Is construction a dirty business? If so, what can we do about it?

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corruption
How do we avoid corruption in the industry
How do we avoid corruption in the industry
How do we avoid corruption in the industry?

Maybe I’m too innocent for my own good. Last night, at the local Construction Specifications Canada chapter director’s meeting, one member well-connected to the industry, in describing the construction procurement scandal at the city’s major hospital, said that the stories there are reflected in many other places. “It’s a dirty business,” he said.

There are many challenges and temptations in this industry, especially in the fixed bid environment. If competition is truly open and visible, there is a race to the bottom on pricing and, when contracts are won, they effectively are lost because contractors cannot make enough money to be profitable.

These problems are magnified in small-to-medium works competitions, where the number of contractors technically qualified far exceeds the potential opportunities. If things are truly open, without some sort of prequalification, qualitative review process, or selection lottery, the number of potential bidders would overwhelm the marketplace, and again, the contractor that makes a bidding error or is stupid enough to work at a loss, would probably win the work.

Obviously these circumstances are unsustainable, so various solutions have been attempted to avoid the most severe problems. For example, prequalification lists can be maintained, from which three or five contractors from the list are invited to bid individual jobs. Or qualitative rating scores allow the owners to avoid the “low price wins the job” trap — when quality, as well as price, are factors. And of course, there are plenty of examples of how change orders can turn what would have been unprofitable projects into a successful initiatives.

Alas, each of these options (other than a genuine lottery, which removes price and merit from consideration) invite “gaming” and create temptations for corruption. Here, marketing and business development practices that may be ethical in other circumstances become dangerous and risky, especially when the dollar sums are large and oversight and controls are difficult to manage.

For example, in business, it is good to build and maintain warm relationships with clients, to (as much as possible) gain an inside track for future work. And in many cases, it is rational for procurement officers to want to favour selected contractors and suppliers, even if they may be somewhat more expensive than the lowest bidder. (Qualitative considerations count.) It can be a fine line where these qualities slip over to become corrupt; where hospitality and relationship-building initiatives translate to personal benefits and kickbacks.

In the end, we need to make the right decisions for ourselves, case-by-case, but with understanding of the general ethical concepts and guidelines.

“I received a call (from someone at the hospital) asking me to make a contribution to an event of a personal nature,” said the industry leader. “As it had nothing to do with the hospital’s actual business and didn’t seem right, I declined. I never got another (purchase) order from the hospital.”

While this individual lost the hospital’s business because he wouldn’t play the corrupt game, he has remained in business for many decades.

The answer, then, to ethical challenges, generally is to do what is right, and not do what is wrong. This is easier to say than do, of course, in an environment where other people are cheating and doors magically close when you decline the opportunity to be corrupt.

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