Fighting cartels in public procurement

Blog | September 24, 2015

Combatting cartels in public procurementGovernments spend a significant amount of taxpayers’ money on the procurement of goods and services. However, if these processes are compromised, can the public be confident they are getting the best value for their taxes?

From massive infrastructure projects and contracted services right down to textbooks and toilet rolls, public procurement processes have a huge impact on the efficiency of public services.

The price of compromise

Ensuring that public procurement is run with truly competitive and open bidding is key. Any compromising of the procurement process is likely to result in unnecessarily inflated prices. It could even mean a reduction in the quality of goods and services received.

A compromised process could be the result of collusion between suppliers – bid-rigging or cartelisation – or it could involve pollution between public officials and suppliers (corruption). Cartelisation is, of course, a serious offence but can be challenging to identify and expose. However, fighting cartels in public procurement needs to be given serious focus.

Bid-rigging and cartels

In a cartel, competing firms agree to control prices or exclude the entry new competitors in a market. It leads to the fixing of selling prices, buying prices or the reduction of supply using a range of tactics.

As well as artificially increasing prices, preventing free competition cab also have non-financial implications. It can mean the range of potential products or solutions are limited or even that they have less access to innovation.

Approaches to curbing bid-rigging

Typically, bid-rigging is addressed by enforcing competition laws and educating public procurement bodies to design efficient procurement processes. Of course, these approaches are based on the assumption that there is no collusion between personnel from the buyer and suppliers.

There are a number of additional measures that can help with combatting cartels in public procurement processes. They are centred on the application of technology in the procurement process. Anti-collusive eTendering needs the following features:

  • Bidder data should be anonymised so that neither the number of bidders or their identities are known during the progress of tender.
  • Payments relating to each tender (such as document fees, servivce provider fees or earnest money deposits) should be collected online in such a way as to prevent those with access to the tender from identifying the bidders. The availability of any information that allows the identification of bidders immediately raises the possibility of collusion.
  • The system needs to guarantee that any ‘tampering’ with bid information is evident. This requires the appropriate use of encryption or information and access.
To find out how next-generation eProcurement delivers secure bidding and combats procurement process subversion, contact us to arrange a demo or read our guide to the Nextenders’ Secure Bid Process.