Criminal Liability Of Government Contractors For Corruption In Projects
Legal Framework
In Nepal, contractors working for government/public‑sector projects may incur criminal liability under several laws when they corruptly collude with public officials, inflate costs, misuse public funds, or fail to deliver what was contracted. Key laws include:
Commission for Investigation of Abuse of Authority (CIAA) Act, 2058 (2002) (Nepal): Empowers CIAA to investigate abuse of authority, corruption by public officials and associated persons (which may include contractors).
Muluki Criminal Code, 2017: Contains offences such as Section 164 (“obtaining undue advantage by public officer”), Section 167 (“abuse of authority”), and others relating to causing loss to the state.
Procurement laws and regulations: Public‐Procurement Act, sectoral procurement rules—violations by contractors (especially in collusion) serve as basis for corruption charges.
Contractors may be criminally liable when:
They collude with public officials to award contracts improperly.
They inflate contract prices or reduce scope/quality and still claim full payment.
They deliver sub‐standard work and cause loss to the state.
They fail to carry out contracted obligations, resulting in loss or damage.
They bribe or attempt to bribe public officials to secure contracts.
Courts/anti‐corruption bodies in Nepal have progressively held contractors (and their companies) liable alongside public officials.
Case Law / Enforcement Examples
Case 1: Procurement of IT Equipment – National Information Technology Centre (2025)
Facts: The National Information Technology Centre awarded a high‐compute infrastructure contract (approx. Rs 306.56 million) to a private company, World Distribution Nepal Pvt Ltd. The estimate originally was ~Rs 310 million but investigations found the contractor and officials colluded, procured overpriced and sub‐standard equipment, violated tender specifications
Liability: CIAA filed a case against six individuals including the contractor’s chairperson & managing director plus Centre officials. The contractor firm was directly implicated in the corruption.
Significance: This case demonstrates how contractors can be held criminally liable for colluding in procurement, inflating costs, and delivering substandard goods—resulting in tangible financial loss to the state.
Case 2: Mobile Device Management System (MDMS) Procurement – Nepal Telecommunication Authority (2025)
Facts: The Authority purchased MDMS equipment/services in a contract awarded to a joint‐venture of foreign & local contractors (including Numbera (M) SDN Berhad Malaysia, Namaste Global Communications Pvt Ltd Singapore and OSI Consulting Pvt Ltd India). The procurement cost was USD 7 m (approx) but internal documents alleged inflated cost vs standard USD 4 m estimate, specification collusion, limiting competition
Outcome: The Special Court found the contractor company and the two former chairmen of the Authority guilty of corruption and collusion in awarding the contract. Several staff were acquitted.
Significance: Contractor companies (including foreign ones) can face criminal liability in Nepal when they participate in corrupt procurement practices. This case also shows that only the key decision‐makers (senior execs) may be held liable, while lower officials may be acquitted if they were merely carrying out orders.
Case 3: Sewer Construction Contract – Kathmandu Metropolitan City (2025)
Facts: A sewer construction contract under the Samakhusi Corridor (Basundhara to Mhepi) worth Rs 224 million was awarded to a JV, despite a lower bid of Rs 180.9 million submitted by another. The Commission for Investigation of Abuse of Authority charged former Chief Administrative Officer (CAO) and six others for colluding in awarding the contract to a higher‐bid company.
Liability: Among the accused are the CAO (public official) and others – presumably including the contractor counterparts. The contract award process was identified as corrupt.
Significance: Shows that contractors become part of the corruption chain when they collude with officials to secure contracts unfairly. The contractor side (the awarded JV) is equally implicated. It emphasises “bid rigging” and favouritism as grounds for liability.
Case 4: Wide‐Body Aircraft Procurement – Nepal Airlines Corporation (2024)
Facts: NAC procured two wide‑body Airbus A330 aircraft in a deal alleged to have caused a financial loss of Rs 1.47 billion to the state. The contract involved foreign equipment suppliers, Nepali officials, NAC board members, etc.
Outcome: The Special Court convicted the contractor/supplier companies and several senior officials. The contractor side included foreign supplier companies. Fines and terms of imprisonment were imposed.
Significance: This case shows contractor liability in major public‐project corruption (even in aviation procurement). Contractors/suppliers who participate in corrupt deals with government entities may be criminally liable, not just the public officials.
Case 5: Teramox Telecom Monitoring System Procurement – Telecommunication Traffic Monitoring and Fraud Control System (Teramox) (2025)
Facts: The telecom authority purchased the Teramox system to control international call bypass, estimated at ~Rs 3.21 billion loss. The contractor company Venerize Solutions (and its CEO) plus local agent were charged.
Liability: Contractor company and its CEO: accused of fraud, overpricing, collusion with authority officials, causing large loss to the state.
Significance: Further evidence that large‐scale project corruption implicates contractors, especially when they collude with officials to award contracts and mis‐execute them. It also shows the recovery of losses is demanded against contractors.
Case 6: Udayapur Cement Industry (2024)
Facts: The case alleged that the company and its managers misused funds in Udayapur Cement Industry Limited (public enterprise) causing loss of over Rs 2.278 million
Outcome: The Special Court acquitted all defendants citing insufficient evidence.
Significance: Although contractors/managers may be charged, absence of sufficient evidence may lead to acquittal. It underscores the evidentiary burden in prosecuting contractor liability.
Key Judicial & Enforcement Principles
From these cases several important principles emerge:
Contractors can be directly liable: It’s not sufficient that just public officials are blamed; contractor firms and individuals who partner in corrupt deals are prosecuted.
Collusion is critical: The common pattern is collusion between public officials + contractor to rig tender, inflate cost, deliver sub‐standard goods or services.
Cause of loss to public exchequer: Many cases hinge on proving that the state sustained a measurable loss because of the contractor’s action.
Evidentiary burden: Proof of collusion, impropriety in bidding, cost inflation, specification violation, or contract breach is crucial. When evidence is weak (as with Udayapur case) acquittal follows.
Recovery orders: Special Courts often order recovery of state losses from contractors alongside criminal sanctions on individuals.
Contractor firms may also cross‐border: Foreign companies working in Nepal can be liable (e.g., MDMS procurement) if they participate in corrupt deals.
Sentencing varies: Contractors may face fines, imprisonment, or company debarment. Senior officials have been imprisoned; some contractors as entities are fined or held civilly liable.
Public‑interest and deterrence motive: These prosecutions serve to deter contractor malpractice and strengthen procurement integrity.
Conclusion
The criminal liability of government contractors for corruption in public‑projects in Nepal is an evolving but increasingly enforced area. Contractors who collude with government entities, inflate costs, supply sub‑standard goods, or rig tenders may face:
Criminal prosecution under CIAA/Criminal Code
Liability for losses to state
Imprisonment of contractor individuals
Fines and recovery orders against contractor firms
However, successful prosecutions depend on strong evidence of collusion, cost inflation or loss, and clear breach of procurement rules. The cases above illustrate both successful convictions and acquittals.
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