It is difficult to find any reliable estimate of the cost of bid rigging and similar collusion to the Canadian economy, but on the information set out below, it is possible there is a good reason to fear it has an almost unimaginably high cost.
Even back in a 1990s address, Howard Wetston, director of investigation and research with the Bureau of Competition Policy, Consumer and Corporate Affairs Canada, stated 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 underestimate. Even in poor countries, the cost of bid rigging on public contracts is staggering.
Back in 2007, an investigation conducted by the Justice Ministry in Brazil estimated that cost to that country of bid rigging and other forms of collusion among firms seeking contracts and concessions from the country was approximately US$20 billion.
An earlier study carried out by the state of Sao Paulo Industries Federation in 2005 had estimated the cost of corruption in Brazil at approximately US$13.2 billion, an amount equal to 1.35 per cent of Brazil’s total gross domestic product for that year.
I am sure these numbers over the years from 2005 to now have even grown worse.
This estimate exceeded the combined spending of seven government ministries and was equal to the country’s entire expenditure on education.
Third world countries suffer far more from corruption in the 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 money available to grab.
However, 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 its 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 aspects of public administration that are not tainted by the problem of bid rigging.
Areas of activity in which the problem has become manifest include many of the programs run by municipalities.
While some bid rigging schemes are orchestrated by organized crime, most involve apparently legitimate businesses.
Indeed, many businesses do not seem to understand that the practice is illegal.
After the U.K. Office of Fair Trading (OFT) alleged bid rigging by 112 U.K. construction companies, the industry responded by creating the “Rebuilding Trust.”
The move was intended “to restore clients’ faith in the construction industry after the OFT investigation into 112 companies accused of bid rigging.”
The goal of the trust was “to show the world that construction is cleaning up its act” in relation to schemes that the OFT estimated had cost the British taxpayer well in excess of the Canadian equivalent of $580 million.
The trust had proposed a formal code of conduct, but after a process of consultation with construction companies it reported that: “We have learnt…that some people feel a code of conduct as originally suggested could be too much too soon and that, in the first instance, a series of pledges would be the optimum next step. We have come up with pledges for both contractors and clients and consultants to sign up to so the industry can show it is united in addressing the problems the OFT’s report has so clearly identified.”
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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