Fighting corruption and bribery in the construction industry

Everyone talks about, most admit that it exists but isn’t an issue and others simply have learned to live with the issue – economic crime is growing in the construction industry.

Well you simply cannot open a newspaper without hearing the word – “fraud”, it has become less taboo to admit to it and we certainly are sharing more about it. In a recent PwC survey 33% of respondents admitted to having suffered an economic crime (2009: 24%). Now you may think this figure is low, but consider that the construction industry is dominated by less regulated entities, where reporting matters is more stringent, and privately owned businesses means it is actually fairly high compared to other industries. Surprised? I’m not.

The key headlines from the survey are below:

·         49% of those reporting economic crime say it includes bribery and corruption. That’s the highest level of any industry;

·         Asset misappropriation tops the list of economic crime with 76% experiencing;

·         Insiders committed 70% of the most serious economic crimes.

Now be honest, do any of these facts surprise you? The nature of the industry means that bribery and corruption would be a fairly high percentage of reported crime (though I’m not condoning it). Asset misappropriation with sites containing large quantities of material often with little control/security in place to protect it, could be higher in certain situations. The below infographic demonstrates the results:

So compared to the overall sample, the construction industry has a higher than average type of fraud across the board with the exception of cybercrime; however the industry has lower than average levels of data to be stolen.

It may surprise people that the construction industry has the highest rate of bribery and corruption but think more widely than this risk. A business that is susceptible to bribery will undoubtedly have more underlying issues, for example accounting for the bribe will be interesting.

But despite all this should the construction industry simply accept that these risks are present? Are material losses just part of doing business? Think of it a different way, you may not be losing materials but even worse accepting materials that are inferior which can then impact reputation.

So where to next with standard operating processes in the industry outdated and therefore susceptible to manipulation, is it hopeless? Well think about these:

·         Implemented a policy in respect of bribery and incorporate into staff training.

·         Perform additional due diligence on projects, for example inspecting quality not simply quantity of materials.

·         Implement an internal audit function or if too costly an independent (not necessarily external) review.

Yes the industry is susceptible but that doesn’t mean we should accept it, many in the sector are fighting back and this is certainly something every business should consider.

Free feel to contact me 0113 288 2276 or lee.a.wilkinson@uk.pwc.com if you wish to discuss this blog or anything relevant to property and construction.
Enjoy the weekend,

Lee

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Grant the planning and they will build

I write this off the back of an interesting week with a number of meetings with local intermediaries and businesses in the property and construction sector (oh and that small referendum, incase you was unaware). Last week I had a little rant about the housing sector and the need to increase residential developments but also the implications of current interest rates and rising house prices.

And while we think about rising house prices locally spare a thought for those in the Dubai or Croatia market (courtesy of RICS).

Now the more that I research the topic the more confusing it becomes. Savills have forecast that c.167,000 new homes will be built per annum by 2018 which is a significant rise to current levels, but the problem surely is that are the authorities granting planning permissions to meet this demand? I think not, so it doesn’t stack up – surely somewhere it needs to change but more importantly how can support be provided to SMEs to help them.

To me the country has a housing crisis and the key for the next election is to clearly set out policies that help it i.e. reform the planning system. In 2013, around 109,000 houses were completed against planning permissions of around 170,000. Great, what a margin; however there is a backlog and when you look at this in terms of number of developments it soon is gloom rather than smiles.

One area that could be tackled is supporting SMEs further. It is great having Help to Buy and Builders Finance Fund but if they don’t have the capital to help them acquire the sites to take into planning then it relies on the larger players to deliver. Banks need to factor the risk and address security before lending so someone else needs to jump in – any volunteers?

But it’s not all about housing developments. There is more to feel optimistic about as speculative developments are commencing across Yorkshire, and why not the market is growing and money is becoming available – or is it? It depends who you speak to and maybe this reflects the more controlled manner in which funding is now provided by banks.

Looking at Leeds, Muse Developments has received planning approval for LOGIC Leeds with construction expected to commence in November and completion next summer. I can then look down from the window by my desk and admire the MEPC development, again the next building being developed speculatively. I can’t help but smile that after going on 6 years of down beat conversations we whole sector is shaking itself off and moving forward, just in a more controlled way. This view was replicated after meetings with two banks and a law firm this week.

This new found optimism is further supported by a recent survey by Irwin Mitchell highlighting that two thirds of construction firms in Yorkshire are more optimistic about the future than they were 12 months ago. This is great to hear, and certainly replicated by my client base, though the industry is still running from a lower cost base than perhaps at the start of the recession and therefore the risk now is that as costs rise, particularly labour, will these businesses be able to compete and grow – let’s hope so.

The challenge now is maintaining this positivity. As a result of the last few years people have developed a sense of caution, which is good to an extent, which prevents some people really shouting about the growth in the market. If we all learnt anything from the last few years, it is that the market place has risks and the lessons we learnt should play a large part in how businesses proceed. Take advantage of the opportunities but make sure the house keeping is dealt with effectively.

Next week is the Insider Yorkshire Property Awards and I have the pleasure of attending. This seems a perfect opportunity to really hear how the market is on the up and certainly what I will be promoting at the event while we hear about, and collectively celebrate, the success stories.

Free feel to contact me 0113 288 2276 or lee.a.wilkinson@uk.pwc.com if you wish to discuss this blog or anything relevant to property and construction.

Enjoy the weekend,

Lee

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So here it goes my first blog

So as I sit here wondering what to talk in my first blog only to receive a text from a good friend who is struggling to find a house. To me this is such a strange concept to literally have the deposit (ample of deposit to say the least) and mortgage ready to go but just nowhere to buy.

The housing shortage that is sweeping the nation can’t be helping the economy with people simply saving rather than pumping back into goods and services. All this saving, earning little interest, in a hope of one day being able to either join the property ladder or, as we did recently, move into a bigger property. The CBI recently noted that the undersupply of housing stock is leading to house prices soaring in areas. Yet what is being done about it? Is the simple answer just to build more houses? It certainly seems like one solution but with land prices increasing too house builders are going to pass the cost back to the consumer.

I’m no expert at how many people need houses each year but with approximately 120,000 being built per annum it just don’t feel enough – perhaps government policy should change to increase the number per annum while ensuring that affordable housing is available to help those wishing to enter the market have the opportunity. Next year we have a general election, in case you’ve missed it, and it feels that each party should have this near the top of their to-do list. Sort the housing shortage out.

But housing shortage and house prices go hand in hand – increased house prices in turn prices first time buyers more and more out of the market and with rents eating away disposable income it is simply a perpetual cycle. It’s a tough one to really solve in the short term but certainly an increase in the base rate could dampen off the growth, however the MPC don’t seem keen to move on that point just yet.

Having recently sold a property the first question that I seem to be asked is “did you get a good price” and Right Move recently announced 35% growth in visitors to their sold houses section. To me it’s a silly question; I wouldn’t sell if not for a good price. What is the UK obsession with counting the profits (or losses) on a house sale? Some people simply want their own house.

Now you can’t turn a newspaper without the housing market being talked about, the perpetual housing bubble that people fear will burst one day. Well it doesn’t feel like that will be soon, in fact with schemes such as help to buy and house builders tempting first time buyers with a number of freebies it feels like the market still has a bit of growth to come. Recent data from Knight Frank shows that prices are still below the peaks of 2007, well unless you live in London, SE, East of England or Scotland (lucky them!), yet here I sit in Yorkshire with prices still 5.4% lower than 2007.

A number of reports highlight “forecast” house price growth in the UK but the general consensus is around 8-9% in 2014 reducing to 3-4% in 2015 but continuing to marginally grow each year thereafter. The one point that excites me is that much of this growth is forecast to come to the regions, particularly those towns within reasonable commutes to London. It simply leaves me asking two questions: (i) how would you solve the housing shortage and (ii) how else, other than current schemes, can first time buyers be helped onto the property ladder.

And lastly, was quite surprising to see Phil Greer step down as MD of Shepherd Construction and Terry Hartwell as Property Director at Morrisons. It will be very interesting to see who steps up to replace both and drive the business strategy forward.

I hope you found my blog insightful. Any comments are much appreciated as I am new to this. Free feel to contact me 0113 288 2276 or lee.a.wilkinson@uk.pwc.com if you wish to discuss this blog or anything relevant to property and construction.

Enjoy the weekend,

Lee

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