Infrastructure funding is a massive component of international development—in 2014, the World Bank alone allocated $24 billion to infrastructure, amounting to roughly 40% of its total lending. Yet as has been widely documented (see here, here and here), infrastructure construction and development projects are particularly susceptible to corruption. Compared with other areas of development lending, such as education and public administration, large construction projects require more specialized contractors and consultants, increasing the points of access for corruption or collusion schemes. Furthermore, labor-intensive industries like construction are often captured by organized crime, which increases their susceptibility to corruption.
Corruption schemes in infrastructure projects often take the following form: a contractor pays government officials a bribe to secure a contract, and in an effort to preserve profits, the bribe-paying contractor compensates for the expense of the bribe by failing to build the project to specification. The supervision consultant—the person or entity responsible for evaluating whether the project has in fact been built to specifications—therefore plays a critical role in stopping or enabling infrastructure construction.
However, when the World Bank funds an infrastructure project, whether through a grant or a loan, the recipient country’s government is responsible for hiring the project’s contractors and consultants—including supervision consultants—subject only to arm’s length World Bank supervision. While this process is also subject to the World Bank’s procurement guidelines, these have been criticized as ineffective in addressing corruption (as previously discussed on this blog). Under the current system, if a project has not been adequately completed because of a corruption scheme, government officials have every incentive to retain inspectors willing to mask the abuse of funds. And if the Bank does discover fraud or corruption after the fact, its remedies are limited: the Bank can suspend or bar contractors from future contracts, and can refer matters to national prosecuting authorities, but successful convictions amount to fewer than 10% of sanctioned parties.
The World Bank must therefore prioritize prevention of these situations. Given the existing system, one measure that the World Bank could take to help prevent corruption in infrastructure projects, is to fund independent supervision consultants.
Consider the following example that, though extreme, indicates the shortcomings of the status quo. In 2006, the World Bank finalized an $84.6 Million loan to the Indian government for a hospital improvement project in Orissa, India to improve the quality of the state’s health services delivery. The completion report was prepared by construction supervision consultants hired by the government of Orissa. Their report indicated that the project’s outcomes were “Moderately Satisfactory,” and certified that 38 hospitals had been completed to specification. In reality, however, when the World Bank sent its own inspectors to Orissa, after being alerted to the situation by locals, it found that 93% of the hospitals funded by the project had problems like leaking roofs, crumbling ceilings, molding walls, and non-functional water, sewage, or electrical systems.
Though the corruption of the hospital project in Orissa occurred 10 years ago, situations like this remain regrettably common. For example, a 2011 World Bank Report admitted that due to fraud and corruption, infrastructure projects like roads and bridges cost far more to build than they should, and are of suboptimal quality. The report suggests some measures for improving the existing procurement process, but does so within the existing framework of the recipient countries managing procurements, which in practice does not differ from the system that led to the egregious abuse of funds in Orissa.
Conversely, a truly independent supervision consultant could have helped to prevent this situation. The looming threat of independent supervision consultants would mean that contractors would not be able to cover their corruption-related costs by failing to construct projects to specification. To ensure their independence, the funding of independent supervision consultants should be altogether separated from the loan or grant funding the project. Currently, supervision consultants are simply a part of the program’s overall administrative costs, administered by government officials. As a separate program directly administered by the World Bank, there could be separate procurement guidelines emphasizing the priority of quality and subject matter expertise of inspectors over minimizing overhead costs.
The World Bank’s country office or regional office should directly manage the hiring of these consultants. In theory, as Bank staff do not directly manage the project funds, they are less likely to be complicit in a corruption scheme, and would have no incentive to hire consultants willing to mask substandard construction. Further, the World Bank can institute sector-wide guidelines ensuring a higher degree of monitoring and reporting to officials without a direct stake in the project. Consultants directly hired by the World Bank would also be subject to greater World Bank control, and it would be simpler for the World Bank to discipline them or terminate the contract through internal procedures.
Admittedly, hiring independent supervision consultants would add to the Bank’s operating costs, and the use of such independent consultants is no panacea. After all, there is no guarantee that these consultants could not be captured or coerced by corrupt parties into submitting fraudulent reports. And for the World Bank to insist on its own independently-procured supervisors could be viewed as a violation of the implementing country’s sovereign authority, leading to resistance to this plan not only by member governments, but also by the World Bank’s own regional officers, who might view this plan as encroaching their domain. Nevertheless, on balance this plan would be a marked improvement over the status quo. Shifting the procurement of supervision consultants away from recipient governments fundamentally realigns incentives, and would likely reduce cover-ups abuse of funds in infrastructure projects. Though this proposal might generate significant bureaucratic pushback, the ultimate goal of the World Bank is to alleviate extreme poverty, and any effort that can concretely reduce the abuse of funds of development funding is worth pursuing.