4 min read

Why Is Construction So Prone To Corruption?

Mar 22, 2017 6:30:00 AM

Today we’re sharing insight from guest blogger GenieBelt, the creator of a construction software and mobile app. GenieBelt’s blog and infographic address an important construction risk management concern – corruption. Unfortunately corruption is all too prevalent in the construction industry, as you’ll see from their data. In order to manage this risk, we need to first understand where it stems from. We hope you enjoy GenieBelt’s insight on this important construction risk management topic.

The construction market is huge – so huge that it is estimated to be worth more than $3.2 trillion per year and make up for 2-3% of developing countries’ GDP and 5-7% of developed countries’ GDP. 

The amount of losses through corruption range between 10 and 30%, which together with mismanagement and inefficiency makes up for close to $6 trillion losses. These numbers highlight the size of the problem and why eradicating corruption would make a big difference for the industry and for the overall economy.

Corruption is something most contractors don’t want to engage in, but feel like they have to because of the existing practices in the industry. In the Global Corruption Report, Neill Stansbury examines the causes of corruption in construction and lists 13 reasons why this industry is so prone to corruption.

Corruption in Construction - Infographics

1. SIZE OF PROJECTS

The bigger the construction project is, the bigger the chance to sneak in extra costs, especially when building infrastructure.

2. UNIQUENESS OF PROJECTS

Since construction projects are never the same, comparing them is extremely difficult -if not impossible- which provides with opportunities for bribing and inflating costs.

3. POLITICAL INVOLVEMENT

Governments regulate the industry from above and abuses of power happen when officials’s behavior is not supervised. Every permit or approval from public authorities represents an opportunity for bribery.

4. HIGH NUMBER OF CONTRACTUAL LINKS

Building infrastructure is only possible through long and complex transaction chains which can mean up to 1000 contractual links and countless people involved. Therefore, control measures are hardly ever effective.

5. NUMBER OF PHASES

The averagely high number of phases in a project plus outsourcing tasks and parts of the project to contractors and subcontractors makes oversight of the project as a whole very difficult.

6. COMPLEXITY OF PROJECTS

The many stages of every project help conceal mistakes due to poor management and false claims for added costs.

7. LACK OF FREQUENCY OF PROJECTS

Big construction projects, especially infrastructural projects, don’t happen often. The stakes are high and getting a project often means huge profit margins or even the survival of a contractor – which is why many are tempted to get their projects with the help of bribes.

8. WORK IS CONCEALED

It’s often hard to tell the quality of a contractor’s work since workmanship and materials are often concealed underneath layers of other materials, which is why a job poorly done is often not so easily noticeable.

9. CULTURE OF SECRECY

Which is the opposite of transparency. Since construction lacks a culture of transparency, it’s easier for contractors to keep real costs secret in the name of confidentiality.

10. ENTRENCHED NATIONAL INTERESTS

Public companies often hold a semi-monopoly of the market, making it almost impossible for private companies to compete with them.

11. NO ORGANIZATION GOVERNS THE INDUSTRY ALONE

Each profession and trade has different codes of conduct and practices and they all have to cooperate to bring construction projects to life.

12. LACK OF “DUE DILIGENCE”

Due diligence makes things work, and the lack of it leaves space for poor work and corruption.

13. COST OF INTEGRITY

Sometimes it seems like it’s simply too costly to be virtuous. Those who fit in a corrupt system get far more work than those who don’t.

This content was written and shared by guest blogger GenieBelt. It originally appeared on their blog.

GenieBelt Logo.pngGenieBelt is a construction management software and mobile app that allows all agents working within construction to have their projects completed faster and smarter. GenieBelt has the ambition to create the future of construction.

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Gibson

Written by Gibson

Gibson is a firm of advisors and consultants that help clients get to the proactive side of insurance. We specialize in working with companies looking to find their edge—where they are growing as an organization, differentiating themselves in the marketplace, and preparing for current and future risk. Together we will find the perfect combination of insurance and consulting.