Jill Wells, Senior Policy and Research Advisor, Engineers Against Poverty, contributes the following guest post:

With the creation of the Asia Infrastructure Investment Bank and the Global Infrastructure Facility, as much as an additional $1 trillion a year is likely to be invested in the construction of roads, power plants and other public works in the developing world over the next decade.  While this new investment could provide a welcome boost to economic growth and poverty alleviation, it could also be a curse.  Public works construction is regularly rated the most corrupt industry in Transparency International surveys, and if even a small percentage of this money is lost to corruption, the harm could be enormous.  The development community thus needs to step up efforts to help developing nations prevent corruption in the construction of public works.

To date, most prevention efforts have focused on the award of the contract to build the facility, but that decision is only one of many that must be taken in the process of selecting, preparing, and building new infrastructure.  A new report from the U4 Anti-Corruption Resource Centre identifies the corruption risks at the pre-tender stage and explores how additional opportunities for corruption may arise at later stages of the project cycle when the initial selection and preparation process is compromised.  

Before a project is put out for bid, it must be appraised, designed and budgeted.  At the appraisal stage, a decision must be made whether the project is consistent with the country’s development objectives.  As part of this evaluation, line ministries and spending agencies prepare, or should prepare, a project profile to include the problem to be addressed, its strategic priority, the project’s objective, planned activities in fulfilment of the project, an estimated budget, and an assessment of options for addressing the problem in other ways.  Corruption at this stage may come in several forms. Political influence to promote projects for the personal gain of decision makers and/or their supporters, or deliberate falsification of potential costs and benefits   by private consultants to approve a project from which they can later benefit, will result in  projects which are not needed or which have negative rates of return.  Over-design and design favouring one contractor increases the contractor’s profit which may be shared with the corrupt consultant, with the result that projects cost more than they need. Political influence to get projects approved that are not in the budgeted will lead to wasted resources as work is abandoned before completion.

The U4 paper goes further and shows how corruption at the pre-tender phase often sets the stage for corruption during implementation, creating even further negative effects on project value.  When, for example, projects are approved without sufficient funds budgeted to pay for them, payments due the contractor as the project progresses are delayed, weakening the government’s authority over the contractor and often forcing resort to “informal practices.”  In Ghana, when government does not have the funds to meet all requests for progress payments, which contractor does get paid is often determined by which one is willing to pay the largest bribe. Poor quality and/or incomplete design is particularly harmful as it means that adjustments will be needed after the construction contract is signed, opening the door to opportunistic behaviour.

Research has shown that the essential steps in project appraisal, design and budgeting are often missing or are poorly implemented in low income countries, especially in Sub-Sahara Africa. Building capacity for project preparation is therefore needed. However, where missing steps are deliberate and indicate corrupt intent on the part of politicians, public officials and/or their professional advisers, any move to strengthen and improve governance of the process would threaten vested interests and is unlikely to succeed.

Collusion among client, consultants and contractors is in fact believed to be widespread in the construction industry in many parts of the world — even in developed countries. Evidence is difficult to obtain but the work of the Charbonneau Commission in Quebec  is throwing a bright light on the corrupt relationships among the actors in public construction. The Commission’s findings, though not yet published, were reviewed at a roundtable discussion (in which the author participated).  They reveal complex webs of collusion among politicians, public officials, consultants and contractors, as well as highly sophisticated stratagems for the extraction of funds from public construction projects. In the words of a World Bank working paper, “Public investment spending should be viewed, ultimately, as both a channel to potentially create productive assets and as a vehicle for distributing rents for political purposes.”

When this is the case, corruption becomes a high-level political, as opposed to a technical or procurement, issue. As such, a country specific political economy analysis may help to assess the likely outcome of investing in change, as well as entry points, appropriate measures and sequencing.  Political economy analysis could also help to assess where any demands for accountability may originate (e.g. the parliament, tax payers, voters or civil society). Breaking the links among the participants in the various stages of project preparation and delivery may be the only way to tackle the systematic embezzlement for funds from construction projects and clear a path to improving the governance of project delivery.