When examining reasons for project failure don’t forget corruption

Project failure, as I have learned, can be defined by many metrics. One common metric is being over budget by a certain percent at completion. Based on this definition, which is used by any number of organizations, as well as by those that report on our “industry,” corruption can play a very large role in project failure, especially in the construction industry, an industry where corruption is very much part of doing business.  Just think “payoff,” “kickback,” “payola,” “bribes,” “extortion,” and my favorite, “baksheesh,” as terms commonly used to indicate someone is benefitting from wrongdoing. Here’s a noteworthy example.

A few weeks ago, the New York Times (my hometown newspaper) reported that four veteran construction executives were arraigned on charges “that they systemically stole tens of millions of dollars from investment firms, insurance companies and law firms as they built corporate offices in buildings across Manhattan.” Building out corporate offices in Manhattan is a multibillion-dollar industry. Just think of how much it will cost to “build out” (meaning to complete the inside of the building) for One World Trade!

oneworldtrade

As the Times reported “The four men, who worked at the Lehr Construction Corporation, routinely inflated mechanical, electrical and other subcontractors’ costs by 10 percent to 13 percent on office projects they supervised, according to an indictment unsealed in State Supreme Court in Manhattan.” This amounted to a whopping $30 million dollars in illegal payments. Not surprisingly, each man plead not guilty. An investigation into the whole matter revealed that, at its height, $500 million per year was improperly charged for services rendered. Now, that’s a lot of money.

If you were the project manager on any of these projects, and you started to notice such increases in payments, what would you do? (I’m assuming, of course, you’re not part of the caper). Chalk it up to scope creep? Complain that the cost of materials rose due to shortage of supply? Bemoan the fact that the union negotiated higher wages during the effort? Would you ever think that corruption was the root cause of the cost overruns?

thieves

The “faces” of corruption. Are people like this undermining your project?

The construction industry is no stranger to corruption. In fact, it so endemic to the industry that John E. Osborn, who specializes in construction law and represents property owners,  remarked “that it’s part of regular business practices.” According to other knowledgeable people, corruption adds a minimum of 10% to the cost of doing business in New York City. No one ever claimed that going over budget by 10% would mean the project is a failure. But if you add that 10% to the other reasons for problems, its easy to see corruption plays a big part in “failed” projects.

You might be wondering how this all worked. Well, it’s quite simple. The prime contractor, in this case Lehr Construction Corporation, is alleged to have routinely overcharged for the work of its subcontractors. The way they did it was to have the subcontractors inflate their invoices they sent to Lehr. Lehr then forwarded the invoices to their unsuspecting clients and pocketed the difference with some of the proceeds perhaps landing back in the wallets of the subs themselves. So, everyone was in “cahoots” with the dirty scheme. “This construction company was corrupt at all levels,” said Cyrus R. Vance Jr., the Manhattan district attorney. “Its executives developed — and successfully executed — a scheme to steal millions of dollars from their clients.”

Projects fail for a lot reasons. But when they fail because of corrupt individuals, our profession takes a blow to its reputation because if the cause is not known it’s generally attributed to just bad project management. Yes, the construction industry is ripe with thieves, but the construction industry doesn’t hold a monopoly on misdeeds and malfeasance. The next time you see an invoice that just doesn’t make sense, better start taking a closer look at what’s going on. You, too, may be the victim of corruption.

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2 thoughts on “When examining reasons for project failure don’t forget corruption

  1. Hi LeRoy, you pinpoint a phenomenon not only present in construction but in any business where winning a pitch is dependent on good connections. It is in most cases not an issue the project manager could fix, as this is dealed on much higher levels – I call it the politics factor of project’s distress. Think about all the pet projects executed just to please some “superior interests”, or the overruns at the cost of the tax payers for some “nice to haves” for influencial stakeholders at public authorities. Things those project principals hate is transparency, and if the PM discloses he’s fired. To be proven at some very prominent projects all over the world…

  2. Good insights Henning. In most cases the corruption has been established at a level higher than the PM. Certainly, any PM would be in a very difficult position if he or she uncovers what’s really going on. Thanks for your comments.