Bid rigging is widely acknowledged as one of the commonly used anti-competitive practices in securing contracts in public procurement. Government procurement authorities are often victimised by private sector companies through bid rigging and other price-fixing activities.

The large market value and volume of purchases of goods and services yearly by the ministries and agencies through public procurement are vulnerable to high risks of unlawful manipulations of price bidding, cartels or collusion of contractors and companies as well as abuse of power and corruption. Hence, it is important to combat bid rigging in the context of fostering competition in public procurement.

Manipulations

A Malaysian Anti-Corruption Commission (MACC) report indicated that between 2013 and 2018 among the sectors that suffered significant financial loss through public sector procurement topped the list at 43%. This was largely due to unlawful manipulations of the procurement process.

The President of the Malaysian Malay Contractors Association reportedly revealed that in the past, 10 crony companies would take part in selected tenders through bid rigging and working in cahoots with one another. In some instances, the contracts would be awarded by direct negotiation and jobs were given directly to cronies “with all sorts of excuses to justify the giving of the direct awards”.

Bid rigging in public procurement is fraud, which involves contractors and firms conspiring to increase the prices or lower the quality of goods and services in a bidding process instead of genuinely competing against each other to win a tender. Bid rigging is a type of collusive or cartel activity with uncompetitive business practices that unlawfully prevent or reduce competition in a marketplace.

The illegal bid-rigging practices in public procurement would amount to theft and fraud involving public funds. Participants in cartels usually operate in a ring of network of agents who are well-organised and resourceful to evade detection. To secure the tender contract, costs are sometimes inflated so that some money is used to bribe the procurement officials who conspire with the bidders.

Wastage

Bid rigging not only results in the wastage of public resources but can also discourage entry by competing companies, and erode public confidence in competitive procurement processes.

In Malaysia, bid rigging is prohibited by section 4(2)(d) of the Competition Act 2010 (CA 2010).

It is commendable that the Malaysia Competition Commission (MyCC), which has been given wide-ranging investigation powers to curb these practices, has been working with several government bodies, such as the Ministry of Finance and the Malaysian Anti-Corruption Commission (MACC) to weed out such malpractices.

Malaysia’s first bid-rigging case involved eight information technology companies that were fined a total of RM1.94 million in penalties for colluding to share tenders, prepare documents together and manipulate the tender price for bid-rigging in the tenders by the National Academy of Arts, Culture and Heritage (Aswara). For example, because of the bid rigging, the government had to pay RM150 million for an RM100 million contract, thus incurring a loss of RM50 million.

Given that the government spends more than RM150 billion (equivalent to almost one-fifth of total GDP) each year in procuring goods, works and services, it is critical that the Ministry of Finance, ministries, agencies and MyCC must work together and step up their efforts to combat this anti-competitive activity that costs public funds (taxpayers’ money), that could have been used for socio-economic projects such as infrastructure, healthcare, and education, among others.

Therefore, it is essential that public procurement agencies put in place appropriate laws and regulations; clear and sensible procurement practices to deal with these types of rig-bidding and collusion activities.

Detect and deter

Professional procurement officials must be trained to track all forms of bid rigging and know how to detect and deter the practice of bid rigging. A deterrence to bid rigging is to set pre-qualifications of the companies or contractors by requiring them to submit audited financial statements for recent years. Procurement officials can consider non-price factors such as quality, service, delivery terms, payment terms, warranties, etc. in the evaluation and selection processes to deter bid-rigging practices.

MyCC, the country’s first enforcement authority that acts as a quasi-judicial body with powers to investigate and prosecute, must be given sufficient autonomy and resources to deter these anti-competitive actions.

We see the need to establish cooperative relationships and collaboration between the Ministry of Finance, MyCC and MACC through the setting up of a mechanism for communication and sharing of market intelligence and information.

Media and private companies are encouraged to furnish information and evidence of anti-competitive practices in public procurement to the competition authority. It is also to establish internal procedures that encourage or require procurement officials to report suspicious statements or behaviour to the competition authority, consider incentivise officials to do so.

In addition, a policy to review selected tenders periodically; conduct interviews with vendors who no longer submit their bid; and undertake comparison checks between the list of companies that have submitted an expression of interest and companies that have submitted bids; and to identify possible manipulation trends such as price bid, reasons for bid withdrawals; and use of sub-contractors.

-- BERNAMA

Lee Heng Guie is Executive Director of the Socio-Economic Research Centre (SERC).