key strategies for fighting bid rigging in public procurement

KEY STRATEGIES FOR
FIGHTING BID RIGGING IN
PUBLIC PROCUREMENT
THE OECD PERSPECTIVE
Antonio Capobianco
Senior Competition Law Expert
Competition Division, OECD
Santa Marta, 20-21 November 2014
[email protected]
THE PROBLEM
2
THE PROBLEM
3
THE PROBLEM
4
THE PROBLEM
5
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 !!
6
PUBLIC PROCUREMENT MATTERS
BECAUSE…
General government procurement as share of GDP
%
25.0
22.5
20.0
17.5
15.0
12.97
12.5
10.0
7.5
5.0
2.5
0.0
Source: OECD National Accounts Statistics. (2011)
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PUBLIC PROCUREMENT MATTERS
BECAUSE…
General government procurement as share of total general government
expenditures
%
50
45
40
35
30
28.95%
25
20
15
10
5
0
Source: OECD National Accounts Statistics. (2011)
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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
12
15.75
12.75
102-104
36.7
34.6
Weighted
average
Source: Connor and Bolotova (2006)
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KEY STRATEGIES TO FIGHT BID
RIGGING
• 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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OECD GUIDELINES - 2009
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OTHER GUIDELINES
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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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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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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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EXAMPLE – MEXICO IMSS CASE (2)
2003-2005: Winning bids from the 4
principal suppliers (L14, L07, L01 and L15)
high, almost identical and stable.
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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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Examples of successful detection
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WARNING SIGNS IN DOCUMENTS
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WARNING SIGNS IN DOCUMENTS
Exhibits from Medical Gas Case (1)
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WARNING SIGNS IN METADATA
•
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
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WARNING SIGNS IN METADATA
•
The two companies used computer with the same IP address when bidding for
the “service of coastline survey and database construction in 2008”
•
Representatives of the two companies were the same in their papers submitted
for the bidding process.
•
The Board of Audit and Inspection of Korea informed the KFTC of a possible bid
rigging scheme in October 2009 after inspection of the Public Procurement
Service.
Bidder
Representative Date & Time IP address
of bidding
Successful
bidder
Company A
Jin-won Lee
08/04/2008
11:31:24
same
O
Company B
Jin-won Lee
08/04/2008
11:35:15
same
X
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WARNING SIGNS IN PATTERS
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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WARNING SIGNS IN DOCUMENTS
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WARNING SIGNS IN DOCUMENTS
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WARNING SIGNS IN DOCUMENTS
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IN PRACTICE WHAT DOES THIS MEAN?
Procurement
Rules
Advocacy
Enforcement
• Coordinated efforts to develop best
practices
• Education of officials, business, media
• Advocacy to government and legislators
• Strong sanctions
• Inter-agency co-operation
3030
WHO DO WE COUNT ON?
• MoUs
Contracting
authorities
• Co-operation
agreements
• Interagency
committees
Competition
authorities
Auditors
Cooperation
and
coordination
Core to success
• Informal cooperation
• Contact points &
reporting lines
• Requests for
advice
Public
prosecutors
Anticorruption
authorities
• Formal tools
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WHERE TO FIND THE OECD
GUIDELINES?
Web link:
www.oecd.org/competition/
bidrigging
Translations available in 26
languages!
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KEY STRATEGIES FOR
FIGHTING BID RIGGING IN
PUBLIC PROCUREMENT
THE OECD PERSPECTIVE
Antonio Capobianco
Senior Competition Law Expert
Competition Division, OECD
Santa Marta, 20-21 November 2014
[email protected]