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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
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
POTENTIAL DAMAGES FOR TAX PAYERS
CAN BE SIGNIFICANT !!
Bid rigging can raise prices significantly
(up to 20% or more)
6
PUBLIC PROCUREMENT MATTERS
BECAUSE…
12.97
0.0
2.5
5.0
7.5
10.0
12.5
15.0
17.5
20.0
22.5
25.0
%
General government procurement as share of GDP
Source: OECD National Accounts Statistics. (2011)
7
PUBLIC PROCUREMENT MATTERS
BECAUSE…
28.95%
0
5
10
15
20
25
30
35
40
45
50
%
General government procurement as share of total general government expenditures
Source: OECD National Accounts Statistics. (2011)
8
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
Weighted
average
102-104 36.7 34.6
Source: Connor and Bolotova (2006) 9
10
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)
11
BID RIGGING CASES FROM AROUND
THE WORLD
12
OECD GUIDELINES - 2009
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OTHER GUIDELINES
14
OECD GUIDELINES FOR FIGHTING BID
RIGGING
Best practices in OECD countries Source
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
15
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
16
Examples of effective tender design
17
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
18
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 – MEXICO IMSS CASE (2)
19
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 bidders 20
Examples of successful detection
21
22
WARNING SIGNS IN DOCUMENTS
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Exhibits from Medical Gas Case (1)
WARNING SIGNS IN DOCUMENTS
WARNING SIGNS IN METADATA
24
• 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
Bidder Representative Date & Time of bidding
IP address 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
25
• 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.
WARNING SIGNS IN METADATA
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
26
27
WARNING SIGNS IN DOCUMENTS
28
WARNING SIGNS IN DOCUMENTS
29
WARNING SIGNS IN DOCUMENTS
IN PRACTICE WHAT DOES THIS MEAN?
• Coordinated efforts to develop best practices
Procurement Rules
• Education of officials, business, media
• Advocacy to government and legislators Advocacy
• Strong sanctions
• Inter-agency co-operation Enforcement
30 30
31
WHO DO WE COUNT ON?
Cooperation and
coordination
-
Core to success
Contracting authorities
Auditors
Anti-corruption authorities
Public prosecutors
Competition authorities
• MoUs
• Co-operation
agreements
• Interagency
committees
• Informal co-
operation
• Contact points &
reporting lines
• Requests for
advice
• Formal tools
WHERE TO FIND THE OECD
GUIDELINES?
Web link:
www.oecd.org/competition/
bidrigging
Translations available in 26
languages!
32
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
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