The following are some of the ways in which corruption may occur and be concealed on road projects. The term "contractor" is used, but can equally apply to a consultant.
Selection of the project
(1) Bribery may be used in order to influence the selection of a new road to be built or the route of that road. The bribery will be of the government official responsible for making the selection and the bribe may be paid by a person who wishes to secure the road for personal, business or political benefit.
(2) Government officials may choose to have a road built for no purpose other than to provide an opportunity for securing more bribes for themselves from the prospective project participants.
(3) Where large international aid grants have been made available for road development, officials within the particular country may build some roads for no purpose other than to make maximum use of the grant and of the opportunities for corruption associated with it.
(4) Where any of the above methods has been used in selecting a road project, there will be a corresponding fraud whereby a sham reason is put forward as the justification for the project and an approval (possibly also corrupt) is obtained on the basis of the false justification. Unless questions are asked or the decision subjected to scrutiny, the approval will go unchallenged and the corruption will remain concealed.
Planning permission for the project
(5) Bribery of planning officials may be used in order to obtain planning permissions for roads that are not for the benefit of the community, or where the roads are against general development policy. The provision of the fraudulent permission gives a superficial legitimacy to the corrupt transaction.
Choice of design and method of construction for the project
(6) The design, materials and method of construction chosen for a road may be of an unnecessarily high quality in order to maximise the potential for concealing large bribes in the award of the contract and large fraudulent claims made during the project.
(7) Alternatively, the design, materials and method of construction may be of an unsuitably low quality in order to provide the opportunity for minimum cost in complying with contractual requirements combined with an excessively high contract price, thereby maximising the potential for fraudulent profit.
(8) The design and method of construction may be specified deliberately to favour one tenderer who may be better able to comply with that design and method. A tenderer may be favoured because he has paid a bribe or because there is some family or business connection with the designer or project owner representative.
(9) The materials chosen may be specified deliberately to favour one supplier.
(10) In each of the above cases, the design manipulation might be initiated by the government official responsible for design who in turn may bribe the engineer who does the design. Where the design is manipulated to favour a contractor or supplier, these parties may also be involved in bribing one or more of the government official and the engineer. The production of the manipulated design, which would fraudulently purport to be objective and arms-length, would disguise the corruption in the design.
Selection of project participants
(11) A proper tender process may be omitted in order to allow for the corrupt nomination of a particular contractor.
(12) Where there is a tender process, the process may still be corrupted in a number of ways:
(a) the tender criteria may be distorted in favour of a particular tenderer;
(b) information may be leaked for the benefit of a tenderer;
(c) there may be collusion between tenderers;
(d) there may be bribery by tenderers of the project owner representative and/or the engineer;
(e) there may be extortion of tenderers by the project owner representative and/or the engineer.
The selection decision, which would be fraudulently presented as having been made on an objective and arms-length basis, would conceal the corruption in the tender process.
(13) The types of corruption referred to in paragraph 12 could occur between the following parties:
(a) project owner and designer
(b) project owner and certifier
(c) project owner and main contractor
(d) main contractor and each sub-contractor
(e) main contractor and each supplier
(f) each sub-contractor and each sub-sub-contractor
(g) each sub-contractor and each supplier
(14) Whilst bribes paid by sub-sub-contractors to a sub-contractor will be relatively small, all such bribes will be fed back into the contractual chain and passed up through the contract prices so that they are all ultimately borne by the project owner.
Collusion at tender stage
(15) Collusion occurs where a group of contractors have an arrangement whereby they bid for particular projects but ensure that their bids are structured so that each one of them in turn is the winning bidder. In order to ensure that maximum benefit is received from the collusion, the bids would be structured so that the winning bid, although the lowest, would still be significantly higher than if there had been genuine open competition. This arrangement can be difficult to detect, particularly where experienced contractors are aware of how to pitch a bid to ensure that it is not so excessively high as to arouse undue suspicion.
(16) Bidders may agree to bid in open competition, but come to an arrangement under which they each include the total bid costs of all competitors in their price. The winning bidder then compensates the losing bidders for their tender costs. This results in the project owner unknowingly paying additional tender costs.
Bribery at tender stage
(17) A contractor may arrange for a bribe to be paid on its behalf by an agent. The agent would be appointed, under an agency agreement, purportedly to carry out legitimate services in relation to the contract in return for payment of a commission or agency fee. In reality, the agreement would be a device to give the arrangement an appearance of legality and the commission payable to the agent would be disproportionate to the value of the legitimate services to be provided. The agent would pay the bribe and recover the cost of the bribe out of the commission or fee.
(18) A contractor may arrange for a bribe to be paid on its behalf by a joint venture partner. In such a case, the joint venture partner would recover the cost of the bribe in, for example, a leadership or management fee charged to the contractor, or through its share of the contract price.
(19) A contractor may arrange for a bribe to be paid on its behalf by a sub-contractor or a sub-sub-contractor. In such a case, the sub-contractor would conceal the bribe in the sub-contract price which in turn would be passed on to the project owner in the main contract price.
(20) A contractor may benefit from a bribe paid by a parent company from a special fund set up by the parent specifically for the purpose of making illicit payments. The parent company would keep the fund topped up by regular contributions from group companies and such payments would never be traceable in relation to any particular project.
(21) In many of the above cases, the cost of the bribe, whether disguised as an agency fee, joint venture partner fee, or part of a sub-contract price, would be recovered in the project price payable by the project owner. It may be included in the initial contract price, or it may be recovered later on in the project as part of a variation price or other contract claim. In either case, the price charged to the project owner will be suitably inflated to conceal the bribe. It may also happen that, in order to make the inflation less obvious, the cost of the bribe could be spread over a number of inflated claims, so that individually the claims do not appear unduly large. Where, however, a parent company pays a bribe out of a fund set up for the purpose, the cost of this bribe may never be put through the project accounts.
(22) On any one project, a bidding contractor may have a number of joint venture partners and a large number of potential sub-contractors, consultants, representatives, and agents. Any one of these could be selected by the contractor to pay the bribes. If bribery was suspected, all payments to all these parties would need to be scrutinized to ascertain whether any bribes had been paid. If the bribes had been skilfully concealed so that they were paid by a number of parties and hidden in a variety of ways, they will be difficult to detect. If a parent company, unconnected with the project were to pay the bribe, there would also be little chance of detecting it unless investigated by a skilled person.
(23) In many cases, the contractor will not want any of its joint venture partners, sub-contractors, consultants, representatives, and agents to pay a bribe, and may take precautions to ensure that this does not take place. However, despite these precautions, these parties may still pay a bribe without the contractor's knowledge to ensure that the contractor, and therefore those parties, wins a contract.
(24) The problem is exacerbated when one considers that bribes will be paid not only at main contract level but also at sub-contract and sub-sub-contract level. In such cases, the same scenarios as described above will apply at those levels.
(25) Such bribery may occur whether it has been procured by way of extortion by a representative of the project owner or a government official, or whether it has been initiated by the contractor. In either case, because bribery is a criminal offence, it is in the interests of all parties who are involved to ensure that it remains concealed.
Execution of the project works
(26) In relation to each delivery of materials to site, the materials may be not of contract or invoiced quality or quantity. Bribes may be offered or threats may be made by suppliers to those responsible for recording site deliveries in order for false records to be made stating that materials of proper quality and quantity were delivered.
(27) Alternatively, where suppliers make proper deliveries, those persons responsible for recording deliveries may require bribes from suppliers before recording the correct quality and quantity of deliveries made.
(28) In relation to each removal of excavated materials from site, documents may record greater amounts of material being removed than were actually removed. Bribes may be offered or threats may be made by contractors in order for false records to be made stating that the greater amounts have been removed.
(29) Alternatively, where contractors are honestly removing quantities of excavated materials, those persons responsible for recording materials removed from site may require bribes from contractors before recording the correct amount of materials removed.
(30) False invoicing could occur in respect of machinery or equipment hired for the purposes of the project. False records to support such invoicing could be obtained by bribery or threats.
(31) In relation to each phase of the works on any part of the road, works may be carried out defectively and the defects concealed. Such defects may include: improper excavation, laying of materials in insufficient depths and widths, unsuitable materials, defective embankment works, and defective surfacing. Approvals and certificates of payment for such defective works may be obtained through bribes or threats made to the certifier.
(32) Alternatively, where contractors have carried out good quality works, the certifier may require bribes from contractors in order to certify that works have been carried out properly.
(33) The government official representing the project owner and/or the certifier may require bribes from the contractor before paying amounts properly due to the contractor.
(34) Government officials responsible for issuing permits or visas may require bribes from contractors or suppliers before issuing such permits or visas.
(35) Government officials or local gangs may make general threats to contractors to disrupt the project unless bribes are paid to them.
(36) In the majority of the above cases, the corruption will be difficult to detect because of the number of events taking place at any one time, thereby making monitoring difficult. The corruption will then be concealed by the false records, certificates and approvals subsequently produced, or simply through fear of reporting the corruption.
(37) Inflated claims may be submitted by the project owner to contractors or vice versa which exaggerate or fabricate losses suffered due to delays or disruption caused by the other party.
(38) Inflated claims may be submitted by contractors to the project owner exaggerating the cost of variations to the contract works.
(39) Inflated claims may be submitted by the project owner to contractors exaggerating or fabricating losses suffered due to defective works.
(40) Inflated claims may be submitted by the project owner against the designer or the certifier for negligence.
(41) The above frauds may be assisted by the payment of bribes to the certifier to approve fraudulent claims.
(42) Alternatively, the certifier may require bribes to be paid before certifying approval of valid claims.
(43) For the purposes of such claims, documents and other evidence may be falsified or fabricated, and false certificates and approvals may be obtained, thereby giving a false legitimacy to the claims.
Completion of the project
(44) The project owner's representative may refuse to make final payments or payment of retention monies that are due to the contractors without payment of a bribe.
(45) The certifier may refuse to certify rectification of defects to which a contractor is properly entitled without payment of a bribe.
Catherine Stansbury, Global Infrastructure Anti-Corruption Centre