Why is CoST necessary?
The construction sector is responsible for building crucial infrastructure which contributes to positive economic and social outcomes including poverty reduction. Up to 30 percent of public budgets is spend on construction, across sectors such as transport, energy, water, health, education, and housing.
The supply of construction services and equipment has become a major global business, with competition and partnerships between international and local firms and the global dissemination of technology and practices. The sector also receives high levels of foreign direct investment and of international and regional development aid. This means that the concerns about mismanagement and corruption in the sector have both local and international significance.
It is estimated that upwards of $4 trillion annually is lost through mismanagement, inefficiency, and corruption in public construction - on average 10 to 30 percent of a project’s value. These losess have a negative affect on the quality, safety, and value of the built environment. Specific investigations have found much larger losses in some cases, including projects that were paid for but never built and projects that collapsed with injury and loss of life.
Factors contributing to the problem include:
- Poor management practices
- Institutions whose processes are unclear and unaccountable
- Complexity of the construction project cycle
- Diversity of organisations and individuals involved
- Capture by powerful government or business interests for organisation or personal gain.
The negative impact can be seen in many ways, including:
- Waste of public funds
- Unsuitable, defective, or dangerous construction projects
- Unfair competition and reduced entry into the market
- Undermining of the law
- Poor economic and social development outcomes.
Organisation for Economic Co-operation and Development– Development Assistance Committee (OECD–DAC) (2005), Harmonising Donor Practices for Effective Aid Delivery. Vol. 3: Strengthening Procurement Practices in Developing Countries. Paris: OECD.