Fighting Supplier Collusion in Public Procurement: Some Proposals for Strengthening Competition Law Enforcement

Abstract

Governments around the world spend an estimated $9.5 trillion of public money purchasing goods and services each year (public procurement). Not only does this represent a significant proportion of government expenditure (29.1 percent on average in OECD countries) and of total gross domestic product (10-20 percent in many nations), but the goods, services, and infrastructure procured relating, for example, to transport, telecommunications, energy, schools, hospitals, sanitation systems, and health care, are vital to growth, development, and social welfare in a state. Honest and effective government procurement is thus central to a nation’s development and prosperity.

A difficulty faced by all governments, however, is that the design of public procurement systems, combined with the value, volume, and frequency of public purchasing activity, render them especially vulnerable to distortion through not only corruption but also stable supplier collusion (collusive tendering or bid rigging). Although assessing cartel harm precisely is not easy, collusive tendering is liable to increase the cost of the services and infrastructure procured substantially. It also wastes public funds, diminishes public confidence in the competitive process and in government, reduces the quantity and quality of vital goods and services, and may create public safety risks.

It seems clear therefore that tackling and countering bid rigging should be a high priority. Reducing the amount of supplier collusion, even by a small percentage, can yield significant savings to the public purse and ensure better quality work and the provision of more and improved public services. It may also, by increasing the integrity of the procurement system, help build a civic sense that government institutions are dedicated to improving citizens’ lives. This paper, consequently, makes proposals for strengthening competition enforcement in the public procurement sphere.

Keywords: Cartels, Bid Rigging, Public Procurement, Leniency, Screening Tools, Penalties, Fines, Debarment, Damages Actions

JEL Classification: K14, K20, K21, L13, L41