Experience William E. Kovacic George Washington University/Kings - - PowerPoint PPT Presentation

Government Procurement, Competition, and Corruption Control: Lessons from International Experience

William E. Kovacic George Washington University/King’s College London National Workshop on the Revised WTO Government Procurement Agreement Brasilia, 2-3 May 2018

Harmful Tendencies

• Public Tenders as Collusion Targets

– Large funds + procurement system weaknesses – Frequently robbed and regularly replenished bank

• Collusion/Corruption Nexus: Government

Insiders as Facilitators

– Blocking entry – Manipulating award process

Global Links: Collusion/Corruption

• Brazil: Car Wash
• US: Guam and Thyphoon Paka
• Quebec: Construction Industry
• Germany: Combat Boots for Armed Forces
• Japan: Bridges and Railway Construction
• Singapore: Subway System

Estimating Harm: Corruption

• Public Contracting: $2.6 Trillion Per Year
• Reduced Productivity and Economic Growth

– Infrastructure/ social programmes – Lost trust threatens democracy – Discourages foreign investment – Social inequality

Estimating Harm: Bid Rigging in Public Procurement Markets

• Estimates: 10-25% Overcharge
• Harsh Impact for Disadvantaged
• Note:

– If cartels raise aggregate procurement prices 20% higher, saving of even 1% may save more than annual operating cost of some competition agencies

This Afternoon’s Agenda

• Why Cartels Succeed or Fail
• Procurement System Vulnerabilities
• International Experience: Antidotes
• Caveat: Personal Views Only
• Contact: wkovacic@law.gwu.edu

Resources

• Anderson & Kovacic, Competition Policy and

International Trade Liberalisation: Essential Complements to Ensure Good Performance in Public Procurement Markets, 2009 Public Procurement Law Review 43

• Anderson, Kovacic & Mueller, Ensuring Integrity

and Competition in Public Procurement, in The WTO Regime on Government Procurement: Challenge and Reform 67 (Sue Arrowsmith & Robert Anderson, eds., Cambridge Univ. Press, 2011)

Essential Cartel Tasks

• Form Consensus
• Detect Cheating
• Punish Cheating
• Repel External Threats

–Disruptive entry –Supplier resistance

Common Public Procurement Collusion Techniques

• Tendering

– Bid rotation – Cover bids – Unjustified joint bidding

• Side Payments

– Example: subcontracting

• Opposition to Entry

What Helps Cartel Coordination

• Frequent, Repeated Tendering Opportunities
• Standardization/Homegeneity
• Transparency of Contract Awards, Pricing
• Suppression of Entry
• Side-Payments
• Assistance from government insider

Corruption: Means

• Bribes

– Cash – Holidays – Other in-kind transfers

• Promises of Future Employment

What Undermines Cartel Coordination

• New Entry and Market Participation
• Supplier Cleverness

– Shift from frequent smaller tenders to lesser number of larger tenders – Nuanced revelation of tender outcomes: alternative disclosure, transparency devices

International Experience

• Well-Publicized Mechanisms
• Strong Procurement Teams
• Tender Design
• Pre- and Post-Award Reviews
• Fast Track Dispute Resolution
• System Oversight/Monitoring

Procurement Team Improvements

• Contract Managers

– Training: Competition awareness – Learning from experience

• Legal Counsel

Tender Design

• Objective and clear rules
• Balance Anti-corruption and Antitrust

Objectives (transparency and auction design)

• Anti-Collusion/Corruption Clauses

– Certificate of independent pricing

• Simplified Bidding Mechanisms

Pre- and Post-Award Reviews

• Pre-Award Reviews

–Defective specifications

• Post-Award Reviews

–Deviations from award criteria –Misapplication of award criteria

Detection: Monitoring and Data Analytics

• Suspicious Bidding and Award Patterns

– Geographic exclusivity – Rotation of awards – Withdrawals – Subcontracting Behavior

• Leniency, Whistleblowing. and Rewards

Domestic Cooperation: Competition Agency and Procurement Officials

• Training About Warning Signs
• Monitoring and Data Analysis
• Procurement Design

–Access –Particpation –Domestic reviews

International Cooperation

• Significant Domestic Collusion Episodes
• Detection Methods
• Cross-Border Cartels

GPA Contributions

• Disruptive Force of Greater Market Access
• Undermines Supplier Collusion
• Safeguard Against Purchaser Corruption