Corruption in the Malaysia Construction Industry - Literature Review Example

Malaysia, as a rapidly developing country, has a construction industry that is in boom. As the economy of the country grows, so does the construction industry. However, the industry has been riddled with a cancer named corruption. Corruption in the industry has mainly been caused by greed and lack of integrity of the public officials and other stakeholders in the construction industry. Public officials have used their power to allocate contracts to suitable bidders for their personal enrichment while contractors have been willing to use shortcuts to secure lucrative contracts (Miller, 2017). For a nation to develop, it has to invest in construction projects in areas such as agriculture, infrastructure and rural and urban housing. As a developing nation, there has been a need for Malaysia to rapidly develop its infrastructure. However, according to the Malaysian Anti-Corruption Commission (2016), the Malaysian construction industry has been developing rapidly for the last five decades despite being riddled with cases of corruption. Although Malaysias drive for the development of infrastructure has provided a huge opportunity for growth of the construction industry in the country, cases of corruption have been reported and this threatens the industrys progress.

The History of the Malaysian Construction Industry

The Malaysian construction industry is rooted in the post-independent Malaysia when the government decided to invest hugely in the development of infrastructure. In the 1960s, the industry grew at an average rate of 4% per annum with its output increasing from RM 800 million in 1965 to RM 980 million in 1970 (Ratings, 2016). At this time, the major players in the industry were the public sector who owned the largest construction firms in the country. In the 1970s the Malaysian government launched the New Economic Plan (NEP) that sparked a huge growth of the industry in up to 1990s (Mokhtar, Reen & Singh, 2013). The NEP vastly increased the government expenditure that was dedicated to construction projects and this led to a boom in the industry. The entrance of private investors in the residential and commercial buildings furthered the growth of the construction industry. By the 1990s, infrastructure development was becoming attractive to foreign investments and by the end of the decade, foreign investors were involved in the construction of inroads (Llinares-Millan et al., 2014). At this period of time, mergers of the private sector and government firms became a trend in the construction industry. To undertake large construction projects, local construction firms started utilizing joint ventures with foreign construction firms.

In the 2000's the Malaysian construction industry was driven by the public sector due to the reduction of private investments due to at least two major economic downturns. When the private sector could not afford to develop commercial and residential buildings projects, the government's low-cost housing, public buildings, and infrastructure projects keep the industry afloat. The construction projects in Putrajaya and Cyberjaya are accredited to the sustenance of the industry in these hard times (Ratings, 2016). Even in this decade, the value of the Malaysian construction industry is still growing as shown.

Figure 1: Value of projects awarded in the last 5 years in Malaysia (Ratings, 2016).

In Malaysia, the construction is classified into two main categories; general construction and special trade (Adnan et al., 2011). There are three main subclassifications of general construction; residential construction, non-residential constructions and civil engineering projects. Residential constructions describe the construction of buildings which are built specifically to house individuals. Non-residential constructions refer to the construction of buildings that are designed to be used for commercial purposes such as office blocks, warehouses and manufacturing plants. Civil engineering constructions involve the construction of infrastructure projects such as roads, railways, airports, and seaports. Special trades in construction include activities such as metal works, plumbing, refrigeration, electrical installations, sewerage, carpentry, and painting.

The Malaysian construction industry field is a diverse field in terms of the human resource consisting of a wide range of workers from the highest echelon of professionals such as architects, engineers and quantity surveyors to the manual laborers (Llinares-Millan et al., 2014). The industry is connected directly to more than more than eight ministries such as the Ministry of Urban Wellbeing, Housing and the Local Government and the Ministry of Works. The main stakeholders in the industry include the developers (the owners of the land to be developed), the consultants and the contractors. Government agencies such as the local authorities are involved in the construction industry through various acts, rules, and regulations. The Construction Industry Development Board (CIDB) is one of the most prominent agencies that regulate the construction industry in the country.

Apart from the government, the developers and the contractors, there are many other organizations that play a supporting role in the construction industry (Malaysian Anti-Corruption Commission, 2016). The financial institutions play a key role in the industry by providing finances for the construction projects. Most contractors use finances from banks to purchase the materials required for construction. The Ministry of Health and the Ministry of Human Resources enforce the acts to ensure the workers in the construction industries are not exploited and work in a safe environment. The professional bodies such as the Association of Consulting Environment and Contractors in Malaysia and Malaysian Institute of Interior Designers (IPDM) set guidelines to ensure that their members act at the highest level of professionalism.

In the construction industry, the availability of an opportunity is first demonstrated by the availability of unutilized land. The next process involves changing the land use from agricultural to commercial or industrial use. The projects are time-consuming, labor intensive and capital intensive as the developers need to be involved with the financiers, the professional consultants, the contractors and the regulatory government agencies (Chandra, 2011). With the availability of the land, the developer develops a feasible plan and then the funding is secured. Consultants are then sought to design the construction and to develop an appropriate budget. It is the role of the consultants to ensure that the design meets all the applicable laws. After the plan is approved, the next step involves selection of the contractor and procuring the human resource as well as the construction materials. It is the role of the contractor to ensure that the building is constructed within the approved design. After the construction, the building is then handed over to the developer.

Corruption in the Malaysian Construction Industry

The construction industry is one of the most fraudulent and corrupt industry in the world and it offers a perfect environment for ethical dilemmas due to its low-price mentality, very thin margins and cut-throat competitions (Adnan et al., 2012). Other major reasons for this huge level of fraud is the huge capital investment required for the industry which provides ample opportunities to extract rent and investments that cannot be redeployed after the implementation of projects. The industry consists of complex processes and corruption can occur at any stage of the complex construction process. Unethical processes can occur during planning and design, pre-qualification and tender, project execution, maintenance and operations (Adnan et al., 2012).

The construction industry in Malaysia is a high-risk industry that has been subjected to high levels of corruption. Both Adnan et al. (2012) and the Malaysian Anti-Corruption Commission (2016) attribute these high levels of corruption to the significant values and sizes of contracts, the business models, and operations of construction companies, industry's substantial engagements with the public sector and complex supply chains within the industry.

A recent research by Amurugam and Koris (2017) reported that corruption is so accepted in the Malaysian construction industry that it has become necessary for businesses to pay bribes in order to secure construction projects. The bribes paid by the contractors can run up to millions of ringgit depending on the size of the project. It has become very difficult for companies that are not willing to pay bribes to government officials to secure government contracts. In order to coordinate several activities that constitute the construction process, a lot of co-operation is required between the government officials and the contractor (Amurugam and Koris, 2017). To sustain this co-operation, contractors are forced to pay bribes. Bribery and corruption have become a culture in the construction industry and contractors who are not willing to pay them should be willing to lose business. Furthermore, failure to pay bribes may put a contractor at odds with the people in power and this could be a threat to the operations of the company.

Due to the culture of corruption in the construction industry, it is no wonder that government officials are also involved. The Strait Times (2014) reports of the arrest of government officials from the Land and Survey Department due to their involvement in corrupt acts. The officials had been paid to devalue of a piece of land the government was selling to private developers. In support of this, Amurugam and Koris (2017) imply that contractors are willing to pay incentives to the government officials to ensure that the construction process is smooth. These incentives will enable a project to be quickly approved. A project that would take months pending approval can be approved in a week if the proper hands have been oiled. Contractors usually pay these bribes to top government officials who share this money with their juniors. Amurugam and Koris (2017) estimate that the bribes vary from 2% to 6% of projects, with the larger projects paying a smaller percentage.

A study by Nordin, Takim and Nawawi (2011) reveals that there has been a large increase in public interest in corruption in the construction sector. This has led to an increase in research work dealing with corruption in the industry. According to another one conducted by the Fraud Survey (2009), corruption and fraud are very rife in the Malaysian construction injury. The study found out that the engineering sectors and the manufacturing constructing were the most corrupt sector in the industry. This corruption is as a result of poor governance and this adversely affects the poor Malaysian by availing them poor quality services as the lack alternatives. The construction industry acts as a driver for economic growth and corruption, mismanagement of funds and poor governance in the sector can undermine social and economic development and thus may hinder sustainable development in a country.

It is clear that the projects in the construction industry are capital-intensive, time-consuming and very complex. Corruption may occur at any stage of the construction process in a bid to reduce costs and to reduce the time taken. The stages of construction in which corruption occur can be analyzed using the RIBA Plan of Work 2013. The RIBA Plan of Work 2013 consists of eight stages labeled from Stage 0 to Stage 7 (Sinclair, 2013). Stage 0 is the strategic definition phase of a building in which the project...