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Bid rigging harms growth of economy (2019)

APART from the oil and gas sector, Brunei Darussalam’s economy is also largely dependent on government-driven projects or activities that involve public procurement, said the Department of Economic Planning and Development (JPKE) under the Ministry of Finance and Economy, in a statement.

“In 2017, the estimate of public procurement activity was valued at around 19 per cent of the country’s Gross Domestic Product (GDP),” said the JPKE.

“This is a significant proportion, which deserves attention to ensure efficiency and cost effectiveness in ensuring value for money, minimising wastage and potentially making savings on government spending.

“These activities have a big implication on the performance of the markets or sectors involved in the supply chain from inputs, to outcomes. An efficient sector means more growth opportunities for small and medium enterprises (SMEs), leading to overall growth of the economy.”

The statement further said that public procurement involves bidding or tendering, to ensure good value for money and efficient use of government resources, “however, it cannot be assumed that competition process comes naturally as reported in many studies.

“The Organisation for Economic Cooperation and Development (OECD) studies have reported that bid rigging is not uncommon even in the OECD economies. These anti-competitive business conducts occurring in the public procurement process can increase the costs of goods and services up to 20 per cent or more.”

Collusive tendering, also referred to as bid rigging in the Competition Order 2015, occurs when two or more competitors agree they will not compete genuinely with each other for tenders, allowing one of the tenderers to ‘win’ the tender; or otherwise coordinate their bids. It refers to an agreement among businesses to limit or eliminate competition during the tendering process.

Collusive tendering can occur in any market where tender processes are used. When businesses collude, prices are inflated, choices reduced and consumers suffer as a result. Consumers including the government are at risk of purchasing goods and services at uncompetitively high prices and wastage. Government resources that could otherwise be used for other socially desirable purposes are wasted.

Collusive tendering causes great harm to the government expenditure, and affects the growth of SMEs.

Collusive tendering is one of the key prohibitions listed under anti-competitive agreements in the Competition Order 2015.

The Order has the objective of promoting economic efficiency and development, as well as consumer welfare. Though the provision on prohibition of anti-competitive agreements is not yet enforced, it is critical to promote an understanding on collusive tendering and its impact on public procurement, to safeguard the competitive tendering processes.

With healthy competition, businesses compete independently to offer more choices, better quality products and services at better prices for consumers, including government and business. Public and private organisations rely on tendering processes to achieve that end.

The common types of collusive tendering are complementary bidding (also known as cover bidding), bid suppression (bid withdrawal), bid rotation and sub-contracting tender to losing bidder.

Complementary bidding (cover bidding) is the most common form of collusive tendering where one or more bidders agree to submit bids with higher prices or less favourable terms than the ‘chosen’ bidder, who is the designated winner.

Bid Suppression (Bid Withdrawal) involves one or more potential bidders agreeing to refrain from submitting a bidding or withdrawing previously submitted bid in favour of the designated winner.

Meanwhile Bid Rotation is where businesses take turns to be the winner, by agreeing who will submit the lowest bid. In this way, they all share in the ill-gotten gains of the cartel.

In the context of sub-contracting tenders to the losing bidder, collusive tendering may also involve the successful designated winner entering into a sub-contracting agreement with the losing bidder or one that suppresses its bid as an exchange for being the successful designated winner.

For preventive measures, the JPKE said, “Be aware of the existence of the Competition Order 2015; understand the different types of bid-rigging conducts; submit bids independently and compete based on merits; exercise care when sharing information with competitors; leave any meetings or discussions with competitors where competitively sensitive information is discussed; ensure that every business meeting has a clear legitimate purpose or agenda; and consult legal expertise should there be any doubts on bid-rigging conducts.

“Don’t infringe the Competition Order 2015; don’t share competitively sensitive information such as pricing or output recommendations with competitors; don’t discuss about participation or non-participation in a bid; and don’t pre-determine the “winner” of a bid by agreeing on the ‘winner’s’ and / or ‘loser’s’ prices.”

-- Courtesy of Borneo Bulletin

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