Fighting Corruption In Construction Industry
The USA, Department of Justice, Office of Public Affairs released the following on 14th Nov 2022 “A construction company owner became the third person to plead guilty for his role in a bid-rigging and bribery scheme involving California Department of Transportation (Caltrans) improvement and repair contracts.
According to a plea agreement filed today in the U.S. District Court for the Eastern District of California in Sacramento, Bill R. Miller engaged in a conspiracy, from April 2015 through at least December 2019, to thwart the competitive bidding process for Caltrans contracts on numerous occasions in order to ensure that companies controlled by co-conspirators or himself submitted the winning bid and would be awarded the contract. As part of the conspiracy, Miller recruited others to submit sham bids on Caltrans contracts, including co-conspirator William D. Opp, a former business partner who pleaded guilty in the case on Oct. 3, 2022.”.
The case is a reminder that corruption in construction industry is there even in the best developed systems. Most of it goes undetected because the weak systems or unskilled personals who are handling it.
Corruption in the construction industry is considered to be a significant problem worldwide. In general, the cost of corruption in the construction industry is difficult to quantify, as it often goes unreported and undetected. However, it is widely acknowledged that corruption can increase the cost of construction projects, reduce the quality of the work, and delay completion. However, according to the Global Infrastructure Anti-Corruption Centre (GIACC), without significant interventions, by 2030 up to US$5 trillion could be lost annually to corruption in construction across the world. GIACC estimates range from 10% to 30% of project cost in USA and Europe and even up to 45% in developing countries.
There are countries who are very serious about fighting corruption in construction industry. In the United States, the Federal Bureau of Investigation (FBI) has a public corruption unit that investigates corruption in the construction industry, among other sectors. The U.S. Department of Justice also has a specific unit that investigates corruption in public procurement and construction. Similarly in Europe, the EU has a number of anti-corruption measures in place, such as the EU Anti-Corruption Report and the EU Anti-Corruption Network. Additionally, many European countries have also implemented laws and regulations to combat corruption in the construction industry, however enforcement and effectiveness of these laws varies by countries.
In Middle East, KSA has a strong anti corruption body (Nazaha) who uncovered many corruptions cases. In the last month, a meeting for 45 Islamic countries met in Jeddah-KSA with the relevant ministers and heads of anti corruptions in each country to discuss how to corporate on fighting corruption.
Corruption in the construction industry can have a number of negative consequences. Some of the most significant include:
Corruption can drive up the cost of construction projects by inflating prices for materials and labor, or by requiring companies to pay bribes or kickbacks in order to secure contracts. This ultimately leads to higher costs for taxpayers, businesses, and consumers.
- Reduced quality:
When companies cut corners to increase profits or pay bribes, the quality of the construction may suffer. This can lead to buildings and infrastructure that are unsafe or prone to failure.
- Delayed completion:
Corruption can slow down construction projects by causing delays in the procurement process, as well as through work stoppages, strikes and protests.
- Reduced competition:
When companies collude to rig the bidding process or pay bribes to secure contracts, it reduces competition and limits the pool of potential contractors. This can lead to less innovation, fewer choices, and higher costs.
- Damage to reputation:
Corruption can damage the reputation of companies, governments, and the construction industry as a whole. It can also lead to mistrust among the public and stakeholders, which can make it more difficult to secure funding and support for future projects.
- Legal action:
Corruption in construction projects can lead to legal investigations, criminal prosecutions, fines and penalties. This can result in reputational damage, financial losses and, in severe cases, imprisonment of the individuals involved.
- Reduced trust in government:
Corruption in the construction industry can lead to a lack of trust in government and their ability to provide public goods and services, which can further decrease government legitimacy and effectiveness.
Therefore, to fight corruption, we need to identify the most forms of construction corruptions which are:
- Bid rigging:
When a group of companies collude to rig the bidding process for a construction project.
- Kickbacks:
when a company or individual receives a payment or benefit in exchange for awarding a construction contract to a specific company.
- Payoffs:
when a company or individual pays a bribe to a government official in order to secure a construction contract.
- Embezzlement:
when a company or individual misuses funds that were intended for a construction project.
- Fraud:
when a company or individual falsifies documents or misrepresents information in order to secure a construction contract or receive payment for work that was not performed.
- Extortion:
when a company or individual threatens to disrupt or delay a construction project unless they receive a bribe or other benefit.
- Insider trading:
when a company or individual uses their position or access to inside information to gain an unfair advantage in the construction industry.
- Conflict of Interest:
when a company or individual is involved in a project and they have a personal or financial interest in the outcome.
Fighting Corruption
There are several strategies that can be used to fight corruption in the construction industry, including:
- Transparency:
Increasing transparency in the procurement process, such as publishing contracts, bid documents, and the results of inspections and audits online, can make it more difficult for companies to engage in corruption.
- Anti-corruption laws and regulations:
Governments can implement laws and regulations to criminalize corruption in the construction industry, and enforce them through inspections, audits, and investigations.
- Whistleblower protection:
Encourage and protect whistleblowers who report corruption within the industry or company.
- Education and awareness:
Raising awareness about the negative effects of corruption and the importance of integrity and ethical behavior can help to create a culture in which corruption is less likely to occur.
- Independent oversight:
Establishing independent oversight bodies, such as anti-corruption agencies or ombudsmen, can help to detect and prevent corruption.
- Procurement reform:
Governments can implement procurement reforms such as e-procurement and the use of reverse auction to make the procurement process more transparent and competitive.
- Public-private partnership:
Governments can work with the private sector to develop codes of conduct and integrity pacts to promote ethical behavior in the industry.
- Public procurement policies:
Governments can establish clear and consistent policies for public procurement and construction projects, and ensure that they are followed.
- International cooperation:
Countries can work together to combat corruption in the construction industry through international agreements and organizations such as the United Nations Convention Against Corruption (UNCAC).
It is important to note that fighting corruption in the construction industry is a complex and multifaceted challenge and no single strategy will be sufficient to eliminate it entirely. A combination of different measures and a long-term commitment to integrity and ethical behavior’s are necessary to effectively combat corruption in the industry. Starting with involving the trustworthy people who are committing to fight corruption at all cost as fighting corrupted people will be faced with reaction form the corrupted people in forms of destroying (or questioning) the reputation of the people who fight them and it reach to live threatening in some cases. Therefore commitment of top management and protection to the staff who fight corruption is crucial as start.