FIGHTING BID RIGGING IN
PUBLIC PROCUREMENT
-
THE OECD PERSPECTIVE
Antonio Capobianco
Senior Competition Law Expert
Competition Division, OECD
Utrecht, 7 October 2016
• It is a major economic activity
• It stands as a crucial pillar of strategic
governance for any government body;
• It is also a high-risk area due to the close
interaction between private and public spheres
• Governments face the challenge of ensuring that
different priorities are clear, work together and
overlaps or conflicts are avoided.
PUBLIC PROCUREMENT MATTERS
BECAUSE …
2
Government procurement as share of GDP and of total govt. expenditures
Source: OECD National Accounts Statistics. (2013)
PUBLIC PROCUREMENT MATTERS(4.3 trillion EUR spending per year in OECD)
Estonia
Hungary
Netherlands
Korea
Japan
Ireland
Luxembourg
Czech Republic
Germany
New Zealand
Canada
Israel
Slovak Republic
Finland
United Kingdom
Sweden
Turkey
Belgium
Austria
Denmark
Switzerland
Spain
Poland
OECD(UWA)
Norway
France
United States
Mexico
Italy
Portugal
Greece
Slovenia
28.1
0 10 20 30 40 50
13.0
0.05.010.015.020.025.0
as % share of total government expenditureas % of GDP
3
WHY WORRY ABOUT BID RIGGING?
Public procurement accounts for approx
15-20% of GDP in OECD countries
POTENTIAL DAMAGES FOR TAX PAYERS
CAN BE SIGNIFICANT !!
Bid rigging can raise prices significantly
(up to 20% or more)
4
Reference Number of Cartels
Mean Overcharge (percent)
Median Overcharge (percent)
Cohen and Scheffman (1989)
5-7 7.7-10.8 7.8-14.0
Werden (2003) 13 21 18
Posner (2001) 12 49 38
Levenstein and Suslow (2002)
22 43 44.5
Griffin (1989) 38 46 44
OECD (2003), excluding peaks
12 15.75 12.75
Weighted average
102-104 36.7 34.6
SURVEYS OF CARTEL OVERCHARGES
Source: Connor and Bolotova (2006)5
Japan: Prices across 18 tenders declined by approximately 20%after competitive bidding as restored to the procurementprocess
U.S.: Bid rigging had raised the price paid by the USDepartment of Defense by 23.1%
S. Africa: Prices of health care products declined by approximately27% after antitrust intervention
Clarke and Evenett have shown, the resource saving that can begenerated by only a marginal reduction in bid rigging on governmentcontracts (e.g. of the order of 1 per cent) is greater than the averageannual operating budget of the competition agency in most countries,often by a factor of several times over.
BID RIGGING – THE COSTS
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THE PROBLEM
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THE PROBLEM
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TIPICAL EXAMPLES
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THE PROBLEM
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HOW TO FIGHT BID RIGGING
EFFECTIVELY
• Effective cartel laws and regulations
• Effective leniency program
• Effective enforcement procedures and institutions
• Effective sanctions
Other ways:
Raise awareness of procurement officials and
bidders concerning the risks of bid rigging
(Checklists and Guidelines)
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BID RIGGING CASES FROM AROUND
THE WORLD
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THE NETHERLAND – CONSTRUCTION
INDUSTRY
Sector Type of violation Firms fined Total Sanctions
Highways, roads
and buildings
Courtesy bidding
and compensation
schemes
611 € 71 ml
Cement Market partitioning 50 € 12.8 ml
Gardens Market partitioning
and courtesy
bidding
56 € 3 ml
Pipes and
canalisations
Market partitioning
and courtesy
bidding
72 € 12 ml
13
A high proportion of detected cartels are
bid-rigging
Source: Connor 2014! 14
Proportion of overcharges from bid-rigging episodes
WHAT IS “BID RIGGING”?
• The OECD defines “bid rigging” as such:
“Bid rigging (or collusive tendering) occurs whenbusinesses, that would otherwise be expected tocompete, secretly conspire to raise prices or lower thequality of goods or services for purchasers who wish toacquire products or services through a bidding process.”(OECD Bid Rigging Guidelines, 2009)
• In all OECD countries bid rigging is illegal, andin some countries it is also criminal.
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OECD GUIDELINES FOR FIGHTING BID
RIGGING
Best practices in OECD countriesSource
Help procurement officials design public
tenders to reduce bid rigging
(Design Checklist)
Better tender
design
Help procurement officials detect bid rigging
when it occurs (Detection Checklist)
Tougher law
enforcement
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OECD GUIDELINES - 2009
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OTHER GUIDELINES
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CHECKLIST FOR DESIGNING TENDERS
• Learn about the market and about your suppliers
• Maximize participation of potential bidders
• Define requirements clearly and avoid predictability
• Reduce communication among bidders
• Raise awareness of the risks of bid rigging, provide
training
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Examples of effective tender design
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Average winning bid* 2005 2006 2007 2008 2009
Minimum 97.8% 96.1% 97.1% 97.0% 57.1%
Maximum 99.5% 98.5% 98.6% 98.7% 72.1%
EXAMPLE- KOREA TRAFFIC
SURVEILLANCE DEVICES CASE
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Annual winnings bids
• After changing the eligibility conditions to maximise participation of potential
bidders, in early 2009 the average levels of the winning bid sharply dropped to
between 57.1% and 72.1% of the estimated price
• The Public Procurement official informed the KFTC of a possible bid rigging
scheme in Nov 2009 after examining the result of annual rates of winning from
2005 to 2009 in 95 biddings.
* the rate between the estimated price and the price of winner
Example- World Bank’s Experience with
the Bali Urban Infrastructure Project
Original Post - changes
98.9% 58.0%
99.7% 67.6%
100.0% 68.0%
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• The impact of the changes was dramatic
• Bids dropped from amounts virtually identical to the engineer’s
estimate to amounts 35-40 percent less
• The project team estimated savings of 15-30 percent on contracts
post-changes
Bids for $50,000 Contract: Best Three Bids as percentage of
Engineer’s Estimate
EXAMPLE – MEXICO IMSS CASE
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2003-2005: Winning bids from the 4 principal suppliers (L14, L07, L01 and L15) high, almost identical and stable.
CHECKLIST FOR DETECTING BID
RIGGING
Procurement officials should be alert for:
• Opportunities that bidders have to communicate with
each other
• Relationships among bidders (joint bidding and sub-
contracting)
• Suspicious bidding patterns (e.g. ABC, ABC) and pricing
patterns
• Unusual behavior
• Clues in documents submitted by different bidders25
Examples of successful detection
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“Please give us a call us if you have any questions.
Thank you very much.”
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Exhibits from Medical Gas Case (1)
Agreement between three bidders (MDD, PSE, MPS) in the tender for
the supply and installation of Medical Gases Manifold System to Sport
Injury Centre, Safdarjung Hospital, New Delhi:
• Common typographical errors: all three competitors miss-typed the
word ‘of’ as ‘o’ at serial H, I, J, K, L. of a tabular form;
• Same spelling mistake: the word ‘over lapping’ was misspelled in all
three bid documents as ‘overelapping’;
• Identical mistakes: all the items under price schedule XIA (used for
domestic goods) were wrongly included under price schedule XIB
(used for foreign currency items);
• The font used for typing bids was also the same;
• Similar bidding patterns of these three firms in other similar contract
works of hospital indicating for bid rotation
EXAMPLE - INDIA MEDICAL EQUIPMENT
CASE
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WARNING SIGNS IN METADATA
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• All electrically submitted bid
documents have own metadata,
which contains some
information of the document
properties, such as author,
saving time, title of the
document etc.
• The metadata can be revealing
a sign of bid rigging.
• When the metadata from one
contractor’s bid is authored by
an employee of the competing
contractor
EXAMPLE: EL SALVADOR AIRLINE
TICKETS
SERVICES TO BE RENDERED AMATE
TRAVEL
AGENCIA VIAJES
ESCAMILLA
U TRAVEL INTER TOURS
Cost for issuing round trip tickets US$39.55 S$39.55 S$39.55 S$39.55
Flight confirmations/ticket and reservation
voucherCost free Cost free Cost free NA
Premium ticket procedure Cost free Cost free Cost free NA
Ticket annulment Cost free S$39.55 Cost free (the same day) NA
Ticket re-issuance S$39.55 S$39.55 S$39.55 S$39.55
Issuance of ticket against exchange order
(MCO)S$39.55 Cost free S$39.55 S$39.55
Procedure for the reimbursement of non
utilized ticketsCost free Cost free Cost free NA
Procedure for the reimbursement of lost
ticketsCost free Cost free Cost free NA
Train reservation Cost free Cost free Cost free NA
Delivery service in the Metropolitan Area Cost free Cost free Cost free NA
Total S$118.65 S$118.65 S$118.65 S$118.65
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EXAMPLE – U.S. ICE CREAM CASE
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EXAMPLE – U.S. ICE CREAM CASE
EXAMPLE - SWEDEN CLEANING
SERVICE
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WHERE TO FIND THE OECD
GUIDELINES?
Web link:
www.oecd.org/competition/
bidrigging
Translations available in 27
languages!
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FIGHTING BID RIGGING IN
PUBLIC PROCUREMENT
-
THE OECD PERSPECTIVE
Antonio Capobianco
Senior Competition Law Expert
Competition Division, OECD
Utrecht, 7 October 2016