By Julia Mills
Bid-rigging and collusion are risks every organization that engages in competitive bidding faces, and as such, it is vital that organizations develop and institute awareness, prevention and detection measures, including considering how much of their bidding process is public and how much is kept confidential.
Bid-rigging in the news
Bid-rigging doesn’t discriminate – it can affect all economies, regardless of size of jurisdiction.
For example, in a spring 2017 report, the auditor general of the City of Toronto reportedly found evidence of bid-rigging and collusion among paving companies that bid on lucrative city construction contracts. Reported signs of possible collusion included inflated pricing, companies that consistently won contracts, and bidders that were regular subcontractors of the winners. The reported fall-out of the collusion purportedly included talks of blacklisting offending proponents, the Ontario Provincial Police (OPP) investigating the alleged bid-rigging, and the removal of senior managers, with the reported possibility of more dismissals.
The recent Toronto example is far from isolated. According to other recent reports, police in Southern Italy arrested parties and seized assets in relation to a case of bid-rigging for lucrative public contracts valued at 70 million euros.
An article out of Ireland detailed the first bid-rigging conviction after a five-year exercise that reportedly resulted in a suspended jail sentence and “modest fines.”
Further reports and briefs from Belgium discuss how authorities launched an initiative against bid-rigging, after reportedly breaking up a five-company cartel of energy firms in the railway industry. The cartel is facing fines of €1.8 million, and the Belgian Competition Authority (BCA) has since released guidelines on how to prevent and detect bid-rigging and collusion within the procurement process.
Governments throughout Asia are also reportedly joining the fight against bid-rigging, with Hong Kong purportedly taking its first legal action toward punishing violators of the region’s competition law, which has reportedly been in effect since December 2015.
And South Africa has also recently joined the ranks, reportedly charging seven companies with fixing prices and colluding in a tender to provide stationary, after red flags, such as quoting the same prices for various items, were allegedly found.
Anti-corruption guidelines
The Organisation for Economic Co-operation and Development (OECD), which works with emerging economies to help them fight collusion and corruption within their public procurement processes, has developed an extensive framework of guidelines and information regarding competition, cartels, and anti-competitive practices, such as bid-rigging. Within their scope of work, they assist countries where public procurement accounts for around 15% of GDP, putting further impetus on collusion prevention and detection.
The OECD recommends a systematic approach to collusion prevention, beginning at the outset, before the tender process is designed, and carrying throughout the lifecycle of the project, right through the evaluation of bids, ensuring staff and evaluators are trained to be aware of the signs of bid-rigging. And, as the Toronto Auditor General’s report also noted, the fragmented and paper-based approach to record keeping also adversely impacted the ability to monitor bids for price fixing and collusion and underscored the importance of establishing electronic bidding practices and phasing out in-person public openings based on paper-based submissions.
To disclose or not disclose
One of the key guidelines set out by the OECD states that the tender process should be designed “to effectively reduce communication among bidders.” The guidelines admit that while there is “no single rule about the design of an auction or procurement tender,” which will ensure a corruption-free process, a balance needs be struck between not facilitating collusion and meeting transparency requirements.
For example, institutions should carefully consider whether they should release a list of interested bidders who obtained a copy of the tender call before the close of the tender. In a recent study conducted by The Procurement Office, a sample of 100 solicitations from a broad range of different institutions were reviewed on nine different bid-posting platforms across Canada. In that sample of 100, practices were almost evenly divided: 51 did not disclose an interested bidder list, whereas 49 did disclose interested bidders. This cross-section sample demonstrates that the industry remains in a state of transition as it attempts to re-balance between confidentiality and transparency to better protect against bid-rigging and collusion.
Although no government or public body will ever be entirely immune to corruption, each organization must make tender design decisions surrounding information disclosure that take market, industry, product and the potential bidders into consideration, throughout the entire lifecycle of the competitive procurement process.
