TI: corruption in infrastructure (CI)

Each phase of the infrastructure entails specific risks, ranging from undue influence by politicians in project selection, to insider trading during the disposal of assets…..For instance, if the contract award is difficult to influence, corrupt activity may centre on the project design and appraisal phase or through amendments to the contract during project implementation…..Hence, to tackle corruption in infrastructure, requires to approach the sector holistically

phases in Infrastructure projects 

1. Initiation: this phase involves the identification of needs for an infrastructure project and the setting of development priorities for the selection of projects and resource allocation.
2. Preparation: this phase entails project planning, including the determination of the feasibility in terms of technical, economic and social aspects, plus drawing up concrete designs and specifications.
3. Procurement: this phase covers the selection of contractors or suppliers for the project, and the negotiation and signing of contracts.
4. Implementation: this phase involves the physical construction of the infrastructure project according to the plans and specifications developed previously which ends with the formal approval of completion.

 Operation Car Wash was a massive corruption investigation that began in Brazil in 2014, uncovering a vast network of kickbacks, bribes and money laundering related to large infrastructure projects, including the construction projects managed by Petrobras, Brazil’s state-run oil company. The project, which is a joint venture between an Indonesian state-owned firm and a Chinese company, has faced criticism for its lack of transparency and has been mired in allegations of bribery and conflicts of interest involving high-level government officials and environmental violations.

5. Operation and maintenance: this phase entails the ongoing operation and maintenance of the infrastructure project to ensure its continued functionality.

6. Disposal: this phase involves the transfer or sale of assets to other entities or the public.

7. Initiation phase

8. Disposal phase

9. Operation and maintenance phase

10.Preparation phase

11. Procurement phase

Negative effects of corruption in infrastructure projects

1/ Financial losses

political corruption in the initial phases of the project, diverts investments towards (unnecessary) projects with low returns in financial and social terms (vfm=value for money)

corruption not only distorts (clcp) the project selection process, but also the efficient and economic implementation of projects.

Corrupt practices in infrastructure projects such as bribery, nepotism, fraud or coercion can cause financial losses to the public budget (WPI) in these ways:

• price inflation
• delay project completion
• distortion of public spenditure structure

1/ price inflation:

corruption in infrastructure increases prices and inflates project costs, leading to wastage of resources and increased financial burden on the government as a client and ultimately the taxpayer (wpi)

there is a correlation between tender corruption and project cost. High project costs may lead to the cancellation of projects due to unaffordability 

Price inflation can manifest itself in wages or material costs in the awarded contract, as well as later during contract implementation 

the World Bank’s ROCKS dataset shows that corruption risks increased road prices by 7% to 11%…additional procurement red flags is an average increase in prices of US$91,000 to US$100,000 per kilometre in a sample of road projects in Europe and Central Asia…corruption inflates prices of European road construction projects by 30%-35% on average

2/ corruption cause delays in project completion:

Corrupt practices often lead to the award of contracts to entities that lack capacity to complete the project within the agreed timelines. Such contractors may also divert funds meant for the project, leading to a shortage of funds, and delays in project completion. Delays in project completion may lead to price inflation, low-quality provision, or even non-completion….The unfortunate consequence of unfinished infrastructure projects is that they can often not be utilised at all.

3/corruption in infrastructure development is likely to distort public spenditure structure, with a bias towards high value, high complexity investments, instead of spending on maintenance and operations…corruption clues: increased public investment… but lower expenditures on operations and maintenance.

When politicians and construction companies collude to extract gains from projects in a certain sector, public spending is steered towards high value investments in that sector, and not according to the actual public needs and demands – the funds for which may run empty.

public spending structure is also distorted by corrupt pressures from foreign governments and entities, where big infrastructure investment deals are made with foreign financing schemes, often leaving countries saddled with large debts and disadvantageous terms

example is the Belt and Road Initiative (BRI), a massive infrastructure investment programme led by China.

Safety and quality

Corruption in infrastructure often leads to poor quality infrastructure, leading to safety hazards such as collapses, accidents and injuries…inspectors are bribed may turn a blind eye 

Human rights and sustainability

corruption hinders sustainable development and ultimately violate human rights, such as the equitable access to basic goods and services. Furthermore, corruption in infrastructure development can divert resources from other important social programmes, perpetuating poverty and inequality….specially in periods during and after elections, when political actors need to pay off their clientele/lobbyists, in return for the campaign support such as donations.

-political leaders may favour their home regions and own ethnic group in the allocation of infrastructure projects. Such political clientelism and patronage potentially affects the equitable distribution of infrastructure, which can lead to severe disparities in the provision of basic public goods and services to different population groups and regions, resulting in violations of fundamental rights, such as the right to housing, water and healthcare 

Corruption can hence contribute to discrimination against certain groups (specially maginalised comms) ,in accessing infrastructure or even lead to forced evictions, displacement of communities and violations of the right to participate in decision-making

In Nigeria, for example, corruption in the construction of public schools led to substandard infrastructure and reduced access to education for marginalised children 

CI also lead to environmental degradation and violations of the right to a healthy environment as well as further undermining efforts to build climate mitigation and adaption infrastructure

Brazil’ ci keeps violating environmental and social Indigenous rights…For example, corruption in the construction of the Belo Monte Dam resulted in environmental destruction and displacement of Indigenous communities, violating their rights to cultural heritage, land and a healthy environment 

Philippines’ ci in mining projects has led to human rights abuses, including displacement of communities, environmental degradation and violation of the right to health 

CI risks[red flags]

1/  infrastructure projects are often large in size (in terms of volume of funds as well as the many actors), long-term and complex. Large projects are especially attractive for corruption as even a small percentage of the investment value can result in substantial corruption rents 

In the case of long-term investments, such as transport infrastructure, the situation is further complicated as the gains of corruption – for example, through building with less/lower quality material – are realised early on, while costs arise only later. It is often difficult to assess the quality of the final product until long after the contract is concluded.

Complex projects are also difficult to monitor and regulate due to high information asymmetry, which makes it harder to detect inflated prices, inferior quality or sluggish delivery. Furthermore, complex infrastructure projects may require highly specialised skills and capacities, which can create monopoly power and pricing, making it even more difficult to detect and punish misconduct .

2/ infrastructure projects are often conducted under time pressure, which increases the likelihood of corners being cut and oversight institutions not conducting monitoring diligently. Similarly, corruption safeguards such as transparency in all phases of the project and contracting cycles as well as citizen participation are often neglected.

Especially in the procurement process, the lack of transparency can result in corrupt practices such as bid rigging, collusion, and favouritism, which in turn lead to inflated prices and inferior quality materials and workmanship . In addition, the use of non-transparent procurement methods, such as direct contracting or emergency procurement(eg covid), create opportunities for corruption and limit competition 

Non-transparent procedures are also justified on “national security” grounds, particularly in the field of defence and security procurement

In addition, changes in political leadership or priorities, can result in the cancellation or suspension of projects, which can lead to wasted resources and opportunities for corrupt practices.

3/Weak governance: bad legal and regulatory frameworks , or underfunded regulatory/watchdog agencies.

When trying to address weak regulatory frameworks, governments often have COIs :

a. being the project client (with political interference and the undue personal interests ) 

b. being the regulator who should guarantee safeguards and participation 

Moreover, governments’ accountability duties have become dispersed in supra-national projects..eg. the Trans-European Transport Networks project, which is a multi- billion euro initiative aimed at improving the transportation infrastructure across the EU and involving multiple countries and jurisdictions.

While the EC, as a supra- national body, oversees the project and ensures it adheres to EU regulations and standards, individual governments are challenged to maintain full authority and accountability over the project within their borders. At the same time, the EU faces challenges in maintaining accountability and transparency, as the project involves multiple stakeholders and decision- makers 

A similar effect occur where project implementation lies at sub-national government level (eg. gov central <> ccaa) , and the division of competencies and oversight authority is unclear 

<> cocoo will dig out data on the quality of construction or early deterioration of material, as evidence for CI….and also on the absence of proper maintenance, and all other corruption risks

Corruption risks across the infrastructure project cycle

corruption during the early stages of project appraisal, design and budgeting, open doors for wrongdoing later…. if the contract award is difficult to influence, corrupt activity may centre on the project design and appraisal phase or through amendments to the contract during project implementation 

Project initiation

1/the needs of all parts of the population should be considered during the prioritisation of several possible investments

2/different opportunity costs need to be weighed.

3/project development, formal appraisal, independent review of the appraisal and objective selection

 However, in many countries, these steps are either missing or poorly carried out

Undue influence and political interference

dictate the policy direction and strategic planning of infrastructure projects. Influence peddling and bribery can occur when project proponents (e.g. contractors) offer bribes or other inducements (e.g. campaign donations) to influence project decisions at the political level.

For example, in the period leading up to elections, politicians often interfere to push projects that benefit their constituents (e.g. roads and bridges). This can result in projects being approved based on political influence or personal connections rather than need or merit – leading to the selection of large projects and new construction over maintenance, as well as “white elephant” projects with little or no social benefit, such as bridges without connecting roads, projects for which there is no operational budget to run services (e.g. hospitals or schools) or capital investment in projects that are never completed 

One example: 

the grand corruption scheme that engulfed Belo Monte, one of the world’s largest hydroelectric plants, which was uncovered as part of the Operation Carwash investigation. corruption played a role in the decision to undertake and award contracts for a project that was unsustainable and contentious. There was no proper assessment of the project’s actual contribution to sustainable development, nor of its harmful effects on the environment and the rights of Indigenous communities 

Inadequate needs assessment

a project may be prioritised based on the location of influential politicians or their allies and supporters, rather than on actual need and feasibility

Lack of public consultation

decision-makers exclude public consultation to avoid scrutiny, and push through a project that may not be in the public interest

Unsolicited proposals

when private firms reach out to the government with a proposal for an infrastructure project, without the government having requested (for wpi)

despite helping government offload responsibilities for tenders, financial and technical feasibility, unsolicited proposals are considered vulnerable to corruption for two reasons:

1/low levels of transparency, it is unclear what the origins of the project idea were and if bribery or lobbying by private contractors 

2/ the lack of competition harms VFM and wpi.

Mitigation measures

•  Install a mechanism to deal with cois in project selection 
• clear evaluations and specific ex ante timelines
• Ensure strategic documents and investment plans for infrastructure, an authorised body for decision-making; assurances on the funds available
• Corruption risk assessments in the specific industry in question as well as in the concrete project, requiring risk mitigation plans that refer to political pressures
• Requiring infrastructure needs to involve the broadest possible array of population through participatory consultation processes 

Evaluation of investments

Technical and financial feasibility studies as well as environmental and social impact assessments are required for most infrastructure projects and help to determine overall vfm

The deliberate underestimation of costs and the inflation of benefits, to get uneconomic projects approved or to provide a cushion for the later diversion of funds, leads to projects with low economic returns and excessive cost overruns

Undue financing and inflated budgets

corruption in the selection of lenders and the provision of loans as well as the choice and setup of the financing model (publicly or in public- private partnership): overrule public interests and undue influence

financial institutions collude with decision-makers, to agree on terms that are not competitive which may lead to inflated fees or interest rates. This could involve bribery by financial institutions or decision-makers having private interest in (shs/stakeholders) or relationships with lenders.

Land acquisition

Bias in the selection of project sites and acquisition is a critical part of the planning phase

For example, in 2010 when India spent an estimated US$10 billion on infrastructure projects to host the Commonwealth Games in New Delhi, it was later revealed that corruption was rampant in the land acquisition for the projects. One example is the case of the construction of the Yamuna Expressway, which was supposed to connect the Games Village to the main stadium. the land for the expressway was acquired at a highly inflated price, with farmers being paid only a fraction of the market value of their land 

Rigged permission procedures

For example, in the case of the Palm Oil Plantation Project in Indonesia, the government granted permission for the project without proper environmental assessments and consultation with Indigenous people, resulting in the destruction of rainforests and the displacement of local communities

purported incomplete or inaccurate project design

 to increase the scope of work and inflate costs.

Mitigation measures 

•  Require the budgets for infrastructure projects to earmark funds for anti- corruption monitoring and oversight.
• Define an activity scheme for technical and feasibility studies on projects, the estimation of costs with upper and lower limits, ensuring provision of financial resources, market analysis on circumstances important for technical and financial meaningfulness of the projects and identification, prevention and management of all corruption risks related to all phases of the projects
•  Require participation of civil society in infrastructure project design, assigning a point of contact for relations with civil society.

The methods are increasingly sophisticated. For example, three out of four foreign bribery cases in procurement involve intermediaries, such as local subcontractors, consultants, agents or corporate vehicles (including subsidiary companies, local consulting firms and offshore companies in tax havens) 

public authority’s violations of principles of impartial distribution of public resources:

i) avoiding competition by, for example, using unjustified sole sourcing or direct contract awards; and

ii) favouring a certain bidder by, for example, tailoring specifications or sharing inside information

non- exhaustive list of corruption risks in public procurement 

Mitigation measures 

• ●  Modern e-tools for procurement processes should be used to eliminate direct contacts between the actors of those processes.
• ●  Governments should establish a fair, transparent and competitive procurement process enabling the best proposal to win.
• ●  There should be an open tender, or else proper justification of a closed/direct tender process.
• ●  Specifications should be clear, and an appropriate time should be given to respond to the tender.
• ●  Independent oversight should be given to the procurement process.
• ●  Government departments should undertake wide, pre-market consultation processes with all relevant stakeholders.
• ●  Projects and suppliers should be audited before the contract is signed to ensure that fraud, corruption, collusion and other illegal activity is identified.
• ●  Governments should conduct due diligence on the prospective contractors and subcontractors to ensure they are reputable and that their role is appropriate and commensurate with their remuneration.Contract implementationIn the phase of project implementation, it is crucial that supervising engineers and overseeing procurement officers ensure the fulfilment of the contractual obligations. Corruption risks arise when this supervision is lax or supervisors evenU4 Anti-Corruption HelpdeskOverview of corruption in the infrastructure sector collude with the contractors to skim funds from the project, as detailed below.

Modified contracts and variations

These are alterations to the original contract scope or price made during the implementation phase

<> cocoo foi to ask to see contract variations, after tenders are awarded…eg: mod<> bae.

when a favoured bidder already knows that it will be able to modify the contract, it can submit a competitive bid, or less than market value, seemingly delivering value for money.

Embezzlement or misuse of materials

Contractors can use substandard materials, fail to follow required quality control procedures or supply less equipment than specified to save money and pocket the difference

Collusion between contractors and supervisors

Ghost workers

Ghost workers are individuals who are listed on the payroll but do not actually work on the project. This can occur when corrupt officials or contractors inflate the number of workers on the project and then pocket the salaries of the non-existent workers. This practice can increase the overall cost of the project and reduce the quality of the work as fewer resources are available for actual construction. Additionally, it can lead to delays in the project timeline as work is not being completed as efficiently

Delaying tactics

Contractors may use delaying tactics to inflate costs and extend project timelines, leading to cost overruns and schedule delays. This can include slowing down work, submitting excessive paperwork [bureaucracy] or failing to meet milestones.

Mitigation measures 

• Infrastructure quality information can be collected either through crowdsourcing (e.g. a mobile app enabling faults to be easily reported) or through systematic monitoring frameworks (e.g. regular engineering reviews). Infrastructure quality information should be publicly available to achieve maximum impact.
• Annual performance reports are undertaken and publicly accessible.
• Anti-corruption measures in the tendering of public infrastructure asset operation and maintenance contracts (e.g. highway fee collection services).
• Contracts should accurately describe performance requirements and responsibilities, along with construction and payment terms, and introduce anti- corruption clauses.
• ●  Arbitration clauses should be mutually agreed (depending on the jurisdiction) and contractual disputes and variations should be handled in a clear and timely manner.
• ●  Governments should closely monitor and audit the quality and performance of the supplier and the project to ensure contractors are not concealing substandard work or creating unjustifiable delays, and apply contractually defined penalties, bonuses and fines when warranted.
• ● Civil society and local stakeholder monitoring can augment government monitoring capacities and local feedback should be incorporated into the oversight framework and acted upon effectively.
• ● Renegotiation of contracts should be done in a clear and transparent manner, mutually agreed between parties and made public.
• ● Governments should maintain contract terms, and care should be taken to make sure that the standards to which the private-sector contractor operates are not eroded without compensation to the public- sector authority.
• ● Potential corruption in infrastructure projects should be investigated, prosecuted and sanctioned.

Maintenance and operation of assets

An example of corruption in the maintenance and operation phase is the case of the Trans-Alaska Pipeline System in the United States. The pipeline was constructed in the 1970s, and its maintenance and operation were contracted to the Alyeska Pipeline Service Company. In 2009, the company was fined US$20 million for environmental violations and for falsifying maintenance records. The company had neglected required maintenance activities and falsified records so that it appeared that the maintenance had been performed when this was not the case. This led to significant damage to the environment and the reputation of the company 

Misappropriation of funds

Corruption in this phase can manifest in the embezzlement of funds allocated for the maintenance and operation of the infrastructure project. Such embezzlement can lead to inadequate maintenance or complete neglect of the project, resulting in significant damage or loss of life. 

Corruption in maintenance contracts

recklessness of maintenance personnel, which in turn leads to reduced service life and higher maintenance costs.

Lack of community involvement

Disposal of assets

Disposal of assets is the final phase. is the transfer or sale of assets to other entities or the public. corruption risks: insider dealing in the sale of assets, manipulation of asset valuations and bribery of disposal officials

Conflicts of interest

public officials favour certain buyers or undervalue the assets for personal gain. This can be related to bribery,

Insider trading

In some cases, insiders may have access to confidential information about the assets that they can use to gain an unfair advantage in the sale or transfer of assets. Insider trading can lead to corruption, where insiders profit from their knowledge of the asset’s true value.

Lack of transparency

Lack of competition

Improper valuation

Privatisation

Privatisation : officials may favour certain buyers or undervalue assets to benefit private companies

Mitigation measures

• ●  A public asset registry can be established and made accessible to the public.
• ●  Clear policies and procedures are in place for the disposal of assets, including transparency and accountability measures, such as public tender processes and independent valuations.
• ●  Advertisement of sales and registry of privatisation transactions are published in a publicly accessible portal
• ●  Privatisation is conducted through competitive auctions, accessible to all potential buyers.

• ●  When infrastructure reaches end-of-life, the public is informed of its disposal or decommissioning in a timely manner

Cross-cutting anti-corruption measures

For instance, if the contract award is difficult to influence, corrupt activity may centre on the project design and appraisal phase or through amendments to the contract during project implementation 

anticorruption law (AL) should be integrated into the following regulatory frameworks:

• public investment management
• public-private partnerships
• state-owned enterprises
• sectoral legislation

To achieve that goal, the use of the  “integrity risk assessment and management” tools should also be envisaged in the policy documents and accompanied by comprehensive preventive measures to respond to identified risks.

To measure the levels of public accountability in national legal framework, the World Bank’s PAM Framework and the application EuroPAM provides the regulatory setup in numerous countries (ERCAS 2020; World Bank Governance and Public Sector Group 2013).

countries should establish independent, meritocratic and well-resourced national infrastructure agencies that foster a zero-tolerance to corruption approach. Such agencies should be responsible for the entire project cycle…eg: in the Philippines, the National Economic and Development Authority (NEDA) was established to provide guidance and oversight for infrastructure development.

countries should publish open data on infrastructure projects, to enable citizens, civil society organisations, journalists and governments to monitor infrastructure projects and detect potential corruption risks….eg: the CoST initiative (2017) has developed a data standard for publishing infrastructure project information

govs should insist on multi-stakeholder cooperation in the entire project cycle. eg:  government agencies, engineer associations, urban planning associations, investigative journalists, civil society watchdogs, aid donors, citizen monitoring and audit groups, state audit institutions, creditors such as international financial institutions and private- sector contractors. eg of multi-stakeholder cooperation for mitigating ci, is the CoST initiative, currently with 19 participating nations. The CoST initiative :

• disclosure of information (see also the point on data transparency above)
• projects work via multi-stakeholder groups comprising representatives of government, the private sector and civil society
• independent assurance by auditors
• strengthening social accountability, e.g. by training citizen monitoring groups at the local level

CI Risk Assessment Tool = (ICRAT) designed to assist civil society and other stakeholders to ask the right questions