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FIGHTING BID RIGGING IN
PUBLIC PROCUREMENT
THE OECD PERSPECTIVE
John Davies
Head, Competition Division,
THE PROBLEM
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THE PROBLEM
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WHY WORRY ABOUT BID RIGGING?
Public procurement accounts for approx
15-20% of GDP in OECD countries
Bid rigging can raise prices significantly
(up to 20% or more)
POTENTIAL DAMAGES FOR TAX PAYERS
CAN BE SIGNIFICANT !!
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SURVEYS OF CARTEL OVERCHARGES
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
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15.75
12.75
102-104
36.7
34.6
Weighted
average
Source: Connor and Bolotova (2006)
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WHAT IS “BID RIGGING”?
• The OECD defines “bid rigging” as such:
“Bid rigging (or collusive tendering) occurs when
businesses, that would otherwise be expected to
compete, secretly conspire to raise prices or lower the
quality of goods or services for purchasers who wish to
acquire products or services through a bidding process.”
(OECD Bid Rigging Guidelines, 2009)
• In all OECD countries bid rigging is illegal, and
in some countries it is also criminal.
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BID RIGGING - COMMON FORMS
Cover bidding
A competitor agrees to submit a bid that is
higher than the bid of the designated
winner or agrees to submit a bid that
contains terms that are known to be
unacceptable to the buyer.
It is the most common form of bid rigging
as it gives the appearance of genuine
competition.
Bid suppression
One or more companies agree to refrain
from bidding or to withdraw a previously
submitted bid.
Bid rotation
Conspiring firms continue to bid, but they
agree to take turns being the winning (i.e.,
lowest qualifying) bidder.
Market allocation
Competitors carve up the market and
agree not to compete for certain customers
or in certain geographic areas.
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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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OECD GUIDELINES - 2009
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OECD GUIDELINES FOR FIGHTING BID
RIGGING
Source
Best practices in OECD countries
Better tender
design
Help procurement officials design public
tenders to reduce bid rigging
(Design Checklist)
Tougher law
enforcement
Help procurement officials detect bid rigging
when it occurs (Detection Checklist)
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EXAMPLE- KOREA TRAFFIC
SURVEILLANCE DEVICES CASE
•
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.
Annual winnings bids
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%
* the rate between the estimated price and the price of winner
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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 subcontracting)
• Suspicious bidding patterns (e.g. ABC, ABC) and pricing
patterns
• Unusual behavior
• Clues in documents submitted by different bidders
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EXAMPLE
SERVICE
-
SWEDEN
CLEANING
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Example - India Medical Equipment
Case
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
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Example –Turkey Medical
Gas for Hospital Case
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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
voucher
Cost 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 tickets
Cost free
Cost free
Cost free
NA
Procedure for the reimbursement of lost
tickets
Cost 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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Thank you
Web link:
www.oecd.org/competition
/bidrigging
Translations available in 24
languages!
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