Leaking tender information

An engineering graduate was offered a big ‘laisee’ by an acquainted sub-contractor who lured him into leaking confidential tender information.
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An engineering graduate joined a construction company as an assistant engineer and was responsible for collecting tenders for specialist services.  He came to know a sub-contractor who was particularly on good terms with him as they were both e-sports lovers.

When time came for a tender to be made for a fire-proofing job, the sub-contractor invited the assistant engineer out to a sumptuous dinner over which he suggested a deal.  The assistant engineer was suggested to go through the tenders secretly and inform the sub-contractor about the lowest bid by texting a code to him. The sub-contractor would then beat that price and get his bid in just before the closing time.  In return, the sub-contractor promised to give the assistant engineer a big "laisee" in the coming Lunar New Year.  To win the young fellow over, the sub-contractor said that someone would get the project any way and he was as good as anyone else.

Case Analysis

Corruption will inflate project costs and impair fair competition.  The quality of work would also be in question if the sub-contractor was not chosen by an objective assessment of its competence and capability.

If the assistant engineer leaked the tender information to the sub-contractor, he would breach the Rules of Conduct of the Hong Kong Institution of Engineers, which prohibited engineers from disclosing confidential information and require them to act in the best interest of the employers.

He might also commit a corruption offence under Section 9 of the Prevention of Bribery Ordinance (POBO) if he accepted an advantage as a reward for leaking the confidential tender information to the sub-contractor.

Although the “laisee” might be given in the Lunar New Year, the assistant engineer could not excuse himself by saying that the acceptance was a customary practice during festive seasons as that would not be accepted as a defence under the POBO.

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Leaking confidential information on potential projects

A senior engineer of a construction consulting firm attempted to make money by selling restricted tender information to interested contractors through a middleman.
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A senior engineer of a construction consulting firm, who had obtained the information of a large scale private housing development project through participating in its planning work, attempted to make money by selling the restricted information.

The senior engineer sought his brother's help to carry out the plot.  Before formal invitations for tenders were made public, the senior engineer's brother approached a middleman and asked him to look for a contractor who would be interested in the project.  He said he had restricted information to offer which could assist the tenderer to obtain the contract.  In return, he asked for 10% of the contract price as a reward and promised to share part of the profits with the middleman.

Case Analysis

The senior engineer might breach the Rules of Conduct of the Hong Kong Institution of Engineers, which require an engineer to safeguard confidential information in relation to his employer and to refrain from receiving any advantage for disclosing such information or making use of it for personal gain.

Being an employee of his company, the senior engineer might also breach Section 9 of the Prevention of Bribery Ordinance if he received an advantage to leak confidential information.  The offeror of such advantage would also breach the same law.

Although the advantage was solicited by the senior engineer's brother, the senior engineer himself could still be liable to the charge of a corruption offence as the advantage was to be received on his behalf.

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Defrauding job payments by false invoices

An engineer conspired with a sub-contractor to deceive payments of jobs which were not carried out by the sub-contractor.
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Using a number of false invoices, a company's lift maintenance engineer conspired with two maintenance supervisors and a sub-contractor to defraud his company by claiming that certain jobs were carried out by the sub-contractor whereas the jobs were actually done by the maintenance engineer's subordinates.  The offences came to light when one of the company’s workers who carried out the jobs suspected irregularities and reported to the ICAC.

Case Analysis

Other than committing a deception offence, the maintenance engineer breaches the Rules of Conduct of the Hong Kong Institution of Engineers, which require an engineer to treat his colleagues and co-workers fairly and to avoid abusing his authority.  Misusing his supervisory position for private gain, the maintenance engineer breaches the law and undermines the financial interest of his company.

Implementing proper controls on contracting procedures, carrying out frequent random supervisory checks and conducting regular communication with contractors and staff can help detect early symptoms of irregularities and prevent such malpractices from happening.  Encouraging staff to report malpractices to senior management or the compliance officer through proper channels of complaints will also be effective in stopping unscrupulous staff from committing a crime or malpractice.

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Soliciting bribes in granting project approval

A government chief engineer solicited $400,000 from a project manager of a land development company for approving a company's car park development project.
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A government chief engineer took advantage of his office to solicit $400,000 from a project manager of a land development company as a reward for assisting the latter to obtain green light for the company's carpark development project.

Subsequent to the first application of the project being turned down by the relevant government department, the chief engineer asked for the advantage from the company. Frustrated at being asked to pay bribes to secure the project, the project manager reported the case to the ICAC.

Case Analysis

As a government employee, the chief engineer was not permitted to accept advantage in connection with his work. In soliciting illegal advantage from the land development company, he had violated Section 4 of the Prevention of Bribery Ordinance (POBO).

The chief engineer's plot failed before he could do anything to secure the project, but he could not escape from legal sanctions. Under Section 11 of the POBO, if it could be proved that an advantage was given to the acceptor as a reward for favours done to the offeror, the following should not be considered a defence: (a) “he did not actually have the power so to do”, (b) “he accepted the advantage without intending so to do” or (c) “he did not in fact so do.”

Business operators or employees who come into frequent contact with government employees have to be particularly careful when managing their relationship with them as they are governed by stringent laws and regulations, restricting their acceptance of advantages in their public and private capacities. The offering of advantages to government officers may also constitute a violation of the POBO.

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Connivance with substandard works

A proprietor of an engineering company bribed supervisory officer to secure the certification of substandard works. 

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An engineering company was awarded a contract to carry out waterproofing works to all bathroom floors of a newly constructed building, which was supervised by a clerk of works employed by an architectural firm.  In a water ponding test, the clerk of works discovered signs of water seepage at the ceiling of the lower floor, reflecting substandard waterproofing works.  To get substandard works accepted and certified, the proprietor of the engineering company paid a sum of money to and settled the entertainment expenses incurred by the clerk of works.

Case Analysis

Case Analysis

The clerk of work is an agent of the architectural firm.  He accepted advantages (i.e. money and payment of expenses) from the proprietor of the engineering company for conniving at the latter’s substandard works, which was related to the affairs of the architectural firm (i.e. his principal).  Without the permission of the architectural firm to accept such advantages, he had contravened Section 9(1) of the Prevention of Bribery Ordinance (Cap.201) (POBO).  The proprietor of the engineering company had also violated Section 9(2) of the POBO by offering the advantages under such circumstances.  Both the clerk of works and the proprietor of the engineering company were sentenced to imprisonment.   

 

Case in Perspective

Site supervisory staff carry a pivotal role in ensuring the quality and safety of all construction works.  They should diligently inspect and check the works against the required standard, and require contractors to rectify any irregularities and defects identified.  In this case, however, the clerk of works breached the trust placed in him by his employer (i.e. the architectural firm) and abused his authority for personal gain.  Apart from prejudicing the interest of his employer, his act might also put public safety at stake. 

A company or an organisation implementing construction projects should put in place adequate safeguards to ensure proper works supervision by site supervisory staff.  For example,

(a) Draw up a comprehensive supervision plan to set out the critical works items requiring inspection, the frequency and the rank of staff responsible for such inspection;

(b) Require inspection staff to record the inspection details, including time, location and description of works inspected and inspection results; and, as far as practicable, make use of technologies such as mobile applications that enable on-the-spot logging;

(c) Arrange independent technical audits on inspection work; and

(d) Issue guidelines on acceptance of advantages and entertainment, handling conflict of interest, etc.

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Offering bribes for contract constitutes an offence

An air-conditioning equipment supplier attempted to induce an engineer to award a contract to a designated sub-contractor and promised to reward the engineer with cash.
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An air-conditioning equipment supplier provided spare parts to an engineering company for an air-conditioning project of a large exhibition centre. As some of the parts supplied broke down due to manufacturing fault, the supplier engaged a sub-contractor to carry out repairing work at its own expenses. The work, however, was done unsatisfactorily. The engineering company subsequently reallocated the work to its own contractor and assigned an engineer to supervise the work. The supplier thus approached the engineer in a bid to get the job back to his sub-contractor and promised to reward the engineer by a sum of cash.

The engineer refused the offer and reported the matter to the ICAC.

Case Analysis

Case Analysis

The supplier offered an advantage (i.e. cash) to the engineer, who was an employee (i.e. agent) of the engineering company (i.e. principal), as an inducement or reward for showing favour in relation to his principal’s business by awarding the contract back to the supplier’s sub-contractor.  The supplier contravened Section 9(2) of the Prevention of Bribery Ordinance (Cap.201) (POBO).  Had the engineer accepted the bribe without the permission of his principal, he would have contravened Section 9(1) of the POBO. 

 

Case in Perspective

The use of bribery to obtain contracts will inflate the operation costs of the bidder and cause unfairness to other bidders who observe the principle of fair play.  The services procured may also fall short of standard and affect the overall quality of the job because no supplier can go on absorbing corrupt payments and still give the quality you want.  It is crucial for management to provide integrity training so that staff at all levels understand the anti-corruption laws and stay vigilant to the risks of corruption when performing their duties. 

The positive action of the engineer is a good illustration of the proper action to take when one is being offered a bribe or has discovered malpractices.  Staff members should refuse any bribes and promptly report any suspected malpractices or illegal activities to law enforcement agencies including the ICAC and/or the management.  Companies should establish a clear and confidential whistle-blowing mechanism.

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Offering bribes outside Hong Kong may also be prosecuted

Fred was an engineer responsible for approving equipment for construction projects. His cousin David, who worked in a Mainland production factory, persuaded Fred to use his factory’s products by offering Fred an illegal commission.
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Fred was an engineer of a construction company and was responsible for approving the electrical equipment and materials required for construction projects. He was going to get married, but due to financial problems, he could only afford a simple wedding. His fiancée was very upset.

Fred's cousin David, an employee of a Hong Kong enterprise engaged in home automation system business, was recently posted to a production factory in Shenzhen to handle the development of new products. He had to travel frequently between Hong Kong and the Mainland. David, in the hope of gaining recognition from his company and getting more funds for his R&D work, recommended a home automation system to Fred when they met in Hong Kong. David persuaded Fred to use the system in a local private residential project undertaken by Fred's company and suggested that an illegal commission of HK$200,000 could be paid to Fred by instalments.  Without hesitation, Fred accepted the offer. David then appropriated HK$30,000 from the company's entertainment account for partial payment of the commission to Fred, calling it a wedding gift.

Fred thought that he could use the money to subsidise his wedding, but unfortunately the system he had purchased were found defective. The incident aroused the suspicion of the construction company's senior management, which then referred the matter to the ICAC for investigation. With substantial evidence, Fred was arrested just days before his wedding.

Case Analysis

It is against the law to offer any advantage, whether directly or indirectly, to any  person  or  to  a  third  party having  connections  with  that  person,  if  the advantage is proven to have been offered in relation to his duties. Although David offered an advantage to Fred under the pretext of giving him a wedding gift, both of them were still guilty of a bribery offence.

The illegal commission was offered to an employee of a Hong Kong company by a company based outside Hong Kong. However, if any part of the act of bribery (including offering, soliciting or accepting a bribe) takes place in Hong Kong, the case may still be pursued by the ICAC under the Prevention of Bribery Ordinance (POBO).

Likewise, if non-local residents request their Hong Kong counterparts to deposit bribes into a Hong Kong bank account, both parties will be in breach of the POBO as part of the bribery transaction takes place in the territory.

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Make profit in bidding

Barry, a senior project manager of a subcontractor, faced a dilemma when bidding a project. The manager of the main contractor promised Barry with the contract, but Barry had to inflate the bidding price…
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Barry was a Senior Project Manager of a construction company in Hong Kong. Recently, his company was going to put in a bid to be the principal subcontractor of a project in the Mainland. The bid was RMB500 million. Barry then negotiated with Echo Ltd, the state-owned main contractor of the project that was asking for the bid. The Echo manager told Barry that his company would get the contract if he could inflate the bidding price from RMB500 million to RMB550 million. The manager further explained that the additional RMB50 million would be shared equally among the Managing Director of Echo Ltd, the manager himself and Barry as a hook to ensure Barry’s silence. Barry was disturbed because he had heard of stories like this which the bidder got physical harms as a return for refusal to cooperate.

Would Barry violate any bribery offence if he acceded to the Echo manager’s request? What should Barry do?

Case Analysis

When conducting business overseas, it is important to watch out for increased bribery risks that may come with business operations under different systems and cultures.  Companies should pay special attention to the local laws and regulations in different jurisdictions as well as foreign bribery laws with extra-territorial effect.

In the case study, if Barry agreed with the Echo manger to inflate the bidding price in order to win the contract, Barry, the Echo Managing Director and the Echo manager might violate the anti-bribery provisions in the PRC Criminal Law.

In case any part of the bribery offence took place in Hong Kong, Barry might also breach Section 9 of the Prevention of Bribery Ordinance if he, without lawful authority or reasonable excuse, offered bribes to the Echo manager as an inducement or reward for securing the contract.

To avoid breaching the law and protect himself from any physical harm, Barry was suggested to report the matter to his company and seek help from local authorities.

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Substandard work - piling

A works supervisor discovered that the length of the constructed piles did not match with the concrete delivery records for the piles. He suspected that some of the piles might have been shortened…
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In January 2001, Lee & Wong Holdings Ltd (LW) awarded a $1,000 million contract to a main contractor for constructing four 40-storey residential blocks, a commercial complex and a car park.   The main contractor then sub-contracted  the  piling  work  to  another  company.    The  latter  in  turn awarded the work to Saar Piling Company Ltd (Saar) by simply deducting 15% of his original successful bid.  LW also appointed a consultant firm Joe & Partners (JP) to oversee the construction work.   The project was scheduled to be completed in twenty months and five months were allowed for the piling works.

JP deployed an engineer as the Project Manager (PM) to oversee the project but he was not required to be resident on site.   Occasionally, he would go to the site for meetings but did not carry out site inspections himself. Routine site inspection was left to an Assistant Inspector of Works (AIoW) and a Works Supervisor (WS) who were resident site staff appointed by JP. However, the AIoW had very limited experience in piling work.

As there were only two supervisory staff on site responsible for overseeing the whole piling works, the AIoW and the WS found it difficult to check every detail during the work process.  They could only rely on the records of Saar and sign the completion forms taking the face value without checking.

Due to unexpected difficulty encountered during the placing of reinforcement casings, LAM, Director of Saar, found that the piling work was behind schedule and a one-month delay was anticipated.   Saar, being a small sub-contracting company, found it difficult to bear possible substantial liquidated damage (LD) of $800,000 per day as stipulated under the main contract.

LAM then discussed the making of shortened piles with the foreman and site agent of the main contractor, who were always away from work and thus failed to monitor the work progress.  They thought that the specifications stipulated in the contract were conservative and shortened piles should cause no severe harm to the completed buildings resting on top of the piles.   They believed that the buildings would not be structurally affected.

LAM instructed his workers not to excavate the pile bores as deep as the proposed founding levels.   Instead, after the length of the reinforcement casings had been checked by the supervisory staff of JP, LAM asked his workers to cut the casings during night time when the consultant site supervisory staff were off duty.   LAM then manipulated a measuring tape by removing parts of its central portion so that it gave a reading longer than the actual measurement.   When the supervisory staff of JP measured the pile bore depth using the manipulated measuring tape provided and re-examined the reinforcement casing, they were not able to detect that the piles had been shortened.

One day, the WS of JP discovered that the length of the constructed piles did not match with the concrete delivery records for the piles.   He suspected that some of the piles might have been shortened.   He immediately approached LAM for an explanation for the irregularities discovered and the proposals for remedial actions.

LAM, after discussion with the foreman and site agent, went to the WS’s office to hand him an envelope containing $300,000 and plead him to turn a blind eye to the substandard piling works.   The WS immediately refused LAM’s request.

The WS immediately  reported LAM’s  offering of bribes to the ICAC. LAM, the site foreman and site agent of the main contractor were arrested and convicted of conspiracy to offer an advantage to the WS as a reward for turning a blind eye on substandard piling work.

Questions

  1. Why were LAM, the foreman and site agent convicted of corruption offences? What actions should you take when being offered bribes?
  2. How devastating would the damages be if a construction professional accepts advantages for turning a blind eye to substandard works? What are the consequences of such behaviour?
  3. What is the importance of site supervision at a construction site?
Case Analysis

Section 9 of the Prevention of Bribery  Ordinance (POBO)

LAM conspired with the foreman and site agent to offer the Works Supervisor $300,000 for his turning a blind eye to the substandard piling work was an offence under Section 9 of the POBO.   This section states that:

  • It is an offence for an agent (normally an employee) to solicit or accept an advantage without the permission of his principal (normally the employer) when conducting his principal’s affairs or business; and
  • The person who offers the advantage also commits an offence.

Report Corruption

The positive action of the Work Supervisor was a good illustration of the proper action to take when one was being offered a bribe: refuse the bribe immediately and report the matter to the ICAC.

Consequences of Corruption

Turning a blind eye to substandard works would result in building defects, causing the company extra costs to rectify the problem.  Worse still, such hidden faults in construction works would be hazardous to public safety.

Construction professionals should bear in mind the implications of substandard works to public safety, as their responsibilities to his employer and the profession should at all times be governed by the overriding interest of the general public.

In similar court cases previously, the judge commented that the defendants “place in jeopardy not only the structure and those using it but also the reputation of Hong Kong.   The potential consequences of their actions may quite fairly be described as disastrous.   The conduct of these Accused casts a shadow over the entire construction industry…”

Corruption could also bring devastating damage to one’s career and reputation. Construction professionals need to live by a high standard of integrity so as to resist the corruption temptations facing them in the workplace.

Site Supervision

The allocation of adequate resources to site supervision is crucial to ensuring the quality of works.   Site supervisory staff are sometimes inadequate, both in number and experience, and may therefore not be able to monitor the work of the contractor effectively nor promptly detect any fraudulent acts. Employers/consultants should deploy sufficient on site supervisory staff with appropriate training and experience.

The deployment of only technical staff on site is inadequate and professional input is important especially at critical construction stages.

Infrequent site visits by professional staff is not uncommon in the construction industry.   In fact, regular supervisory check is crucial in ensuring that the work complied with the required standard.   Supervisory staff should use their own measuring tapes in checking the pile depth.   In addition, the role of independent internal technical audit should also be strengthened so as to guard against any possible malpractice.

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Falsifying attendance records

In order to facilitate the engineer’s monitoring of workers’ attendance and recording of their working hours, workers were required to punch an attendance card when reporting on and off duty every day in the Engineer’s office.

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In a construction project of a commercial complex valued over $500 million, the main contractor employed ten foremen to monitor the work of sub-contractors.  A site engineer of the company, who took charge of the foremen, was responsible for the overall supervision of the project.

The salaries of the foremen and other workers were calculated on a daily basis.  Each  of  them  was  required  to  punch  an  attendance  card  when reporting on and off duty every day.  The attendance cards and the punching machine were placed in the engineer’s office so that when the foremen and other staff  reported  on  or  off  duty, they  had  to  punch  the  cards  in  the engineer’s office.  The engineer was responsible for ascertaining that his subordinates personally punched the cards.  At the beginning of each month, the engineer was responsible for calculating the salaries of his subordinates based on their individual attendance records for the previous month.  His calculations and the punched cards were then sent to the Accounts Department of the company for processing salary payment.

As the family of one of the foremen, CHAN, was in the Chinese Mainland, CHAN would seek every opportunity to travel there to visit his family.  One day, CHAN went to see the engineer and requested for three days’ off.  CHAN, however, requested the engineer not to record his leave but instead punched the attendance card for him so as to show that he was working on the three days.  In return, CHAN offered the engineer $500 for assisting him in punching the attendance card and turning a blind eye to his absence.

The engineer turned down the offer and reported the matter to the ICAC.  Eventually, CHAN was convicted for offering a bribe to the engineer, contrary to Section 9 of the Prevention of Bribery Ordinance (POBO) and was sentenced to imprisonment.

Case Analysis

Case Analysis

The foreman, CHAN, offered an advantage to the engineer (i.e. an employee and hence agent of the construction company) as a reward for assisting him to falsify attendance records, contrary to Section 9(2) of the Prevention of Bribery Ordinance (Cap.201) (POBO). Irrespective of whether the engineer accepts or rejects the bribe, the act of offering (by CHAN) already constitutes a criminal offence.  Should the engineer have accepted the bribe, the engineer would have committed a corruption offence and be charged under Section 9(1) of the POBO.    In addition, regardless of whether the engineer accepted the bribe, if he assists CHAN in falsifying the attendance record, this would amount to an offence under Section 9(3) of the POBO.  This provision stipulates that it is an offence for an employee to use any false document, receipt or account to deceive his employer.  Improper ethical behaviour may also lead to the revocation or suspension of a professional registration with a professional body and as a result the engineer would be restricted/prohibited from practice.

 

Case in Perspective

The lack of supervisory control and reliance on a manual tracking system over localised staff attendance create opportunities for personnel to abuse delegated authority, engage in unauthorised absences, commit payroll fraud, or offer bribes to secure the collusion of checking officers.  To address this problem, the main contractor should establish a system to strengthen attendance tracking and staff administration by implementing the following control measures –

(a) Eliminate susceptible manual systems and implement a digital attendance management system (e.g. fingerprint or facial recognition);

(b) In the interim, supplement manual systems with CCTV to authenticate staff presence, deter impersonation and provide verifiable records of attendance; and

(c) Conduct surprise on-site spot checks and physical headcounts to verify real-time worker presence by supervisors and/or independent units. 

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1. In which country or region are you currently located?
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3. What is the size of your organisation?
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4. What is your staff level or position?
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