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National Construction Contracts and Law Survey 2013

National Construction Contracts and Law Survey 2013

 

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Contracts and Law

Construction industry corruption

Just around the corner from the NBS office in Newcastle there is currently an exhibition reflecting the life and times of one-time politician T. Dan Smith, who along with architect John Poulson, was jailed 35 years ago following charges of corruption. Has anything changed in the meantime? Technical Author Roland Finch investigates.

The shorter oxford dictionary defines corruption as Perversion of a person's integrity in the performance of (esp. official or public) duty or work by bribery etc.

In September 2009, UK-based contractor Mabey and Johnson was convicted of bribing officials in Jamaica and Ghana when bidding for public contracts, and paying money to Saddam Hussein's Iraq regime, violating the terms of the UN oil-for-food programme.

The company received fines approaching 6 million, but at the same time, the judge said he recognised the company had taken extensive steps to remedy the situation and therefore deserved "recognition and approval" for its efforts to put matters right.

It should be noted that this is nowhere near the sorts of figures that have been involved elsewhere. In recent times in the United States, Halliburton were punished to the tune of nearly 500m while Siemens received fines of around 600m, with another 450 million levied in Germany.

There seems to be a general acceptance that corruption is widespread in our industry. In Corruption in the UK Construction Industry, a survey conducted in 2006 by the CIOB, just over half of the people interviewed (51%) agreed that corruption was 'fairly' or 'very' common.

This is apparently reinforced by the recent Office of Fair Trading investigation into cover pricing, which led to the imposition of fines totalling 129.5 million on 103 construction firms in England it found had colluded with competitors on building contracts.

However, in the same survey, the remainder (49%) said it was 'not common'.

There seems to be some confusion between what constitutes genuine corruption, and what might be better termed anti-competitive behaviour. Of course, both are illegal, although, as many commentators have strenuously argued following the OFT cases, simple cover pricing may well not affect the lowest bid for a job, especially where the perpetrators have not actively sought to find out what that bid is.

As the summary of the CIOB report said:

It is clear that those who responded are aware of the issues, but there are clear indications of degrees of tolerance to some practices that some would regard as corrupt. The results also showed that the vast majority of respondents feel strongly that more should be done to address this issue.

There are many in the industry who agree that there are significant grey areas. They cite the recent MPs' expenses claims furore as an example of what happens when individuals are left to interpret the rules for themselves.

The solution, however, can be relatively simple. Like most things in construction, corruption/ collusion can be dealt with as part of a risk assessment. The likelihood of it occurring can be balanced against the steps to ensure it does not. And this can be facilitated by the development of:

  • Clear rules and procedures, with regular reviews;
  • Proper training and guidance for employees;
  • Removal of possible incentives – a classic example being performance and bonus targets such as some of those recently employed by the banks
  • The development of proper checks and balances, and most importantly;
  • Commitment and integrity from management.

Most construction professionals know instinctively what is right and wrong. Some require a little guidance, and for the remainder, there are the courts. But corruption is squarely in the public's focus, and the industry would do well to heed the message.

Related NBS information:

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November 2009

 

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