30.04.2008
Playing the bullshit game
Mike Mansard draws on his experience as a council worker to dig a deeper into construction companies' rip-offs
On April 17 the Office of Fair Trading (OFT) formally accused 112 construction companies of rigging the prices charged for public sector contracts worth billions of pounds.
Companies that were supposed to be in competition with each other were actually engaged in the practice of ‘cover-pricing’: ie, they were arranging for tenders to be submitted at inflated prices and for each company to get a slice of the action - sometimes in the form of compensation paid by the winning contractor. Most pundits estimate that the overcharging arising from this generalised corruption amounted to roughly 10% added to the contract price, representing a loss of millions of pounds from the public purse.
But this represents just the tip of a very large iceberg. The OFT investigation is one of the biggest it has ever undertaken, lasting four years, but even so it admits that it “could not pursue every firm against which we have received allegations or evidence”. In an information note to local authorities and other procurers of building contracts, the OFT concludes: “Cover-pricing was a widespread and endemic practice in the construction industry as a whole.”
The initial coverage of the scam might have led people to believe that all this came as a surprise to the authorities. That should not have been the case - there is a wealth of evidence that it is far more extensive than that produced by the OFT. What perhaps was a surprise was that some of the largest construction firms in Britain clearly did not make much of an effort at covering up their collusion - these contractors appeared to feel very comfortable and safe scamming millions from the public sector. This begs a number of questions: in particular, just how corrupt, or incompetent, were a whole range of consultants, agents and public sector clients?
The press has characterised the whole affair as gullible but honest local authorities being ripped off by unscrupulous contractors. A number of councils are playing the hurt victim and are talking compensation. However, previous OFT investigations into similar practices by roofing contractors ought to have alerted council directors and executives to the existence of a problem. And there is plenty of other evidence that corruption is far more widespread - and that it is not all one-sided.
Not all contractors are corrupt (although, of course, it must be pointed out that the nature of capitalism is such that there is a very thin line between the normal ‘good business practice’ of developing ‘cordial relationships’ and actual illegality). However, many businesses want the state to deal with corruption - not least when it allows rivals to steal a march over themselves. It can suppress opportunities for capital expansion, which means that short-term gains for some are bad business for many in the long term.
The Chartered Institute Of Building (CIOB), for example, is a member of the business-sponsored Anti-Corruption Forum. Four years ago the CIOB conducted an online poll of companies on the scale of corruption in the UK construction industry. According to its findings, 41% of respondents thought it was widespread, 37% believed it was occasional, 18% said it was rare and only 4% thought it non-existent.1
In 2005 Transparency International issued a Global corruption report that put the cost of corruption in the UK at an estimated £3.75 billion.2 Its survey indicated that it produced an add-on value of about 30% and involved clients, agents and consultants, as well as contractors. If this 30% loading is accurate - and it certainly appears to be at least a minimum estimate, then there is a huge corruption cost unidentified by the OFT.
One-sided
One of the problems with the OFT investigation is that it is focused on particular types of corruption by contractors. This limited and one-sided focus can lead to conclusions that completely overlook more fundamental problems. One wit on Unison’s United Left email discussion list queried whether this case presented a “good argument for in-house building services”. This sentiment was echoed in a recent Guardian leader: “One of the assumptions that unites all mainstream politicians is that the private sector is more efficient than the public, and that markets and the profit motive can be relied upon to get the best value for money. Yesterday’s report shows that this assumption is often wrong.”3
Yes, but unfortunately it is not so simple, especially since the running down of the public sector. Where they still exist, in-house contractors are top-heavy with managers and bureaucracy and under-resourced where it counts. They are not equipped to deal with big projects and have been reduced to inefficiency. Often they are even more costly than private contractors.
Hand in hand with the drive to privatisation has gone a whole system of government-imposed bureaucracy that undermines and impedes not only efficiency, but any trace of democratic control or accountability in the public sector - money is literally shovelled out to private companies. About half of all construction in Britain is publicly funded and a large chunk of this is effectively a public subsidy to business that possibly runs to billions of pounds. It is a hidden, surreptitious form of nationalisation with a twist: part-nationalisation of construction - but for private profit.
Over the past two decades council workforces have been systematically denuded, deskilled and imprisoned in a minefield of bureaucratic performance-monitoring that is ostensibly about ‘best value’, ‘continuously improving performance’, etc, but in reality is often turned into the exact opposite.
This whole charade is continuously spun in typical New Labour-speak as ‘improvement’, ‘efficiency’ and ‘value for money’ with a never-ending collection of statistics, creative accounting, cover-ups, lies and bullshit. Indeed councils have no option but to play this game - the way to win government funding is by producing good stats, nifty presentations, winning ‘charter marks’ and similar awards, etc. A big game about saying you do well, rather than actually doing well. It is not very far away from ‘This year, comrades, we produced 100,000 tractors’. How ironic that New Labour, whose political foundation arose from Eurocommunism, has ushered in Soviet-style ‘planning’ in Britain.
The whole problem is complicated by the equivalent of five-year plan apparatchiks: Directors and executives who swan in on £150,000-£200,000 salaries, try to make a name for themselves by getting a charter mark or some other government-inspired trinket to add to their CV, all the while cynically abusing employees’ intelligence with endless streams of propaganda - and then on to the next job with a big golden handshake. In the main they are self-seeking careerists making use of the bureaucracy for their own personal benefit. True children of the Thatcher-Blair era.
Occasionally, someone with a conscience or a trace of integrity will just sit tight and play the numbers without doing too much damage. Rarely, you get those who actually try to make a difference, but they are usually sabotaged, as it is a safer bet for councils to play the government’s bullshit game in order to secure funding.
Further down the corporate ladder all the pressure is on producing the statistics upon which that funding is dependent - it does not matter if the latest scheme does not work so long as it looks good. And if it does not look good, conceal it or find some reason not to include it in the all-important statistics. Just as hospitals are forced to discharge patients early to meet state targets, so councils must organise in similar ways. If houses are empty too long because they need repairs, let them out as they are and do the repairs later, usually at greater expense. The new tenant has the grief of waiting for and putting up with defects that should have been repaired, but no problem - the success box has been ticked on the relevant form. In the USSR it was output statistics that mattered, with the use-value of the product a minor consideration. In the same way the game for councils is presentation, not results; quantity, not quality; spin, not truth.
There are some countervailing tendencies: workers tend to get on with things as best as they are able in spite of the crap and sometimes they can bend the rules to get things done - they can adopt methods of work that are not subject to government monitoring, for instance. And, again as in the Soviet Union, they find ways of resisting on an individual basis. Why not fake your ‘development interview’ and tick the box anyway?
One of the most bizarre things is the way councils will scrimp over pennies, yet knowingly throw away millions. A typical office with a £20 million budget may pay contractors up to double the going rate for most types of construction - that is, up to £10 million squandered by way of business ‘subsidies’ - but its staff will be told to use scrap paper for internal memos to save on stationery.
How is it, then, that a department which wastes £10 million a year on contracts is more interested in the cost of post-it notes? Well, it has more control over post-it notes! I doubt there is much or any fraud involved here - there does not need to be. On large contracts, small to medium builders are ruled out except as possible subcontractors. So the ‘competition’ is restricted to big companies and they all know, without a word being uttered, that they can submit high tenders and councils will be unable to do more than quibble - they have those government targets to meet, after all.
It is often the case that bidders are awarded contracts after little or no competition. A council consultant (more expense) will come up with a target tender price (based on the overpriced market, of course) and contractors will be asked to aim for that. You can end up with, say, three contractors: one with a submission at tender price plus 5%, another at plus 7% and a third at plus 15%. These big contractors can then employ smaller builders to do the work at perhaps minus 5%, minus 20% or who knows what, and pocket the difference. Worse still, they can employ unqualified (sometimes ‘illegal’) labour on the cheap - without letting on, of course.
In my experience competitive tendering on small to medium contracts adds about 30% to costs. Let me repeat that: competitive tenders which are supposed to be about getting value for money add almost one third to the bill!
Take the current government fad for public-private partnerships. Here things get really bad. Not only do they further reduce the control councils have over their contracts by handing it to private companies: they substantially increase costs. From what I have seen, a partnering arrangement can add anywhere between 50% and 100% to costs. Some of this arises from design and customer liaison, for example, but that should only account for a small fraction.
However, the thing that starkly exposes the whole falsity of the government’s ‘value for money’ propaganda is the dogma surrounding economies of scale. The government claims that partnerships with big contractors will achieve that (in theory they ought to). So, for example, a small contractor renewing roofs of different types on five separate houses spread over a borough might charge £5,000 per roof. A big contractor renewing 500 roofs - all of the same type, on a single estate - would, you might expect, produce some sort of discount - but, no, its price will be £10,000 per roof, more likely.
‘Success’ story
There is no way to justify this expense, but under the government’s ‘best value’ scheme you do not have to. Not only is the council tied to such a partnering contract for years: it was always the case (as the big contractors know) that numbers, not costs, is what counts for the government statistics and so the game is just played out and the figures look good - another ‘success’ for the council.
Enter the Audit Commission. Every four years it looks at performance, but before its inspectors arrive, council workers are subjected to reams of spin and lists of ‘our achievements’ by senior managers thinking about their own CVs. Employees who might be interviewed by the auditors are coached about what to say and what not to say.
Some employees are fooled by the propaganda anyway; some are arse-lickers, seeking to make their way up the corporate ladder; but most know that by playing the bullshit game the council gets funding and their jobs will supposedly be safer if they do not rock the boat. Sometimes there is a rush to solve or conceal some awkward problem the auditors might not like - which is then forgotten if it is not picked up by the audit. So it is all a bit of a charade that everyone goes along with because they do not have much choice.
The auditors (largely former council managers, who know the game very well) have an interest in reporting success. Sure, there will be the occasional slap on the wrist, recommendations for improvements and suggestions about getting ‘even better value’. Some of the worst excesses might even be tackled. But overall the role of the auditors is to provide cover and justification for government privatisation and ‘marketisation’ policy.
So, yes, corruption is a big problem and contractors can take advantage of a public sector hamstrung by government bureaucracy and afflicted with institutionalised incompetence and relative powerlessness. However, it is the deliberate degeneration of the public sector that underlies the plundering of public funds by the private sector.
It seems likely that the OFT report will open the way to the return of overpayments. Perhaps it will make an example of a few of the more serious offenders. As for the companies, what they are worried about is future contracts, but the big players are mostly safe already and most public sector clients will not have much choice. Meanwhile the message coming from the government (via the OFT) is: ‘Don’t show the game up for what it is - you’re making enough without skimming off the top as well. So play by the rules and we’ll carry on looking after you.’
There is tremendous scope here to unite workers - against all the lies, bullshit and bureaucracy that make their work such an alienating and soul-destroying experience - not just as employees, but also as residents and users of services. The only efficient way is the democratic way. That can only mean direct control by workers and users to ensure accountability. That is the only way to achieve genuine public service, as opposed to private plunder.
Notes
1. www.ciob.org.uk/resources/research
2. www.transparency.org.uk
3. The Guardian April 18.