Daily Times

I for one had always imagined that corruption in construction was a local phenomenon, or at least limited to developing nations. Hence, a not-so-recent article on corruption in construction globally was an eye-opener. Apparently, corruption and construction go hand in hand, the world over. And that knowledge also proves the view held for years that Pakistanis are not from Mars; mankind is corrupt everywhere.

And here comes the cherry on top; in his article, Peter Mathews while admitting that this is difficult to determine estimates corruption to range between 10 and 30 percent. Considering that the range is a world average, most likely, we are at the upper end or perhaps even higher. Even more mindboggling are his projected numbers: global construction is expected to increase to $17.5 trillion per annum by 2030, thereby suggesting that approximately six trillion dollars might be lost through corruption, mismanagement and inefficiency.

If all that is true, considering that the general perception is that people in the west are always right, this finding has serious implications for a developing nation like Pakistan, which is bent pursuing the Keynesian model for economic growth. Spending by government to stabilise output aside, in current times government spending is the primary driver of economic growth. And if you look at the budget deeply enough you realise, irrespective of the methodology of determining the annual deficit, the entire development budget is financed through debt. So if we are pledging our future to build the present, it would be rather critical that we get the maximum mileage out of our public spending.

To clarify, when government borrows to spend on development projects that are largely infrastructure related, contrary to conventional domestic wisdom, it does have to pay the money back at some point. The only way it can pay back that money is through future taxes in one form or the other, which might even include outright appropriation. So whatever you pay in taxes tomorrow has already been spent, and unless the country gets rich very suddenly, this also means that this formula for development cannot continue endlessly. Already the annual debt-servicing component takes the lion share — more than defence — of the budget, and is growing at an alarming rate, we are already forced to start paying back. Perhaps, someday, I would take on the project of trying to explain in layman language how money is created and spent in the first instance; for the moment I assume that the earlier explanations are sufficient to enforce the necessity of spending sensibly.

Accordingly in our case, building a bridge to nowhere just to keep the economy running could be fatal. Selection of the projects itself is critical; while political mileage remains the decisive factor in a democracy, it would at least be prudent to choose projects that have a positive payback rather than being a continuous drain on resources. More on project selection some other day, for the moment, if even 30 percent is lost to corruption on the projects selected, the cost is prohibitive. For one, corruption money once extracted is probably exported thereby shrinking the real economy; and even if it isn’t, the money can only be used in unproductive speculative investments. And imagine what more could be built if corruption could be controlled. The argument that at least they deliver something, ignoring corruption, would not hold in the long term.

Mathews in his article sites various features that make construction prone to corruption. They include: uniqueness, generally, no two projects are the same, hence difficult to compare costs; complex transaction chains difficult to control; material and workmanship is often hidden as in steel reinforcing being cast in concrete; official bureaucracy as in numerous approvals required from government; size of the project making it easy to conceal bribes and inflate claims; and collusion amongst bidders to cite a few. And while he identifies reforms such as “improving transparency and accountability, strengthening professional standards and quality management are equally important”, he focuses on two entirely different aspects. That is why his article motivated this article, and due credit is given to his efforts. All of us are already familiar with these causes of corruption, and perhaps a lot more, and are in general fed up with all the talk about transparency and accountability, which have in substance led to absolutely nothing. So what else is there?

Mathews’ solution, based on United Kingdom’s experience, is not to select — will wonders never cease — the lowest price bidder. This even sounds crazy, and those associated with the Public Procurement Regulatory Authority (PPRA) and reading this probably had a seizure. Some might at this stage contend that even PPRA rules are not obsessed with the lowest bid, but with a credible risk of being hauled over to NAB offices to explain why the lowest bid was not accepted, how many public servants would be brave enough to take the right decision even when it was staring them in the face?

Irrespective of how stupid this solution sounds, Mathews’ arguments are on the dot, and again sound very familiar, especially in the case of low-cost contractors that we inordinately employ in Pakistan. He writes: “This is because lowest price bidding encourages contractors to bid for work at unrealistically low levels. It then becomes difficult for them to maintain standards and make profits, the quality of their work falls, and they become more likely to make unjustified claims, delay payments to subcontractors and indulge in corrupt behaviour to reduce their losses.”

Finally, Mathews’ solutions are not rocket science either: “(1) project development and initial screening, (2) formal project appraisal, (3) independent appraisal review and (4) project selection and budgeting.”

What it means in Pakistan’s case is an independent appraisal of the entire project, inclusive of basis for selection and budget, by a foreign consultant. On a lighter note, a foreign consultant with one hand. Frankly, what came as a surprise was why such suggestions are not part of the structural reforms thrust upon us by the IMF programmes? The article is out there on the net, and the United Kingdom and perhaps a few more developed countries are already moving away from the lowest bid fallacy. This kind of oversight does give credence to all conspiracy theories surrounding the Washington Consensus.

Nonetheless, public sector construction projects are the main drivers of Pakistan’s economy today, and while it is true that corruption can perhaps never be completely eliminated, the suggestion to focus on project preparation and not to be obsessed with the lowest price bid make sense. Why not try these suggestions rather than watching corruption and construction walk hand in hand forever.

The writer is a chartered accountant based in Islamabad, and can be reached at syed.bakhtiyarkazmi@gmail.com