Bid Rigging in Public ProcurementPakistan’s Experience

AHMED QADIRDirector, Office of International AffairsCompetition Commission of Pakistan

OECD-KPC WORKSHOP ON FIGHTING BID

RIGGING

MANILA, PHILIPPINES,

20-22 APRIL 2015

Structure of this presentation

Background and basic facts.The procurement authority.What the Competition Commission can do – and what it has done – in bid rigging cases.

Background-General

Public procurement ranges from 15%-25% in Pakistan.

US$ 38 billion-65 billion per annumRegardless of the figure, such a quantum of procurement necessitates strict measures against anti-competitive practices.

Important that public money is used in an efficient, effective and economically advantageous manner.

So, what is bid rigging?

Bid rigging occurs when bidders agree among themselves to eliminate competition in the procurement process, thereby denying the public a fair price. [OECD-DETECTING BID RIGGING IN PUBLIC PROCUREMENT PG. 5]

Collusion in Public procurement in Pakistan-some findings

Bid rigging prevalent in government construction projects [large value contracts and both parties have vested interests. Transparency International [2008] said that kickbacks could reach 25% of the procurement budget.].

In most [procurement] cases, number of competitors is limited, facilitating collusion among the bidders.

Collusion more likely where the competitors know each other well- [in most cases, they do].

Trade associations – platforms that have helped facilitate bid rigging and collusion [people share information and set prices in consultation].

Collusion in Public procurement in Pakistan-some facts

Two ways in which bid rigging has generally happened:

1. A winning bidder is determined beforehand and helped by others submitting technically deficient bids or extraordinary prices [BIDS VERY DIFFERENT…]

2. Competition is limited – prices are similar and/or non-price terms and conditions are the same, making it difficult to evaluate bids […OR BIDS VERY SIMILAR]

Collusion in Public procurement in Pakistan-some facts

Public procurement is treated mainly as a downstream, largely clerical, routine buying and selling function.

Lack of integrity and transparency and no real desire to minimise the misuse of meagre resources.

Collusion in Public procurement in Pakistan-some facts

Regulatory or institutional conditions, complex and ambiguous laws, help facilitate bid rigging and corruption

e.g., licensing or other restrictions on entry or participation in markets that unnecessarily make it more difficult for firms to compete.

the possibility of collusion increases when the number of competitors is reduced.

Collusion in Public procurement in Pakistan-some facts

Generally, the LOWEST EVALUATED BID has to be accepted unless this results in a conflict with laws, rules, regulations or policies of the Federal Government.

But sometimes DISCRETION is abused when tenders contain the following conditions:

…purchaser reserves the right to disqualify any bid without assigning reason OR

“provided that a bid is substantially responsive, the purchaser may waive any non-conformity or omissions in the bid that does not constitute a material deviation.”

Public Procurement in Pakistan-the agency

The PUBLIC PROCUREMENT REGULATORY AUTHORITY (PPRA) has been tasked to develop a code of ethics for public procurement.PUBLIC PROCUREMENT RULES, 2004 aim at encouraging transparency in procurement.

Public Procurement in Pakistan-the agency

PPRA ORDINANCE, 2002 and the PUBLIC PROCUREMENT RULES, 2004 are applicable to all procuring agencies of the Federal Government.Open Competitive Bidding is the principle, default method of procurement.All procurements above the minimum threshold of PKR 100,000 (about US$1,000) are advertised.

Public Procurement in Pakistan-the agency

PPRA has become active in the last 5-6 years.

Training of the Government officials in procurement started in 2006 under a 3-year World Bank Capacity Building Project.

In 2009, PPRA training activities were formalised through the establishment of NATIONAL INSTITUTE OF PROCUREMENT (NIP).

Presently, PPRA imparts training through its own resources.

Public Procurement in Pakistan-the agency

PPRA is mainly confined to policy, documentation, development of rules, etc.Not involved in analysis of bids and line clearance functions for award of contracts.Cannot take action on procurement rules violations.

Who does what?

The tendering process has two parts.

First, tender specification document(s)

Second, biddingPublic procurement authorities deal with tender specifications.

Competition authorities mostly deal with only bidding part.

Public Procurement and the Role of the Competition Commission of Pakistan

Corruption and collusion both restrict the right to compete among suppliers and increase the price of the goods or services procured. Competition agencies can better deal with collusive practices than the procuring body – different perspectives

The Competition Act, 2010

§4 of the Competition Act, 2010 – PROHIBITED AGREEMENTS

(1) No undertaking or association of undertakings shall enter into any agreement or, in the case of an association of undertakings, shall make a decision in respect of the production, supply, distribution, acquisition or control of goods or the provision of services which have the object or effect of preventing, restricting or reducing competition within the relevant market…  

The Competition Act, 2010

(2) Such agreements include, but are not limited to

(a) Fixing the purchase or selling price or imposing any other restrictive trading conditions with regard to the sale or distribution of any goods or the provision of any service;(b) Dividing or sharing the markets for the goods or services, whether by territories, by volume of sales or purchases, by type of goods or services sold or by any other means;(e) collusive tendering or bidding for sale, purchase or procurement of any goods or service;

Background-Prosecuting corruption in procurement

The COMPETITION COMMISSION OF PAKISTAN does not have power to investigate corruption cases in public procurement.

Public Procurement and the Role of the Competition Commission of Pakistan

We found what we need is a holistic approach that includes stakeholders

Designing a holistic approach ENFORCEME

NT

ADVOCATING for policy

change and good

behaviour

Holistic Approach - Partnerships

The Competition Commission cannot work alone.

Access to relevant data issues.Partnership between the procurement regulator [PPRA] and the competition agency at the pre- and post-bidding stages would help minimise risks of corruption and collusion in bidding.

Holistic Approach - Partnerships

Memorandum of Understanding between the CCP and PPRAAccess to data and methods to analyse data (e.g., the KFTC’s BID RIGGING INDICATOR ANALYSIS SYSTEM - BRIAS)

Holistic Approach - Advocacy

Advocacy measures to improve the efficiency of public procurement

educating people on the possible harm and cost of fraud and collusion.

educate public procurement officials about what they should look for to detect bid rigging, types of fraud associated with government procurement, and what they can do to protect themselves.

Holistic Approach - Advocacy

PUBLIC HEARING on procurement issues in the power sector [17 February 2015]

Issues raised – lumping different items in one tender.

Absence of specifications or specific specifications favouring a few suppliers only.

Testing items before or after award of contract.

Bidders were not aware of the evaluation criteria prior to bidding. Procurement agencies did not disclose the basis on which the successful bidder had won the contract.

Dissimilar bidding terms and conditions for similar items in different tenders.

Holistic Approach - Enforcement

Some of our experience in bid rigging enforcement

TRACTORS SUBSIDY SCHEME (2008-09) by the Agriculture Department, Government of Punjab.

Only two local tractor manufacturers had been invited to supply tractors under the Scheme.

The CCP intervened…and the Provincial Government started negotiations with other manufacturers and importers of the tractors for the supply of tractors under the Scheme.

Holistic Approach - Enforcement

PAKISTAN AGRICULTURE STORAGE AND SUPPLY CORPORATION LIMITED for procurement of storage bags for wheat.

10 Jute Mills had provided PASSCO jute bags at the same rates and in the same quantities over the previous three years.

Evidence gathered in a search-and-inspection in July 2010 – mills and association routinely discussed prices and quantities and quoted the same to PASSCO.

Holistic Approach - Enforcement

PESHAWAR ELECTRIC SUPPLY CORPORATION [PESCO] for procurement of Poles

Four companies entered into a “joint venture” agreement for the purpose of the tender.

Joint venture was simply a cover agreement for collusion and one company was given responsibility to submit the bid individually.

Holistic Approach - Enforcement

FAISALABAD ELECTRIC SUPPLY CORPORATION [FESCO] for procurement of 3,000 meters

Three bidders, each quoted the same price (PKR 9,450) and the same quantity (1,200 units) bids not competitive.

Obviously, no one supplier could fulfil the tender so each got a share of the pie.

For more information…

Our website has our inquiry reports and orders available on it

cc.gov.pk

THANK YOU VERY MUCH

Bid Rigging in Public ProcurementPakistan’s Experience

OECD-KPC WORKSHOP ON FIGHTING BID

RIGGING

MANILA, PHILIPPINES,

20-22 APRIL 2015