Last November, President Biden signed into law the Infrastructure Investment and Jobs Act (IIJA), a $1.2 trillion package that earmarks $110 billion for repairing and rebuilding roads and bridges. This is the single largest investment in U.S. roads and bridges since the construction of the interstate highway system in the mid twentieth century. And though it is a federal project, much of the money will be distributed to state governments, which will determine how best to use the money to address their infrastructure needs. As state governments receive the IIJA money, we can expect the states to launch a public tender frenzy.
In all the extensive discussion and debate over the IIJA, there has been relatively little focus on the corruption risks inherent in this sort of spending program—even in an affluent, reasonably well-governed country like the United States. After all, corruption in large construction projects, and infrastructure projects like roadbuilding in particular, is all too common. Unfortunately, the IIJA’s design exacerbates rather than reduces these corruption risks. While it is too late to address those flaws in the statute, there are some measures that the federal government can and should adopt now to mitigate the inherent corruption risks.
With respect to the IIJA’s design, the federal government should have maintained a greater degree of oversight and control over how states conduct tenders for use of IIJA funds. Corruption risks are especially high when central governments distribute funds to local units without requiring local contributions or maintaining centralized control. We can see striking illustrations of this problem by looking abroad. Italy offers a particularly troubling example. Starting in the mid-2000s, the European Union spent €10 billion on the construction of a highway in Calabria—what has become known as the “eternally unfinished highway.” EU investigators eventually uncovered a complicated network of corruption that involved public tender fraud, kickbacks, and purposeful delay, a scheme that ultimately defrauded the EU of at least €400 million. (Italy is still in the process of repaying Brussels, and the highway is still unfinished.) And this example, though extreme, is not anomalous. Researchers studying local governments in southern Italy have found that when those governments receive “windfall” revenues, there is a significant increase in corruption crimes. And Italy is not alone: Similar transportation corruption has occurred in Hungary, Poland, Bulgaria, and elsewhere.
While Italy and the United States are different in many respects, several of the structural factors that contribute to the sort of corruption we’ve seen in Italy also exist in the United States. For starters, local officials are held less accountable by constituents when mismanaged funds are sourced from central grants rather than local taxes. With less accountability, local politicians have less of an incentive to vigorously police corruption and fraud, and greater temptation to personally participate in illicit schemes. For this reason, it would have been better if the IIJA had either required state governments to contribute some of the funds for IIJA projects, or provided for some federal control over state grants.
It is too late to change the law now, but there are still things the federal government could do to mitigate these corruption risks. Here, the U.S. could take some lessons from the World Bank. According to a 2011 Bank report, between 2000 and 2010 the Bank dedicated $56 billion to supporting roadbuilding projects around the world, but roughly one-fourth of those funds were tainted by public tender fraud and corruption. In light of these disturbing findings, the Bank developed a series of recommendations on how to reduce corruption in its roadbuilding projects. Not all of the Bank’s recommendations are appropriate in the U.S. context, but several of them, appropriately adapted, certainly are, including the following:
- First, rather than rely on state or local auditors for IIJA projects, the federal government should hire independent procurement evaluators to identify and detect indicators of corrupt practices in the bidding process. The evaluators would not have executive control over bidding, but they would be able to observe and report any abnormalities in a public tender. The Philippines adopted something like this approach in 2007 for its National Roads Improvement and Management Project, and the World Bank deemed that arrangement an anticorruption success.
- Second, in addition to independent procurement evaluators (who function as financial auditors at the procurement stage), the federal government should also retain independent technical auditors to be deployed at the construction phase. Technical auditors would periodically inspect the projects to ascertain whether the labor and materials were delivered in the specified quantities and qualities. Here again, evidence from overseas development projects suggests such measures can be effective. For example, a research project in Indonesia found that informing local governments that their roadbuilding projects would be subject to a technical audit significantly decreased public tender fraud and other forms of corruption.
- Third, the federal government should create and maintain a central account of contractors’ financial information. Centralized data can help the federal government ward off public tender fraud in three ways: (1) the government can identify geographic areas where bids/contracts are abnormally expensive; (2) the government can identify which firms are receiving an abnormally large number of contracts in certain geographic areas; and (3) the government can easily audit contractors for abnormal financial outflows that might relate to corruption. These guidelines were adopted by the U.S. Department of Transportation in 2004 and incorporated by the World Bank into its study of corruption in roadbuilding projects in 2011. They have not, however, been applied to state contracts. Creating a federal database of all state contracts that win IIJA funds will close a loophole that makes state administration of federal dollars more susceptible to public tender fraud.
While it would have been better if the IIJA had been designed with better built-in anticorruption safeguards, the federal government still has tools at its disposal to mitigate the risks inherent in such a huge surge in infrastructure spending administered by state and local governments. Before America’s civil engineers, architects, and transportation officials break ground, they ought to heed some of the hard-earned international lessons on the importance of addressing fraud and corruption in roadbuilding.