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“Financial deviance” at the heart of construction

UK: A new report into the Carillion collapse seeks to highlight a culture of “financial deviance” which it says is embedded at the heart of the UK construction sector.

Research by London South Bank University (LSBU) pinpoints three distinct types of “normalisation of deviance” that existed within Carillion, the construction giant that went into compulsory liquidation in 2018, costing the UK taxpayers an estimated £148m.

It maintains that the three elements – Late payments to suppliers, aggressive accounting and
auditors failing to identify problems – as issues that could also be prevalent in the wider construction sector.

The research shows that, following the collapse of a major financial institution like Carillion, individuals and teams in the wider construction sector, often accommodate, explain away or normalise discrepancies and problems. It maintains that these become part of a culture which unintentionally reduces awareness of the potential consequences of that deviant behaviour.

“Taken together, these factors can result in a company not following codes of practice while failing to anticipate and manage a wide range of potential reputational issues and structural internal crises,” it says.

By performing a qualitative analysis on the collapse of Carillion, the researchers have exposed the most common deviant practices and sources of “normalisation of deviance” embedded in the sector. The findings suggest that “normalisation of deviance” lies not only internally, but also externally, in the wider industry environment in which construction organisations operate.

“The results sound an alarm bell and call for structural reform of the construction industry to prevent the negative effects of corporate deviance.”

The researchers observed that, while in hindsight, these practices could be viewed as unacceptable, their emergence was a gradual process that took place over several years and is likely to be embedded in corporate culture.

The report blames the business characteristics in the construction industry, with its highly competitive and pressurised culture, low profit margins, complex and uncertain undertakings.

The research project is led by Dr Sara Hajikazemi, senior lecturer in project management at LSBU’s Business School, in collaboration with co-authors from the Norwegian University of Science and Technology and Nord University in Norway, and the University of Oulu and Tampere University in Finland.

“What is concerning is that, as happened with Carillion, construction companies currently lack an early warning system that could alert them to emerging signs of deviant corporate behaviour and malpractice, said Dr Hajikazemi. “This means that the construction industry is still likely to be at risk of falling prey to “normalised deviance” and its damaging consequences in future.’’

Normalising deviance in construction project organizations: a case study on the collapse of Carillion

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