How real-world corruption works
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A few years back, I was taking a course for my then-job, and the lecturer told us about a group of people in one of the major Australian constuction firms (though he didn't say which one).
The job of these people was to go through all tender documentation looking for things which hadn't been specified properly, or which might conflict with other things in the tender documents. When the construction company bid, it would include a laundry list of conditions of their tender, usually saying abstruse things like "In s.311(a) of the Scope of Works, we have bid assuming that existing conditions on site are foo..." and the like. On those tenders they won as the conditions turned out to be different to what they'd assumed (bearing in mind that these conditions were now part of their contract), they'd be able to ask for a variation (and more money) for most things - pushing up the price of the contract while allowing a competitive bid price. This is all legal, and frankly, not that uncommon.
The interest thing is that this company had actually worked out how much revenue these guys - the contract analysts - brought in, and they found that the revenue per employee for these guys was more than for any other employee in the entire organisation.
It's really sad how parasitic behaviour is rewarded so well and real productivity is not.
There's a fundamental flaw embedded in there somewhere but I really can't verbalize it.
Think about it from the other side of the fence. My experience was with weapon systems but to a certain extent it does apply to roads.
Because of THE RULES only fixed priced bids are acceptable.
As a contractor you are being asked to quote on the complete price for a new product build, even though you haven't designed, tested or built anything like it before. The price you quote needs to include the cost of upgrading a bunch of existing equipment to support your new product. You have no idea what the current state of the existing equipment is.
You have three choices:
- Quote a huge price that fairly covers every possible risk, and get told it's too expensive.
- Quote a small price and caveat the hell out of everything and get blamed when the initial conditions or complexity turns out to have been misunderstood or misrepresented.
- Go bankrupt.
You actually even see the same decision being made by normal employees at work. "Sure boss, I can do it in three weeks, as long as Dell delivers on time" would be an example of option (2) in action.
That both parties collude in this makes it no less wrong.
As notauser correctly observed before I could beat him/her to it, this is virtually identical to the way most of our jobs work. Management asks for commitments of dates and times, and the mere fact that this is literally impossible does not stop them. I am not kidding or being metaphorical about that "impossible", I mean it literally. And they do have their reasons, but the mere fact they have reasons does not prevent the entire system from getting horrifically distorted as it builds itself around the impossible primitives, producing the nonsensical and nonfunctional results we are all familiar with.
The really, really, really key insight of Agile is to reduce the amount of impossibility built into the base of the system, and the smart Agile-using engineering team lead will take every advantage of that they can. Unfortunately, Agile really only works when all sides are capable of cooperating; it can survive internal-type rivalry, but where everyone is still in the same company. I can't imagine how to make Agile work in the face of hostile agents, which is what this contract situation is.
If something is specified in the contract, I find it difficult to see how this can be called "trickery", it is a magician telling you in advance that he may hide the coin up his sleeve.
You seem to think that each party should simply expect the other party to try to get as much from them as possible, through whatever misrepresentations and legal strategems they can get away with. Maybe this is normal in the areas where you work - I guess Jacques and I both come from backgrounds where this would be abnormal, and in fact disgusting behavior.
In my experience breaches on either side tend to get netted off fairly amicably. I might swap you a change request that you want for signing off a performance deviation I can't avoid, that kind of thing.
However the contract still serves a purpose - it provides the ground rules for that kind of trade. It does sometimes happen in bad faith (usually when the contract has a long and sticky history already) but most of the time it's just a more formalized version of goodwill. And that formality is necessary when you are talking about millions of dollars per change.
I do not "expect the other party to try to get as much from them as possible", I just expect that should one party fulfill the obligations of the contract, that the other party fulfills theirs.
The point of having a contract is that I can do business without invoking any kind of ethics or morality based on a background I presume to share with another party, or my own personal definition of "misrepresentation".
Or at least, I can advise the other party of my definitions and expectations in advance of them entering into the contract of their own free will.
Whole mafia of lawyers earns big bucks thanks to making these contracts even more convulted.
Outsmarting somebody by clever legalese isn't moral in my book.
One of our big contracts is for a couple of public service bodies; as with all contracts at this level there is a bid process.
We are the smallest firm in the bid process, previously (under the same sort of contract) we have done twice as much work for these bodies for half the cost (compared to the other 3 current contractors - being small and agile means we are able to work really efficiently). From a technical standpoint we are by far the best option for them.
But the CEO's of our 2 main rivals "play golf" with all the managers of these bodies at weekends... they offer them a much lower hourly rate than us and promise certain limits on hours/job that takes it just under our quoted overall cost. Then they schmooze the management into putting a good word to the legal department (who make the decision) for them.
Everything is, of course, legal - but who is going to ignore what their boss is "suggesting".
Trouble is; 6 months down the line the hours per job starts to creep up dramatically ("as you see in subsection e; we are now having to account for ISO1003490 compliance which adds drastically to administration cost...").
For us, though, fortune favours the honest. In one contract that we lost it took 3 months for the contractor they chose to become unable to cope with the workload - cue panicked phone call to us ("someone who can handle it") and the contract is re-awarded...
But it's a pain to go through this all the time, and we are luckier than most companies in the same position :(
sucks
The last time round the process was much like the one the same Redditor discusses here: http://www.reddit.com/r/Economics/comments/c84bp/how_realwor... (note: we don't work for the DOD, it's just the same method)
But it is still bitch to try and out manoeuvre the "big guys".
As far as I could see, who the clients would choose had nothing to do with the ability of the vendors to actually deliver something. Occasionally we'd get involved in clearing up the mess left by other, much larger, companies - which I found pretty soul destroying. On one occasion we bid alongside a much larger company who when they actually got the work turned round and subcontracted us to do the work - they did nothing apart from occasionally turning up a meetings. Nobody else, least of all the client, seemed to regard this as odd.
Just call it "administrative overhead" because you now need to keep the client and the person contracting the work to you happy.
With that sort of money shovelled quickly out the door, it didn't take long for reporting of corruption and rorts to show up: In some documented cases, the construction costs of simple school buildings mushroomed from $78,000 for a pre-BER quote to an actual built cost of $954,000. All this for a simple school structure. Most of the fat is in 'consulting fees' and 'variations' specified by the builders.
There are many documented cases of school buildings costing in excess of $5400 per square metre - about what it costs to build a top grade office block, and about 3 times what the cost would be normally.
The main problem, it would seem, is that all the contracts go to large building companies, who then subcontract to smaller builders, who then subcontract out to local people. Each person clips the ticket and adds some fat on the way through, and you end up with a building costing 3 times as much. All of this could have been avoided if you just gave the money to the school and got them to hire local tradesmen to do the job, and would have more of an effect on employment and economic activity. As it is, a large percentage of the money will go to shareholders in large construction firms. This is very similar to what the reddit post describes.
The worst thing about the whole thing is, while everyone knows it is happening, and it is in the news, nobody is actually getting into trouble.
If it did, companies like Lockmart and SAIC and Northrup-Grumman wouldn't be able to continue winning contracts.
Fast forward to the last couple of months, and you'll find that a lot of Requests for Proposals (RFPs) that are normally issued around this time by various federal agencies haven't been issued: http://blog.seliger.com/2010/02/28/where-have-all-the-rfps-g... . Presumably, the problem is that those agencies are still digesting stimulus-related funds, which in turn is making them less able to do the stuff they're regularly supposed to be doing.
Unfortunately, there doesn't appear to be a lot that can be done. If you have very few regulations or guidance, you'll get people inflating bids and embezzling the old-fashioned way. If you make the process sufficiently arduous, you have companies whose job it is to game the system and who end up taking a cut of whatever the contract is and then pass it down. One way or another, you'll get posts like the parent's and newspaper articles that describe some form or another of corruption.
There ended up a situation where a club could only want 2 to 4 and ended up with about 20 hot water units which they couldn't afford to actually use due to energy costs.
There is the potential for direct kickbacks from builder to principal, but that's relatively unlikely for various reasons.
Of course, there are multiple contractors bidding. But they all know that the bid will be issued, and they know that they all know. With that knowledge, even absent real collusion, you can expect them to act accordingly.
Pile on top of this the regulations dictating that it must be done with union labor at the prevailing wage; that ceilings must be of a given height and doorways recessed; etc. ad nauseam. This prevents the contractor from "thinking outside the box" to streamline the process with good ideas or better leverage their own skills.
So we've got contractors that are hamstrung as to their approach to the project, but otherwise having the upper hand in negotiation. What do you expect to happen?
I thought the suggestion was that we hand a million dollars to the principal of each school and say "here, spend this on building and renovation". (Within certain limits, of course, and with some degree of oversight, to stop 'em from doing anything truly stupid.)
Pile on top of this the regulations dictating that it must be done with union labor at the prevailing wage; that ceilings must be of a given height and doorways recessed; etc. ad nauseam. This prevents the contractor from "thinking outside the box" to streamline the process with good ideas or better leverage their own skills.
afaik it would currently be totally illegal in Australia for the government to dictate that any labour had to be done by union members. The last government did a pretty good job of limiting union power and I don't think the new mob have managed to regress that far yet.
The new government has actually reversed the laws back about 20 years and dismantled many of the anti-union safeguards, largely as a payback to the unions who funded the bulk of the advertising for the last election campaign. As a result, industrial action has increased by a large amount, and we're back to things like christmas strikes by postal workers and baggage handlers, and increasing amounts of violence in the construction industry.
In this case, because the school construction all went to large construction companies, who all have unionised labour, it's a backhanded way of ensuring unionised labour does much of the work, though probably only in metropolitan areas. The rural construction is mostly sub-contracted out to local tradesmen.
In this case, the principals couldnt' even say what they wanted. You were given what you got : a new canteen even if you needed another 3 classrooms. The principals and school parent committees were given very little input into the process.
"Real-world corruption" has different meanings in different parts of the world. In India, it is also called life.
I remember my first job consulting with a contractor on a large government job. It was a disheartening experience that opened my eyes to how things really work. A lot of people on that job were really sad or angry. I determined to make it a learning experience about how people interact.
I'd like to add that there is a big of well-meaning whack-a-mole going on here. Some folks will read these stories and think "Well gee, we just need a better checklist" or a better contract, or a better process, or a better set of definitions.
These are the same people who have created huge Software Development Lifecycles for big companies. The idea is that every time something goes wrong in a human interaction that another layer of process, checklists, or formal hand-offs is needed to fix it.
The killer part is that the more complicated the plumbing, the more you need an inside track on how to work on it. So systems quickly reach a point where more and more safeguards are added on, but all it really does is make it easier to hand-pick the winners from the losers. If you had the right contacts, you could easily pick up a $1 million+ contract. This is called being "walked into" a contract, and it's done all the time.
http://www.villagevoice.com/2010-05-04/news/the-nypd-tapes-i...
Or take a look at what's being revealed in the Mineral Management Service: oil company employees would fill out inspection reports and MMS employees would simply approve them.
http://www.allvoices.com/contributed-news/5917196-ig-report-...
When there are many layers separating the investor or taxpayer from those who make day to day decisions, the more likely corruption is. That's exactly why democracy scales so poorly and government works best when decisions are made as locally as possible.
And maybe its also part of the reason startups are so innovative and creative. When you know exactly what everybody is contributing, you don't suffer any unnecessary drain on resources.
Still a fascinating read though. Why doesn't the country just default on the debt? These seem like extenuating circumstances.
Shouldn't there be a law that if a bank uses corrupt means to obtain business then the people who end up with the debt should have the right to walk away from it (after due process, of course).
http://www.theawl.com/2010/05/ciudad-juarez-rumors-and-excha...
Getting taken in by a flashy corporation's sales division is just bad management.
On the other hand, I have seen (and worked on) contracts taken away from companies with high overhead and shifted to a more nimble, but significantly smaller, competitor. In such cases it appears the contracting officers are taking steps toward less waste, but it is not always possible to know all of the factors that result in shifting a contract from one company to another.
And there is the hidden cost of doubling the size of the smaller company over night. How do they handle that growth? They say, of course, in the proposal that they can handle it, "Piece o' cake!" However, reality tends to intervene. But I digress...
My family's business does grant writing for nonprofit and public agencies, and we don't respond to RFQs and the like: http://blog.seliger.com/2009/12/27/why-seliger-associates-ne... for this reason, among others. The other problem we have, as described at the link, is that contracts to write grants are often wired for local grant writers, which makes it futile for us to apply.
From governments, to localities to corporations.
Do we just want a piece of that cake?
Brightest minds wanted.
Corruption as I understand it would be bribing the officials with money to get the contract. "Wining and dining" and invitations to nice places is very close and there is a fine line between that and down right bribery.
Or did I miss a notion of corruption here? Not a native speaker.