The construction industry is a massive market that employs over 10 million workers in the United States. But this industry goes far beyond our U.S. shores and extends across the globe in an interconnected chain of contractors and suppliers. Global construction output is set to hit a staggering $12.9 trillion by 2022. Without a doubt, the construction industry is one of the largest and most influential industries on the planet. But with that much money being thrown around, there comes an unfortunate truth: the construction industry is a hotbed for corruption.
In this two-part series, we will be discussing the prevalence of bribery and corruption in the construction industry and how construction companies can protect themselves from internal and external sources of corruption. To ensure that your company is employing anti-bribery and corruption measures, consult with a Florida construction lawyer from Cotney Construction Law.
A Plague on the Industry
In an analysis of the Global Economic Crime Survey conducted by PWC, it was found that economic crime was on the rise in the engineering and construction industry. 33 percent of the engineering and construction executives surveyed experienced some form of economic crime. If you’re reading this, there’s a good chance that you’ve experienced some form of corruption in this industry. All of this translates to an incredible amount of money lost. All told, the construction industry could be losing $6 trillion dollars by 2030 from “corruption, mismanagement, and inefficiency.”
By far the most common economic crime reported was asset misappropriation. Three-quarters of respondents who reported experiencing economic crime stated that they had experienced asset misappropriation within the previous two years. This is due to the ease with which materials can be stolen and sold illegally.
While you may decide to write off vanishing materials as nothing more than a loss, these other forms of asset misappropriation can result in disastrous consequences. Whether it affects a road, bridge, building, or apartment complex, intentionally using inferior materials in the building process can result in an unstable product that leads to serious injury or death. If you are concerned that asset misappropriation may lead to a construction defect or injury on one of your projects, consult with one of our Florida construction lawyers immediately.
Why the Construction Industry?
Of the other economic crimes reported, bribery and corruption, procurement fraud, human resources fraud, and cybercrime were the most common. In some instances, engineering and construction industry executives reported nearly twice as many instances of economic crime as the overall sample of executives from other industries.
Why is asset misappropriation, bribery, corruption, and fraud so widespread in this industry? There are a number of factors that exacerbate and foster corruption in this industry. The characteristics of the construction industry that make it prone to corruption are as follows:
- Diverse Projects: Due to the unique nature of construction projects, it is very difficult to compare one to another, allowing fraudulent contractors to accept bribes and inflate costs without raising suspicion.
- Complex Supply Chains: Construction projects are made up of chains of contractors, subcontractors, and material suppliers. It’s difficult to implement control measures when you’re dealing with a complex network of personal and contractual relationships.
- Deceiving Appearances: So much construction work is hidden out of sight and beneath layers of tar, concrete, and brick that it’s difficult to discern workmanship and material quality.
- Government Corruption: Due to the number of permits and licenses required by law for a project to commence, it is not uncommon for collusion to take place between companies and government agencies.
- The Massive Cost of Projects: Bribes and inflated costs can be hidden among the billions of dollars that can be invested in a project, especially large infrastructure projects.
In addition to the above characteristics, many standard procedures in the industry are susceptible to corruption. For example, manipulating change orders and progress invoices is not uncommon. Simply put, it’s easy for contractors and subcontractors to misrepresent the amount of labor, materials, and equipment that are used on any given project.
It’s abundantly clear how and why corruption is widespread in this industry. As we continue in part two, we will discuss what construction companies should do when operating in markets that are prone to corruption. One of the best things you can do to protect your company is to partner with an experienced attorney. To ensure that your company is protected from bribery schemes that have cost companies millions of dollars in fines, partner with the Florida construction attorneys at Cotney Construction Law.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.