The challenges of ethics and compliance in Engineering & Construction Projects

The challenges of ethics and compliance in Engineering & Construction Projects

Marrying the demands of the UK Bribery Act with the multiple suppliers involved in Engineering Procurement Construction (EPC) contracts is proving to be one of the bigger challenges for Bribery Act compliance.

Clients and contractors joined us for our Business Ethics Debate at the House of Lords this month and engaged in a frank discussion of the problems they face.

From the client’s perspective, they want to call the shots, knowing that they will ultimately be held responsible should suppliers or third parties acting on their half become embroiled in misconduct. As a result, they are imposing increasingly rigorous compliance clauses on their contractors with severe consequences for any breaches. In some situations, an allegation of misconduct is deemed to be a sufficient reason to terminate an agreement.

From the contractors’ point of view, they are put under pressure to adopt their client’s anti-corruption procedures, often without any consideration given for their own existing controls and how they might be applied to manage the risk.

In addition, contractors also reported that they are being required to guarantee compliance from all sub-contractors. While many would expect and be willing to carry out risk-based due diligence and enter into a compliance agreement with their suppliers and sub-contactors, they are understandably concerned about accepting clauses over which they have no real control.

Not only that, it emerged from the discussion that the cost of compliance was being placed firmly on the contractor, but with little or none being passed back to the project owner; all this in a climate where costs are increasingly being squeezed. It was suggested that anti-corruption compliance could mirror health & safety, where it was accepted that prices needed to rise in order to absorb the costs of implementing the required procedures and controls.

Indeed as the discussion turned to best practice it was suggested that the partnership that exists between client and contractor over health and safety issues could be replicated with ABC compliance in EPC. With greater dialogue, problems and potential problems could be discussed more openly without fear of exposure or contract termination. If the industry were to work together, as they do with health and safety, they could increase transparency, improve relations and resolve potential problems far more easily and swiftly.

Indeed, collective action on an international basis could be both cost efficient and effective. It would ensure that standards of best practice were agreed; creating a common goal that would provide greater reassurance to businesses.

However, it is not just a contractual issue, it also comes down to behaviour. This needs to be acknowledged by all in the supply chain and could also also be addressed by collective action. An industry code of conduct could be put in place to influence and manage behaviours accordingly.  This would ensure a greater understanding of what is and isn’t right, which in turn could have a more profound effect on behaviour and ethical conduct than contracts alone.

Clients are right to set and expect high standards and contractors are right to look for the best way to uphold these standards, not least for their own protection as well as the client’s. However, the cost of ethical behaviour must be taken into account. Clients wishing to select lower cost bids do so with a clear understanding of the risks they are taking on. However EPC contractors need to work collectively to raise standards so these ethics/compliance costs are identified and presented as a benefit of working with the best EPC contractors. A collective approach could establish an agreed standard of anti-bribery compliance that would be far more effective in reducing malpractice than rigid contracts with strict but unmanageable liabilities.

Posted April 2014