savings of $65 million the first year and $823 million over five years compared with what it would have cost to extend the contract with Vivendi.

Besides the contract’s cost of $3.8 billion over 10 years–the world’s largest water-management contract at the time–little attention was paid to Ondeo’s track record. At the time, there had already been reports published about Ondeo allegedly exchanging political donations for water-management contracts in North Carolina.

In Europe, an executive of Ondeo’s parent company, Suez, had been convicted along with the mayor of Grenoble, France, and the company had also been accused of allegedly colluding in France with competitor Vivendi. In Brazil, Ondeo had been accused of not investing the amount promised over the first five years of its contract.

Yet the Puerto Rico contract was signed and everything marched on as planned. Now that Prasa and Ondeo are faced with complaints from community and business sectors, Ondeo has come forth to explain the problems it has encountered which have prevented it from meeting the goals outlined in its contract. When CARIBBEAN BUSINESS spoke to Ondeo in July, the operator said that many of the problems began when it was forced to complete its due diligence on Vivendi’s records of its management of Prasa after the contract was signed (CB July 3).

According to Ondeo, the numbers it had initially been given by Vivendi were incorrect. After a six-month study, Ondeo found the information in Prasa’s data room was based on 1983 engineering plans. That meant the data was outdated by 20 years, the period of most urban growth in Puerto Rico.

Ondeo now stands between a rock and a hard place. The company faces multimillion-dollar fines for not reaching its contractual goals, even if the data was wrong, or Prasa could choose to cancel the contract by claiming breach of contract and fine Ondeo.

CB Richard Ellis involved in major U.S. class-action suit

After having received in 2003 four contracts totaling $1.1 billion from the Department of Economic Development & Commerce (EDC), commercial real-estate services firm CB Richard Ellis (CBRE) was again chosen by the EDC to design a redevelopment plan for the 8,600-acre Naval Station Roosevelt Roads.

CBRE’s preliminary report, which came as no surprise to EDC Secretary Milton Segarra, whose prior experience is in the tourism industry, indicated the land would best be used for tourism.

What concerns the island’s business sector is the news, which the EDC apparently doesn’t know or doesn’t care to reveal, that CBRE has been fighting since September 2002 a nationwide class action lawsuit. Current and former female and male employees of the company’s more than 100 nationwide offices are alleging sexual harassment and civil rights violations. Allegations of harassment include people sending offensive or pornographic e-mail, people viewing pornographic or lewd websites in the office, out-of-control office parties, official business trips during which male colleagues disrobed in front of and rubbed against female colleagues, people making vulgar and degrading comments on a daily basis, and people having discussions about sexual performance and the size, shape, and merits of women’s body parts.

What should be of greater concern to anyone doing business with CBRE is the firm’s illegal business practice of destroying documents, which points to an Enron-Andersen scandal in the making. Specifically, as part of the class action lawsuit, in October 2003, a U.S. District Court judge found that CBRE had destroyed electronic documents; nearly one-sixth of these were e-mailed pages containing pornographic terms, which obviously could have served as evidence. In 2001, the company’s director of employment & employee relations had been made aware of the problem, which dated to 1999, but took no action.

Final legal action could translate into millions of dollars granted to the claimants for compensatory and punitive damages, and any other damages provided by law, on behalf of all women employed by CBRE since Jan. 1, 1999. Quite a sobering thought for a company that was hired to design an economic development plan for Puerto Rico.

Yet the question remains: Why did the government of Puerto Rico choose these firms?

This Caribbean Business article appears courtesy of Casiano Communications.
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