By Mariia Melnyk
One of the biggest risks to the integrity and lawfulness of public procurement is bidder collusion, also called bidder conspiracies or cartels. Cartels engage in price fixing and this is often accompanied by a decline in quality and innovation. OECD research shows that public procurement averages around 12% of GDP across OECD countries so money spent on improving procurement systems and practices is money well spent.
The OECD Recommendation on Fighting Bid Rigging in Public Procurement was developed to support governments and procurement bodies in their fight against bidder collusion. This Recommendation and accompanying guidelines are a recognised global standard for better procurement laws and practices that are used by numerous governments and procurement bodies looking to increase competition in public tenders.
This global standard has been used most recently to assess Ukrenergo, Ukraine’s state-owned energy company and transmission system operator. The assessment shows that Ukrenergo has made great efforts to professionalise its procurement, focusing to date on strong safeguards against fraud and corruption to tackle systemic inefficiency, corruption and embezzlement in public spending in Ukraine. Bidder collusion has been addressed by setting competitive reference prices. No other safeguards or measures are in place, and no suspicion of bid rigging has been reported to the Antimonopoly Commission of Ukraine (AMCU) by Ukrenergo.
In its recommendations to Ukrenergo, the OECD suggests that tender design and preparation can be improved to increase bidder numbers and enhance efforts to detect bidder collusion. With this in mind, Ukrenergo can start using Ukraine’s e-procurement system ProZorro to improve detection of suspicious signs for supplier collusion.
ProZorro stores procurement information from tender announcement to payment upon the completion of the contract. This will enable Ukrenergo to identify similar tenders for prices, suppliers and products, and to understand the market in question, including elements that may make collusion more likely. For example, a small number of suppliers and standardised or simple products heighten the risk of cartels forming.
Ukrenergo procurement officials will also be able to check tenders for signs of bidder collusion. Bid rigging cartels are difficult to detect since they are illegal and kept secret. Clues that may raise suspicions include: documents that contain identical mistakes, phrases, numbers, or contact information; unexpected withdrawal of bids; joint bids from two or more companies who would normally bid separately; sudden price increases that cannot be explained by a corresponding cost increase; or unsuccessful bids that come in much higher than the winning bid.
ProZorro compiles data on the number of bidders, the successful bidder, prices of tender proposals and the final price, information on joint bids and sub-contractors, and grounds for tender cancellations. Analysis of these data will allow Ukrenergo procurement officials to detect potentially suspicious supplier behaviour.
In addition to ProZorro, Ukraine has launched the DoZorro electronic portal that allows citizens to monitor public procurement and provide feedback to the state customer or supplier, society or law enforcement agencies on the procurement procedure, and to discuss and evaluate the conditions of a particular procurement. DoZorro helps to analyse purchases on the ProZorro system by using different indicators, customising tables and graphs, or creating metrics. Organisations such as Transparency International (Ukraine) and the Anti-Corruption Action centre monitor public procurement. The OECD’s assessment records that both organisations have submitted over 4500 suspicions of bidder collusion cases to the AMCU to date.
When a bid rigging cartel is suspected, these suspicions should not be shared with bidders as they are likely to destroy evidence. It is important to keep all documents and records related to the tender, as they may eventually serve as evidence.
If a procurement body’s internal competent departments (procurement and compliance and/or legal department) suspect that collusion has taken place, they must contact the AMCU who will then take on the case.
Combatting bid rigging is crucial to ensuring that public procurement procedures are competitive and that the public sector has opportunities to maximise value for money. Staying vigilant and using available tools for tender analyses will make a critical contribution. This will also send a clear signal to suppliers that procurers will no longer tolerate illegal anti-competitive practices.