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Abstract
The construction industry is consistently ranked as one of the most corrupt industries worldwide. The impact of corruption goes beyond bribe payments to poor‐quality construction of transport infrastructure with low‐economic returns alongside low funding for maintenance. Regulation of the construction sector is necessary, but simplicity, transparency, enforcement and a focus on the outcomes of poor construction are likely to have the largest impact. Where government is the client, attempts to counter corruption need to begin at the level of planning and budgeting. Output‐based and community‐driven approaches show some promise as tools to reduce corruption, they will need to be complemented by a range of other interventions including publication of procurement documents, independent and community oversight, physical audit and public–private anti‐corruption partnerships.
Acknowledgements
The views expressed are those of the author and do not necessarily reflect those of the World Bank, its Executive Directors or the countries that they represent. Thanks for comments from Antonio Estache, Jeffrey John Delmon, Tina Soreide and participants in a World Bank workshop on corruption in construction.
Notes
1. WDI report Gross Capital Formation globally at 21% of GDP. Construction share in GDP is from UNSTATS.
6. This amongst firms which reported a percentage and did not answer ‘don’t know’.
7. These are unweighted country average responses.
8. Data from the ROCKS database. http://www.worldbank.org/transport/roads/rd_tools/rocks_main.htm
9. The results suggest that an increase in the CPI (reflecting reduced corruption) from Pakistan’s score to Ghana’s would be associated with a drop in Pakistan’s road construction prices of around 20%. The equation is Cost = 51.9 – 5.9 × (CPI), with the constant and CPI entering at 1%, R = 0.23, N = 28. Including GDP per capita reduces the coefficient on CPI to 4.5% and the significance to 10% (GDP per capita does not enter significantly).
10. This compares to construction accounting for around 4% of the global workforce (ILO, Citation2005).
11. In Indonesia, Olken (Citation2004) estimates that a marginal dollar of materials stolen from a road project reduces the discounted benefits from the project by $3.41 because of the shorter life of the road when built with insufficient material.
12. It may also be that high corruption countries invest more in physical assets to the cost of human capital (de la Croix and Delavallade, Citation2006).
13. See also Svensson (Citation2005) and Lederman et al. (Citation2005). The relationship between government pay and corruption is theoretically and empirically weak—see van Rijckeghem and Weder (Citation2001).
14. Whilst we have seen that levels of corruption in the sector can be markedly different from average levels in the country, it is nonetheless the case that the broad macro governance environment does impact sector‐level corruption. This is clear from the correlation between measures of construction sector corruption and GDP per capita—itself closely correlated with general indicators of governance.
15. These results carry more than the usual caveats about regression results—there are no checks of robustness to the inclusion of other variables or country dummies, for example.
16. See Djankov et al. (Citation2000) for a broader discussion of the limited impact of regulation of entry on quality of service provision, but its stronger link with the extent of corruption, across a range of sectors.
18. See http://www.publications.parliament.uk/pa/ld200607/ldbills/040/2007040.pdf. There is a similar law on the books in Australia.
19. A recent survey of Norwegian firms involved in overseas contracting found that only 6% felt procurement rules were an efficient obstacle to corruption (Soreide, Citation2006).
20. And the result of an IMF Report on Observance of Standards and Codes provides an assessment of how well these good practices are implemented in a country. http://dsbb.imf.org/Applications/web/dqrs/dqrsroscs/
21. Calculated from p. 36 of Levy (Citation2007).
22. Similarly, community‐based construction of schools in Zambia and Mauritania cut costs by one half to two thirds over national competitive bidding approaches—although some considerable part of this saving was due to lower architectural standards (Theunynck, Citation2006).
23. At the project level, specifying who selects third party monitors (it should not be the implementing ministry) and where advertisements are placed (online as well as in a given set of major newspapers in a font of a minimum particular size) are both potential elements of an anti‐corruption package. PEFA performance indicators include an indicator of procurement standards and the OECD’s Baseline Indicator of Procurement Systems provides a tool for improving the institutions of procurement. http://www.pefa.org/index2.htm, http://www.oecd.org/dataoecd/12/14/34336126.pdf
24. In the case of school construction, for example, bundling construction projects under one large ICB contract led to high prices, inadequate distribution of schools and construction delays—as a result, such approaches had been abandoned in favour of delegation to contract management agencies, NCB and community‐based approaches by the 1990s (Theunynck, Citation2006).
25. In the case of transport, ROCKS data suggest the complexity, as we have seen.
26. Olken (Citation2004) finds evidence that the threat of audits is a significant deterrent to corrupt activities in the case of an Indonesian road project reducing estimated levels of corruption by 8%.
27. See http://www.transparency.org/global_priorities/public_contracting/integrity_pacts. An expanded version of the integrity pact process which is designed specifically for construction is called PACS (Project Anti‐Corruption System): http://www.transparency.org/tools/contracting/construction_projects
31. For examples of framework agreements between a number of construction firms and the Building and Woodworkers’ International, see http://www.bwint.org/default.asp?Issue=Multinationals&Language=EN
