How The Construction Industry Is Vulnerable To Corruption

Corruption is a problem all over the world. The construction industry is consistently ranked high on corruption indexes. Corruption in the construction industry is well documented. Even a casual internet search on the topic will provide examples of corruption in bidding processes, with shady practices like cutting corners, overcharging, resulting in loss of lives in the case of building or bridge collapse. 

Corruption can occur at every stage of a project. If you are unfamiliar with this industry’s vulnerability to corruption here are some, among others, of the issues that construction businesses face:

  • Conflicts of Interest
  • Inflation of bills
  • Professional incompetence and misconduct
  • Poor work delivery
  • Bribery, kickbacks and rebates
  • Intimidation

Corruption in the construction industry often results from a combination of elements, and here are some:

  • Lack of transparency
  • Close relationships between contractors, subcontractors and project owners
  • Cronyism 

You Might Be Paying Money for Goods and Services You Aren’t Receiving!

If this topic is not clear to you yet, pretend you hire a construction company to build a condominium. Imagine a contractor:

  • Charging for high price materials, but using cheap ones
  • Falsifying time sheets, fabricating overtime hours
  • Using less money on safety
  • Not following environmental regulations
  • Changing salary terms
  • Billing statements detailing overtime pay for workers who were never physically at the job site
  • Issuing invoices with kickbacks or rebates added to the original prices
  • Bribing inspectors and potential clients/representatives

When a company inflates the bill by charging you for labor and materials they aren’t using, it can be difficult to spot. 

Why is This Commonplace?

It has been said that:

  • Globally, construction is expected to be a $17 trillion industry by 2030.
  • As estimated by the World Economic Forum the global cost of corruption is at least $2.6 trillion or 5% of the global GDP (gross domestic product).
  • According to the World Bank, businesses and individuals pay more than $1trillion in bribes every year.

These acts are not isolated to a specific country. Construction companies have been caught committing illegal and unethical acts in China, Canada, United States Brazil, Kenya, etc.

The number of parties participating, the complexity of many construction projects, the geographic locations where they are performed and the legal systems to which they are exposed can make them look attractive to bribery and corruption.

Still, corruption has significant negative impacts not only across the industry, economy and civilization, but it harms the society by providing unsafe and unhealthy buildings.

So Why Does Corruption Run Through This Industry?

Because some people in the industry still see a bribe as a part of the business. Previously, we have noted the challenges businesses face when they begin working with third parties. Although the business may be ethical and compliant, working with a third-party vendor is like inviting a stranger into your home. Construction can be even more complex because the contractor you hire may hire subcontractors. The more parties that are involved, the harder it is to control. 

Forms of Prevention

It is important to acknowledge that it is the people within the industry who act unethically. Just because the door is open does not mean one has to walk through it. In other words, if one sees money lying on the ground, it’s up to people whether they turn it in. Someone always knows what’s going on with a construction project. It’s up to those who have a strong ethical principle to report anything that’s not right. When you look at examples of corruption in the construction industry, you see situations where leadership either contributed to the issue, fostered it, or ignored it. Corruption thrives in these environments. Leaders are obligated to not only take a very public stance against illegal activities, but they have to ensure there are appropriate ways to prevent them. Regardless of the size of your company, every project has to have:

  • People who understand what corruption and illegal activities are;
  • Clear communication and education on what integrity and transparency mean
  • Stakeholders’ close participation
  • Policies and procedures in place
  • Accessible and reliable reporting channels
  • Effective monitoring and control systems

Prae Venire 
At Prae Venire, we refer to these steps as prevention, detection, and correction. When you start a project make sure you run effective background checks and due diligence to prevent yourself from being involved with a company or third party that endorses and condones unethical behavior. Don’t be shy whenever you want transparency and accountability, strengthening professional standards and quality management, and make it clear to the third parties you work with. All of these efforts are essential for a sustainable future for the whole world. If you have any further questions about corporate compliance programs and how to implement them, contact us to schedule a consultation.