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.