In December 2019, Canadian engineering giant SNC Lavalin pleaded guilty in the Court of Quebec to fraud after acknowledging that it paid a total of $48 million Canadian dollars ($US36 million) to Saadi Gaddafi, son of former Libyan Leader Muammar Gaddafi.
The payments had been in exchange for Mr Gaddafi using his influence to help secure contracts for SNC Lavalin’s construction division.
This is far from the only time a high-profile construction company has become embroiled in corruption.
In November, a former executive of Australian engineering and construction giant Leighton (now CIMIC) was arrested over his alleged role in a scandal in which bribes were allegedly paid to Iraqi government officials to secure contracts worth up to $A1.5 billion to build oil pipelines in Iraq.
Whilst shocking, these cases highlight that rich world companies are not immune to becoming embroiled in construction-related corruption scandals.
Nor are such scandals restricted to less developed jurisdictions. In the United Kingdom, a 2013 survey conducted by the Chartered Institute of Building involving responses from 701 of its members found that 31 percent had personally been offered a bribe or an incentive to engage in a corrupt practice whilst 38 percent had come across cartel activity. In New York, a former executive of Turner Construction Company pleaded guilty last October to conspiring with cohorts to steal $US15 million from ex. Mayor Michael Bloomberg’s financial services company in a scandal which involved overcharging for interior design and construction work on its sprawling offices at 1209 Park Avenue and 919 Third Avenue.
All this raises questions about why construction-related corruption occurs and how it can be prevented. Such issues were discussed during an online presentation last month which was hosted by the University of New South Wales and delivered by Professor George Ofori, a professor of construction management who specialises in improving construction practices in lower and middle income countries and who is deputy chair at a body known as the Infrastructure Transparency Initiative (CoST) – see below.
Exactly how much corruption occurs in construction is unknown. A 2009 article published in the journal of the American Society of Civil Engineers put the worldwide cost of corruption in construction at $US500 million per annum or ten percent of the industry’s output. Courtesy of industry growth since then, that figure may now be higher. A 2014 analysis of 400 bribery cases conducted by the OECD across its 41 signatory countries found that construction accounted for fifteen percent of all cases studied – second only to extractive industries.
Depending on individual cases, consequences can include:
- Funds being wasted as contracts may not be awarded to the party which offers the best value for money and can further be awarded at inflated prices.
- Poorer infrastructure as money earmarked to construct buildings, roads, rail lines, utilities or other assets is instead lost through corruption.
- Shoddy workmanship leading to poorly built or unsafe buildings and structures as contracts are awarded to the most unethical party rather than the party who is best qualified for the job.
- Honest companies being robbed of opportunities to compete for work.
- Startups and innovation being deterred, and bad practices being entrenched.
- Environmental degradation and exploitation.
- Funds intended to help the needy (in the case of projects which involve financial aid) being wasted and instead used to line pockets of greedy officials and dodgy contractors.
- Greater difficulty for public service agencies in attracting and retaining the best workers and diminished public sector workforce and operational capacity as a tarnished reputation diminishes the attractiveness of public service as a career.
Hardest hit are the less well-off who rely more heavily on public infrastructure and government service provision.
There are many reasons why construction is prone to corruption:
- With large amounts of money at stake and many subjective decisions being made, big projects create opportunities to game the system and incentives for this to be done.
- Large and complex projects involve numerous points of opportunity where costs could be inflated or false claims could be made.
- The unique nature of some projects can make direct comparisons of costs and other matters with other projects more challenging and can make detection of untoward activity through benchmarking and outlier analysis more difficult.
- With some projects involving hundreds or even thousands of links, detection of corrupt conduct through overall project monitoring can be hard.
- With parts of the construction being covered up and not readily visible, there are opportunities for shoddy work to be hidden.
Furthermore, corruption can occur through several means.
According to Ofori, these include:
- During the inception and feasibility stage by falsification of time, cost and return on investment estimates or by invalid requests for proposals.
- During planning and organisation by manipulation of design, specification of overly sophisticated design, inflation of resource and time requirement or the obtaining of quotes solely for the purpose of price comparison.
- During tendering and prequalification through bid rigging, low-balling, price fixing, bribery to obtain contract award, false declaration of capability, corruptly negotiated contracts and submission of false quotes.
- During implementation and execution through padding of expense accounts, use of substandard materials, health and safety compromises, concealment of financial statuses, supply of less equipment compared with what was contracted, false work certificates, false extension of time applications, false assurances of payment being made, delayed issue of payment certificates and concealing of defects.
- During close by compromising of financial accounts, compromising of employee reassignment and covering up of project failures.
Cruelly, opportunities for corruption increase in times of crisis such as during COVID or in recovery from extreme weather events or natural disasters. In such situations, large amounts of money need to be spent quickly; timeframes for planning, design and procurement are compressed; oversight may be compromised as government resources are stretched; and citizen accountability/access to information may be curtailed.
According to Ofari, efforts to address this are happening across multiple areas.
Internationally, most countries involved in the United Nations have signed on to the UN Convention Against Corruption through which countries agree to adopt policies to deter corruption, establish criminal offences where corruption occurs, co-operate with international peers and act to recover assets and money stolen through corruption. As well, 78 countries, a growing number of local governments and thousands of civil society members are part of the Open Government Partnership which was launched in 2011 and aims to secure commitments from governments to promote transparency and accountability in business, open data and digital transformation of government services, access to government information, public sector integrity and public participation and agreement. A total of 44 OECD countries and seven non-OECD countries have also signed the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, which establishes legally binding standards to criminalise bribery of foreign public officials in international business transactions and provides measures that make this effective. A not-for-profit initiative known as the Open Contracting Partnership which was spun out of the World Bank in 2015 works across more than 30 countries and aims to promote fair and efficient contracting which is open by design and based around digital processes.
At a national level, many countries have either specific anti-corruption agencies and/or agencies which aim to prevent unfair or anti-competitive behaviour. Examples of anti-corruption agencies include the Corruption Eradication Commission of Indonesia, the Corrupt Practices Investigations Bureau (Singapore) and the Office of the Public Protector in South Africa. Competition related agencies include the Office of Fair Trading in the United Kingdom, the Competition Commission in Singapore, the Competition Commission in South Africa and the Australian Competition and Consumer Commission in Australia.
Some countries are strengthening anti-corruption laws. Malaysia last year amended the law to make company directors, officers and managers personally liable for bribery or corrupt behaviour from which their organisations derive a benefit. To escape prosecution, directors/officers/managers need to demonstrate not only that the conduct occurred without their consent but also that he or she had taken reasonable steps to prevent corrupt conduct from occurring.
Finally, there are private initiatives which are specific to the construction sector. One such initiative – of which Ofari is deputy chair – is the Infrastructure Transparency Initiative (CoST). This works with government, private sector and civil society to promote transparency and disclosure on investments in infrastructure.
The initiative is based around four principles:
- A tripartite arrangement in which governments, industry and civil society work together.
- Disclosure as per the CoST Infrastructure Data Standard, which identifies 40 items of project and contract data that should be proactively disclosed on a routine basis throughout the project along with a further 27 which should be available upon request.
- Third party auditing of data by independent consultants along with reports outlining any areas of concern in respect of the data provided which are made available and launched at public events.
- Provision for ordinary people to use this data in order to demand accountability.
Sixteen countries are on board whilst a further three members are sub-national members.
According to Ofari, the most important way to reduce corruption is to promote transparency through disclosure of information accompanied by independent certification of that information which is provided.
Also needed are strong laws supported by robust enforcement and penalties which are sufficient to provide a deterrent.
He says a leading example is Singapore, which has a clear anti-corruption law that is supported by a strong agency known as the Corrupt Practices Investigation Bureau along with a robust monitoring system and severe penalties for illegal behaviour.
This has created a culture of accountability along with an expectation and understanding that any misconduct will be found out and that those caught will be held accountable irrespective of seniority levels.
Ask a civil servant in Singapore to lunch and Ofari says he or she will likely decline. This is not because acceptance would be forbidden or that the person was unfriendly but rather to avoid any perception of having been influenced.
Also important is citizen engagement. Here, Ofari points to his home country of Ghana, where the sacking of the head of the Public Procurement Agency resulted from an investigation led by civil organisations.
Ofari calls on building practitioners, academics and government officials to act.
“For me, I want to redefine the world corruption,” he said.
“Corruption is commonly thought of as a person using a public position entrusted to him or her for his or her personal gain. (But) I am also saying that if we are aware of it (corruption) and we fail to draw attention to it, then we also could be considered to be corrupt. In the end, it comes to personal responsibility.
Also, I want to remind my colleagues in the academic field that it is the practitioners who may influenced in this way (corruption). We (academics) must want to create a generation of upright, ethical and professional practitioners. That is our job and it is something that we should do.”
He shows a cartoon from a German philosopher who set out to find an honest politician, lawyer or contractor and who after being unable to find any of these simply wanted to find an honest person.
“Let us hope in the future that us as academics in academia, as practitioners in industry and as government officials are seen to be the honest man or woman that you don’t have to look too far to find,” he said.
“(Let us hope) that this person is very common in construction – an important industry but one which is very prone to practices that are not good.”