A thousand 'cuts': The great Karnataka corruption story

Last month, Karnataka watched in awe as Anti-Corruption Bureau (ACB) sleuths pulled cash out of a PVC pipe in the house of a junior engineer in the Public Works Department in Kalaburagi.

Public money down the drain, indeed.

But something more unprecedented has hit the BJP government in the face.

The Karnataka State Contractors Association, a body with one lakh members, has approached Prime Minister Narendra Modi with a serious complaint: They say they are forced to pay kickbacks that are now as high as 40% of the project cost — the money goes to various people, including ministers — in order to carry out civic works.

Contractors also approached Governor Thaawarchand Gehlot with their complaint.

The letter to the PM was written on July 6, 2021, when B S Yediyurappa was the chief minister. Incumbent Chief Minister Basavaraj Bommai was then the home minister.

Contractors approaching the PM is unprecedented, given that they themselves have been complicit in Karnataka’s corruption story — a story in which even the construction of the Vidhana Soudha was not spared from graft charges.

And remember the fabled ‘contractor-politician’ nexus? But the rot runs so deep now that contractors are fed up.

Sample this back-of-the-envelope example: A project costs Rs 100. If a contractor pays Rs 40, he is left with just Rs 60.
That explains why public infrastructure projects, in many cases, have quality issues: New roads dotted with potholes or bridges that crack.

“Ultimately, when citizens travel on a poorly-laid road, they curse the contractors,” says D Kempanna, president of the Contractors Association. Come January, about one lakh contractors across the state will gather to protest against corruption in the state government.

The irony is that it was Modi, touring Karnataka during the 2018 Assembly elections, who famously dubbed the then Siddaramaiah-led Congress government as “10% Sarkar’’ and “Seedharupaiyya Sarkar”.

That political funding is done through public works is an open secret. But how did 10% become 40%? And what forced the contractors to call it out?

“The commission system has gone out of control over the last three years,” Kempanna says.

“While earlier it was 2% or 5%, it gradually increased to 10% and has now touched 40%. We had written several letters to the government, bringing the problem to their notice. No one responded to us, forcing us to write to the PM himself.”

In their letter to the PM, contractors explain how they have to pay off ministers and officials at various levels.

Commission at every stage

A minimum of 5% is paid to ministers before approval of tender and issue of work order; 5% to local elected representatives for building projects and 10% for road works; 25-30% to elected representatives before the work begins and another 5-6% after completion of works to obtain the Letter of Credit (LOC) for their bills to be cleared.

Several contractors that DH spoke to laid out the problem thus: The irregularities begin at the time of tender itself. The most conventional corruption mechanism is to predetermine the winner of a tender bid.

Even though the lowest bidder has to get the project, the government tweaks rules to accommodate contractors selected by the powers-that-be even before the tender process.

For instance, if the prerequisite is that a contractor needs experience of having executed a Rs 5 crore project to bag a Rs 10 crore project, this clause itself is changed to give the tender to a higher bidder. Also, tenders are bagged by unregistered contractors from outside the state, who are close aides of ministers and other elected representatives.

Another ploy is to convert projects into packages, clubbing multiple components and escalating the cost of the project. This means that only bigger contractors who can afford bigger kickbacks bag the projects.

Also, while bigger contractors get bills cleared even before they complete the projects, the smaller ones have to wait 2-3 years. This system eliminates opportunities for local, registered contractors.

The Contractors’ Association includes contractors dealing with mid-sized projects up to Rs 10 crore, many of whom take personal loans to pay kickbacks. According to the association, the government owes them Rs 22,000 crore so far, of which Rs 5,000 crore is owed just to the public works department (PWD).

If a contractor manages to bag a project, the commission begins at the time of awarding the tender itself, followed by commission to be paid to ministers or MLAs during “Bhoomi Pooja” or laying the foundation stone.

“Without commission, they will not turn up for Bhoomi Pooja. They charge 10% for roads, 5% for buildings and up to 25% for minor irrigation projects,” association vice-president R Manjunath says.

The commission system persists at each level with officials of various ranks, until the contractors have to get their bills settled by securing the LOC.

One standing example of the government subtly circumventing norms is the Vikas Soudha, next to Vidhana Soudha, constructed in the early 2000s.

According to former Additional Chief Secretary V Balasubramanian, the initial estimate for its construction of Vikas Soudha was Rs 100 crore. Even though the lowest bidder had quoted Rs 76 crore, the government gave the tender to a contractor who had bid Rs 96 crore. “This bidder was then asked to lower his tender to Rs 76 crore, which he did. However, he delayed the project for two years, escalating the cost to Rs 150 crore,” he narrates.

Modus operandi

The modus operandi on how the money is collected is different. For LOCs, there are middlemen who strike the deals. For tenders and granting of funds, one has to directly deal with the MLAs or ministers. Further, there are a few instances where money is channelled through petrol bunks. “There are middlemen in the petrol bunks,” says one contractor. “Once the money is deposited there, the elected representatives send word to sanction the works to the contractor.”

However, most contractors said elected representatives have become “brazen like never before” and insist on direct cash payments in their offices. The “commission” is used to fund elections.

“In our system, the minister is the government,” a senior IAS officer explains. “The problem here is, a file that a deputy secretary can clear is summoned by the minister. Ministers insist on getting the files pertaining to payment of bills. They sit on the file. Contractors are contacted. Money is demanded. The file is cleared only if the money is paid. And, if we as officials resist, then our functional relationship gets affected.”

As far as officials are concerned, engineers want their cut to recover their investment. “The Transfer industry is big in Karnataka. Engineers in charge of certifying bills would have invested to come to that post. So, they have a cut,” the officer says.

The present BJP government is no stranger to allegations of corruption. In August this year, the High Court issued notices to Yediyurappa, his son B Y Vijayendra among others, in a case pertaining to kickbacks from contractors for a BDA housing project.

In October, I-T raids on the house of one Umesh, who is said to be Yediyurappa’s aide, revealed several tender documents pertaining to irrigation projects and payments made for these tenders. The I-T officials are looking into the involvement of black money in these contracts.

In November, North Karnataka Civil Contractors Association president Subhash Patil said they wrote to Bommai that corruption had “tripled” during the BJP regime, compared with previous governments.

Last year, the government also faced heat during the Covid-19 peak for alleged misappropriation of money in the purchase of healthcare equipment.

According to government officials, the only solution is to streamline the existing process. “No minister should sit on a file for more than six days. We also need systematic benchmarking with international and national standards for cost estimation of projects. These simple measures can fix the problem,” the IAS officer quoted earlier says.

Balasubramanian says the contractors are equally to be blamed. “Now that the commission has gone up and their share has come down, it has irked them,” he says.

What’s next? Bommai has ordered a probe under Chief Secretary P Ravi Kumar, who has written to heads of departments to pull out files in the wake of the contractors’ complaint. “Departments are looking into all the contracts and the payments made,” Kumar says, adding that there is no deadline to complete the inquiry.

Also, the Bommai administration has decided to constitute a committee that will review government tenders for projects costing Rs 50 crore or more. This will prevent exaggeration and escalation of project costs. The committee will be headed by a retired High Court judge.

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