OConnor Construction Charged with Corruption

Charges Pending

OConnor Construction is a family-owned and -operated Irish company that has been headquartered in Dublin for fifteen years. Kyle and Lauren OConnor started the business when Kyle was laid off from the construction company he had worked with for twenty years. The small family business quickly became successful due to its dependability, excellent standards of quality and friendly customer service. Within 12 years, the company employed over 1800 people and was regularly submitting, and winning, proposals for international projects. With a focus on infrastructure and energy-related projects, OConnor Construction was moving along very well until the day it was charged with corrupting a customs official in the African country of Nigeria.

The Successful Bidder

Many OConnor family members are employed by a successful construction company. One such employee is Cynthia Russell: Kyle and Laurens niece. Cynthia was a project manager mainly working on domestic projects; she was promoted to senior project manager and began working on the international projects the company was increasingly being hired to complete.

OConnor Construction was fairly inexperienced in the international construction business at that time. When an opportunity arose to submit a proposal to build a large, three-storey shopping mall in the Nigerian capital of Abuja, the company decided to hire a third-party consultant to assist with the process. It was unfamiliar with the country and felt it would be beneficial to employ someone who was well versed in import regulations and the cultural nuances of the Nigerian construction industry.

A team was formed to develop the project proposal. After some research, it found a consulting agency that seemed a good fit for the Irish company and the proposed project. The team held several meetings via virtual meeting software and found the potential consultant to be personable, professional and knowledgeable about the construction industry. In addition, the consultant, Ayanti Magoro, had previously worked with the Nigerian company that had submitted the tender. The team chose Ayanti to represent OConnor Construction and assist as needed. He submitted the companys proposal, which won the USD 75 million project. Suspicions

Shortly after winning the mall project, the OConnor team, headed by Cynthia, flew to Abuja to meet with the vice president of business development and his team at J.R. Incorporated, the Nigerian company that hired OConnor Construction to complete the project. Prior to the meeting, Ayanti met with Cynthia and her team to review the objectives and agenda to be accomplished that week, as well as provide information about meeting protocol and suggestions for smooth negotiations. Before arriving in Nigeria, Cynthia had asked Ayanti to sign a contract with OConnor Construction; it agreed to provide a fixed monthly payment to the agency for Ayantis services for the duration of the project. Each month, the consulting agency would provide an invoice to OConnor Construction and payments would be made by wire transfer directly to the agencys bank account within thirty days.

The project launch meetings went very well. Project timelines and objectives were communicated, payment terms were negotiated and a draft contract was completed. J.R. Inc. had agreed to make multiple advance payments based on the phases of the project plan. When each phase was completed, with completion dates as agreed to in the contract, the construction company would forward an invoice to J.R. Inc. for payment via wire transfer to a bank in Ireland. In turn, J.R. Inc. had requested OConnor Construction provide a performance guarantee to ensure payment in the case of uncompleted work. A performance guarantee would allow the Nigerian company to recoup 50 percent of the amount already paid for previous phases of work should OConnor Construction fail to complete the remainder of the project. With an impeccable reputation and history of successful projects, Cynthia and her team could return home confident they had a fair and strong contract and were well on their way to breaking ground in Nigeria.

The project got underway and materials were continually being shipped to Nigeria from Ireland and from OConnor Constructions European warehouses. A large number of OConnor Constructions employees were working in Nigeria and things were going smoothly. A few months into the two-year project, Cynthia received Ayantis monthly invoice, but it was a different amount than usual. As was their general communication protocol, Cynthia emailed him to inquire about the additional costs. He told her the money had been paid to Nigerian customs officers for the release of a shipment of materials that had come from France and been held at the docks due to unclear paperwork. Pleased that Ayanti had handled the problem efficiently, and making the assumption that this type of charge was specific to Nigerian customs, Cynthia authorized the amount.

A few months later, Cynthia received another inconsistent invoice from the agency and again she emailed Ayanti. This time, the amount was higher than the first irregular invoice and the explanation provided wasnt quite as convincing. Cynthia had a terrible feeling something suspicious was going on. She quickly brought the matter to her uncles attention. He agreed the activity was questionable and together they brought the problem to both their accountant and their lawyer. All were in agreement; they needed to find out exactly what was going on. Dire Consequences

Several people at OConnor Construction made attempts to question the agent, but he stopped responding to their phone calls and emails. The consulting agency was demanding its invoiced monthly payment, but the OConnors decided they should not continue to make payments. Before long, the Nigerian police were involved; shortly after that, Irish law enforcement took up the investigation. It appeared that Ayanti had been bribing customs officials to expedite processing of the Irish companys shipments. This was an illegal act in both countries; after a few weeks, the project came to an abrupt halt. The Nigerian authorities placed charges against the consulting agency and Ayanti. OConnor Construction was charged in Ireland with corrupting a customs official. J.R. Inc. set in motion the performance guarantee provided at the beginning of the project. At this point, OConnor Construction was six months into the project and was required to repay 50 percent of project phases one and two, which had been completed.

On top of it all, as a result of the charges laid against the company, OConnor Construction faced the possibility of being prevented from bidding on publicly funded projects in Ireland for a period of time. Kyle and Lauren planned to fight the charges and win back their tarnished reputation.

Question:

How could OConnor Construction have mitigated the financial risks outlined in the case study?