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Construction industry in the UK has been taking full advantage of a period of strong growth, with the commercial and the infrastructure construction sectors at the cutting edge of this trend. The annual circulation of results that are published by construction firm in March 2003 witness the shift in sector from one-off contracts containing big returns and high risks towards lower risks and long-term deals which go beyond construction to maintaining, designing and operating buildings.
Corruption in the UK construction industry has been a major issue that is the matter of perception and rumor rather than of realities. The high response rates of surveys have suggested that it is an issue of greater concern to those working in the construction industry. Results of there surveys depict that while corruption is omnipresent in several areas of the construction industry, there has been certain disagreement on where networking and growth of well-formed working relationships stop, and corruption begins.
Since the advent of PFI, UK's construction industry has launched itself on much more stable foundation. In the years 2001 and 2002, its output was anticipated to have increased by 9.7%. From the perspectives of the lobbyists, the Major Contractors Group that represents UK firms like Carillion, Amec and Costain, construction companies associated with the private finance initiative expected to make ten time as much money as they do in conventional contracts. In essence, the UK government defends PFI by using something known as the "public sector comparator". This depicts whether privately financed schemes provide better value for money than the traditional funding. However, the major problem regarding this is that the UK government has offered an accounting device known as 'risk costing' that entails that the private firms usually emerges as winners. Moreover, whenever a consortium of private companies decides to construct for a public body, it assumes the risk that the concerned project may fail. This risk is said to be 'costed' and becomes a prime component of the value-for-money calculations.
For instance, the average cost over-run on projects of public hospital building is approximately 7%. Moreover, the private operators are permitted to claim a 'risk' of 13 %. Conversely, no risk costing is added to the public sector comparator. Although, the UK treasury has never agreed any scheme which does not beat the public comparator, however, it acknowledges the fact that the government is reviewing this model designed for calculating value.
Within the span of five years, from 1979 to 1984, the amount of one-man firms has grown by almost 136 %, and the amount of work done by them or the value of their work has increased by 143%. Moreover, the value of work undertaken by firms that employ seven or less workers indicates 24.7% of the total work of private contractors undertaken in 1984 in comparison to 14.1 % undertaken in 1979. The impact of this change on the estimator is depicted with particular reference to attendances, disruptions and materials wastage. Toward that end, it can be concluded that the estimators' job has been made much more difficult and laborious by the diverse changes within the industry structure.
There exists a well-shaped dichotomy within the HRM literature among the 'hard' model that reflects the utilitarian instrumentalism, and the 'soft' model that reflects developmental humanism. The dominance of hard HRM in the UK construction industry extends towards explaining the current recruitment crisis. Professional firms and construction companies find it extremely difficult to attract the creative and intelligent people that the industry needs. On the other hand, other industries have consistently offered better job satisfaction, salaries, and more educated approaches to HRM, and increased job security. Regressive attitudes towards HRM are embedded in the UK construction industry in such a way that they will not be easily altered or modified. This is due to the dominant culture of 'command and culture' which determines the schedule for change as recommended by contactors and industry leaders. Furthermore, the problems faced in the UK construction industry are constantly blamed on machine efficiency to impediments. Familiar calls for cultural and attitudinal improvements are repeated by progressive improvement initiatives when advocating that others must become more effective in satisfying the efficiency needs of the technocratic elite. In the UK construction industry, utilitarian instrumentalism is dominant.
Problems are faced in relationships between clients and contractors mainly due to engineer and architect skills whilst carrying out the construction project. The major focus of the problem has been the authority between engineer and architect. Whatever authority is given to the engineer and architect in contract perfectly, they are as agents or clients. Moreover, if the decisions from engineer are honest enough, then the contractor is not paid anymore by the client if some problem occurred. By contrast, if the contract is advocated to the architect and the engineer takes the decision, the contractor is not paid by the client for revised and additional work. All the changes in design and additional work are made by the architect or superintending officer in writing, to enable the contractor to claim the payment. However, that problem does not clearly addresses the relationship of responsibility between the professional and the client regarding the tasks of professionals as explained below:
The OFT has thrown light on only those cases wherein the evidence was most solid and every sign indicated that bid-rigging was indigenous across the construction industry. Some executives have said that cover pricing is till around, although not at the companies which have been targeted by the OFT. Cover pricing related fines, where companies place higher bids fro work that they don not intend to win so as to remain in a client's tender list for the nest bid. Nonetheless, it is clear in some cases that clients were overcharged and some winning bidders provided kickbacks to their competitors. However, the companies insisted that in most cases, there had been no financial gain as such, and they underpinned that cover pricing was a common practice until 2000, when it was made illegal.
Corruption within the UK construction industry has been a sensitive and complex issue. Transparency International could draw attention to the effect of corruption in construction during the 2005 Global Corruption Report. It estimated that the cost of corruption in the UK was around £3.75 billion annually. Moreover, an anti-corruption code was also ruled out for individuals in the engineering and construction industry. The Chartered Institute of Building (CIOB) carried out an online survey wherein 335 construction professionals were questioned that on what scale corruption existed in the UK construction industry. 41 percent felt it was 'widespread', 37 percent believed it was 'occasional', 18 percent thought it was 'rare' and 4 percent felt it was non-existent. While it is notable that majority of respondents felt that all of these practices are corrupt and widespread, cover pricing, on the other hand, was more often thought to be as moderately or not very corrupt.
Some of the leading building companies in the UK have been heavily penalized by the Office of Fair Trading (OFT) for manipulating bids for construction contracts. A total of 103 firms have been fined an amount of £129.5m by the OFT for conspiring with competitors over building contracts. The firm conspired among themselves throughout the bidding process, resulting in customers like local authorities, having to pay way too much. These statistics are ruled out at the end of a five-year investigation conducted by the OFT.
These fines were mainly for the practice called as 'cover pricing', wherein the building firms submit quotes for jobs not actually priced to win the contract, that leads to the clients getting misleading ideas about the real extent of the competition. The process involved builders disclosing to each other the price they intended to pay. For instance, Kier Group was penalized with a fine of £17.9m, more than any other building firm. Balfour was fined £5.2m for hosting practices that occurred at subsidiary Mansell prior to its acquisition. During the investigation, Balfour Beatty conducted a detailed and thorough audit of its entire businesses in order to ensure that it is totally compliant with every aspect of competition law.
Indeed, the UK Construction Group representing 29 contractors stated that the decision to penalize the firms was 'unfair'. Practitioners have claimed that cover pricing was widespread in the construction in the past and it is unfair to enforce such disproportionate penalties on contractors short listed by geographical samplings. Conversely, OFT was the very first competition authority to rule against building firms for practicing cover pricing. Furthermore, OFT investigated 11 instances and found that the lowest bidder confronted no competition since all other bids were cover bids. It was also observed that six instance during which successful bidders had paid a pre-decided sum of money to the unsuccessful bidders. And these payments were from £2,500 to £60,000 and were made through false invoices.
Such infringements have adversely affected building projects all over England and are worth in excess of £200m, involving universities, schools hospitals, from 2000 to 2006. The OFT also said that 83 from 103 firms had received deductions in their fines after they admitted the practice. OFT's investigations have disclosed significant violations of competition law on approximately 200 projects across England. Additionally, bidding process created to ensure clients and taxpayers received the best choice and price was deformed, thereby creating a real risk of increased prices.