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Corruption endemic in the construction industry

Extract from the transcript of : File on 4: The building boom's true cost: Broadcast on BBC Radio 4; Tuesday 10 July, 2007.

With Britain in the middle of a construction boom, Julian O'Halloran investigates claims of cartels and price rigging and assesses how much such practices are adding to the final bills paid by UK plc.

O’HALLORAN: As Britain enjoys a building boom and huge construction projects are underway for the 2012 Olympics, there’s growing evidence in the industry as a whole of contracts being fixed in a way that costs taxpayers and customers well over the odds. File on 4 has obtained extensive inside accounts from the Office of Fair Trading of a series of crackdowns on building cartels, bid rigging and price-fixing - culminating in a huge ongoing probe into scores of companies, and billions of pounds worth of contracts. Cartel and fraud busters tell us they believe this kind of cheating is endemic and widespread and they’re backed by other experts.

That’s the view they take at Haymarket Management Services, a company with experience of investigating fraud, corruption and anti-competitive activity in building projects. Haymarket’s managing director,George McKillop, says bid rigging can lead to massive overcharging.

O’HALLORAN: So these investigations by the Office of Fair Trading, how significant do you think the sums of money are there compared with the total amount of fraud, corruption, unfair trading or anti-competitive practices that may be going on around the UK?

MCKILLOP: I think it’s probably just the tip of the iceberg. Our experience is that fraud in the construction industry is widespread and this covers all sort of new build contracts, refurbishment contracts, maintenance contracts - where there is opportunity for overcharging to be disguised within invoices, where there is no opportunity or very little opportunity for it to be detected through normal audit. And it’s important to say that in quite a lot of the cases that we investigate, we will recommend to the client that they go for criminal prosecution, but in quite a number of cases the settlement is actually reached out of court in a civil negotiation and they don’t actually reach criminal court. There’s very much a sort of attitude of, well, let’s quietly sweep this under the carpet and say no more about it, but no will to call in the police at any stage to begin criminal proceedings.

O’HALLORAN: Again, we would have liked to talk to the Construction Confederation, but they would not be interviewed. The building industry is now enjoying a boom, with huge construction projects underway linked to the 2012 Olympics in London. But a new warning has come today from the Commons Public Accounts Committee that costs could spiral out of control without further stringent measures to keep them in check. And as the pressures for completion increase in the next five years, George McKillop says there will be growing risks.

MCKILLOP: It is alarming and it’s very important that the authorities who are involved in the construction development for 2012, that they have very, very clear and defined processes in place to minimise the risk of fraud by contractors, to minimise the risk of collusive bids, to minimise the risk of kickbacks being paid to internal parties.

O’HALLORAN: So as we get closer to 2012, how are the time constraints going to impact on the situation, do you think?

MCKILLOP: Well, as we get closer to 2012, as we’ve seen with other major construction projects in recent years, as the deadline approaches there is a tremendous pressure on the contractors to complete the work on time. There’s no question that the work for 2012 has to be completed on time. If it’s running late then there is going to be the opportunity for massive charging to complete the work in time. And with deadlines like that there is always the opportunity for overcharging.

O’HALLORAN: The Olympic Delivery Authority says its team has a wealth of construction and procurement experience. It says it has consulted the OFT and police about the risks of cartels and price fixing and has put in place rigorous procedures to minimise those risks. The Office of Fair Trading is working with legislation less than ten years old, which gave it new powers of investigation, search and enforcement. Those powers are gradually revealing a disturbing picture of shady deals, which allow public and private sector customers to be cheated. It’s a subject on which those we’ve approached in, or representing, the building industry, have been notably reluctant to answer questions. A silence which suggests they may have no very compelling answer to the allegation by the cartel busters of widespread malpractice in the industry.

Extract from the transcript of : File on 4: The building boom's true cost: Broadcast; Tuesday 10 July, 2007.

Download transcript from File on 4

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