how to detect cartel in public procurement · how to detect cartel in public procurement ......

Lucia Kasenčáková

How to detect cartel in public procurement

The views expressed in this presentation are personal and do not commit the Antimonopoly Office of the Slovak Republic

• The meaning of cartel in public procurement (bid rigging)

• Why is bid rigging harmful to competition?

• What to look out for if you suspect bid rigging (so called „red flags“ or „checklist for detecting bid rigging“)

• Example of indications of anticompetitive behaviour in recent bid rigging cases of the Slovak competition authority

• Evaluation of bid rigging indicators

• Usefull links and interesting reading

Outline of presentation

cartel in public procurement = collusive tendering = bid rigging

specific form of a cartel

bid rigging can emerge in public sector or private sector

bid rigging is agreement and/or concerted practice between two or more competitiors aimed at coordinating their behaviour on how they will formulate their responses to private or public tenders in order to enforce their position in tender.

objective of bid rigging – to knowingly substitute for the risks of competition practical cooperation between undertakings (hard-core cartel and restriction by object)

fighting cartels and bid rigging is a top priority of most competition authorities

Cartel in public procurement (bid rigging)

administrative offence (according to § 4 of the Slovak Competition Act, § 3 of the Czech Competition Act and Art. 101 of the TFEU)

a claim for compensation for harm caused by an infringement of competition law (the implementation of the rules of claim for damages laid down in the Directive 2014/104/EU)

criminal offence (according to § 250 of the Criminal Code - abuse of participation in competition and § 267 of the Criminal Code - machination in public procurement)

disqualification from public procurements

Legal consequences of bid rigging

eliminates competition in the procurement process

significantly increases prices of good and services

the purchaser pays more - inefficient use of money

has negative impact on the business environment - for the other competitors (not engaged in the bid rigging) bid rigging creates barrier to entry

diminishes public confidence in the competitive process

Economical consequences of bid rigging

Consequences of bid rigging

Direct or indirect price fixing

Market sharing

Limitation or control of production, markets, technical development, or investment

Exchange of sensitive commercial information, particularly on marketing strategy and pricing

Forms of bid rigging

cartels - by their nature hidden and secret

evidence – often fragmentary and sparse often without direct evidence the existence of an anti-competitive practice or agreement must be inferred

from a number of coincidences and indicia which, taken together, may, in the absence of another plausible explanation, constitute evidence of an infringement of the competition rules

• red flags - certain factors that may indicate that the bids submitted by competitors as a result of an independent business strategy are in fact result of a cartel agreement

Red flags

Red flags The same supplier is often the lowest bidder

There is a allocations of winning tenders (bid rotation) - each company seems to take a

turn being the winning bidder

Competitors agree not to compete for certain customers or in certain geographic areas

(market allocation)

Cover bidding

One or more competitors agree to submit a bid that is higher than the bid of the

designated winner

One or more competitors agree to submit a bid that is known to be too high to be

accepted

One or more competitors agree to submit a bid that contains special terms that are

known to be unacceprable to the purchaser

Certain competitors always submit bids but never win

Bid suppression

One or more competitors unexpectedly withdraw from bidding

One or more competitors agree to refrain from bidding

SUSPICIOUS BIDDING PATTERNS AND PRACTISES

(I.)

Red flags Fewer rivals submit their bids than usually

Regular suppliers fail to bid on a tender they would normally be expected to bid for,

but have continued to bid for other tenders

Only a single bidder contacted the suppliers of some components or has been finding

the information on their prices necessary to submit a bid

Two or more companies submit a joint bid even tough at least one of them could have

bid on its own

The winning bidder repeatedly subcontracts work to unsuccesful bidders

“Prey” sharing

Competitor gives up a bid for bargaining counter

The designated winner accepts the condition to cover the costs connected with bid

submitting to other tenderers

The winning bidder does not accept the contract and is later found to be a

subcontractor

There are potential connections between suppliers submitted bids

SUSPICIOUS BIDDING PATTERNS AND PRACTISES

(II.)

Red flags A large difference between the price of a winning bid and other bids

There are significant reductions form past price levels after a bid from a new or

infrequent supplier (e.g. new supplier may have disrupted an existing bidding cartel)

Only one bidder contacts whosalers for pricing information prior to a bid submission

Sudden and identical increases in price or price ranges by bidders that cannot be

explained by cost increases.

Price of the unsuccessful companies were regularly higher than the price for the corresponding

items in price offer of the winning bidder (company A).

WARNING SIGNS RELATED TO PRICING

(I.)

Product Company A Company B Company C

Product X 18,20 19,70 21,20

Product Y 40,00 41,50 43,00

Product Z 10,00 11,50 13,00

prices of company B have been increased by a regular and

identical increase in the amount of € 1.5 compared with the

winning bidder (company A)

prices of company C have been increased by a regular and identical

increase in the amount of € 1.5 compared with the

bidder in the second place (company B)

Red flags Several suppliers use a common formula or method of calculation to determine

prices („index“)

Price of the unsuccessful companies were regularly higher than the price for the corresponding



(II.)

Product Company A Company B Company C

Product X 18,20 19,11 18,38

Product Y 40,00 42,00 40,40

Product Z 10,00 10,50 10,10

prices of the company B have been determined by multiplying the bid of the

successful bidder (company A) through an

index 1,05

prices of the company C have been determined by multiplying the bid of the

successful bidder (company A) through an

index 1,05

Red flags Price of the unsuccessful companies were regularly higher than the price for the corresponding


Identical pricing can raise concerns especially when one of the following is true:

Suppliers' prices were the same for a long period of time,

Suppliers' prices were previously different from one another,

Suppliers increased price and it is not justified by increased costs, or

Suppliers eliminated discounts, especially in a market where discounts were

historically given.


(III.)

Product Company A Company B Company C Company D

Product X 1,38 1,45 1,51 1,56

Product Y 98,00 103,00 107,00 110,00

Product Z 41,50 43,50 45,00 46,50

prices of the company B have been determined

by multiplying the bid of the successful bidder

(company A) through an index 1,05

prices of the company D have been determined by multiplying the bid of the

company C) through an index 1,03

prices of the company C have been determined by multiplying the bid of the

company B through an index 1,04

Red flags Anticipated discounts or rebates disappear unexpectedly

A certain supplier's bid is much higher for a particular contract than that supplier's bid for

another similar contract

Local suppliers are bidding higher prices for local delivery than for delivery to

destinations farther away

Similar transportation costs are specified by local and non-local companies

Unexpected features of public bids in an auction, electronic or otherwise


(IV.)

Red flags

WARNING SIGNS IN ALL DOCUMENTS SUBMITTED

(I.)

Identical mistakes in the bid documents or letters submitted by different companies,

such as spelling errors, printing errors (the same smears printer)

Internal code

Name of item

Details Commentary on the budget (by the contracting authority)

The explanation of the bid documents by the contracting authority

2.3.2.2. PC tower case

Lockable metal box to store and lock the PC and the monitor and other accessories. Internal dimensions (min.) 480x600x500

ICT, an equipped classrooms: lockable metal box to store and lock the PC and the monitor and other accessories. 25 pieces

Internal code

Name of item

Details Specific offer

The bid documents of the company A

2.3.2.2.

PC tower case


Lockbale metal box. Internal dimensions: 480x600x500

The bid documents of the company B

2.3.2.2.

PC tower case


Lockbale metal box. Internal dimensions: 480x600x500

Identical spelling

error

Identical spelling

error

Red flags


(II.)

Bids from different companies contain the same or similar handwriting or typeface

or use identical forms or stationery

Bids from different companies contain identical miscalculations

Bids from different companies contain a significant number of identical estimates of

the cost of certain items

The packaging from different companies has similar postmarks or post metering

machine marks

Bids from different companies are sent from the same email address, from the same

fax number or it is obvious that the companies submitted bids were at the same time

through a single countier

Bid documents from different companies indicate numerous last minute

adjustments, such as the use of erasures or other physical alterations

Bid documents submitted by different companies contain less detail than would be

necessary or expected, or give other indications of not being genuine.

Red flags


(III.)

Bid documents from one company make express reference to competitorsʼs bids or

use another bidder's letterhead or fax number

All the companies submitted bids with different final price (expressed numerically), even

though in the bid document (particularly in draft contract for work) all the companies put the

same final price expressed in words:

Company The final price

expressed numerically The final price expressed in words

A (the lowest bid) 2 023 999,98 two milion twenty-three tousend nine hundred ninety-nine euros and nine-eight cents

B - two milion twenty-three tousend nine hundred ninety-nine euros and nine-eight cents

C 2 179 026,72 two milion twenty-three tousend nine hundred ninety-nine euros and nine-eight cents

D 2 116 387,46 two milion twenty-three tousend nine hundred ninety-nine euros and nine-eight cents

Reference to competitorsʼs

bid


bid


bid

Red flags


(V.)

Competitor A used in his bid documents another bidder's (the successful bidder) letterhead:

Podnikateľ B uviedol nesprávny prepočet z € na Skk – sumu v Skk uviedol rovnakú ako

podnikateľ A, a to napriek tomu, že obaja podnikatelia podali odlišnú cenovú ponuku

vyjadrenú v €:

B, seated at Main Road 1, Bratislava Price offer Date to tender a bid: 11.10.2011

A, seated at Bridge Street 2, Košice

Product Quantity Unit price Vat amount Total price

Price offer – A, seated at Bridge Street 2, Košice

Supply and Instalation (€) 9 453

Supply and Instalation (Skk) 284 781,34

Price offer – B, seated at Main Road 1, Bratislava

Supply and Instalation (€) 9 535,97

Supply and Instalation (Skk) 284 781,34


bid


bid

Red flags


(II.)

Unsuccessful bidders (companies B and C) put the identical final price as successful bidder

(company A), even though unit prices of successful bidder were at lower level:

Identical irregularities in the documents, e.g. sorting documents in wrong order, sorting

products in wrong order, incorrect numbering of pages

Documents in electronic form show that they were created or modified by one person

Product Quantity

Company A Company B Company C

Unit price

Total price

Unit price

Total price

Unit price

Total price

Product X 15,800m² 11,20 176,96 11,50 176,96 113,10 176,96

Product Y 15,800m² 3,96 62,57 4,00 62,57 3,87 62,57

Product Z 0,380 t 2 530,00 961,40 2 600,00 961,40 2 538,00 961,40


bid


bid

Red flags Spoken or written references to an agreement among bidders

Statements that bidders justify their prices by looking at “industry suggested prices”,

“standard market prices” or “industry price schedules”

Statements indicating that certain firms do not sell in a particular area or to particular

customers

Statements indicating that an area or customer “belongs to” another supplier

Statements indicating advance non-public knowledge of competitorsʹs pricing or

bid details or foreknowledge of a firmʹs success or failure in a competition for which

the results have yet to be published

Statements indicating that a supplier submitted a courtesy, complementary, token,

symbolic or cover bid

Use of the same terminology by various suppliers when explaining price increases

A company submits both its own and a competitorʹs bid and bidding documents

A bid is submitted by a company that is incapable of successfully completing the

contract (formal bidding)

Several bidders make similar enquiries to the procurement agency or submit similar

requests or materials

SUSPICIOUS STATEMENTS AND BEHAVIOUR

Identical or simple products or services

Few if any substitutes

Little or no technological change

Industry associations

High market concentration exists

Repetitive bidding

Relatively high barriers to entry market exist

Market conditions – high level of market transparency exists

Supporting factors of bid rigging

• Be on guard throughout the entire procurements process and during preliminary market research as well

• Do not forget that the presence of the certain bid rigging indicators should not be automatically taken as proof of cartel, if there is objectively justified explanation for their existence

• If you suspect that bid rigging is occurring:

▫ Do not discuss your concerns with suspected participants

▫ Keep all documents (bid documents, correspondence with participants etc.) and record all suspicious behaviour so that they can be established over time

▫ Contact the relevant competition authority

• Consider whether it is appropriate to proceed with the tender offer

Evaluation of bid rigging indicators

Maximising transparency without allowing sharing of commercially sensitive information

E-procurement procedure with open tender mechanism and do not allow to procurement tools to facilitate collusion (provided evidence of bid rigging in the process)

Certificate of Independent Bid Determination (CIBD)

Redesign of the procurement process

Education of officials/employees on rules against collusion and/or corruption and how to identify the anticompetitive or corrupt activity in procurement

Development of a „culture of compliance“

How to reduce risk of bid rigging?

„Also an undertaking, that is not active on the cartelised market, can be held liable for collusive conduct such as bid rigging.“

- e.g. consultancy firm, project manager, the person responsible for the tendering procedure etc. – undertaking active on a market that is separate from that on which the bidders operate

- Conditions for liability of facilitator:

- the undertaking has contributed to the restriction of competition, even in a subsidiary, accessory or passive role, e.g. by tacitly approving the cartel and by failing to report it to the administrative authorities

- the undertaking intended, through its own conduct, to contribute to the common objectives pursued by the participants as a whole, or that it could reasonably have foreseen that conduct and that it was ready to accept the attendant risk.

Cartel facilitators

Cases: - Organic Peroxides – (AC-Treuhand - a consultancy firm) – EC Decision OJ 2005

L110/44) - Heat Stabilisers – (AC-Treuhand - a consultancy firm) – judgments C-194/14 P,

T-27/10, T-99/04 (EC Decision – case number COMP/38.589) - Cartonboard (a fiduciary company) – (EC Decision OJ 1994 L243/1) - Italian Gast Glass (a fiduciary company) - (EC Decision OJ 1980 L383/19) - The SCA Decision 2014/KH/1/1/023 (two facilitators - the person responsible for

the tendering procedure and project manager) - The SCA Decision 2015/KH/1/1/023 (one facilitator - the person responsible for

the tendering procedure) See to that effect the judgments in: - Anic Partecipazioni v Commission - C-49/92 P - Aalborg Portland and Others - C-204/00 P, C-205/00 P, C-211/00 P, C-213/00 P,

C-217/00 P and C-219/00 P - Dansk Rørindustri and Others v Commission - C-189/02 P, C-202/02 P, C-205/02 P

to C-208/02 P and C-213/02 P - Coats Holdings Ltd a J & P Coats Ltd v Commission - T-36/05

Cartel facilitators

• Decision Nr. 2015/KH/1/1/039 of 26.10.2015 • Decision Nr. 2015/KH/1/1/038 of 30.09.2015

• Decision Nr. 2015/KH/1/1/015 of 25.05.2015

• Decision Nr. 2015/KH/1/1/016 of 25.05.2015

• Decision Nr. 2014/KH/1/1/023 of 07.08.2014 • Decision Nr. 2011/KH/1/1/038 of 28.09.2011

• Decision Nr. 2005/KH/1/1/137 of 23.12.2005

Decisions of the SCA on bid rigging cases based on indirect evidence:

www.antimon.gov.sk

• Kartelové dohody vo verejnom obstarávaní (SK)

• Indície protisúťažného správania podnikateľov v procese verejného obstarávania (SK)

• Indications of anticompetitive conduct of entrepreneurs within public procurement (ENG)

www.oecd.org

• Guidelines for fighting bid rigging in public procurement (ENG)

• Detecting bid rigging in public procurement (ENG)

Guidelines on bid rigging

Usefull links and interesting reading

http://www.antimon.gov.sk/

http://www.oecd.org/

For any further information related to the Slovak competition authority:

http://www.antimon.gov.sk/ or

@PMUSR_tweetuje

http://www.antimon.gov.sk/