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20 July 2021
Why construction remains a breeding ground for corruption

According to the Contractors Health and Safety Assessment Scheme (CHAS), construction is one of the world’s most corrupt sectors – a worrying prospect, given the serious health and safety impacts for the general population of poor workmanship and a focus on money rather than safety.

What do we mean by ‘corruption’?

The International Growth Centre (IGC) defines corruption as “the abuse of power for private gain”. This includes embezzlement, bribery, nepotism, fraud, forgery and tax evasion, among other practices. Corruption is typically worse in developing countries; Transparency International’s 2020 Corruption Perceptions Index revealed that Venezuela, Yemen, Syria, South Sudan and Somalia are perceived to be the world’s five most corrupt countries.

Why is corruption so rife within construction?

The very nature of the construction industry facilitates corruption, with large supply chains, high value projects and the ability to hide poor workmanship all resulting in a culture of corruption dating back many years. The Global Infrastructure Anti-Corruption Centre gives the following reasons (among others) for the high level of corruption within the construction and infrastructure sectors:

  • Contractual structure – a main contractor will usually sub-contract out parts of their work to major sub-contractors, who may then themselves ‘sub-sub-contract’ parts of their Sub-contractors will then order materials and equipment from a wide range of suppliers, etc., rendering supply chain oversight extremely difficult. The more links there are in a contractual chain, the more opportunities there are for bribery, fraud, cost inflation, etc.
  • Diversity of skills and integrity standards – each infrastructure project will employ a range of professionals, tradespeople and specialist contractors, usually with different professional/trade associations and separate codes of conduct. This diversity leads to varied standards of qualification, integrity and oversight.
  • Size of projects – some construction projects are huge in scale and cost millions, or even billions, of pounds. This makes it easier to hide price inflation, bribes and other forms of corruption.
  • Complexity of projects – with so many phases to large projects, it can be easy to blame other participants in the chain for problems, and claim payment for these problems. This creates a compelling reason for bribery, as the implications of being blamed for issues can be highly damaging.
  • Concealed work – in many instances, poor workmanship can be hidden by other construction elements, such as concrete, brickwork or plaster. This means that enormous trust is placed in the individuals who certify the quality of work before it is concealed – creating another motivation for bribery.
  • Government involvement – many major construction projects are government-owned (for example, the HS2 high-speed rail project), giving government officials significant power to, for instance, commission projects for their own purposes or take bribes in exchange for the awarding of contracts.

Anti-corruption legislation in the UK

Various anti-corruption laws are in place in the UK, most of which have been introduced in the past 20 years or so. The Competition Act 1998 prevents firms from engaging in anti-competitive behaviour, while the Enterprise Act 2002 imposes tough sanctions on those found guilty of cartel activity, for example price-fixing or bid-rigging.

Meanwhile, the Bribery Act 2010 made it an offence for a UK individual to receive a bribe, whether directly or indirectly. Sanctions for companies include unlimited fines and up to 10 years’ imprisonment.

Despite this, however, cases of fraud, bribery and tax evasion over the past 12 months demonstrate that financial crime continues to plague the industry. For example, the Met Police are currently investigating test centres across the UK for allegedly accepting bribes in exchange for giving test answers to candidates, enabling them to gain competency certificates. Meanwhile, the Serious Fraud Office secured convictions last July against two former executives at Unaoil, who paid bribes to secure contracts in Iraq.

A stark reminder

These crimes should not only serve as a stark reminder to firms within the industry that financial crime is still rife within construction, but that a conviction can lead to significant financial and reputational damage. As such, firms should be taking active steps to implement anti-corruption policies at all levels of their business, in addition to training to help prevent the spread of financial crime.

Sources:

https://constructionmanagermagazine.com/why-bribery-and-fraud-still-plague-construction/

https://www.transparency.org/en/cpi/2020/index/nzl

https://www.chas.co.uk/blog/tackling-corruption-in-construction/

https://www.sfo.gov.uk/2020/07/13/former-unaoil-executives-guilty-of-giving-corrupt-payments-for-oil-contracts-in-post-occupation-iraq/

https://giaccentre.org/why-corruption-occurs/

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