Bid Rigging and Its Corrosion in Procurement Organizations Case Study

Bid Rigging and Its Corrosion in Procurement Organizations Case Study

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Bid Rigging Bid rigging is a major source of corruption in procurement organizations today. According to the Organization for Economic Co-operation and Development (OECD), “bid rigging (pr collusive tendering) occurs when businesses, that would otherwise be expected to compete, secretly conspire to raise prices or lower the quality of the goods or services for purchasers who wish to acquire products or services through a bidding process” (Danger, 2009).

Bid rigging can occur is both public and private companies. There are five standard types of bid rigging schemes: bid suppression, complementary bidding, bid rotation, subcontracting, and market allocation. Bid suppression schemes occurs when one or more bidders refrain from bidding so that the agreed upon bidder will be selected. Complementary bidding schemes occur when selected bidders will purposely bid too high, too low, or will require special terms they know will be rejected.

These are the most common and are “designed to give the appearance of genuine competition” (Danger, 2009). Bid rotation schemes are comprised of a group of bidders who take turns on who will get the bid. Subcontracting schemes are a group of bidders deciding who will put out the winning bid and then the work will get subcontracted out to the other suppliers. The final type of scheme is market allocation. In this scheme, suppliers make agreements on which suppliers, markets, and regions each supplier is able to bid.

This will ensure each supplier is awarded certain types of work. Bid rigging is considered corruption and is illegal in procurement. In 1890, the Sherman Act was put in place to prohibit price fixing, bid rigging and other anticompetitive activity. The Department of Justice states, “Violation of the Sherman Act is a felony punishable by a fine of up to $10 million for corporations, and a fine of up to $350,000 or 3 years imprisonment(or both) for individuals, if the offence was committed before June 22, 2004.

If the offense was committed on or after June 22, 2004, the maximum Sherman Act fine is $100 million for corporations and $1 million for individuals, and the maximum Sherman Act jail sentence is 10 years” (Anti-Trust Division, 2012). Perpetrators of the Sherman Act can also be subject to restitution payments. If bid rigging is suspected within an organization there are several steps that can be taken. There are several warning signs that can lead to detection that bid rigging is occurring. The first step to an investigation is to look at the bids that are submitted.

Within the bids, look for warning signs that would suggest bid rigging such as the same supplier always being the lowest bidder, suppliers unexpectedly withdrawing from the bid, suppliers that always bid but never win, a suppler that does not bid on an item they typically would, suppliers submitting joint bids, a winning supplier not accepting the bid, and winning bidders who continuously subcontract out to the other bidders. (Nicholls, 2011) Another step when investigating is to look at other documents that are submitted by the suppliers.

Bidders that are correlating their bids or companies owned by the same person can make mistakes in other documents they send that could uncover their corruption. Some of the areas to analyze

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in supplier documents would be to look for “identical mistakes in bids or letters that are submitted by different companies, such as spelling errors” (Danger, 2009). Other clues would be handwriting styles, similar stationary, or typeface. Look into bids or other communications for references to other suppliers’ bids, bids with identical estimates on certain items, identical miscalculations, and similar packaging or metering machine marks.

Also, inspect bid documents that show to have last-minute adjustments. (Danger, 2009) Bid rigging can also be suspected based on suspicious pricing. When investigating look for signs such as losing bids that are much higher than winning bids, bids that are higher than engineering estimates, identical pricing for long periods of time, increased pricing that isn’t justified, or pricing from multiple bidders that becomes identical after previously being separate. Also check previous bids on suspected suppliers for trends in bid fluctuations where one bidder is much higher on one then another is higher on the next.

Look for indicators where local shipping is quoted at a higher price than further destinations. (Danger, 2009) Once you have a narrowed group of the suspicious suppliers, there are several online tools that can be used to try and gain information on the supplier relationships or even if more than one supplier that is submitting bids has the same owner. First you can use search tools to determine the owners and if suppliers have similar addresses. Next you can check the Better Business Bureau online for any complaints by other organizations.

If you need to do further online search, you can also use IP address locators such as Find IP Address or Network Tools based on emails that have been sent. This will lead you to the location of the emails to see if there are any supplier similarities. Also be sure to look into supplier associations in which the suspected suppliers are all members of. In addition to online tools always look into complaints made by other competing bidders. (Piper, 2012) They may have information about the bid rigging suppliers. The final step of the investigation would be to conduct supplier interviews.

Within these interviews pay close attention to any statements that may be made referencing an agreement that is across the suspected bidders. Statements made regarding industry standard pricing or industry price schedules may also suggest vendor convergence. Compare terminology that is used by each of the suppliers to determine like stories. Other indicating statements are the supplier making statements revealing their knowledge of another suppliers bid and then mentioning certain customers belong to certain suppliers. (Nicholls, 2011)

There are several internal controls that can be implemented to prevent or deter suppliers from engaging in bid rigging. The first is to create a supplier written policy that all suppliers who are submitting bids have to agree to and sign. This also includes creating a confidentiality form that all bidders must agree to in order to receive bid packages and require them to disclose all communication with competitors. (Nicholls, 2011)Also create an internal process for procurement agents so they strictly follow the bidding process.

Require that each package that goes out has a

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case file that is maintained from start to finish and contains all bidders’ information, analysis of bids, and awards. Require that all procurement agents state their agreement as to the awarded bid pricing and lead times are fair and reasonable. For a company that has a large scope of work being outsourced to a supply base, integrate a market analyst team. This team would be responsible for creating estimated pricing for each statement of work that is getting bid out to a supply base. The market analyst team would then compare their numbers to those submitted by the supply base.

An additional internal control would be to create a training package for all procurement agents that explains and provides examples of the different procurement corruption schemes. Require that every new employee receive the training as well as all buyers having a review course each year. Train employees on the company’s ethical standards regarding supplier gifts. This will prevent the occurrence of the procurement agents being aware of the bid rigging and being involved in having a supplier try and divert their attention using bribery with expensive gifts or receiving percentages of bids in kickbacks.

Lastly integrate a statement into each bid and award package that reserves the company’s right to retract the award if there is suspicious behavior that results in suspicion that the bid was not competitive. Works Cited Danger, K. (2009). Guidelines for Fighting Bid Rigging in Public Procurement. Retrieved from The Organisation for Economic Co-operation and Development: http:/www. oecd. org/daf/competition/cartelsandanti-competitiveagreements/42851044. pdf Division, A. -T. (2012). Price Fixing, Bid Rigging, and Market Allocation Schemes: What They Are and What They Look For.

Retrieved from Department of Justice: http:/www. justice. gov/atr/public/guidelines/211578. pdf Nicholls, S. N. (2011, February 07). Detecting, Mitigating, & Fighting Bid Rigging in Public Procurement Guidelines & Checklist. Retrieved from Fair Trading Commission: Barbados: http:/www. ftc. gov. bb/library/2011-02-07_ftc_guidelines_checklist_procurement. pdf Piper, C. (2012, July/August). Finding the Bid Riggers. Retrieved from Association of Certified Fraud Examiners: http:/www. acfe. com/article. aspx? id=4294973850&terms=%28bid+rigging%29

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