Collusive practices Ezzeddine Nciri Lead Integrity and - - PowerPoint PPT Presentation

Challenges in Detecting and Proving Collusive practices

Ezzeddine Nciri

Lead Integrity and Investigation Specialist Group Integrity Office Islamic Development Bank Group

Article of

• f Agre

greement

IDB has an obligation to ensure that its resources and facilities are used only to their intended purpose

Obj Objective

To ensure that the projects under Bank’s financing are free of fraud and corruption

ID IDB Poli licy

Group Integrity Office

Initial contact for allegations of integrity violations Integrity Due Diligence Promote awareness of Anticorruption Policy Advise and provide recommendation to management of investigative findings Investigate allegation of Corrupt and Fraudulent Practices

• 1. Corruption
• 2. Fraud
• 3. Collusion
• 4. Coercion
• 5. Obstruction

Sanctionable Practices

1. A BRIBE may be demanded in exchange for the promise of a contract award, which leads to… 2. Some form of BID RIGGING by project officials and the bribe payer to exclude competitors and finally …

• 3. FRAUD by the corrupt bidder to

recover the cost of the bribe and exploit the corrupt relationship.

The schemes

• ften are linked.

For example…

6

7

8

People of the same trade seldom meet together, even for merriment or diversion, but the conversation ends in conspiracy against the public,

• r in some contrivance to

raise prices.

Adam Smith, The Wealth of Nations

A “collusive practice” is defined as…

• “An arrangement
• between two or more parties
• designed to achieve an improper

purpose,

• including to influence improperly

the actions of another party.” The collusion schemes are designed to undermine competitive bidding which is a cornerstone of the Procurement Guidelines. The result is higher costs as prices are artificially inflated.

Where are the risks of collusion the highest?

• Construction sector especially roads
• Sectors where there are few qualified bidders

compared to the number of contracts

• In some cases domestic preferences priced-out

international competitors enabling a local cartel to

• perate
• In other cases international bidders colluded with

local firms offering to represent them locally or serve as subcontractors

• Some inspections or pre-bid conferences were used

to organize collusive arrangements

Who are the Players in a collusive bidding scheme?

13

The leader Companies

• utside the

control of the cartel

Government insider(s)

The designated winner The designated losers

Primary methods of collusive bidding

• Bid rotation

Agreement among bidders to take turns in winning contracts

• Market division

Cartel members agree to divide their market (e.g. geographical territories and client segments)

• Price fixing

Agreement among competitors to fix prices at which goods and services are sold in a specific market

Collusion between Contractors and Officials

• A previous reputation or history of bid rigging in the country or type of project
• Bid specifications are too narrow or too vague
• Unreasonable pre-qualification requirements
• Unreasonably short time to submit bids
• similarities between a bid and the Owners’ Estimate and/or Engineering

Estimate

• No explanation, or weak explanation, provided for the lowest bidder not being

awarded the contract

• Based on the information contained in the bid proposal a bidder should have

been disqualified

Collusion between Contractors: Cartel

• Persistent unexplained high prices
• Rotation of winning bidders
• Same bidders always bid, new bidders are excluded
• Losing bidders become subcontractors
• A very narrow variance between the Owners’ Estimate and the bidders
• A very narrow variance between the bids of the lowest bidders
• Bid prices drop when a new bidder enters

Collusion between Contractors: Cartel

• Sequential false or forged bid securities
• Similarities between the unit prices quoted by separate bidders
• The bid proposals use the same formatting and language
• Documentation contained in bid documents appear to be photocopies of information

from other bid documents

• A site visit indicated that the address of the vendor was inconsistent with the

information provided in the bid documents

• Apparent connections between the bidders such as same addresses or fax numbers on

different bids, physical similarities in different bids

Collusive bidding

Detection steps

• Obtain bidding documents - look for red

flags such as similarities in bids, sequential bid securities, etc.

• Do

background asset checks

• n

the bidders

• identify

common

• wners,

addresses

• r
• ther

indications

• f

affiliations between firms

• Interviews
• Contact excluded and losing bidders; use

the evidence obtained above to solicit the cooperation of losing bidders

• Exercise audit rights on the winning bidder
• look

for communications between bidders or other evidence of collusion

• Interview the winning bidder

An Investigation Case of Collusion

• Infrastructure Project: roads
• 3 lots with condition: No more than one lot for each bidder
• Out of 16 companies requested the bidding documents, only 6 submitted their bids (one local company

and five from Non Member Countries out of them four are from the same country)

• Financial bids: (Millions Euro)

A B C D E (local) F

Lot 1 81 69 47 87 Lot 2 54 45 37 Lot 3 41 31 38 24 42 56

• Companies E and F ?
• They disqualify company D (Lowest bidder for the three lots). Reasons?
• The total amount of the project would be 132 instead of 161 if the offer of company D was not rejected
• The total amount of the project would be 108 if it was not foreseen that a company can not have more than
• ne lot

Practical countermeasures

Basic steps to deter 1. Establish and clearly communicate a zero-tolerance 2. Learn the most common schemes and their red flags 3. Encourage, facilitate and follow-up

• n complaints

4. Exercise “professional skepticism:” look behind submitted documents and the reports; independently determine the relevant facts 5. Do closer supervision of project implementation 6. Be accountable for results: Quality, Cost and Timeliness 7. Publicly sanction collusion and the

• ther sanctionable practices

Practical countermeasures

1. Adequate legislation prohibiting collusive practices 2. Analyses of the public procurement data to understand the specific market or industry and assess the bidders’ behavior 3. Reliance on procurement officials to detect collusion 4. Strengthen the cooperation between the competition and anticorruption authorities 5. Political will to prosecute, especially large domestic firms 6. Enhance the capacity of the national investigative bodies 7. Effective prosecution 8. Severity of the punishment

THANK YOU FOR YOUR ATTENTION