Carillion, Odebrecht, Berlin Airport: How can we put infrastructure scandals in the past?

Just half of the global need for life-changing transport infrastructure and other constructions is expected to be delivered by 2040. To help meet this shortfall, monetary losses due to inefficiency, mismanagement and corruption must be addressed – recent estimates have put such losses in infrastructure investments between 10 – 30%. These issues have far reaching implications including having an impact on the broader political economy and the quality of infrastructure delivered. This has been particularly evidenced by the recent scandals of Odebrecht (Brazil), Carillion (UK) and in the delivery of Berlin Airport (Germany).

At this year’s Open Government Partnership Summit, CoST and the Open Contracting Partnership convened a high-level panel to discuss how we can meet transport infrastructure needs worldwide and put recent scandals and inefficiency in the past. On the panel sat Frank Kehlenbach, CoST Board private sector representative and Director of the European International Contractors (EIC). Below Mr Kehlenbach answers some follow on questions expanding on his thoughts from the panel and reflections on how CoST can help to mitigate corruption, inefficiency and mismanagement.

Are the revelations from recent scandals involving corruption and inefficiency changing how business is done? Have they affected the approach of the federation you direct, the European International Contractors?

The European International Contractors (EIC) strongly opposes corruption in its diverse forms as an unacceptable phenomenon in national and international business transactions. Not only does it raise moral and political concerns, undermine good governance and distort international competition, but it has negative effects on business, since it adversely affects quality construction, efficiency and can damage the image and reputation of the whole construction industry. This Joint Statement of the EIC and FIEC on Corruption Prevention in the Construction Industry, published in 2009, demonstrates our vehement position on corruption.

More specifically, the EIC has been advocating to multilateral and bilateral development banks that a more holistic approach is needed to prevent corruption and promote positive behaviours across all parties involved in infrastructure delivery. For example, it is not sufficient to simply debar the private sector in cases of flagrant wrongdoing, but sanctions also need to be taken against culpable contracting entities in borrowing countries.

Could you outline some specific measures that could be taken by relevant stakeholders to address corruption in infrastructure?

We are beginning to see more proactive measures taken by different stakeholders in the fight against corruption, but some important next steps could be taken by consulting engineers and clients in particular.

Consulting engineers need to address the fact that we are still seeing poorly prepared projects which often have poor or incorrect designs. This is an issue in urgent need of addressing because it is one of the main sources of corruption. Poorly prepared and designed projects often lead to variations and additional work becoming necessary and the corresponding disputes bear the risk of horse-trading instead of pursuing a proper route to claims management. In these situations, consulting engineers must maintain their professional independence throughout the project and refrain from abusing their certification authority.

In terms of the clients, when they do business with professional bidders they could introduce measures which give preference to bidders with credible track records and policies. For instance, they could require bidders to be certified under ISO 37001:2016. This international standard specifies requirements for establishing and implementing an anti-bribery management system. It would be even better if clients became certified themselves!

In the wake of the recent scandals, what would you say are the core issues that need to be addressed?

Odebrecht, Carillion and the Berlin Airport can be labelled scandals for different reasons. Odebrecht was clear greed on the contractor’s side (the fact that Odebrecht had an internal department for bribes speaks volumes), Carillion was the subject of aggressive risk taking, where the lowest bid was given preference, and Berlin was a result of poor planning, a lack of management and an unrealistically low budget. The issues associated with each of these scandals – corruption, bankruptcy and issues of project quality – are symptoms of an unhealthy industry with low productivity. If and when the lowest bid is the only criterion for the award decision, the companies which offer quality and sustainability will still lose out. In my opinion the industry needs to use a tender mechanism where premium companies are rewarded, just like in the car or electronics industries where the consumer bases the purchase decision on other factors rather than price. Other specific issues which are outdated and do not allow for an integrated approach need to be looked at – for example, addressing that the client often does not have any planning capacity.

In the case of the Berlin airport construction, where there was a lack of capacity in management and an unrealistic budget, a Public Private Partnership (PPP) project delivery would have made real sense because the private concessionaire would have insisted on up-front and full cost transparency as well as subsequent costs for operation and maintenance. The private sector would also have assumed all of the ‘interface risks’ between planning, design, construction and operation and government payment would have started only upon completion.

In addition, other core issues should be addressed beyond the tender phase – for example, during project implementation we also need a delivery mechanism which incentivises teamwork, partnership and an amalgamation of skills and experience for a common purpose to mitigate less adversarial behaviour.

To what extent do initiatives such as CoST help in mitigating corruption, inefficiency and mismanagement?

The CoST approach is extremely important in preventing corruption and putting the aforementioned scandals in the past. Through its disclosure feature, CoST promotes the publication of data at all stages of the infrastructure project – from bidding through to completion – in accordance with the CoST Infrastructure Data Standard. This is very important as, in my view, the post-award phase should be subject to the same scrutiny as the pre-award phase (and in many of EIC’s member companies practice such post-award transparency towards their clients in the context of partnering and alliancing contract models).

In traditionally procured construction projects, the other CoST feature of assurance can then help to prompt action and broader reforms needed in the infrastructure sector. CoST Assurance looks at the accuracy and completeness of data disclosed by procuring entities, turns data into compelling information so it can be easily understood and puts key issues of concern and areas of good practice into the public domain.

In the past when issues have been raised through CoST Assurance tangible results have followed. During my time on the CoST Board some examples of this include the repair of a defective bridge project in the Ukraine (at the contractor’s own cost) which would have been a serious hazard to ordinary citizens. Others include local communities being brought closer to decision makers during a ‘Baraza’ event in Uganda which resulted in important changes being made to the safety of a road construction project and a PPP project being cancelled in Honduras which would have posed a significant burden to the tax payer due to a cost miscalculation. These examples clearly demonstrate the value of the CoST approach, encouraging data disclosure, highlighting the key issues in what has been disclosed (or hasn’t) and working with influencers to raise awareness on the causes of concern to prompt action and promote accountability.

Useful links

Alongside Mr Kehlenbach, other speakers on the panel included Vice Minister to the Presidency, Salvador Sanchez, investigative journalist, Clare Rewcastle Brown and CoST Ukraine Country Manager, Natalie Forsyuk who shared their perspectives from different country contexts. Click to read more.

For more on CoST impact download our 2017 Annual Report.