Members assess the various features of their public procurement laws and practices and their impact on the likelihood of collusion between bidders. Members should strive for public procurement tenders at all levels of government that are designed to promote more effective competition and to reduce the risk of bid rigging while ensuring overall value for money.To this effect, officials responsible for public procurement at all levels of government should:1. Understand, in co-operation with sector regulators, the general features of the market in question, the range of products and/or services available in the market that would suit the requirements of the purchaser, and the potential suppliers of these products and/or services.2. Promote competition by maximising participation of potential bidders by:i) establishing participation requirements that are transparent, non-discriminatory, and that do not unreasonably limit competition;ii) designing, to the extent possible, tender specifications and terms of reference focusing on functional performance, namely on what is to be achieved, rather than how it is to be done, in order to attract to the tender the highest number of bidders, including suppliers of substitute products;iii) allowing firms from other countries or from other regions within the country in question to participate, where appropriate; andiv) where possible, allowing smaller firms to participate even if they cannot bid for the entire contract.3. Design the tender process so as to reduce the opportunities for communication among bidders, either before or during the tender process. For example, sealed-bid tender procedures should be favoured, and the use of clarification meetings or on-site visits attended personally by bidders should be limited where possible, in favour of remote procedures where the identity of the participants can be kept confidential, such as email communications and other web-based technologies.4. Adopt selection criteria designed i) to improve the intensity and effectiveness of competition in the tender process, and ii) to ensure that there is always a sufficient number of potential credible bidders with a continuing interest in bidding on future projects. Qualitative selection and award criteria should be chosen in such a way that credible bidders, including small and medium-sized enterprises, are not deterred unnecessarily from participating in public tenders.5. Strengthen efforts to fight collusion and enhance competition in public tenders by encouraging procurement agencies to use electronic bidding systems, which may be accessible to a broader group of bidders and less expensive, and to store information about public procurement opportunities in order to allow appropriate analysis of bidding behaviour and of bid data.6. Require all bidders to sign a Certificate of Independent Bid Determination or equivalent attestation that the bid submitted is genuine, non-collusive, and made with the intention to accept the contract if awarded.7. Include in the invitation to tender a warning regarding the sanctions for bid rigging that exist in the particular jurisdiction, for example fines, prison terms and other penalties under the competition law, suspension from participating in public tenders for a certain period of time, sanctions for signing an untruthful Certificate of Independent Bid Determination, and liability for damages to the procuring agency. Sanctions should ensure sufficient deterrence, taking into account the country’s leniency policy, if applicable.
Public procurement markets differ from all others because quantities do not adjust with prices but are fixed by the bidding authority. As a result, there is a high incentive for organizing cartels (where the price elasticity of demand is zero below the base price) that are quite stable because there are no lasting benefits for cheaters. In such circumstances, leniency programs are unlikely to help discovering cartels. Since all public procurement cartels operate through some form of bid rotation, public procurement officials have all the information necessary to discover them (although they have to collect evidence on a number of bids), contrary to what happens in normal markets where customers are not aware of the existence of a cartel. However, in order to promote reporting, the structure of incentives has to change. For example, the money saved from a cartel should at least, in part, remain with the administration that helped discover it and the reporting official should reap a career benefit. In any case, competition authorities should create a channel of communication with public purchasers so that the public purchasers would know that informing the competition authority on any suspicion at bid rigging is easy and does not require them to provide full proof.
Contrary to what happens in normal markets, bid-rigging cartels are much more stable. While in normal markets, quantities and prices are found simultaneously, in bidding markets, quantities are set by the organizer of the bid and the bidding is just used to find the lowest price associated with those quantities. Bid riggers know that by reducing prices (with respect of the agreed ones), they do not achieve any increase in the quantities sold. Rather, they just increase their profit at the expense of competitors and, most importantly, only for one bid. Once there is defection for one bid, the cheater knows (because of the transparency rules in public procurement) that he will be discovered and competition will prevail for all future bids. As a result of these characteristics, partly structural and partly rule-based, the incentive to cheat in bid rigging is much less pronounced than in normal markets (where cheating can be kept secret, at least for some time) (p. 7).
Contrary to normal cartels, where the participating firms agree on prices or on territories so that customers face an information gap with respect to competitive prices, bid rigging in public procurement requires that the participating firms agree on the bid participation strategy (who wins and at what price; who will participate today; and who wins and who participates in future bids). As a result, bid riggers leave a lot of evidence on the strategies pursued that a well-trained public administration official could indeed identify. As a result, while a public procurement cartel is stable on the supply side, it could be discovered by due diligence on the demand side. This is the opposite of what happens with private market cartels (p. 12).
There are also some very important procedural and legal steps that should be taken to make bid rigging much more difficult.The first is to centralize purchases (or make sure that bids are not made artificially too small so that the construction of a large infrastructure project cannot be easily divided up among all the firms in the industry). This way, the information on the different bids can be found within the same organization so that any irregularity across different bids can be more easily identified. Furthermore, a centralized purchasing agency can organize bids of higher value (purchasing for a number of administrations) so that bids would be more infrequent and bid-rigging agreements would be more difficult to maintain.Also, the rules that favor small firms in their participation in tenders, in which individually they would not be able to participate because of their small size, should be made much more rigorous. In particular, temporary consortia should only be allowed if comprised by firms producing complementary goods or services, while simple horizontal consortia should be prohibited. In fact, temporary consortia between rivals are very often a tool for enforcing a cartel more so than a way to increase competition (p. 13, emphasis added).