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Procurement Perspectives: How serious is the bid-rigging issue?

Stephen Bauld
Procurement Perspectives: How serious is the bid-rigging issue?

It is very difficult to find any reliable estimate of the cost of bid-rigging and similar collusion to the Canadian economy. However, there is good reason to fear that it has an almost unimaginable high cost.

As far back as 1990, it was addressed by Howard I. Wetston, the director of Investigation and Research, Bureau of Competition Policy, Consumer and Corporate Affairs Canada, stated that:

“Unlike other conduct addressed by competition law, bid-rigging, price-fixing and related activities are widely recognized to be unambiguously harmful. There are no redeeming social benefits. In many cases, the conduct of conspirators amounts to a form of theft from the public on a multimillion-dollar scale”.

The estimate of a multimillion-dollar cost is almost certainly a gross under estimate. Even in poor countries, the cost of bid-rigging on public contracts is staggering, going back as far as 2007, an investigation conducted by the Justice Ministry in Brazil estimated that the cost to that country of bid-rigging and other forms of collusion among firms seeking contracts and concessions from the country was approximately $20 billion USD.

An even earlier study carried out by the State of Sao Paulo Industries Federation in 2005 estimated the cost of corruption to Brazil at approximately $13.2 billion USD — an amount equivalent to 1.35 per cent of Brazil’s total domestic product for that year. This estimate exceeded the combined spending of seven government ministries and was equal to the country’s entire expenditure on education.

It is safe to say that generally Third World countries suffer far more from corruption in public administration than do countries in the First World. However, since the governments of First World countries spend vastly more than their Third World counterparts, the dollar cost of bid-rigging in the First World is quite possibly equally high — there is simply so much more available to grab.

I am far from convinced that the problem of bid-rigging in Canada and other industrialized countries is less widespread than in less developed nations. On the contrary, it is quite probably no exaggeration to suggest that bid-rigging in various forms is the most serious threat to prudent public administration facing the world’s advanced democracies.

According to authoritative reports across North America, the United Kingdom, Europe, Japan and Australia, there are few — if any — aspects of public administration that are not tainted by the problem of bid-rigging.

Areas of activity in which the problem has become manifest over the years include: school lunch programs, defense contracting, school bussing, and other forms of transportation services, graphite electrodes, insecticides, thermal fax paper, the construction of public works, health care, the supply of medicine to hospitals, insurance services, the provision of other financial services, highway construction, bridge construction, and major public capital projects. This list is a very small example of the abuse in the system.

When you look at this from a big picture approach, a $500 million misappropriation of public funds is equal to the approximate cost of a new fully equipped hospital; it would build 84,000 clean wells in Africa, where as many as two-thirds of families have no access to clean water, and three-quarters have no proper sanitation. A series of pledges hardly seem an adequate response to a problem of this magnitude.

Such a mute response reflects the fact that those involved in bid-rigging are people who simply do not have a heart. Taking from those who have vastly more than they need may strike some misguided members of the community as all wrong, but as often as not, the victims of bid-rigging are the very poor.

In my opinion, there is a good reason to fear that bid-rigging in the public procurement field is not only pervasive, but that it is also costing the public billions of dollars.

 

Stephen Bauld is a government procurement expert and can be reached at swbauld@purchasingci.com.

Some of his columns may contain excerpts from The Municipal Procurement Handbook published by Butterworths.

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