Addressing Corruption in our Engineering/Construction Industry

Addressing Corruption in our Addressing Corruption in our Engineering/Construction IndustryEngineering/Construction Industry

William P. Henry, P.E., D.WREWilliam P. Henry, P.E., D.WREPresident Emeritus, ASCEPresident Emeritus, ASCE

Past Chair, AAESPast Chair, AAES

Institution of Engineers and Shipbuilders in ScotlandInstitution of Engineers and Shipbuilders in Scotland

March 20, 2012March 20, 2012


• Magnitude of the Problem

• What Is Corruption?

• Ongoing Actions

• New Actions

• Current Status

Addressing Corruption in our Addressing Corruption in our Engineering/Construction Engineering/Construction

IndustryIndustry• Corruption isn't a 20th or 21st century invention

– Hammurabi's Code of Law 1750 BC -– standards for commercial transactions

– Moses and the 10 Commandments – 1200 BC – Thou shall not steal

• Corruption has been around as long as people have!

• So, why work on it now?

Magnitude of the Problem

• World construction spending for 2011 = $5.8 trillion (USD)

• 10 percent +/- is lost to bribery and corruption – more than $580 billion (USD) annually!

• The economic magnitude of the problem is ENORMOUS!


FORECASTS

• 2015 - 80% of infrastructure $ spent in developing countries

• 2020 – 2/3 of major cities in the world will be in developing countries

• What does this mean for you?


• Insufficient number of local engineers and constructors to do that quantity of work means:– More global practices than ever before in history– More teaming arrangements with new partners

• New relationships mean learning new ways of doing business – good or bad!

• The developing countries rate lowest in openness and transparency in decision making

• THE POTENTIAL FOR CORRUPTION IS HIGH !


CORRUPTION KILLS!

– Poorer quality structures and equipment put people at risk

– Needed projects go unbuilt

– People die due to lack of potable water and health care


Corruption Undermines Sustainable Development

– Project quality decreases– Required maintenance increases– Project useful life is shortened– Unnecessary use of resources– People are not served well

What is Corruption?

• The impairment of integrity, virtue or moral principle

• An inducement to do wrong by improper or unlawful means

• 2 people making 1 bad decision

What is Corruption?

Construction Participants– Owner– Engineer– Constructor– Material supplier– Equipment supplier– Lender– Regulatory/permitting agency

What is Corruption?

• Kickbacks / Bribery

• Front Companies

• Bid Rigging / Collusion

• Conflicts of Interest

What is Corruption?

Kickbacks / Bribery – 2 Sides of the Same Coin– $ payments or wire transfers disguised – no

trail– Lots of middlemen – Forged documents– Appears to be legitimate relationship – hard to

decipher illegitimate relations from legitimate ones

– Conspiracy of silence

What is Corruption?

Front Company

– Company with no history– Often offers diverse, disconnected services– Few ownership records – hidden owners

(Government officials?)– Great interest in company by Project officials– May be subcontractor hired as local agent

What is Corruption?

Bid Rigging / Collusion

– Excluding unfavored bidders– Tipping off favored bidders– Profits come in change orders– Short bid period– Bidders agree who will get the work– May be a component of a larger corruption

scheme

What is Corruption?

Conflicts of Interest

– Per se conflict – having a personal stake– Project officials, friends, relatives, family

members involved– Corruption may be a co-existing element– Disclosures not made up front

What is Corruption?

Red Flags Indicating Corruption

• Recurring use of 1 company on widely varied projects• Close personal relationships among project parties• Vague, incomplete or non-existent terms of reference• Firms use false qualifications and “ghost” employees• Shared addresses / phone numbers among firms• A firm does business under lots of different names• One firm does diverse tasks

Ongoing Actions

• That’s the way the world is• Woe is me• We’re helpless

OR

• Act now & act together to eliminate corruption by improving the openness and transparency of the decision-making processes in all phases of our projects

Ongoing Actions

Fighting corruption means improving the openness and transparency of the decision-making processes in all phases of a project:

PROCUREMENT of the work of / by:–the owner–the project design/construct team–subcontractors–materials and equipment suppliers

Ongoing Actions

Fighting corruption means improving the openness and transparency of the decision-making processes in all phases of a project:

PERFORMANCE of the work by:–the owner–the project design team–the constructor–subcontractors–materials and equipment suppliers

Ongoing Actions

Fighting corruption means putting ANTI-CORRUPTION MANAGEMENT SYSTEMS, POLICIES AND PRACTICES in place in your organization and implementing them vigorously at ALL LEVELS !

Ongoing Actions

• Who are the key players?• What are they doing?

Ongoing Actions

Key Players

– Governments– FIDIC – consulting engineers– World Economic Forum – constructors– Lenders – World Bank, ADB– Evaluators – Transparency International,

Global Infrastructure Anti-corruption Centre

Ongoing Actions

• Key Players–Professional Organizations: WFEO, UPADI,

Pan American Academy of Engineers, ACECC–Societies in over 30 locales: Argentina, Australia, Austria, Bahamas, Belgium, Bolivia, Brazil, Canada, China, Colombia, Costa Rica, Egypt, Finland, France, Hungary, India, Iraq, Ireland, Italy, Korea, Mexico, Nigeria, Panama, Poland, Portugal, Puerto Rico, Romania, South Africa, Spain, Sri Lanka, Thailand, Taiwan, UK, USA, and Zimbabwe.

Ongoing Actions

What Governments are doing– U.N. Convention against Corruption– OECD Convention on Combating Bribery– Inter-American Convention against Corruption– 2 Council of Europe Conventions on

Corruption– 2 EU Conventions– African Union Convention on Preventing &

Combating Corruption

Ongoing ActionsWhat Governments are doing (cont.)

– ADB OECD Anti-Corruption Action Plan for Asia & the Pacific

– G8 Communique to reduce bribery– OECD prosecutions– Anti-bribery laws– Anti-money laundering regulations– Disbarments

Ongoing Actions

FIDIC

Guidelines for Business Integrity Management in the Consulting Engineering Industry

• How to develop and use a business integrity management system in your firm

• Uniform, transparent and accountable practices

Ongoing Actions

World Economic Forum (WEF)

– Major engineering/construction, oil & gas, and mining & minerals companies

– Partnering Against Corruption Initiative (PACI)• No bribery by firms• Effective anti-corruption management

programs in firms

Ongoing Actions

Lenders

World Bank• Department of Institutional Integrity• Voluntary Disclosure Program

Ongoing Actions

Evaluators

Transparency International• Corruption Perception Index• Business Principles for Countering Bribery

Ongoing Actions

Evaluators

Global Infrastructure Anti-corruption Centre• Model Anti-corruption Policies, Procedures

and Management Programs• Alliances with National Engineering

Societies• On-line anti-corruption training module• www.giaccentre.org

Ongoing Actions

Professional OrganizationsASCE

New Canon 6 of our Code of Ethics (7/23/06)Engineers shall act in such a manner as to uphold and enhance the honor, integrity, and dignity of the engineering profession and shall act with zero-tolerance for bribery, fraud, and corruption. Engineers shall:

» Not knowingly engage in business or professional practices of a fraudulent, dishonest or unethical nature;

.

Ongoing Actions

Canon 6 (continued) :» Act with zero-tolerance for bribery, fraud

and corruption in all engineering or construction activities in which they are engaged;

» Be especially vigilant in maintaining appropriate ethical behavior where payments of gratuities or bribes are institutionalized practices;

Ongoing Actions

Canon 6 (continued) :» Strive for transparency in the procurement

and execution of projects, including disclosure of names, addresses, purposes and fees or commissions paid for all agents facilitating projects; and

» Encourage the use of certifications specifying zero-tolerance for bribery, fraud and corruption in all contracts

Ongoing Actions

ANTI-CORRUPTION EDUCATON & TRAINING (ACET) PROGRAM

–Ethicana – by FIDIC, WFEO, Societies–Education for practitioners & students–WHY corruption must be overcome–DVD, PP, class & teacher training materials–Professionally prepared–Sent FREE OF CHARGE to 3,000 firms,

agencies and universities around the world

Ongoing Actions

World Federation of Engineering Organizations (WFEO)

Anti-Corruption Committee• Chaired by a Past President of WFEO• Members from each continent

Ongoing Actions

Pan-American Union of Engineering Associations (UPADI) Societies from countries in North, Central, and South America

Anti-Corruption Committee- Co-chaired by 2 US members- 1 year old - Looking for 1member from each country- Activities at annual meetings – Cuba 4/12

Ongoing Actions

Asian Civil Engineering Coordinating Council (ACECC) Asian countries plus Australia & the US

Anti-Corruption Committee- Chaired by a US member- 1 year old - Looking for 1member from each country- Activities at their conferences

New Actions

ASCE Metrics Program• Research program to identify trends in corruption activities globally – started 9/31.• Are all the ongoing activities producing the results we need?• Will show us what is working and where we need stronger or different actions• Results expected in 12 – 15 months

New Actions

• UK INFORMATION

Year Construction TI CPI Ranking

(US $ Billion)

2000 223.7 10

2001 242.5 13

2002 264.1 10

2003 287.1 11 (T)

2004 311.9 11

New Actions

• UK INFORMATION (cont.)

Year Construction TI CPI Ranking

(US $ Billion)

2005 327.1 11 (T)

2006 344.5 11

2007 378.5 12

2008 367.8 16

2009 326.9 17

New Actions

British Standards Institute - BS 10500Specification for an Anti-Bribery Management System

• Adopted 1/1/12• BSI standards often become ISO standards

New Actions

Contents

Foreword - 3

1 Scope - 4

2 Terms and definitions - 5

3 Planning - 6

4 Adopting an anti-bribery policy and implementing the

ABMS - 7

5 Monitoring and reviewing the ABMS - 13

6 Continual improvement of the ABMS - 14

New Actions

Contents

Annexes

Annex A (informative) Guidance - 15

Annex B (informative) - 19

The Plan-Do-Check-Act (PDCA) cycle - 19

Bibliography - 20

List of figures

Figure B.1 – PDCA cycle applied to the anti-bribery management system - 19

Current Status

• Act - Ignoring corruption is the same as condoning it

• Join our 4-Part Program – Educate all in the industry on true cost of corruption– Shine a bright spotlight on corrupt activities wherever

you see them– Make it socially unacceptable to be involved in

corruption– Educate next generation on the true cost of corruption

Current Status

• Ongoing work by all construction participants to achieve a level playing field where business can be done in an honest, transparent and fair manner and where adequate management programs and systems are in place.

• Continuing efforts to ensure that, in our engineering / construction industry, corruption does not kill.

Current Status

• Research to determine the effectiveness of existing anti-corruption programs

• Development of new standards of practice to address corruption

Current Status

PLEASE DO YOUR PART TO ELIMINATE CORRUPTION IN THE ENGINEERING /

CONSTRUCTION INDUSTRY


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Addressing Corruption in our Engineering/Construction Industry