Ethics in the Construction Industry: Unethical Behavior and Consequences

Types of Unethical Behaviour

The ethos of countries vary depending on the local culture, thus what may seem like an unethical behavior in one culture may be considered like a normal or customary way to conduct business in another. It is not easy to define what actions are unethical in many cases, or what actions cause the lesser evil. However, it is worldwide recognized that corruption constitutes an unethical behavior. In the construction industry, corruption is the most common issue affecting this industry, whether occurring within departments on a firm, between firms and between firms and governments.

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Corruption is considered by many as a synonym of ‘bribery’. However, corruption takes many forms and it may be interpreted in a broader sense not only including bribery, but also extortion, fraud, ‘cartels’, abuse of power and money laundering as described by the ‘Global Infrastructure Anti-Corruption Centre’ [an independent non-profit organization]:

  1. Bribery
  2. Extortion
  3. Fraud
  4. Cartels or Bid Rigging
  5. Abuse of Power
  6. Money Laundering

Bribery is an act of corruption in which a person offers or gives some sort of benefit to another person in exchange for a favor (e.g. a contractor bribing an official in order to get a contract).

Extortion is the opposite of bribery in which a person requests or demands some sort of benefit to another person to avoid adverse consequences, and it usually comes from a person or organization with authority (e.g. a government official requesting something of value in order to enforce the rights of the person or organization affected, or for not doing something that may harm that person or organization).

Fraud is usually related to a financial default, however in a wider sense it’s considered as ‘deception’, usually done from one person or organization to another person or organization in order to obtain some advantage or financial gain (e.g. hiding defects or manipulating costs or situations for its own advantage).

Cartels, or usually referred in the construction industry as bid ‘riggers’, consist of two or more bidders colluding in rigging a bid to favor one bidder, exchange prices or increase the price of a tender (e.g. two or more bidders in a tender agree to set their prices at 200 million dollars when a project actually costs only 100 million).

Abuse of power is mainly related when a government official or public servant uses his position in order to gain favors either for personal benefit, friends or relatives or to inflict harm on others (e.g. an official having a stake in a company may make a deliberate decision in favor of that company).

Money laundering is the least unethical behavior considered while doing business as it is usually considered for criminal activities like drug dealers, etc. However, money laundering is often related as a consequence of the unethical behaviors previously mentioned. It consists of concealing money obtained fraudulently (e.g. through bribery, extortion, fraud, etc) by transferring the money received from one company, person or organization’s bank account to another bank.

Consequences to Society

Staying in business is important to any construction firm. While getting contracts is important, getting them the wrong way can not only have a negative impact on the firm, but on society as a whole. When a firm pays a kickback to obtain a contract that corrupt culture will continue to be corrupt and chances are that corruption will not stop at the kickback needed to obtain the contract.

The government may demand the firm use suppliers that are well connected to the ruling regime. These suppliers may not charge a fair price and may sell substandard materials. Yet in order to keep the contract, the company may have no choice but to oblige. Worse still, the construction firm may have to pay additional bribes in order to build in certain sites or perhaps the government bureaucrats may arbitrarily decide that cost of doing business may have “gone up.”

All of the factors and types of unethical behavior aforementioned contribute to the project costing more, sloppy construction, lower profits, possible loss of life in the future, and in the case of public works projects, higher cost to taxpayers. As long as there are companies that are willing to obtain projects no matter what, these types of practices will never stop. According to Transparency International, corruption on construction projects can only be eliminated if all participants in construction projects co-operate in the development and implementation of effective anti-corruption actions which address both the supply and demand sides of corruption.

In many cases, this type of corruption does not stop at just one industry, but will permeate throughout society. Construction contracts will only go to those who have the money to pay kickbacks and bribes or to those who are well connected. This discourages entrepreneurs, who are essential for any free society to grow and create wealth.

There is a strong relationship between corruption and levels of development in societies: the more corrupt the country is, the more likely that country will not be developed. Thus, unethical behaviors which are often seen in the construction industry, such as the mentioned in the previous section, have a strong impact in economies and societies as a whole resulting in:

  • Uneven distribution of wealth: increased levels of poverty and big differences in income inequalities.
  • Interruption of investments and trade restrictions with wealthier nations
  • Reduction of economic growth and increased economic inefficiency.
  • Mistrust in laws and in public officers, leading to Impunity and crime
  • Threats to democracies and industries, resulting in failed states, such is the case of oil rich african countries.

In the next post we will explore the psychology behind the obedience and consent to unethical behaviours…

Authors: Ricardo Bielma / Jason Richards

 

 

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