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
items in price offer of the winning bidder (company A).
WARNING SIGNS RELATED TO PRICING
(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
items in price offer of the winning bidder (company A).
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.
WARNING SIGNS RELATED TO PRICING
(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
WARNING SIGNS RELATED TO PRICING
(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
Lockable metal box to store and lock the PC and the monitor and other accessories. Internal dimensions (min.) 480x600x500
Lockbale metal box. Internal dimensions: 480x600x500
The bid documents of the company B
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
Lockbale metal box. Internal dimensions: 480x600x500
Identical spelling
error
Identical spelling
error
Red flags
WARNING SIGNS IN ALL DOCUMENTS SUBMITTED
(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
WARNING SIGNS IN ALL DOCUMENTS SUBMITTED
(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
Reference to competitorsʼs
bid
Reference to competitorsʼs
bid
Red flags
WARNING SIGNS IN ALL DOCUMENTS SUBMITTED
(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
Reference to competitorsʼs
bid
Reference to competitorsʼs
bid
Red flags
WARNING SIGNS IN ALL DOCUMENTS SUBMITTED
(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
Reference to competitorsʼs
bid
Reference to competitorsʼs
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
For any further information related to the Slovak competition authority:
http://www.antimon.gov.sk/ or
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