The construction sector is responsible for building crucial infrastructure which contributes to positive economic and social outcomes including poverty reduction. Up to 30 percent of public budgets is spent on construction, across sectors such as transport, energy, water, health, education, and housing.The sector also receives high levels of foreign direct investment and of international and regional development aid. This means that the concerns about mismanagement and corruption in the sector have both local and international significance.
It is estimated that upwards of $4 trillion annually is lost through mismanagement, inefficiency, and corruption in public construction - on average 10 to 30 percent of a project’s value. These losses have a negative effect on the quality, safety, and value of the built environment. Specific investigations have found much larger losses in some cases, including projects that were paid for but never built and structures that collapsed with injury and loss of life.
Corruption and mismanagement in public infrastructure are linked to weak governance, both in policy, legal and regulatory systems and institutional capacity. The nature of the construction industry and the manner in which infrastructure services are operated create structural vulnerabilities that can encourage corruption. Transparency International’s 2005 report into corruption in infrastructure highlights 13 different features of infrastructure projects that make them particularly prone to corruption including size, uniqueness, complexity, the length and phasing of projects and the number of contractual links.
Strengthening transparency and accountability in public construction yields domestic and international benefits. Efforts to improve openness in the sector promise multiple benefits: improving the use of funds in public construction, resulting in better and more reliable infrastructure; freeing savings to extend social and economic services; and raising investor confidence. These benefits are shared amongst government, private sector and civil society.
For governments the benefits include, greater efficiency of public spending, improved quality of public services, improved business environment, public confidence, political reputation,reduction in risks to public safety and increased prospects for investment. For the private sector benefits include greater confidence that a 'level playing field' exists, a more predictable business environment and improved levels of trust, reducing reputational risk and improved access to financial markets. For the public the benefits include greater opportunities for public involvement and accountability, checks and balances to ensure value for money, assurances that corruption is being mitigated and better public services and infrastructure.
The recommendations for this topic are based on the work of the Construction Sector Transparency Initiative (CoST) and the Network for Integrity in Reconstruction, and were developed by the CoST International Secretariat.
Examples in Practice
Approximately 20 countries have taken part in experience exchange on construction sector transparency facilitated through CoST
CoST has facilitated international exchange of experience between approximately 20 countries, including El Salvador, Ethiopia, Guatemala, Malawi, Philippines, Tanzania, United Kingdom, Vietnam and Zambia, as well as regional events in Africa, Asia and the Americas.
CoST in Guatemala has benefited from the support of international partners, helping them avoid potential pitfalls and build on what has worked in other countries
Guatemala started its CoST pilot scheme later than other pilot countries but was able to progress quickly. According to the CoST Guatemala coordinator, the CoST pilot countries operate as a community of practice and share lessons among each other. And, while each CoST country has unique characteristics, the experiences of other countries have helped Guatemala avoid potential pitfalls and build on what worked in other countries.
CoST participation countries have disclosed project information
Countries participating in the Construction Sector Transparency Initiative (CoST) – Ethiopia, Guatemala, Malawi, Philippines, Tanzania, United Kingdom, Vietnam and Zambia – have disclosed CoST project information.
Countries participating in CoST have enabled assurance of disclosed CoST project information and published findings
Ethiopia, Guatemala, Malawi, Philippines, Tanzania, United Kingdom, Vietnam and Zambia are participating in CoST and have created assurance systems to verify disclosed project information.
The responsibilities of the Assurance Team in each country include collecting and disclosing information, verifying this information, and analysing it. The Assurance Teams are then required to produce reports on their findings in language intelligible to a non-specialist audience. Some CoST countries have chosen to disclose these reports while others have chosen not to do so.
Disclosing information enabled Ethiopia to save money and improve governance in the construction sector
During the pilot, CoST Ethiopia revealed a number of causes for concern relating to the amount of excavation on the Gindeber to Gobensa Road Project which led to the Ethiopian Roads Authority (ERA) commissioning a new design. On this particular project, disclosing information for a second time demonstrates that the new design has saved $3.7m and the design consultants have been suspended for two years by ERA.
District monitoring committees in Timor Leste are monitoring and helping resolve problems with public projects
After a long history of violent conflict, Timor Leste celebrated its first decade of independence in 2012. Reconstructing the country’s physical and social infrastructures is a priority, but building a large number of infrastructure projects that either were destroyed or did not exist in the pre-independence era comes with risks. Whether they are managed by government agencies or private contractors, such projects are prone to corruption and misappropriation of resources. Therefore improving transparency and accountability is critical.
Economically, the country sources almost 90 per cent of its income from petroleum revenues, making it one of the world’s most oil-dependent economies. The government established the Petroleum Fund, where oil revenue is deposited in order to secure the national budget for development. In 2009 an anti-corruption commission was established (Comissão Anti-Corrupção, or CAC).
NGOs such as Luta Hamutuk have developed community monitoring programmes to enable people to convey their concerns to those who are responsible for infrastructure projects, and to engage with key stakeholders in order to foster greater accountability at local, district and national levels.
Volunteers in the community collect evidence about the delivery of specific infrastructure projects, write reports and engage with local leaders and national policy-makers.
Where the local government is responsive, a monitoring committee may be established. These committees (there are currently three) focus on particular local projects, ranging from road rehabilitation to developing schools and healthcare facilities. The district monitoring committees bring together local authorities, community representatives and contractors to discuss community monitoring findings and jointly resolve identified problems. This had led to improvements in infrastructure and service delivery, including water pumps and school facilities.
El Salvador joined COST after an initial period of engagement
El Salvador joined COST after an initial period of engagement. El Salvador has, since 2009, worked on reforming its Ministry of Public Works based on the principles of transparency and ethical behaviour. Before embarking on the reform programme, the Ministry had been in large debt with 80% of its contracts paralysed by legal problems.
Ethiopia launched a new Procurement Proclamation which requires disclosure of contracting information
In Ethiopia there has been strong support for procurement transaparency from the Commissioner, Federal Ethics and Anti-Corruption Commission. This support was strengthened when the Ethiopian Roads Authority, the Ministry of Health, the Ministry of Education, and the Ministry of Water and Energy—signed memoranda of understanding with the Construction Sector Transparency Initiative (CoST) to participate as a pilot country. A senior representative of the Public Procurement and Property Administrator Agency (PPPAA) joined the initiative’s multi sector group. alongside other representatives from government – from the Federal Ethics and Anti-Corruption Commission, Roads Authority, Ministry of Urban Development and Construction- as well as from the private sector and civil society.
Initial studies found that there was a legal between requirements for disclosure and the procuring entities’understanding of those requirements. It also revealed that the procurement law prohibited the disclosure of information relating to tender submissions and evaluations.This contributed to poor governance of projects resulting in wide differences between budgeted costs and timelines, and the actual costs and times of delivery. In 2010 a new Procurement Proclamation was issued requiring disclosure of key information related to public contracts.
CoST Ethiopia has developed an e-procurement system with the PPPAA where procuring entities will be required to disclose the CoST Project Information Standard. The Ethiopian MSG will then train the procuring entities on using the e-procurement system. This includes the Ethiopian Roads Authority who is in a good position to mainstream information disclosure due to the development of a new database and a number of disclosure policies that are already in place.
In Afghanistan, DRC, Liberia, Nepal, Palestine, Sierra Leone and Timor-Leste, civil society organisations work with communities to monitor and assess the effectiveness of construction projects
Through the Network for Integrity in Reconstruction, civil society organisations in Afghanistan, Democratic Republic of Congo, Liberia, Nepal, Palestine, Sierra Leone and Timor-Leste have received organisational and capacity building support to help empower people to monitor project information and assess the effectiveness of construction projects, such as clinics, roads and schools.
In Afghanistan, for example, community-based monitors have been trained to access project information on reconstruction projects selected by the communities, survey beneficiaries, and assess the reality of projects on the ground.
In Guatemala the government has taken action where multistakeholder reviews found problems in public construction projects
Having joined the Construction Sector Transparency Initiative (CoST) in 2010, CoST Guatemala recently published their third CoST Assurance Report, disclosing information from 25 public construction projects. The first disclosure in July 2011 examined six projects including roads, sporting facilities and river dredging. An average of 53 per cent of the project information required by CoST was disclosed by the procuring entities, which marked a great improvement.
The CoST Guatemala programme has highlighted several issues that have led to government action. Following a recommendation from the assurance team procuring entities have to ensure that sufficient budget is in place before contracting firms. This is to avoid unnecessary delays in starting construction. The Multi Stakeholder Group also voiced concerns about NGOs being used to siphon offfunding intended for infrastructure projects. The General Directorate for Roads has annulled the works contract for the design and reconstruction of the Belize Bridge in Guatemala City, based on the Assurance Team highlighting the inappropriate use of procedures for contracting in emergencies such as natural disasters. Over time the average level of proactive disclosure of project information has risen from 25% in the CosT baseline study to 65%. Disclosure is becoming a routine process for CoST Guatemala.
In the United States provides machine-readable information on construction contracts
The Federal Funding Accountability and Transparency Act (FFATA) of 2006 required that the Office of Management and Budget (OMB) establish a single searchable website, accessible to the public at no cost, which includes for each Federal award:
- the name of the entity receiving the award;
- the amount of the award;
- information on the award including transaction type, funding agency, etc;
- the location of the entity receiving the award; and
- a unique identifier of the entity receiving the award.
USAspending.gov was first launched in December 2007 to fulfil these requirements. Prime award information shown on the website is provided by Federal Agencies through four main source systems. USAspending.gov receives and displays data pertaining to obligations (amounts awarded for federally sponsored projects during a given budget period), not outlays or expenditures (actual cash disbursements made against each project).
Malawi is reforming its construction sector after CoST review
At the start of the CoST pilot, Malawi undertook a baseline study which revealed that public sector construction projects were subject to large overruns in terms of both time and cost. Following this review, the Malawi Parliament has approved a reform package to fix the inadequacies in the public construction sector. The Malawi government has also begun a review of the Public Procurement Act with the intention of incorporating CoST disclosure requirements.
Tanzanian authorities work alongside CoST to ensure high levels of scrutiny in the construction sector
CoST Tanzania initially received written confirmation that the construction of a certain office building in Dar es Salaam would be part of the pilot project. This agreement to participate was later withdrawn without explanation. The Public Procurement Regulatory Authority subsequently decided that the project should be subject to a full technical audit. Though the audit results are not yet available, this is an example of how statutory authorities are monitoring and reacting to procuring entities’ perceived reluctance to subject themselves to scrutiny.
The Government of Guatemala is working through CoST to bring disclosure of public construction data up to international standards
The Construction Sector Transparency Initiative (CoST) in Guatemala, launched in 2010, is working to ensure that the Guatemalan electronic disclosure system is in line with the CoST Project Information Standard.
Procuring entities in Guatemala use electronic means to register and disclose project information, and the GUATECOMPRAS system is the main source for public access to information. Currently, procuring entities are only legally required to disclose a limited number of items included in the CoST Project Information Standard on GUATECOMPRAS.
CoST’s multi-stakeholder group, through the Assurance Team, checks GUATECOMPRAS to see if the procuring entities have disclosed this information and then requests the additional information that CoST requires to be disclosed. In due course, it is anticipated that all items in the CoST Project Information Standard will have to be disclosed on GUATECOMPRAS.
The government of Vietnam has provided sustained high-level political support to the CoST initiative
CoST Vietnam made good progress in a relatively short period of time. Several factors help explain this progress, but important among them is that the Prime Minister personally endorsed CoST in its early stages. This high-level political support was maintained by the Minister for Construction who was subsequently appointed CoST Champion.
The Philippines integrates CoST into existing civil society initiatives
Since the Philippines already had transparency initiatives and active civil society participation in the construction sector, efforts have been made to align CoST with existing initiatives and to integrate it into existing systems and procedures. Also, to operate in the country, CoST in the Philippines had to create a legal entity (the CoSTPhils Foundation). This has facilitated the transfer of funds for CoST and put in place a clear governance and accountability structure for the project.
The UK government works with CoST as part of its programme for reducing the costs of infrastructure projects
The UK’s CoST pilot project disclosed information on eight construction projects in roads, flood defence, housing, and schools. Soon after its completion, Infrastructure-UK (I-UK), the government department responsible for the National Infrastructure Plan, announced that it planned to work with CoST as part of its programme for reducing the costs of infrastructure projects. Its interest in CoST was sparked by the opportunity provided to routinely capture data in a simple format and the potential this gives to benchmark UK infrastructure costs against international prices over time.
The UK is developing a new format for capturing data from publicly funded construction projects through the CoST initiative
The CoST multi-stakeholder group (MSG) in the United Kingdom is currently working with Infrastructure UK to develop and test a new format for capturing data from publicly funded construction projects after challenges had been identified of accessing cost data in a format that provides qualitative information for policy-makers to make decisions on infrastructure investment.