11 ways construction firms can prevent procurement corruption

Procurement corruption remains a problem in construction. Edward Quigg explains the policies companies should have in place to guard against it.

The jailing of a contractor and developer for bribery earlier this year shows that corruption is alive and well in the construction industry – even though the UK is ranked as the 8th least corrupt countries in the world.

Procurement fraud is a criminal offence and is defined on the Action Fraud website as “any fraud relating to a company purchasing goods, services or commissioning construction projects from third parties.” It can occur at any point during the procurement and contract management processes and does not only take place in the construction industry. Procurement fraud includes price fixing, market sharing and bid rigging.

Procurement fraud could cost a construction business millions of pounds and damage its reputation. At the corporate level, it is incumbent to put in place procedures to prevent and identify a suspicious procurement fraud to minimise the costly consequence. So, what can a company do? Here are 11 key preventative actions:

1. As part of the risk management process, acknowledge that fraud and corruption is a business risk, include it in the corporate risk register, assess the likelihood of risk occurring, have it on the board meeting agenda and establish an operational strategy to minimise such risk.
2. Increase the awareness of all members of staff and the supply chain in counter-fraud and anti-bribery and make sure they are aware of the consequences at corporate and personal levels.
3. Have clear conflict of interest, anti-bribery and confidentiality internal policies and get all involved in the procurement to sign a statement that they will comply with them.
4. Ensure that the internal policies and processes are transparent to enable you to detect and investigate any suspected fraud and bribery.
5. Ensure that procurement procedures are in line with best practice.
6. Exclude suppliers on the grounds of mandatory and discretionary exclusions in accordance with the Public Contracts Regulations 2015.
7. Do not let one person make the decision because it is much harder to bribe a team of three.
8. Include a covenant provision in employment contracts to prevent employees using the knowledge they have if they move to a possible supplier or client.
9. Regularly audit, scrutinise and improve resilience of the internal fraud prevention process.
10. Run an effective whistleblowing arrangement to encourage fraud and corruption reporting.
11. If fraud and bribery is suspected, escalate it to the management level and take action immediately to secure evidential records against removal or alteration.

Remember that there are many who might report suspicious activity. A bidder who lost out is likely to raise concerns, as is a colleague who is jealous of the new Jag in the staff car park and the luxury holidays, as happened with the former head of energy procurement at Kent County Council in 2012. If you do suspect fraud, it can be reported at www.actionfraud.police.uk.

This article first appeared in Construction Manager Magazine.

Original publication can be found here.