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Confronting collusion in public procurement

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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We last touched on this subject in 2009 following a round of fines imposed by the Office of Fair Trading (superseded in 2014 by the CMA) on over one hundred construction firms found to be guilty of bid rigging.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:

 

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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.

 

To find out more about how Millstream’s array of procurement services can help your organisation, visit our websites:

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Categories: Uncategorized

3 replies »

  1. Thanks for your comment, Dawn! I agree that the “big boys” still have an inbuilt advantage in terms of the resources at their disposal (even if they’re not cheating!). As you know, the bidding process can be all-consuming for an SME with limited staffing but far less taxing for a larger operator. After Brexit, doing everything possible to support SMEs is vital and perhaps taking steps to streamline the bidding process for smaller operators could be part of that. Perhaps we should all be lobbying our MPs to raise the political profile of public procurement issues…

  2. The procurement and tender system is just shutting out the smaller supply companies due requested turnovers and certifications you could use as wall paper only allowing the “Big Boys ” to stay in the game the whole thing becomes a “paper Exersie” Companies seeking a good reliable hard working practical and street wise supplier should be allowed to do so without the red tape and huge expense involved in the tendering system. Brexit was a long time comming lets hope it will allow the smaller companies to get back on the street map again!!!!

    • Hi Dawn,

      It’s not the EU regulations that require all of the red tape, it is the buying organisations themselves who impose the requirements for financial turnover, QA certifications, etc. Although the EU usually gets the blame, in fact the European regulations have done a lot to try and level the playing field for smaller companies. The EU are in the process of introducing the European Single Procurement Document (ESPD) which greatly simplifies the qualification process and means that you don’t have to submit copies of documentation until you have been selected as the winning candidate.

      Brexit won’t make any difference to the public tendering process in the short or the medium term. Indeed one possible outcome is that the UK opts out of the ESPD requirement which will actually make it more difficult for UK smaller companies to compete.

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