The construction sector is particularly at risk from acts of bribery, which can threaten contracts, business relationships, and ultimately, a company’s survival. So what can construction companies do to protect themselves from corruption of this nature?
By Céleste Cornu
It is impossible to determine which sector bears the greatest exposure to the risk of bribery; however, there are some indicators which aid in the evaluation of this risk—especially the Transparency International Bribes Payer Index (2011), where construction is identified as the most exposed sector. Why is the construction sector viewed as being particularly at risk? What should construction companies do to counter this risk? And what are the specific challenges to tackling the bribery threats within the construction sector?
Generally, when it comes to assessing the risk profile of a company, the top three sources of risk are: the type of clients, the countries of operations, and the necessity to engage intermediaries. The construction sector is particularly exposed to all three of these taxonomies. Firstly, major construction and infrastructure projects are usually (directly or indirectly) managed by public utilities (for example, roads, airports and bridges) and public clients are identified as high risk in terms of bribery.
Secondly, the sector is of global reach, involving companies from all countries worldwide. The biggest projects take place in the developing world, where infrastructure needs to be improved. Many of those countries are considered as a challenging environment in terms of bribery and extortion. Thirdly, the construction sector is fragmented, involving a complex chain of companies bringing together various skills (from engineering to civil work and maintenance), agents and co-contractors, which make it very hard to understand the whole process flow and the respective responsibilities in a specific project.
On top of this, the construction sector also faces further specific challenges. The construction sector is subject to the crucial role of financing—through aid, grants, equity investment or loans, and lease finance—and financial guarantees and insurance. This means that the opportunity for bribery arises not only during project execution (the planning, design, tendering, construction, operation and maintenance of a project) but also during the provision and management of financing a project. For example, the project owner, in order to obtain financing for a project, may offer a disproportionate advantage to the funder’s consulting engineer to obtain an engineering report which conceals negative information in relation to the project.
Costs and consequences
Considering the large size and uniqueness of such projects, the impact is significant for the funders, the customer and the final users. Consequences are usually financial: increases in the financing, operating and maintenance costs of the projects; low return on investment for the funders; misappropriation of funds. They are also qualitative: unviable, defective, dangerous, environmentally or socially destructive projects. Numerous projects were abandoned, poorly or partially realised, or most commonly, had significant overruns. The consequences may also be significant for companies—and some of their employees—involved: costly fines, damaging penalties (such as debarment), and damage to business reputations.
Numerous different guidance documents have been issued in the past two years to help companies define what constitutes a proper bribery prevention policy: the OECD Good Practice Guidance on Internal Controls, Ethics, and Compliance, the revision of the International Chamber of Commerce Rules on Combating Corruption and highlights covering specific aspects of a programme such as recommendations on handling the sales intermediaries or a proper whistle blowing system. Furthermore in the UK, the adoption of the Bribery Act in 2010 has created—among others—a new offence, which is the “failure of commercial organisations to prevent bribery”. Companies should be able to demonstrate that they have implemented “adequate procedures” to limit, as much as possible, the risk of corruption within their organisations and with their business associates. A guidance document has been issued to provide indications of what those adequate procedures should be. Hopefully those recommendations converge with and complement the various pre-existing guidance.
Some principles are clearly recognised as what a bribery prevention programme should encompass. Companies are expected to adopt:
- A clear ‘tone from the top’
- A regular and documented bribery risk assessment of their organisation
- A set of policies defining proper rules on what is acceptable or not and what the approval processes are regarding gifts and hospitality, charitable and political contributions, sponsorship, facilitation payments; and any other specific risks
- An internal organisation (in terms of management responsibility, approval processes and budget)
- A specific approach toward business partners—especially sales business partners—including a due diligence process on those partners
- Proper internal controls especially regarding financial, procurement and other commercial controls
- Regular communication and training on the risks, the legal constraints and the policies of the organisation
- An alert system so that employees can raise concerns or cases of bribery
- An internal monitoring system.
These recommendations are common to all industries. However, some of them are particularly challenging for the construction sector.
We mentioned above that the construction sector is fragmented, involving a complex chain of co-contractors and sub-contractors which means that the total number of business partners involved is particularly high. A company would then need to identify what type of business partners it has; what their respective weights are in the project; and what proper processes are needed for each specific type of partner—in terms of selection process, due diligence, contracting, invoicing etc. This creates responsibilities for the biggest players and main contractors to strictly select and cooperate with partners with similarly intolerant views towards corruption and bribery. This may cause dilemmas for companies with smaller roles in big projects, as these players may have a limited capacity to influence their trading partners’ practices. This interaction with the other parties is tricky and requires construction companies to adopt a broader strategy for collaboration with some partners.
The first step is to make sure that the companies have adopted programmes which are in line with international best practices and that they are properly implemented. To that purpose companies are encouraged to seek external verification of their anti-bribery programme. Such audits can also be developed further, in pursuit of a strong commitment towards all stakeholders involved (such as employees, clients, business associates and funders), by applying for certification. For example, companies may be certified against the ETHIC Intelligence Certification scheme or the BS 10500:2011 British standard.
Confident on their internal policies, companies should also join sectoral initiatives in order to level the playing field among competitors. For example, the Construction Sector Transparency Initiative (CoST), the Global Infrastructure Anti-Corruption Centre (GIACC) or the International Federation of Consulting Initiative (FIDIC) work towards greater transparency and accountability.
In order to make faster progression in tackling bribery in the construction and infrastructure sector, another best practice is to participate in collective actions and other innovative initiatives such as integrity pacts. These are a collaborative and sustained process of cooperation between stakeholders in order to publicly disclose commitment and key decisions on the approval process and control of big projects. They are of course difficult and time-consuming to implement; however they work on all aspects of bribery—both the offer of and demand for bribes. This is an excellent option for those companies seeking to work on their own and who also want to influence governments and obtain the support of the civil society where they operate.
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Céleste Cornu is operations director of Corruption Prevention Services at SGS, the leading inspection, testing and certification company. As such she conducts external verification of corruption prevention programmes including monitoring for financing institutions, benchmark audit or certification audits.SGS is recognised as the global benchmark for quality and integrity. With more than 70,000 employees, SGS operates a network of over 1,350 offices and laboratories around the world.