Thursday, September 24, 2020

Corruption in engineering and construction sectors

Corruption is a global problem; no country is totally free from it. This also applies to Africa which has developed a particularly bad reputation for corrupt practices. The level of corruption in Sub-Saharan Africa (SSA) is high, and has been rising in most SSA countries during the last decade, despite concerted efforts to prevent and combat it.

Corruption takes place in and adversely affects all sectors of the economy. However, it is probably more sophisticated and has higher costs in the procurement of engineering projects, particularly in the public sector, where it has attracted a lot of attention. This is not surprising considering that engineering projects account for a large share (40-60 percent) of public procurement. Public procurement is as hot spot for corruption malpractices in SSA, where many public procurement contracts are tainted by corruption.

According to World Bank and African Union surveys, corruption costs Africa USD 148 billion a year and increases the cost of goods and services by as much as 20-30percent. Worldwide, the volume of bribes exchanging hands through public sector procurement is estimated to be USD 200-300 billion per year.

It is estimated that corruption occurs in up to between 60 and 70 percent of engineering projects procured in the public sector in SSA. There is both petty and grand corruption taking place in these projects, in the form of bribery and fraud.

Petty corruption exists mainly in the procurement of small engineering projects, notably those involving the supply of services, goods and minor works to local government authorities. On the other hand, the larger engineering projects, particularly in the infrastructure sector, that are primarily funded by central governments through own or donor funding, are special targets for grand corruption. In fact, some of these large projects are implemented not on the basis of their intrinsic economic worth but on the basis of the opportunities they provide for bribes and kickbacks.

The existence of corruption in engineering projects in SSA can be attributed to a combination of socio-economic factors prevailing in these countries. Perhaps the most crucial factor is bad governance, which is manifested by lack of transparency, weak accountability and lack of integrity by some public officials entrusted with procurement. These officials often violate existing public procurement regulations and procedures with impunity in pursuit of their personal interests.

Second, pervasive poverty and low salaries that do not reflect marketplace realities create a powerful motive for public servants entrusted with procurement to engage in corruption. In fact, most petty corruption that occurs in local government authorities can be attributed to low salaries.
Third, procurement procedures in the public sector normally include several steps, from preparation of solicitation documents to pre-qualification of potential suppliers, consultants or contractors, evaluation of bids, contract administration and supervision.

These steps tend to proliferate rent-seeking opportunities in which corruption thrives.
Fourth, some corrupt high ranking public officials have undue influence on procurement processes and the allocation of government budget in engineering projects. Motivated by greed and ambition to amass personal wealth, they take advantage of their powerful positions to engage in grand corruption.

Engineering projects are normally implemented through a tripartite arrangement involving the Client, Consultant and Contractor.

The Client, who is also the project owner and investor, hires the Consultant, to provide professional services needed in developing the project through its various planning and implementation stages, and the Contractor, to undertake physical implementation of the project (i.e. construction or installation of the work) under the technical supervision of the Consultant. In this trinity, the Client channels about 90 percent of the project funds through the Contractor and about ten percent through the Consultant.

The obligations of the parties forming this trinity are such that if any corruption occurs during project implementation the official representatives of this trinity that are entrusted with procurement are not only fully aware of it, but are also its architects. In fact, these representatives form an unholy alliance in which the Consulting Engineer is an extremely important player. In short, corruption in the procurement of engineering projects is invariably abetted through complicity between corrupt client officials, consultants and contractors and as we shall see later, the Consultant controls most of the avenues through which corruption takes place during the contract execution phase.

When compromised consulting engineers engage in corruption practices, they are driven by one or more of several motives. The most common motive is to win business. This motive is frequently manifested during the process of selecting the Consultant, whereby a corrupt Consultant seeking to gain unfair competitive advantage bribes Client officials in order to:

Gain access to confidential information
Be included in the list of pre-qualified consultants
Eliminate a competitor from the list of pre-qualified consultants
Influence the proposal evaluation process in his or her favour; or
Level the playing field just in case all other competitors will be offering bribes.
Consultants who pay bribes in order to win business are sometimes depicted as innocent parties forced by ruthless client officials to provide kickbacks and to do special favours in return for business. In reality, however, both parties are guilty of conspiring to defraud the Client through what is clearly a white collar crime.

During contract execution phase, compromised consulting engineers who engage in corrupt practices are normally driven by two types of motives:
Deliberate intention to obtain additional unjustified compensation by receiving bribes from the Contractor in return for certifying defective work as acceptable, approving artificially inflated claims, granting unjustified variations, extension of time, etc. The Client may not be aware of these ploys since they are secretly negotiated between the Consultant and Contractor. The Consultant may also fraudulently overcharge for services rendered, or deliberately over design the projects in order to attract higher fees or to favour preferred suppliers from whom he can extract bribes.

Deliberate intention to embezzle projects funds in collusion with corrupt Client officials and the Contractor. The Consultant facilitates this embezzlement by approving fraudulent payments in respect of defective work, equipment or services not actually supplied, artificial claims, unjustified variations, extensions of time, etc.

To achieve value for money while implementing engineering projects under the tripartite arrangement described above, two conditions must be fulfilled. First, the Consultant must deliver professional services of the highest quality for the fee paid by the Client; indeed, it is the quality of such services that determines the appropriateness of material specification, technological processes to be used in executing the project and, ultimately, the overall cost of the project. Secondly, the Contractor must deliver a high quality project, consistent with the stipulated specifications, at the lowest possible price to the Client.

These conditions cannot be achieved in projects where there is corruption. In such projects, the cost of paying bribes and other fraudulent transactions will invariably inflate the value of the project. It is estimated that such payments increase project costs by 20-30 percent in SSA.

The waste of money spent on bribes is, however, not the most damaging cost of corruption. The total economic cost of corruption is tremendous when viewed in terms of resources wasted, opportunities missed and the attendant inefficiencies introduced in the economic environment of doing business. Corruption in the consulting engineering sector in SSA sustains inefficient corrupt firms and kills competent clean ones, thus relegating the sector to professional services.

The first challenge for the Consulting Engineer who wants to do clean professional business in SSA without engaging in corrupt practices is to survive. This has to be done within the small window of 30-40 percent of the consulting engineering market where clean professional business is transacted. The second challenge is to increase this window in order to enhance his options. Both challenges are achievable.

Governments all over the world have developed procurement procedures built around sound principles of transparency, fairness, accountability, equity, efficiency, economy, etc., which, if effectively implemented, would eradicate procurement corruption.

However, experience demonstrates that corruption is not stopped or curtailed simply by having sound rules. It is increasingly clear that coordinated efforts are needed to make a significant impact on corrupt practices.

It is not possible in any country, including in SSA countries, to eradicate corruption altogether. However, it is possible to reduce it to marginal levels that have negligible damage on the economy. This has been done in most developed countries and can also be achieved in SSA countries through a holistic approach in which everyone is made aware that corruption is a criminal act that will be discovered and severely punished. This creates the need at the national and global levels for effective monitoring and audit systems and for enforcement agencies that have the will and ability to take action against offenders regardless of their status. It also requires judiciary systems that are not corruptible and that are able to make and enforce convictions. No anti corruption mechanism can fully succeed unless there is real prosecution of offenders.

Most consulting engineers also recognize that preventing and combating corruption is a good business proposition. Consulting engineering firms in SSA should, therefore, be encouraged to:

Adhere strictly to appropriate professional codes of ethics
Implement internal anti-corruption codes and management programmes that commit them to strict anti-corruption policies
Support efforts to make selection processes of consultants more fair, objective and transparent; and
Report allegations of corrupt practices to authorities and to their professional associations. Corruption in engineering projects can only be prosecuted if it is reported.

*Professor Mawenya is a civil engineer and consultant.

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