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2017Newsreel Trends
Special Feature on Bid Rigging and Collusion
Paul EmanuelliGeneral Counsel and Managing Director
Procurement Law [email protected]
416‐700‐8528
www.procurementoffice.com
Copyright Notice
The following excerpts from GovernmentProcurement (copyright LexisNexis Butterworths2005, 2008, 2012 and 2017), The Laws ofPrecision Drafting (copyright Northern StandardPublishing 2009), Accelerating the Tendering Cycle(copyright Northern Standard Publishing 2012) andthe Procurement Law Update newsletter (copyrightPaul Emanuelli 2006-17) are reproduced withpermission. The further reproduction of thesematerials without the express written permission ofthe author is prohibited.
© Paul Emanuelli, 2017
For further information please contact:[email protected]
About the AuthorPaul Emanuelli is the General Counsel andManaging Director of the Procurement Office. Hewas recognized by Who’s Who Legal as one of thetop ten public procurement lawyers in the world.His portfolio includes advising on strategicgovernance in public purchasing and onnegotiating high-profile major procurementprojects. Paul has an extensive track record ofpublic speaking, publishing and training. He is theauthor of Government Procurement, The Laws ofPrecision Drafting, Accelerating the TenderingCycle and the Procurement Law Updatenewsletter. Paul hosts a monthly webinar seriesand has trained and presented to thousands ofprocurement professionals from hundreds ofinstitutions across North America through theProcurement Office and in collaboration withleading industry organizations including NIGP,SCMA, the University of the West Indies andOsgoode Hall Law School.
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Top Newsreel TrendsOverview
News reports have long served as an early warning systemfor industry trends in public procurement. From internationalintrigues to the latest local tendering scandals, thispresentation offers a global perspective on the most pressingtrends impacting public procurement and providesrecommendations to avoid becoming the next local headline.
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Top Newsreel TrendsOur Media Monitoring Team
The Procurement Office media monitoring team analyzesprocurement-related news stories from around the world. Wecreate daily top ten lists to help you identify breaking industrytrends and stream this information on Twitter, on our websitenewsreel feed, and in the trend summaries located on ourNewsreel Blog.
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Top Newsreel TrendsA Deep Dive into Trend Analysis
For this year’s Newsreel Trends feature, we reviewed 1400stories from our daily top 10 countdowns to determine thisyear’s list of leading trends:
1. Bid Rigging and Collusion2. Using Technology in the Tendering Cycle3. Procurement Process Disputes4. Defence Procurement Controversies5. Challenges in IT Procurement
The following slides focus on our top trend of the year, Bid Rigging and Collusion. For moredetails on the other tends in this annual ranking, see our Twitter feed.
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Bid Rigging and CollusionTrend of the Year
Based on recent newsreel highlights, it looks like bid-riggingand collusion may be on the rise worldwide. Can this long listof newsreel highlights be dismissed as isolated incidents, oris price-fixing becoming the new normal in governmentprocurement? You be the judge.
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Bid Rigging and CollusionSouth African Commission Lays Bid-Rigging Charges
In South African news, a recent report confirmed that theCompetition Commission “formally charged sevenBloemfontein-based companies with colluding and fixingprices.” As the report stated, the “companies‚ amongst otherthings‚ quoted the same prices for various stationery items intheir bills of quantities.” Charges are proceeding in fourseparate prosecutions.
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Bid Rigging and CollusionItalian Prosecutors Raise Nigerian Kickback Allegations
In news from Milan, Italian prosecutors “alleged that Nigeria'sformer president Goodluck Jonathan and his oil ministerreceived kickbacks as part of a $1.3 billion deal involving oilgiants ENI and Shell.” Proceedings remained ongoing and nocharges were filed at the time of these initial reports.
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Bid Rigging and CollusionNew President Pledges to End Ghanaian Graft
In a story out of Ghana, two local business owners raisedallegations of rampant bribe taking. They claimed that publicofficials forced contractors to inflate prices to cover the costof the kickbacks. As one owner alleged, “between theacceptance of the contract and payment, he had to gothrough the hands of more than 40 people who eachdemanded something.” Ghana’s incoming president pledgedto “sanitise the system to flush out persons who want tomake money through devious behaviour.”
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Bid Rigging and CollusionIndonesia Investigates Air Force Chopper Deal
In a report from Jakarta, Indonesia’s military commanderannounced that several high-ranking air force officers wereunder investigation in relation to a helicopter deal involving aBritish-Italian company that resulted in $16.5 million USD inmarkups for the costs of the helicopters. As the story stated,“the three suspects could be charged with insubordination,misuse of authority, embezzlement and forgery.”
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Bid Rigging and CollusionKorean Authorities Lay Multiple Bid Rigging Charges
In news from Seoul, South Korean authorities laid chargesagainst “10 construction firms and 20 officials for fixing adozen biddings for mega public utility projects worth 3.5trillion won (US$2.83 billion).” As the story details, the “probewas launched early this year after the country's anti-trustwatchdog filed a complaint requesting an investigation intothe suspicions.”
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Bid Rigging and CollusionBrazilian Firm Pulls Panama Bid After Bribery Charges
As covered in the Mexican media, Odebrecht, a Brazilian construction firm now under investigation for allegedly paying hundreds of millions in bribes across Latin America, withdrew its bid to build a bridge over the Panama Canal in the wake of money laundering and bribery charges laid by Panamanian authorities against 17 people, including businessmen and former government officials. The proceedings remain ongoing.
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Bid Rigging and CollusionAsian Authorities Cracking Down on Bid Rigging
As noted in a story out of Japan, from “the Philippines toHong Kong to India, Asian governments are trying to boosteconomic development by cracking down on cartels, bidrigging and other anti-competitive business practices.” Thestory refers to several recent high-profile prosecutionsinvolving tenders in industries as varied as technology andrailways, to motorcycles and automobile tires, and notes howhigher fines are a reflection of increasing attempts to detercorrupt tendering practices.
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Bid Rigging and CollusionPhilippine Executive Targets Red Tape to Fight Corruption
In news from Manila, the Philippine executive has agreed toput “greater focus on curbing corruption in the procurementprocess.” Government officials quoted in the storyunderscored the importance of “drastically reducingbureaucratic red tape by simplifying regulations and makingthem more transparent to minimize the opportunities forcorruption.”
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Bid Rigging and CollusionItalian Police Investigate Alleged Laundering Ring
In a report from Naples, police authorities arrested fivepeople and seized assets valued at 70 million euros as partof an investigation into an alleged intimidation and bid riggingring. As the story states, an organized crime clan allegedlyinfiltrated local companies as a cover for its larger moneylaundering operations.
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Bid Rigging and CollusionSwedish Authorities Arrest Employee of Canadian Company
As reported in the Canadian news, Swedish authoritiesarrested a Russian national employed by BombardierTransportation “in connection with contracts for a railwaymodernization project in Azerbaijan” that was financed by theWorld Bank. The arrested individual, who was charged in thealleged bribery scheme, was considered a flight risk and heldin custody. Bombardier maintained that it was cooperatingwith authorities.
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Bid Rigging and CollusionU.S. Prosecutors Raid Congressional Offices
In reports out of Washington D.C., federal IT support staffwere under investigation over a “procurement scam”involving Congressional computer systems. While initialreports of arrests were later corrected, authorities confirmedthat the investigation was ongoing.
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Bid Rigging and CollusionTwenty Search Warrants Issued in Irish Investigation
In news out of Ireland, the Competition and ConsumerProtection Commission is reportedly investigating potentialbid rigging in relation to transportation services tenders. Asthe story states, twenty search warrants were granted insupport of the ongoing investigation.
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Bid Rigging and CollusionWorld Bank Audit Finds Bribery in Kenyan Railway Deal
According to a Kenyan report, a World Bank audit found thatKenyan railway executives “bribed public officials,manipulated accounts and created convoluted ownership andoperational structures with the aim of defrauding lenders,including the International Finance Corporation (IFC), theWorld Bank’s investment arm.” Sanctions remained pendingin the wake of this ongoing investigation.
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Bid Rigging and CollusionIndia Issues Fines for Railway Bid Collusion
In news from India, the Competition Commission imposed₹2.92 crore (approximately $450 000 in USD) in penalties onthree firms for bid rigging in relation to tenders issued by theIndian Railways. The report noted that the Commission foundprice collusion between the firms in question prior to thesubmission of bids.
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Bid Rigging and CollusionBelgians Bust Railway Bid Rigging Ring
As reported in a competition law briefing from London, the“Belgian Competition Authority (the “BCA“) has broken up acartel between five energy firms for manipulating bids in apublic contract issued by Belgium’s railway infrastructuremanager, Infrabel. All five companies could face follow-ondamages claims, which should act as a stark reminder of theimportance of having robust competition compliancemeasures in place.” The report noted that some of thecompanies had already applied for leniency in exchange forsmaller financial penalties.
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Bid Rigging and CollusionIrish Investigation Leads to Price-Fixing Convictions
In a report from the Irish press, a five-year prosecutionsuccessfully resulted in bid rigging sentences for a price-fixing ring in the commercial flooring sector. The schemeinflated prices in large multinational contracts tendered bycorporations including Google, MasterCard and Paypal. Theinvestigation was initially triggered by a whistleblower. Theprosecution was subsequently aided by an informant whocalled the government’s “immunity line” and surrendered as astate witness to avoid prosecution.
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Bid Rigging and CollusionAfghan General Sentenced in Fuel Tender Scandal
In a story out of Afghanistan, a general was sentenced tofourteen years in prison after “accepting a $150,000 USDbribe in exchange for awarding a fuel contract to a privatecompany.” The general maintained his innocence andclaimed that he was tortured after his arrest. The court, whichhad already sentenced another five officials to prison inrecent months, issued a summons for six other governmentofficials in relation to the case, including the government’sprocurement manager.
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Bid Rigging and CollusionSouth African Court Cracks Down on Corruption
In another South African report, a judge struck down acontract award in a train tender after finding that the winningcompany was a “criminal front”. As the story stated, “In one ofthe harshest legal condemnations of a public tender in recentyears, the court found that international manufacturing giantGeneral Electric would have won the tender had Prasa’s"corrupt tender process" not been specifically tailored in orderto favour Swifambo’s bid.” In setting aside the contract, thejudge referred to corruption as a “cancer that is slowly eatingthe fabric of our society.”
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Bid Rigging and CollusionCalifornia Manager Arrested for Alleged Shakedown
In news from California, a Vallejo municipal employee wasarrested over an alleged kickback scheme. As the reportstated, the city’s landscape manager “is accused of misusingfederally funded Community Development Block Grantprogram monies by offering a business owner additional workwith the city in exchange for a 10 percent cut.” The businessowner contacted the FBI after the alleged shakedownattempt and assisted in the resulting investigation. To avoiddetection, the manager had apparently engaged in contractsplitting to keep awards within his delegated authority.
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Bid Rigging and CollusionFlorida Foreman Faces Federal Charges
According to a Florida report, a former electrical foreman withthe Miami-Dade public school board “was charged with afederal bribery offense following an investigation into lightingpurchases by district schools.” As the story states, “The 52-year old allegedly leaked confidential bid information to afriend who owned a lighting company and acceptedthousands of dollars in return over a two-year period.” Ifconvicted, the defendant faces up to five years in prison anda fine of up to $250,000.
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Bid Rigging and CollusionFBI Seizes Computer of Atlanta’s Head of Procurement
In news out of Georgia, the FBI seized the computerbelonging to Atlanta’s former chief of procurement after theofficial was summarily dismissed from his position in thewake of a controversial decision to cancel the City’s lucrativeairport concessions tender. The ongoing FBI briberyinvestigation has already produced two guilty pleas from cityconstruction contractors.
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Bid Rigging and CollusionFederal Prosecutors Charge Texas Firm in Kickback Case
According to a report out of Texas, federal prosecutorsalleged that a Texas firm paid $20 million in bribes over a 15-year period to a senior official at the Oklahoma EmergencyMedical Services Authority in an alleged kickback schemeinvolving lucrative ambulance services contracts. Thegovernment was seeking treble damages and penalties incompensation for the alleged kickbacks.
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Bid Rigging and CollusionChemical Price-Fixing Claims Lead to Multiple Actions
In a report out of Maryland, the state’s largest water utilitylaunched legal proceedings “against eight chemicalcompanies and five executives, alleging that they conspiredto inflate the price of a water treatment chemical over morethan 14 years.” The story stated that the alleged price fixingscam reportedly resulted in millions in additional cost, notingthat “68 similar civil claims have been filed against thecompanies and some of their top executives by water utilities,cities and private entities trying to recoup lost money.”
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Bid Rigging and CollusionFour-Year Sentence in Chicago School Scandal
In news from Chicago, the former head of the school district,which is the third largest in the country, was sentenced tofour years in prison for her role in $23 million kickbackscheme where “she steered city contracts to education firmsfor a cut of more than $2 million in kickbacks.” The judge saidthat “her brazenness in bilking an already cash-strappedschool district suggested she never believed she’d getcaught in a city with a long, ignominious history of corruption”and that “the scheme diverted money from low-incomestudents relying on education to better their lives.”
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Bid Rigging and CollusionFederal Bid Rigging Probe in New York State
According to a report out of New York state, a federal bid-rigging probe recently led to the indictment of GovernorCuomo’s former top aid as part of an investigation thatcovered “all corners of the Empire State, netting documentsfrom City Hall in Rochester to the furthest tip of Long Islandand beyond.” Court documents filed by federal prosecutorsprovided “a new glimpse into the major bid-rigging probe thatshook Cuomo's administration last year.” The prosecutioninvolves allegations of bid rigging in state contracts valued inthe hundreds of millions of dollars.
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Bid Rigging and CollusionDuo Busted in Barrie Bid-Rigging Scheme
In a report out of Barrie, a former municipal manager and alocal contractor were both sentenced to 15 months housearrest, 12 months probation and 150 hours of communityservices, and were also ordered to pay a total of $127,000 inrestitution, after pleading guilty to a kickback scheme. As thecourt noted, the scheme created an uneven playing fieldwhere the contractor was able to low-bid his competitors towin contracts and then increase his price after award with theassistance of his inside accomplice.
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Bid Rigging and CollusionMultiple Guilty Pleas in Laval Price-Fixing Scandal
In a report out of Quebec, 13 defendants plead guilty to pricefixing in connection with municipal construction contractsawarded by the City of Laval. As the story states, “Eightcontractors and five engineers admitted their guilt to threecounts of conspiracy, fraud and corruption.” The guilty pleaswere part of larger investigation and the individuals “wereamong the 37 persons arrested during Projet Honorer, apolice probe of a system of collusion in municipal contractsbetween 1996 and 2010.”
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Bid Rigging and CollusionAnti-Corruption Unit Targets Montreal Engineering Contracts
In more news from Quebec, bid-rigging charges were laidagainst seven people, including a former Montreal councillor.As the story states, the individuals were “arrested Tuesdayand charged with running a kickback scheme wherebyengineering companies would be awarded city contracts inexchange for political donations and other favours. The storyalso notes that Quebec’s anti-corruption unit “targeted about30, mainly engineering contracts valued at $160 million,awarded by the City of Montreal between 2001-09”.
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Bid Rigging and CollusionMore Defence Needed Against Fraud in Military Deals
In news out of Ottawa, Canada’s Auditor General warned thatDefence Construction, an agency that awards $1 billion inmilitary construction contracts annually, has outdated frauddetection systems. As the report stated, "The corporation hadrudimentary fraud-detection systems, which were manual andimplemented regionally…Management was therefore unableto use the systems to detect and analyze broader trends thatmight reveal fraud (such as bid-rigging) that could be spreadout over time, across regions, or among many suppliers.”
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Bid Rigging and CollusionNova Scotia Auditor Recommends Tip Hotline
In Halifax news, the Nova Scotia Auditor General raisedconcerns over a lack of fraud detection in government bodiesand concluded that “the provincial government needs tightercontrols on potential fraud by senior public officials who haveaccess to taxpayers’ money.” The audit found that “88 percent of public organizations in Nova Scotia have notcompleted an assessment to determine the risks of fraud.”Furthermore, the report noted that “tips account for 40 percent of all fraud discoveries and the use of fraud tip hotlinescan be an effective tool” as demonstrated in other provinces.
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Bid Rigging and CollusionSecond-in-Command Suspended as Mounties Investigate
In more news out of Ottawa, the second-in-command ofCanada’s military was suspended in the wake of a RoyalCanadian Mounted Police investigation. The scandal involvesthe alleged leaking of Cabinet documents relating to thedirect award of a naval ship construction contract made by aprior government to a Quebec firm. While no charges werelaid at the time, RCMP court documents alleged that thecommander “violated the Criminal Code by leakinggovernment secrets” after internal emails revealed that thecommander had contemplated “going public” over the newgovernment’s delay of the promised contract award.
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Bid Rigging and CollusionToronto Entangled in Bid-Rigging Scandal
In Toronto news, the City Auditor General called for a policeinvestigation into suspicions of widespread bid rigging. Herreport raised concerns over ongoing collusion by constructioncompanies bidding on municipal paving contracts. TheAuditor General noted that her investigation was hamperedby the City’s paper-bound bidding process and that she “wassurprised to discover contractors submit bids only on paper.”As the story states, “her staff had to borrow a van from thecity clerk’s department, drive to city district offices collectingpaper records and then develop spreadsheets that allowedthem to analyze trends and discover the signs of collusion.”
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Bid Rigging and CollusionToronto Auditor Recommends Bid-Rigging Prevention
In a related Toronto story, the City Auditor General released aseries of recommendations for dealing with the municipalprice-fixing scandal that impacted “$1 billion worth ofconstruction contracts every year”. Those recommendationsincluded maintaining a database of bid and contractinformation to monitor for potential collusion, training staff onbid-rigging prevention, and maintaining the anonymity ofcompanies that request the bid documents in order to stiflepre-bid collusion.
Why Too Much Transparency Can Lead to Collusion
By Julia Mills, The Procurement Office
Bid rigging and collusion are risks everyorganization that engages in competitive biddingfaces, and, as such, it is vital that organizationsdevelop and institute awareness, prevention anddetection measures, including considering howmuch of their bidding process is public and howmuch is kept confidential.
This is a condensed version of an article by Julia Mills featured on the Procurement Office Newsreel Blog.
Please go to http://procurementoffice.com/why‐too‐much‐transparency‐can‐lead‐to‐collusion/for the full version.
Bid rigging doesn’t discriminate – it can affect alleconomies, regardless of size of jurisdiction. For example,in a spring 2017 report, the auditor general of the City ofToronto reportedly found evidence of bid-rigging andcollusion among paving companies that bid on lucrativecity construction contracts. Reported signs of possiblecollusion included inflated pricing, companies thatconsistently won contracts, and bidders that were regularsubcontractors of the winners.
How Transparency Leads to CollusionBid Rigging in the News
The reported fall-out of the collusion purportedly includedtalks of blacklisting offending proponents, the OntarioProvincial Police (OPP) investigating the alleged bid-rigging, and the removal of senior managers, with thereported possibility of more dismissals. The recent Torontoexample is far from isolated.
How Transparency Leads to CollusionBid Rigging in the News
The Organisation for Economic Co-operation andDevelopment (OECD), which works with emergingeconomies to help them fight collusion and corruptionwithin their public procurement processes, has developedan extensive framework of guidelines and informationregarding competition, cartels, and anti-competitivepractices, such as bid-rigging. Within their scope of work,they assist countries where public procurement accountsfor around 15% of GDP, putting further impetus oncollusion prevention and detection.
How Transparency Leads to CollusionAnti-Corruption Guidelines
The OECD recommends a systematic approach tocollusion prevention, beginning at the outset, before thetender process is designed, and carrying throughout thelifecycle of the project, right through the evaluation of bids,ensuring staff and evaluators are trained to be aware ofthe signs of bid-rigging. And, as the Toronto AuditorGeneral’s report also noted, the OECD reiterates thatfragmented and paper-based approaches torecordkeeping adversely impact the ability to monitor bidsfor price fixing and collusion and underscore theimportance of establishing electronic bidding practices andphasing out in-person public openings based on paper-based submissions.
How Transparency Leads to CollusionAnti-Corruption Guidelines
The public opening, a prime example of public notequalling anti-corrupt, was explored by Marilyn Brown,Senior Legal Counsel for The Procurement Office, in anarticle for Caveat Emptor titled The Perils of PublicOpenings. In the article, she lays out the issues with thisseemingly transparent process.
How Transparency Leads to CollusionConfidentiality to Preserve Competitive Process
She posits that while it was seen that public openings,where all the tenders are opened and bid prices are readaloud in front of bidders was purported to providetransparency to the bidding process, it actually allows“organized crime [to] use the public opening process tointimidate bidders and discourage bids from suppliers whoare not part of the bidding cartel.” Brown quotes multipleinternational sources, including the OECD, which deempublic openings as a breeding ground for corruption, not avehicle for transparency.
How Transparency Leads to CollusionConfidentiality to Preserve Competitive Process
Brown states that “public sector entities engaged inprocurements can actually suffer from an excess of publicprocess,” a sentiment that is shared by the variousgoverning bodies cited in the article, as well as othergovernments, including the Cayman Islands Government,which had Brown’s article read into the record of theCayman Islands Legislature by the Minister of Finance in arecent debate that resulted in phasing out public openingsin that jurisdiction’s new procurement legislation.
How Transparency Leads to CollusionConfidentiality to Preserve Competitive Process
One of the key guidelines set out by the OECD states thatthe tender process should be designed “to effectivelyreduce communication among bidders.” The guidelinesadmit that while there is “no single rule about the design ofan auction or procurement tender,” which will ensure acorruption-free process, a balance needs be struckbetween not facilitating collusion and meetingtransparency requirements.
How Transparency Leads to CollusionTo Disclose or Not Disclose
For example, institutions should carefully consider whetherthey should release a list of interested bidders whoobtained a copy of the tender call before the close of thetender. In a recent study conducted by The ProcurementOffice, a sample of 100 solicitations from a broad range ofdifferent institutions were reviewed on nine different bid-posting platforms across Canada.
How Transparency Leads to CollusionTo Disclose or Not Disclose
In that sample of 100, practices were almost evenlydivided: 51 did not disclose an interested bidder list,whereas 49 did disclose interested bidders. This cross-section sample demonstrates that the industry remains ina state of transition as it attempts to re-balance betweenconfidentiality and transparency to better protect againstbid-rigging and collusion.
How Transparency Leads to CollusionTo Disclose or Not Disclose
Although no government or public body will ever beentirely immune to corruption, each organization mustmake tender design decisions surrounding informationdisclosure that take market, industry, product and thepotential bidders into consideration, throughout the entirelifecycle of the competitive procurement process.
How Transparency Leads to CollusionTo Disclose or Not Disclose
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You Be the JudgeVote in Our Poll
Based on recent newsreel highlights, it looks like bid riggingand collusion may be on the rise worldwide. Can this long listof newsreel highlights be dismissed as isolated incidents, oris price-fixing becoming the new normal in governmentprocurement? You be the judge. Vote in our poll and watchfor the results to be posted in the coming weeks.
VOTE NOW
Upcoming Webinars: Annual Case Law Update
Our 2017 Year in Review covers the latest bid protests fromaround the world and features an updated Global Risk Rating.Tune in to see if Canada kept its top spot against the latestjurisprudence developments from the U.S. and U.K., and find outhow recent tendering disputes from a range of Commonwealthcountries, including Australia, New Zealand and India, impactedour jurisdictional risk rankings.
Wednesday January 3, 2018, 1:00 - 2:00 pm EST
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Upcoming Webinars: Managing Fair Evaluations
Fair evaluations are a core requirement of the public tenderingprocess. Featuring a series of bid protest determinations from theOffice of the New York State Comptroller, this session will providekey insights for purchasing professionals across all jurisdictionson how to properly manage bid evaluations to avoid becomingthe latest local bid protest case study.
Wednesday February 7, 2018, 1:00 - 2:00 pm EST
REGISTER NOW
www.procurementoffice.com
For more information please contact:
Paul EmanuelliManaging Director and General Counsel
Procurement [email protected]
416‐700‐8528
Marilyn BrownSenior Counsel
Procurement [email protected]
416‐700‐8531
Heather BakerSenior Procurement Advisor
Procurement [email protected]
416‐700‐8535
Julia MillsProcurement Assistant and Communications Specialist
Procurement [email protected]
416‐700‐8530
