Corruption in Construction: How to Tackle This Industry-Wide Problem

Businesses in just about every industry face the risk of corruption in one form or another, from bribery to extortion and embezzlement to cronyism. Corruption in any form — including corruption in construction — can have serious consequences for businesses’ financial health and reputations. It can stand between organisations and supply chain integrity and visibility. It can impact the quality of goods and services and it can prevent businesses from achieving maximum efficiency and profitability. Corruption can also have an impact on the people within an organisation, causing human rights violations, inequality and a lack of diversity throughout the company. This is because corrupt relationships often cause biased procurement processes. Looking out for and managing the risk of corruption is of paramount importance for any business.

In the construction industry, in particular, business owners and executives need to make tackling corruption a priority. Construction is one of the world’s most corrupt sectors and, as an industry that 1) employs millions of people worldwide, 2) has a huge impact on countries’ economic growth and 3) is responsible for structures that could pose serious health and safety risks, officials in this sector have a responsibility to take corruption risks seriously. Consideration of how to combat dishonest or fraudulent activities should be worked into supply chain risk management strategies.

The trouble with corruption is that it’s a discreet problem that happens in the shadows or “under the table” as they say. It can be difficult to see the signs and even tricker to eradicate it completely from supply chains.

However, with the right guidance, it is possible to tackle corruption in construction — starting with your own business’s supply chain. We’ve put together this guide to help you take action and put a stop to corrupt activities in your supply chain.

Why Is the Construction Industry So Vulnerable to Corruption?

The high levels of corruption in construction are unfortunately due to the very nature of business operations and procurement procedures in the industry. This is a deep-seated problem with a lot of history behind it, which is why it’s so challenging for businesses to overcome.

Some of the reasons and operations that have caused the construction industry to become vulnerable to corruption include:

Low Supply Chain Visibility

Construction supply chains can be anything but straightforward. There are often many different suppliers involved and a lot of complex transactions, meaning most businesses don’t have end-to-end supply chain visibility. With low supply chain visibility, it can be difficult to keep track of transactions and ensure compliance with anti-corruption and anti-bribery legislation.

Varied Project Costs

Construction projects can cost anything from hundreds to millions of pounds. Every project is unique, meaning every quote given will also be unique. This makes it easier for corrupt individuals or organisations to conceal bribes and inflate costs.

It Can Be Difficult to Prove That Work Has Been Completed

Construction projects don’t always involve building new structures or giving existing buildings a complete renovation. Work can often be more subtle, for example, if structures are reinforced or facility management tasks are carried out, evidence of this work isn’t always visible to the untrained eye. This makes it possible for corruption to occur through unsubstantiated claims of work completed or work completed to an insufficient standard.

High Standards and Extensive Requirements

Construction projects need to comply with a number of regulations relating to quality, health and safety, risk management, equal opportunities and the fair treatment of workers. Some construction companies may feel unable to meet legal requirements or mistakenly believe that it’s easier to cut corners to achieve compliance. This is when people may be tempted to participate in corrupt activities such as bribery, for example, through the bribery of officials to turn a blind eye to non-compliance.

High-Value Projects Make It Easy to Conceal/Inflate Costs

Larger businesses that qualify for high ticket projects face corruption risks when the cost of services and materials make it easy to conceal bribes or inflate costs. It is much easier to hide bribes and inflate costs in larger projects costing hundreds of thousands or even millions of pounds than it is to conceal signs of corruption in lower-cost projects.

The Construction Industry Might Be More Tolerant of Corruption

In a survey carried out by the Chartered Institute of Building (CIOB) in 2006, the majority of construction professionals regarded different types of corruption — including fraud and the employment of illegal workers — as prevalent in construction companies. Michael Brown, the Deputy Chief Executive of CIOB at the time, also stated that there appeared to be a degree of tolerance to corruption, perhaps because it was widely accepted that corruption was integrated into industrial strategy. While construction has come a long way in the last 14 years, it’s possible that this attitude of corruption acceptance may remain to this day.

Potential Signs of Corruption in Construction

Corruption looks different in every organisation and every supply chain, which is why it’s not always easy to spot. In some cases, corruption can be hidden so well by those involved that there are almost no identifiable signs. But there will usually be a few subtle indicators that corruption may be an issue within your business.

Below are some of the potential signs of corruption in construction, but take note: even if you notice one of these possible signs, that doesn’t necessarily mean that corrupt parties or practices are at play — there may be other logical and legitimate explanations for these occurrences. However, by looking out for and investigating these potential indicators of malpractice, you can stay vigilant and reduce the risk of corruption in your organisation.

• Unnecessary, Inappropriate or Poor Quality Goods or Services — This can be a sign of a corrupt relationship with a supplier. Corrupt payments can also be concealed as legitimate or necessary purchases.
• Suspicious Invoices — False, backdated or duplicated invoices can be used to conceal illegitimate payments or generate funds to make bribery payments.
• Reduced Commitment to Quality, Ethics and Compliance — Because corruption so frequently involves trying to conceal payments or generate additional funds, the focus of corrupt individuals or practices is usually financial. It’s common for commitment to quality, ethics and compliance to take a backstep.
• Biased Procurement Procedures — Procurement processes can be vulnerable to corruption and biased decisions can lead to the hiring of suppliers that aren’t suitably qualified, trained or skilled. This can deprive other candidates of the right to equal opportunities.
• Supplier Refuses to Deal with Anyone Other Than Their Main Point of Contact — One sign of a corrupt business relationship is if a supplier won’t work with anyone other than their usual point of contact. You might have suppliers that prefer dealing with their usual contact and that is not necessarily unusual, but when suppliers or business contacts don’t want to discuss their role with any other members of staff, this could be a sign of corruption.
• Individuals Reluctant to Take Annual Leave or Offer Insight into Their Role — Similarly to the above point, individuals within your organisation may be reluctant to use their annual leave for fear of their involvement in corrupt dealings being revealed during the handover to cover staff. They may not want to go into details about certain expenses, projects or supplier relationships.
• Sudden Increase in Work Opportunities — Marketing efforts, referrals, global events, market trends and seasonal demand can all cause a sudden increase in work opportunities. However, if work suddenly and drastically picks up for no clear reason, this could be an indicator that corruption is at play.
• A History of Corruption — This isn’t to say that leopards can’t change their spots, but if an individual or business has a history of being involved in corruption, this could increase the risk of misconduct within your current supply chain.
• Lack of Written Agreements — Those involved in corruption will be invested in keeping illegitimate projects, business relationships or expenses a secret. For this reason, there may not be any record or written agreement of contracts that are influenced by corruption.

Remember, corruption can come in many different forms, so you might notice some of the above signs or there could be completely different indications of misconduct. It’s also possible that you might not have noticed any signs at all and don’t suspect corruption within your organisation. Whatever the case — whether you think your business might have a problem or you’re sure there’s nothing untoward going on in your supply chain — you have a moral and legal obligation to take any steps you can to prevent corruption in your organisation.

How to Tackle Corruption in Construction Supply Chains

Ensure Compliance with Anti-corruption Legislation

Lack of compliance can not only lead to penalties, fines and prosecution, it can also create a company culture that is the perfect breeding ground for corruption.

When your organisation shows a disregard for legislation, this sets a precedent that it’s okay to ignore laws, regulations and company policies. Individuals may feel like they can get away with dishonest or fraudulent conduct without facing any repercussions.

The process of achieving compliance with corruption legislation — such as the Bribery Act 2010 — can also help you mitigate corruption risks, raise awareness amongst employees and business partners and discourage misconduct. For example, the Bribery Act 2010 requires you to assess risks of corruption within your supply chain, implement control measures where necessary, update policies and procedures and communicate updates to employees and business partners. Despite the construction industry being more vulnerable to corruption and despite it being difficult to spot the signs of misconduct, there are ways that you can significantly reduce the risk of illegitimate, dishonest and criminal activities in your supply chain. We’ve compiled some of the best ways to prevent and tackle corruption effectively:

Provide Anti-corruption Training

Anti-corruption training can be one of the best ways to deter corruption, demonstrate a zero-tolerance policy towards it and encourage internal whistleblowing.

Training sessions, workshops and programmes should aim to make sure employees and contractors on all levels of your organisation are aware of what corruption is, the forms it can take and how to keep an eye out for it. And, if your staff are going to help you combat corruption, they need to know not just what it is and how to spot the signs, but also what to do if they suspect foul play within your organisation or supply chain.

Increase Your Supply Chain Visibility

Corruption thrives in the shadows, where it can’t be seen or detected. If there are areas of your supply chain that you have minimal visibility into, these are the areas that might be the most vulnerable to corruption.

By improving supply chain visibility, you’ll have a clear insight into the nature and progress of any transactions within your production flow. With the ability to track funds, materials and deliveries, you can ensure the legitimacy of operations and dealings and deter suppliers and individuals within your own business from participating in corrupt activities.

Make Sure Employees Use Their Annual Leave

It’s important that employees take their annual leave. Firstly, because time off can keep employee stress levels to a minimum and boost wellbeing and productivity. Secondly, annual leave can play a role in corruption risk management. Treating employees fairly, giving them time off and allowing staff to cover each other’s work can help keep the risk of underhand dealings to a minimum and make it easier for you to detect and eliminate corruption.

Use Supply Chain Risk Management Services

CHAS offers a range of supply chain risk management services including accreditation schemes and credential management services that make risk mitigation a more manageable task. We can help you detect, prevent and deter corruption and comply with regulations across all areas of risk management, including the CDM 2015, the Bribery Act 2010 and the Modern Slavery Act 2015.

When you become a CHAS Contractor or CHAS Client, you’ll unlock access to our industry-leading services and you’ll have all of the resources and support you need to achieve and maintain compliance and improve the safety, profitability and sustainability of your supply chain.

If you’re ready to combat corruption head-on and create a supply chain that prevents and deters misconduct, take the first step by joining CHAS and gaining access to leading risk management services. 

Become a CHAS contractor and gain access to risk management tools, materials and nationally-recognised accreditation programmes such as SSIP, PAS91 and the comprehensive Common Assessment Standard. Not sure where to start? Learn how the membership process works by reading our guide to joining CHAS.