FIGHTING BID RIGGING IN

PUBLIC PROCUREMENT

-

THE OECD PERSPECTIVE

Antonio Capobianco

Senior Competition Law Expert

Competition Division, OECD

Utrecht, 7 October 2016

Antonio.Capobianco@oecd.org

• 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

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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)

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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

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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

Antonio.Capobianco@oecd.org