Unfortunately, many businesses carry out unethical practices. Contractors and the construction industry are often viewed as being unethical. Regrettably, there are many contractors who are unethical, but equally, there are many clients who also engage in unethical practices and don’t pay contractors the monies they are due. But not all contractors are unethical, and nor are all clients unethical.
Why are ethics important?
Being ethical sets the tone of the relationship between the contracting parties. As soon as one party partakes in unethical practices we see the relationships begin to break down, often causing the project to suffer. When unethical behaviour is uncovered it leads to a breakdown in trust. The other party is left wondering what other unethical behaviours have been concealed and haven’t been noticed.
But good ethical practices are an essential part of a company’s reputation. Who wants to work for a client that is unethical? Who was to employ a contractor that engages in unethical practices?
Unfortunately unethical behaviour is sometimes contagious. If management engages in unethical behaviour you can almost be certain that their employees also engage in unethical practices. When one party is unethical we sometimes see an unethical response from the other party. When someone engages in an unethical practice we often find they get caught-up with more unethical practices. Once someone has paid, or received, a bribe it’s easier to repeat the offence in the future. If management are corrupt in their dealings with the client, or contractor, they sometimes engage in other unethical practices, even stealing from their own company.
Our ethics, or lack of ethics, express who we are, and define our dealings with others.
What behaviours could be viewed as being unethical?
- Not ensuring your project is safe. This includes making sure neither your workers or other people will be injured. To not care about a person’s well-being or safety is unethical.
- Giving the client a poor-quality project, or one that is defective. Frequently contractors knowingly hide mistakes and poor quality work. In some cases these defects have resulted in buildings collapsing, even killing people. Contractors have signed a contract which binds them to delivering particular quality requirements and specifications. To deliver less is, in essence, a form of theft.
- Deliberately omitting items, or supplying products that do not conform with the project specifications. Some contractors try and save money by purchasing substandard materials. There are even reported cases of contractors not installing all of the reinforcing in concrete structures, sometimes even removing reinforcing steel after the work has been inspected by the client. Last year a building collapsed in an earthquake, revealing the concrete foundations were filled with empty oilcans which were used by the contractor to save concrete.
- Paying bribes or providing incentives to the client’s representatives so they award the project to you, or so they will accept work of a poor standard, or agree to approve variation claims which are inflated or bogus. Sometimes contractors or clients pay bribes to the authorities to ‘smooth’ the project approval process. Paying bribes leads to more problems when the person receiving the bribe accepts it as standard practice, demanding more and bigger bribes from other parties. Paying bribes reduces productivity and increases costs for everyone.
- Not paying employees their agreed wages and salaries at the agreed time. These wages and salaries should be above the minimum wages for the country and state, and should also be a ‘fair’ wage.
- Employing illegal migrants. Some companies employ workers without the correct documentation. Often these workers are literally held hostage, unable to leave while paid wages below the minimum.
- Accommodating workers in cramped, dirty accommodation. Workers deserve to be treated fairly.
- Contractors that ‘rig’ or fix prices. Usually clients invite a number of contractors to price their project, with the expectation that the bidding or tendering process will be competitive and the contractors will submit their cheapest possible price. Contractors have been known to ‘organise’ these bidding processes. This could be done in several ways, including all those pricing the project adding in a pre-agreed ‘losers fee’ which is a fee that the winning contractor will pay to all the other contractors that priced the project. A fee that the client actually, unbeknown to them, is paying. In other instances, contractors pre-arrange who will have the ‘lowest’ price. Often this price is inflated, and then the other contractors must ensure that their prices are more expensive than the contractor who has the ‘lowest’ price. On the next project another contractor is provided the opportunity to submit the ‘lowest price’, and so work is shared around amongst contractors. This means that clients pay more for their projects, but it also results in contractors becoming ‘lazy’, profits are easy to come by so there is little incentive to improve productivity, save costs and work smarter. These contractors can find it difficult to work in a competitive bidding environment.
- Clients awarding projects to contractors when the contractor’s price is clearly too low. Now many would say there is no harm done by this. I don’t believe that clients should profit from contractor’s mistakes. But, there is a real danger when clients award a project to a contractor whose price is too low. The contractor could become bankrupt part way through the project, leaving the client with delays and additional costs when they have to employ another contractor to finish the project. Contractors who are losing money on a project may be tempted to take short cuts, they may include substandard materials to save money. Contractors who are losing money probably won’t put sufficient resources on the project which will jeopardise the schedule and quality on the project. There’s nothing wrong with awarding a project to the lowest bidder providing they have the resources and the skills to successfully deliver the project. If the contractor has obviously made a mistake with their price then clients should have the integrity to point the error out.
- Clients that ‘bid shop’. When a number of contractors have competitively priced the project the client tells their preferred contractor what price they must provide to beat the other contractors. Contractors that submitted the lowest price have wasted their time since the client has rigged the bidding process and only ever intended to award the project to their favoured contractor. Eventually contractors won’t submit prices to these clients, who will ultimately pay more for their projects in the future.
- Clients that don’t pay their contractors in accordance with the contract. Contractors who don’t pay their subcontractors and suppliers on time. Those that make unfair deductions, or withhold monies for no due reason.
- Clients that don’t respond to variation claims, that deliberately ignore claims, or refuse to pay variation claims for no reason.
- Contractors that submit bogus or overly inflated variation claims.
- Vexatious legal disputes raised by any of the parties. Usually contract documents are clear, but moreover, one expects all parties to enter a contract in a fair and honest way. Legal disputes take time and cost money, and the only winners are usually lawyers. I’ve found that most disputes can be resolved with clear and honest dialogue.
- Poor environmental practices. Both clients and contractors are guilty of dumping hazardous waste in normal garbage. Some contractors dump construction waste in vacant lots or in parkland. Oil and dangerous chemicals are knowingly dumped on the ground or in stormwater drains. Contractors who carry out illegal environmental practices probably engage in other unethical practices. Clients should ensure that they and their contractors engage in good environmental practices. If we care for our environment we are probably going to care for people. It’s about respect.
- Theft of any sort. This includes employees who don’t work the full hours they claim, and the unauthorised use of company property.
Unfortunately contractors are sometimes accused of being unethical for reasons I don’t believe are unethical. I realise that some may disagree with some of the points below.
- Submitting variation claims for delays or extra work or changes, where the contractor is entitled to claim for these in terms of the contract, and providing these are a fair reflection of their entitlements. Some clients detest contractors who submit variation claims, even when these claims are correct.
- Making a large profit on a project. Many clients believe that contractors aren’t entitled to make a large profit on a project and the only reason they have made significant profits is because the contractor has ‘ripped the client off’. They regard these profits as being ill-gotten gains. Construction is a risky business and sometimes contractors lose money on a project. On occasion projects do go well, the risks the contractor allowed for in their price didn’t eventuate, sometimes the contractor developed innovative solutions which reduced costs, possibly productivities were better than allowed, or the contractor bought materials for less than they expected. Yes, things do sometimes go favourably – just as sometimes punters do win at the casino or on the lottery! Should we begrudge them their wins? Sometimes when the construction market is buoyant and there’s plenty of work contractors can lift their prices and increase their profit margins. Inevitably, due to the cyclical nature of construction, the volume of work will reduce and profit margins will fall again. Contractors are entitled to make big profits occasionally, providing these are made through legitimate means.
- Deducting monies from contractors, subcontractors or suppliers, where these are legitimate charges for items which they should have supplied but didn’t supply. However, it’s good practice to timely notify the contractor, subcontractor or supplier of these charges, and where possible to agree the quantum of the charges beforehand.
Being ethical is about how we deal with the client, how we deal with our employees and how we treat our suppliers and subcontractors. It's about how clients treat their contractors.
Unethical behaviour can lead to a loss of reputation, which impacts future work. It can be costly and contractors have faced lengthy legal battles and suffered large monetary fines for unethical behaviour. It could even mean that contractors are barred from working for some clients.
But equally, clients need to be ethical. When clients have a reputation for unethical behaviour then contractors will avoid pricing their projects, or will add on additional monies to their price to compensate for the problems they know they’ll have when they deal with the client. Ultimately the client will be paying more for their projects. In the same way contractors who engage in unethical behaviour with their subcontractors and suppliers may also find it difficult to find suppliers and subcontractors to work for them in the future.
Contractors who mistreat their employees will inevitably find that productivities on their projects aren’t what they should be, which costs them more. In some cases unhappy employees have been known to deliberately damage equipment, materials and completed work, or even steal from the project. (I’m sure we have all heard stories of disgruntled workers allowing concrete to get into plumbing pipes?)
Ethical behaviour is about being honest and fair in all of your dealings. It means not compromising safety or quality. It means complying with the conditions of the project and paying what is due and fair. It’s about not profiting from someone else’s misfortune.
I’m sure we have all been guilty of being unethical at some stage – but is this the way you always operate?
What unethical behaviours have you encountered on your projects?
Are your behaviours always ethical?
This article is adapted from information in the author’s popular books: 'Successful Construction Project Management: The Practical Guide' and 'Building a Successful Construction Company: The Practical Guide' and 'Construction Project Management: Tips and Insights'
'Construction Claims: A Short Guide for Contractors' has just been published. These books are available on Amazon and other online book stores.
Paul publishes articles regularly on LinkedIn and his website.
Paul writes regular articles for other websites, gives lectures, mentors, and is available for podcasts and interviews.
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