Confronting collusion in public procurement
Posted by John Cutt on September 13, 2016
Back in June, the Competition & Markets Authority (CMA) published an open letter to procurement professionals announcing new guidance and learning resources designed to help combat collusion between suppliers bidding for public contracts. Along with a text summary, the new resources include an e-learning module and some admirably accessible and informative animated videos. Unsurprisingly, this development in the battle against illegal anti-competitive practices received a warm reception in procurement circles, with the Chartered Institute of Procurement and Supply and the Local Government Association making the resources available to their members. This move can be seen as a small but positive step forward in efforts to protect the public sector’s reputation as a fair and transparent place to do business and should be applauded.
We last touched on this subject in 2009 following a round of fines imposed by the Office of Fair Trading (superseded in 2014 by the CMA) on over one hundred construction firms found to be guilty of bid rigging. The size and stature of many of the companies involved was surprising: not so much dodgy purveyors of rickety garage conversions, more a who’s who of premier league construction companies. Some in the industry expressed concern over potential job losses resulting from the fines, but we felt that these sanctions were not overly punitive when framed as a percentage of turnover. Indeed, some of the firms had their fines reduced substantially under the CMA’s leniency policy in return for confessing when first confronted.
No one would wish to see the reputation of an otherwise trustworthy company besmirched and it’s financial position damaged by the selfish excesses of a few well placed bad apples, but there must be sanctions against illegal activities and the guilty parties were fortunate to avoid being blacklisted from public contracts altogether. The new guidance is a reminder that this problem has not gone away: cartels remain a corrosive and costly reality for both the public sector and the wider business world. Legal deterrence and enforcement only go so far, as there will always be those to whom greed eclipses all other considerations. Accordingly, perpetual vigilance is vital and it is incumbent on all parties involved – buyers, law-abiding suppliers and whistleblowers – to act as the first line of defence. So how exactly do the cowboys cheat the system? The CMA outlines three common forms of collusion:
Cover pricing – the submission of one or more bids with inflated pricing in order to make another “agreed” bid more attractive to the buyer
Bid suppression – suppliers agree to refrain from bidding in return for a payment or other incentive, such as the promise of a sub-contract
Bid rotation – an arrangement usually involving cover pricing and/or bid suppression whereby two or more suppliers collude to “take turns” to win mutually desirable contracts
These sorts of shenanigans can be very difficult for buyers to spot, especially so if the services or products being procured do not fall under their areas of expertise. A mere handful of well-placed individuals can concoct a cunning conspiracy that is difficult to detect without protracted surveillance and thorough investigation, so it remains the case that many instances of cartel behaviour will be discovered belatedly or not at all. Deterrence and prevention are preferable to retrospective enforcement, so any individual or organisation in possession of hard evidence or privy to inside information is advised to tip off the CMA on the cartels hotline.
Value for money is central to public procurement policy: when the state does not receive the best possible deal from the private sector, it is those who pay taxes and utilise public services who lose out. Commercial suppliers are perfectly entitled to make a substantial profit from a public contract as long as they act in good faith and satisfy contractual obligations to the best of their ability, but shameless and illegal profiteering from public sector budgets cannot be meekly accepted. While it is right that leniency is considered when imposing sanctions, failure to enforce the law robustly will only embolden those willing to rip off the taxpayer. Blacklisting companies from public contracts permanently may be a harsh course of action, but when faced with blatant defiance of the law and contempt for civic responsibility all options must be considered. For those who wish to buy and supply on a level playing field, increased awareness and willingness to intervene can play a critical role in supporting legal enforcement.
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