Bid rigging is harmful to the economy the agency inviting bids and to the public that ultimately has to bear the cost as taxpayers and consumers.
Often, competitors agree in advance on who will submit the winning bid on a contract to be awarded through a competitive bidding process. A common objective of engaging in bid rigging is to push up the price of the winning bid in a way that facilitates the sharing of the spoils by others. Bid rigging, or collusive tendering occurs when businesses that would otherwise be expected to compete, secretly conspire to raise prices or lower the quality of goods and services for purchasers who wish to acquire products or services through a process.
According to Public Procurement and Asset Disposal Board, a total of 21 large construction companies had participated in bid rigging in 300 construction projects with a total value of R47 billion. The projects included stadia, dams, retail centres, mines and roads. The total value of penalties agreed through settlements was R1.46 billion. “Big rigging can happen anywhere and anytime, hence we all need to be aware of it, and find ways of detecting it,” says board executive chairperson Bridget John. She acknowledges that big rigging agreements, as it is the case with other corrupt practices, can be difficult to detect as they are typically negotiated under the cloak of secrecy. Therefore, stakeholders need market intelligence and to be vigilant throughout the entire procurement process to understand market dynamics and players.
According to John, conducting market research prior to procurement is useful in terms of informing the packaging of procurement activities and preparing reasonable cost estimates to discourage bid rigging tendencies by widening the scope of participation and increasing the chances of fair competition. “Certain bidding patterns and practices that seem at odds with a competitive market may suggest the possibility of collusive tendering,” she states.
The first step to detecting big rigging when businesses are submitting bids include the same supplier often being the lowest bidder and regular suppliers failing to bid on a tender they would normally be expected to bid for, but have continued to bid for other tenders. Further, the winning bidder repeatedly subcontracts work to unsuccessful bidders. Warning patterns related to pricing include sudden and identical increase in price or price ranges by bidders that cannot be explained by cost increases. Other identified signs are identical pricing and anticipated discounts or rebates disappearing unexpectedly, says John. In its financial year ended March 2013 report, the income of the Board was P40 million out of which P35.5 million, including capital grant of P4.2 million was government grant.
The Board got a boost of P-6 million from contractor registration fees and P500 000 from capacity building workshops for procuring entities and bidding community. A total of 5 762 submissions for registration were received, compared to 2 616 during the previous year, showing 120 percent increase.