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FRAUD AND CORRUPTION IN CONSTRUCTION CONTRACTS IN

NIGERIA
Paper Presented At The 2nd Departmental Lecture of Bells University Ota Ogun State.
Introduction
In other to adequately treat this topic it is important to get an understanding of three
key words in it. These are fraud, corruption and contract.
A contract is a legally binding relationship with specific details of a mutual agreement
made between two or more parties.
Fraud occurs when at least one party intentionally misrepresents the terms listed in the
contract, inflicting damage on one or more of the other parties to the contract.
Wikipedia describes corruption as ‘a form of dishonest or unethical conduct by a person
entrusted with a position of authority, often to acquire personal benefit. Corruption
occurs when an office-holder or other employee of organisation acting in an official
capacity conducts himself/herself in such a manner for purposes of or to derive personal
gain.
2. Fraud and Corruption in Nigeria: An Overview
2.1 Dipping Hands in the Public Till.
In recent times, revelations of unprecedented cases of large scale stealing of public
money have come into the public domain with the current arrests and prosecution of
senior government officials who have been at the helm of affairs at the various tiers of
governments in our country. The seriousness of the problem is captured in the following;
• The Punch Newspaper of November 13th, 2015, reported that,
Ø “The Independent Practices and other Related Offences Commission (ICPC)
discovered N292m in retired Permanent Secretary’s account acquired within
5 months he acted as Chief Executive of his ministry without a Minister”.
Ø “N18.7B Benue teachers’ salaries paid into unknown account by Bureau for
Local Government and Chieftaincy Affairs”.
• The Nation Newspaper of 1st October 2015, reported on its front page that,
Ø “Ex-Minister … collected N1.5B from NSA office”.
Ø “...obtained N1.275B from … Group for 2015 campaign”.
Ø “Ex-Minister got N775m from the Office of the Accountant-General”.
Ø “Finance Chief … allegedly furnished a kitchen with N28m”.
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FRAUD & CORRUPTION IN CONSTRUCTION CONTRACTS PAPER BY FRANCIS OLU ADETOLA, BSC (HONS,) FNIQS, PPNIQS
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Ø “…got $4.6B from NSA’s office”.
Ø “… and … got N600 million”.
The above were cases of stealing making headlines on the front pages of two newspapers
barely within a month. Could these allegations be real? How come it is that easy to steal
public funds? The only answer is that we run a government without institutionalised
adequate financial controls in the system.
2.2 Stealing of Oil and Foreign Aid: Siphoning Our Lifeblood.
On the ‘corruption football table’, Nigeria is in the premier division and is doing all her
best to top that league and overtake 43 countries ahead of her out of 215 countries
monitored by Transparency International. We seem to be doing all we can to at least
catch up if not overtake other dysfunctional and derelict countries such Haiti and
Congo.
Between 2009 and 2011, our common wealth was siphoned away through unbridled
stealing of crude oil the life line of this country. According to Michael (2013), about
“136 million barrels of crude oil worth $11 billion was illegally siphoned off in just two
years”.
The Daily Mail a British Newspaper in its online edition of March 2013 reported that
since independence in 1960, a period of about 53 years, “Nigeria has received $400
billion (N80 trillion) in aid”. This translates to about N1.5 trillion naira per annum. The
paper further affirmed that almost the same amount ($380 billion) of government
money has been stolen from government coffers and concluded that Nigeria is “a
country so corrupt it will be better to burn our aid money”. Some commentators have
described Nigeria as a country that is ‘resource cursed’.
The last few years have really been terrible for the majority of our citizens. While the
ruling/governing elites are about drowning in stupendous wealth gotten through
corruption, majority of our citizens live below the poverty line of less than N500 per
day.
We are so blessed but sadly, this blessing seems to be turning into a curse. Virtually all
the land in Nigeria is blessed with one resource or the other – from coal to cocoa, gold
to diamond, and paint pigments to bitumen. But all these seem not to have positively
improved the lives of her citizen but rather made them poorer.
Majority of our citizens are clearly disturbed by the path our leaders are threading
concerning corruption. They believe their leaders love the display of power but fail to
realize their responsibility. Even the young ones are not left out.
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Omotoba, a 10th grade student in Abuja, wrote in the Punch Newspaper of November
8th 2015 in an open letter to President Buhari as follows,
“Corruption is also a big problem that Nigeria is facing. This is what hinders the
development of any specific entity, whether it is a country or a business. You are
obviously aware of this, as you said corruption is “the greatest form of human right
violation”. She concluded by saying, “please do not hesitate to fight corruption in
the country”.
4. Fraud and Corruption: The International Dimension.
Fraud and corruption have become worldwide challenges and not peculiar to Nigeria.
In 2001 the United Kingdom Government (National Audit Office) found that not less
than 10% of the €65 billion spent in the construction industry annually is lost to fraud.
In Netherlands, it was found that almost all the companies involved in the construction
of Amsterdam Schiphol Airport acted as an illegal cartel, agreeing to price fixing
arrangement before tendering for the different contracts involved. This illegal agreement
ended up increasing the construction cost by “tens of millions of Euros”.
In the United States of America it has now been found that most of the expenditure
incurred by the government to rebuild basic infrastructure damaged by the disaster that
befell New Orleans, including those incurred on relief materials ended in officials
pockets. Worst is being found on contracts awarded to companies to rebuild Iraq.
As recent as Tuesday 26th July 2007, a grand jury indictment was issued in the United
State of America (USA) against some executives of Wilbros International Group (a USA
company) for offering a bribe of about $6m (N784m) to Nigerian officials for favour on
an oil contract bid.
3. Fraud and Corruption in Contract Awards.
The communiques routinely read out by designated ministers in the last administration
of President Goodluck Jonathan after every National Executive Council meeting were
usually of contracts approved by the Council to be awarded for various projects in
different parts of the country and, for which huge sums were recommended to be paid in
advance.
Usually, after these rituals, the public neither heard of the projects nor what became of
the huge amount of money paid. The citizens do not query the government and the
government does not believe that it owes citizens any explanation. The moneys paid on

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such projects immediately disappeared into private pockets with little or nothing on the
ground to show for them.
All tiers of Government, (Federal, State and Local governments) spend billions of Naira
every year on a wide range of construction projects, which become targets for fraud.
These range from bid (tender) rigging, to negotiation deliberately conducted to favour
fraud and corruption.
Deliberate mistakes are sometimes made with award letter quoting the tender sum of the
higher tender instead of the negotiated tender sum of the suitable contractors.
As common as these practices are, the most prominent fuel of corruption and fraud in
construction contracts is ‘advance payment and mobilisation fee’.
3.1 Fraud and Corruption in the Use of Advance Payment / Mobilisation Fee.
The reasons governments and their agencies encourage advance and / or mobilisation
payments is because, it is easily the easiest avenue to perpetrate fraud and, contractors
also love it because it is the easiest form of fraud mechanism.
Advance Payment and Mobilisation Fee came into construction contracts during the era
of military government in Nigeria. Prior to this, advance payment or mobilisation
payments in construction contracts was unknown. Construction contracts were awarded
to deserving contractors and, payments were made in arrears on monthly basis for work
executed by the contractor in the preceding month. At that time governments always
honoured their contractual obligations. Contractors always executed the works as per
the agreed program of work and, the governments (as the Client) always honoured
payments on the due date without default.
However the advent of the military introduced the practice of payment of advance or
mobilisation fee as a way of securing support of the populace and to justify and be
perceived as nationalistic and more committed to the progress and development of the
citizens. The government decreed that a percentage of all government projects must be
awarded to indigenous Nigerian companies or companies with majority Nigerian
ownership. Once the policy was put in place, questions arose as to how Nigerian
companies, with little or no capital, would be able to acquire and maintain the type of
equipment required for them to compete with foreign based well-equipped and well-
funded construction companies.
This situation led the governments (Federal, State and Local) to come up with another
strategy. Nigerian based construction companies will henceforth be given certain

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percentage of the contract sum to enable them acquire necessary plants and equipment
and mobilise to site to commence work. This sum was termed ‘Mobilisation Payment’. It
was initially not referred to as advance but mobilisation payment and only for the
purpose of effectively mobilising to site and commence work. This was the beginning of
advance payments with the fraud and corruption that subsequently characterised it.
Corrupt minded people in government saw mobilisation payment as means of making
unearned quick money. They started demanding ‘upfront payments’ as gratification
before letters of award are released to successful tenderers. The successful contractor
would be arm-twisted to agree to give a percentage of the yet to be paid mobilisation
payment once the letters of award was written but before release. Even as at then, the
share demanded was not that high, as sufficient money was still left with the contractors
to mobilise to site and commence work. But as the greed of the public officers got
worse, so did the demand for gratification, as it rose to as much as the entire
mobilisation fee (payment). This led to contractors demanding for more money in
advance to enable them satisfy the fraudulent demand of the contract awarding officers.
This led to the advance payment era.
Advance payment era started with contractors receiving about 10 to 20% of the value
of their contract. The justification for such payment was that it would enable them to
effectively mobilise to site and procure essential materials so as to commence work
immediately upon award of contract. But half of such money was given back to
awarding officers as upfront payment which is a more respectable name for bribe and
kickback. Then public and civil servants started seeing the advance payments as means
of fuelling their corruptive tendencies. They started wanting more. Advance payments
started rising and contractors started demanding from 25% to as much as 50%, at
times 70%, of the contract sums in advance. The reason given for such a huge
percentage is that government usually defaults in prompt payment of valuation and
payment certificates. While this is true, the real underlying reason is the insatiable
demand of corrupt officials.
This unwholesome situation encouraged all sorts of people who had nothing to do with
construction contracts to become emergency contractors overnight because they see the
advance payment as free money to share with others. This led to a lot of construction
projects being abandoned few weeks after receipt and sharing of the advance payments.
Advance payment later spread into private projects and as at today, every project has
one condition or the other for advance payment.

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3.2 Fraud, Corruption and Government Budgeting Mechanisms
The system adopted by all tiers of governments (Federal, State, Local Governments) in
budgeting, fuels corruption. Construction contracts are embarked upon, when the
awarding authorities of such contracts know that enough fund have neither been
budgeted nor appropriated for the duration of such contracts. Often only as low as
50% of the contract sums of some projects are available for distribution within the life
span of the project.
Both the awarding authorities and the contractors see this as easy way of committing
fraud. They know the government does not have enough fund before entering into
contracts for the construction projects and are not likely to get any fund to execute and
complete the project within the contract period. The end game is abandoned project.
The contractor collects the advance payments and mobilization fee, shares this with his
cohorts in crime knowing that little or no further fund will be available to proceed with
the construction of the project.
Once the project is abandoned by the first contractor due to non-payment, it is
subsequently awarded to another company probably owned by the same person in the
next financial year and the cycle of waste, corruption and fraud continues.
Corruption and fraud are like cancers that have become the bane of our collective
existence and have together created an assault on the integrity of our nation. Our
citizens all over the world have been subjected to abuse, ridicule, humiliation and assault
as all are perceived or expected to be fraudulent.
Those perpetrating these acts and subjecting all of us to these embarrassments deserve
no pity. Apart from the negative image created on all of us, they have also destroyed
the ethics and moral standards culturally and traditionally bestowed on us by our
forebears.
They have turned important governmental decisions which have been made in the
interest of the generality of the public, to their private and selfish ends.
Construction Contracts are no more awarded because of the need of the society but
motivated by greed and shameful intention to perpetrate fraud.

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3.3. Composition of Government Departments: Avenue for Fraud and
Corruption
Contracts and Contractors with corruption and fraud have become thriving businesses
in Nigeria. But why are construction contracts so prone to fraud and corruption in
Nigeria?
One of the root of the reasons is the way Government Ministries and Departments in
charge of Construction procurement in Nigeria are created. Not a single department has
ever been created for Quantity Surveying for Cost and Value Management purposes.
When the now defunct Federal Ministry of Housing and Urban Development was
created in 2003, the Nigerian Institute of Quantity Surveyors (NIQS) rightly believed
that a separate Department would be created for Quantity Surveying Services but, like
other selfish decisions made in the past, those scheduled with the task to midwife the
new Ministry created independent Departments for their professions only.
NIQS thought that the above was an oversight and submitted many memoranda to
highlight the grave consequences of not creating an independent Department for the
Quantity Surveying Profession for cost and value management purposes. However, it
later dawned on the Institute that the interests to continue perpetration of fraud and
corruption in construction contract was and is still very paramount to many top
government officials than the overall interest of the nation.
Or how can one explain a situation where those in government would not want to put
structures on ground that would ensure checks and balances that would lead to the
Country getting value for money spent on construction contracts.
The present structure, where the professional independence of the Quantity Surveyors
(the only professionals for Construction Cost and Value Management) as a professional
group is not guaranteed, is fraud and corruption laden deliberately ensuring that the
professional to give advice on cost information on construction works is cut off from the
Chief Executive (Minister) and would not be in attendance where such information would
be used. He or she has no opportunity to know whether the information has been
distorted or requires defence /clarification to the Management.
Studies conducted by the Nigerian Institute of Quantity Surveyors (NIQS) clearly
indicate that not more than 40 to 50% of expenditure incurred in most of the contracts
awarded by the governments (Federal, State and Local) goes into the project for which
the fund was made. The balance of 60% ends up partly on unnecessary administrative

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expenses and the rest probably in local and foreign accounts of individuals as they are
taken out of the economic activities of the country.
Construction is an easy target because of the ways contracts are administered by
Governments. It is no secret that road construction costs more to execute in Nigeria
than any other African country. What could be responsible for this?
90% of road and other civil and infrastructural project contracts are awarded by
Governments and in every case it is only one group of professionals in the built
environment that is given the opportunities to render professional services. Ghana, with
lesser resources, can boast of better value developed roads, bridges, highways and other
infrastructure than Nigeria with the cost of providing them is far below what they cost in
Nigeria.
It is this anomaly that made the former Minister for works Senator Ogunlewe to cry out
during the public hearing on the Procurement bill.
He said ‘“We are talking of Due Process, shouting Due Process. What is Due Process? In
the Federal Ministry of Works where I preside as the Minister, I don’t believe there is
anything that is Due Process.
How can there be Due Process when the Engineer designs the roads, estimates the costs
of the roads, selects the contractor, constructs the roads, supervises the construction,
recommends payment for works done, approves the payment, certifies the quality and
quality of work!
All these by one person! Haba! This cannot be Due Process. Not until roles are assigned
to relevant professionals like the Quantity Surveyors to be in charge of cost and cost
management of roads and highways, can there be any Due Process in Federal Ministry
of Works.”
I need not elaborate.
Construction is so prone to corruption because we are not serious or ready to fight
corruption in its entirety. The Bill on Public Procurement Act signed into law by the
President and the proposed Federal Roads Authority (Establishment ETC) 2006 on road
are proof.
It is as if these two bills were hijacked by those who were bent on keeping things the
way they were and the intention of the government to sanitise the way our scarce
resources are being utilised through ‘a due process’ of budgeting, initiating, design,
costing, award and execution of project must be derailed.
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How else can two different laws, which are supposed to ensure that we get ‘value for
every kobo spent’ on government projects leave out the group of professionals in charge
of Cost and Value Management of Construction contracts on the Council and the Board
to be set up to effect such management of construction procurement and those who
have little or no relevance to construction cost management are clearly given seats
respectively.
I make bold to say, and I stand to be corrected, that Quantity Surveying is the only
profession regulated by an Act of the National Assembly without a
Director/Department at its home Ministry or any other Ministry in the entire Federal
Civil Service. This is deliberate and can only be corrected by an administration that
would not condone fraud and corruption in construction contracts.
I believe these anomalies need urgent correction and I trust that Buhari’s administration
with correct this anomaly.

4. Target Areas for Fraud in Construction Contracts.


Fraud in Construction contracts revolves around three major issues; namely:-
1. Payment methods
2. Quantity verification
3. Quality specification and execution
It is only in construction contracts that businesses are set up and funded for the
proprietors through advance and mobilisation payments.
Without any track record, a contractor can be given as much as 70% of the contract
sum even before he is shown the site just because he or she has procured an Advance
Payment or Performance Bond that is more than the share capital of the issuing
company and for which the receiving administrator has no respect or intention of
enforcing.
If we stop advance payment today we will reduce corruption on construction contracts
by more than 60%. Thank God the Public procurement Act now allows only 15% as
advance payment but we all know that this law is sabotaged in most awards on
construction projects by all tiers of Governments.

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Contractors should be only be paid periodically (monthly) after valuation of work
executed has been certified by the Quantity Surveyor as it is done in other parts of the
world.
Very few will be ready to collect proceeds of fraud in instalments and this is the reason
for huge advance and mobilisation payments; so that the fraudulent acts could be
concluded before the projects get started.
Until the advent of Economic and Financial Crimes Commission (EFCC), most of these
frauds were perpetrated without any regard to the laws of the land. There were no fears
of fraud being detected, not to mention the fear of being prosecuted and punished.
As a nation we were on the road driven to a point where fraud was becoming a way of
life until the advent of EFCC.
As Construction Cost Management professionals, we believe the onus is on us to
contribute to the reform agenda going on in the Nation by targeting the root of the
problem. It is our belief that most frauds are perpetrated through contracts.
The EFCC report has shown that most of the public contracts are awarded without any
intention of seeing the project materialise. Some are awarded for political patronage or
to pay for electioneering expenses, while others are awarded just to pay ‘god fathers’
and ‘oil their palms’.
Instruments (Avenues) of Fraud and Corrupt Practices in Construction Contracts varies
from projects to projects and the degree of occurrence in a project depends on the
complexity, value and management of such projects.
The following areas of construction implementation process are also prone to being used
as avenue to corruptly enrich team members:
• Over specification of design and materials intended not to be effected
• Variation Instructions intended not to be executed
• Deliberate over-measurement and pricing of work to be carried out.
• Outright fraud
• Approval of unascertained claims
• Over valuation / Undervaluation of work executed for payment.
• Bid rigging
• Bribes and Kickbacks
• Over-invoicing
• Use of substandard materials
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• Payment Falsifications
• Billing and making payment for work not executed.
• Collusion with suppliers and subcontractors
• Manipulation of provisional sums and contingency
• Manipulation of Variations / Change Orders
• None disclosure Substituting with cheaper or omitting materials without
disclosure
5. CONCLUSION
Nigerians have surely learned from and surpassed their foreign counterparts in fraud and
corruption.
In Nigeria fraud and corruption have reached epidemic state and Construction contracts
carry a lion share of it. While the proceeds of corruption in developed nations remain in
their countries, those pertaining to Nigeria are taken out of the economic activities of
our nation and deposited in foreign accounts thereby dealing a ‘double blow – double
tragedy’ on our Nation.
It is interesting to see a new person at the helm of the affairs in Nigeria who is ready to
fight corruption to a standstill. We should remember he cannot fight it alone. He
requires the support and cooperation of all Nigerians to succeed in reducing if not
totally eradicating fraud and corruption in our society.
For us in the built environment, we should shun corruption and corruptive tendencies no
matter the difficulties we may be passing through.
I also believe the Government should find ways around the payments of advance
payment in whatever form. It is the major attraction to fraud in construction contracts.
Most of the players in this corruptive practice would prefer not to collect their
gratifications in instalments if contractors executing projects are only paid for work
executed on a monthly basis.
Also each profession should be made to focus on the areas of its core competence and
not allow one person to be the designer, cost manager, project manager etc.
Each professional body represented in the built environment should be allowed to carry
out tasks relating to his profession.
I strongly believe this will reduce corruption in construction projects.

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Thank you,

REFERENCES
Adetola, F. O. (2007) ‘Who will redeem us’ NIQS workshop on corruption
Burley, M ((2013) A Country so corrupt, it will be better to burn our aid money.
Omotoba, A. ‘A letter to President Buhari’ The Punch Newspaper November 13th 2015
Procurement Act 2006
The Daily Mail online
The Nation Newspaper October 1st 2015
The Punch Newspaper
United Kingdom Government (National Audit Office 2001
Wikipedia

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