Ethics in the Construction Industry: Reasons Behind Unethical Decisions.

Reasons Behind an Unethical Behaviour

Like most businesses, construction is done on a budget and as many people know, cost overruns are frowned upon and upset not only customers, but managers, and investors. The people in charge of a project then need to find ways to minimize the cost overruns. Cutting back on workers is not always economical in the long run since the project may take longer to complete than initially forecasted but at the same time managers don’t realise about this. In many cases, in order to improve their immediate cash flow they cut back on resources which risks the quality of the construction. An easier, though far riskier, method that most small and medium companies recur to is to use materials that are less expensive. While less expensive materials does not always mean of inferior quality, they can cause major problems if those cheaper materials are substandard or not used as per project or client’s specifications.

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Another method incurred by companies is to cut back on the amount of work that needs to be done or not following the identified specifications. This was the decision that BP, Halliburton and Transocean made with the Macondo well in the Gulf of Mexico when they decided to use just six stabilizers, despite the contractor recommending twenty-one stabilizers, as well as misreading pressure data while approving workers to replace drilling fluid which was not heavy enough to prevent a leakage. The well was running about one million dollars over budget per day at the time. This decision ended up costing eleven lives which were never found, tens of billions of dollars, and almost destroyed BP as an independent company.

In the construction industry there is also a saying: “there is cost, schedule and quality, pick two”. Thus, we can generalise a typical behavior in the construction industry of compromising one thing or another (be it small projects like road building to multibillion mega constructions). The main factors that lead people to behave unethically based on empirical experience are:

  • Cost Constraints

“Money is the root of all evil”, and there is no exception to this rule, especially in the construction industry. Contractors have a budget to comply with and when this is not met, contractors will face loses or even penalties, threatening their entire business.

Cost and profits are the ultimate reason for behaving unethically and is the main factor that drives companies and their business. For this reason we could say that ‘corruption’ is the result of it, from bribing governments and owners in order to obtain contracts up to the issues of embezzlement, fraud, etc. Contractors will seek to obtain the largest profit at the expense of people and good practices.

  • Schedule Constraints

“Time is money”, especially in the construction industry where apart from the budget, schedules are quite important. In many cases, contracts include provisions to pay liquidated damages to investors or owners if construction schedules are not met which makes construction companies do whatever is in their power to meet the deadline and avoid economic penalties resulting in accidents. That is the case for example of the Brazilian football stadiums which were running late ahead of the tournament: a crane collapsed killing 2 workers in one stadium and another worker fell to his death in a different incident as a result of the rush to complete all the stadiums on time for the 2014 World Cup.

  • External Factors

“A man who has never gone to school may steal a freight car; but if he has a university education, he may steal the whole railroad.” It’s a phrase accredited to Theodore Roosevelt (but disputed by William Joseph Grace) and its related to governments and the corruption that usually goes on in the upper echelons  of governments. In many instances, small and medium size contractors have to pay bribes against their own will to government officials who directly ask for them in return for obtaining contracts, fees for “expediting” the process of permits and licenses, bureaucratic requirements or paying ‘fees’ self-imposed by people with authority.

This is common in countries with high rates of corruption such as Russia or Mexico in which contractors have to pay the ‘cost’ of doing business. These external factors, that in many cases are thought inherent to contractors, are in many instances the result of the inefficiency of governments to control it, their complicity either due to economic or ‘cultural’ reasons or the result of high bureaucratic procedures that incentive these kind of behaviours from officials (e.g. while in New Zealand takes only 1 days to start a business, in other countries like Czech Republic takes up to 93 days to register a business in accordance to the world bank).

For external factors we can conclude that it refers to the economic, political and social issues affecting companies.

  • Internal Factors

Internal factors affecting ethics of construction companies may vary depending on the circumstances and the business environment, but the most common issues include:

  • Financial goals. Most companies set up sales or profit targets for the year which in most cases are hard to achieve. This will derive in companies pursuing their goals at all cost, even if they compromise the quality of their work and ultimately affecting their reputation.
  • Company’s policies. If a company has very stringent policies on its employees such as rewards or punishments (e.g. penalties for not meeting deadlines, targets, bonuses for saving costs, etc.), it is more likely that their employees will try to find ways to attain those policies or avoid being punished.
  • Poor leadership. “Leadership is influence” and this influence is always exerted for good or evil as we will see in the Stanley Milgram Obedience section. Therefore, leaders that expect to obtain gains for their personal benefit (be it direct monetary benefits, promotion, recognition, etc.) are prone to coerce their subordinates in order to obtain what they are looking for, resulting often in poor management decisions and unethical behavior.

The following post will explore the types of unethical behaviours and their consequences to society….

Authors: Ricardo Bielma / Jason Richards

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