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Ensuring Competitive Procurement PDF Print

Printed in the Business Monday Newspaper on February 8th, 2010

Most businesses including government agencies and departments find it necessary to source a range of goods and services for the operation of their businesses. This process of sourcing goods and services is referred to as procurement.  

Procurement involves an initial invitation to tender which sets out the type, quantity, and quality of the goods and services to be purchased. Businesses interested in supplying the product or service then submit a bid or application to the procuring entity setting out in detail the terms under which the business intends to supply the products.

The primary objective of procurement is to obtain high quality goods and services at the lowest possible price or, more generally, to achieve the best value for money. In order for this to be achieved, the bidding process must be competitive. A competitive process encourages the bidding companies to offer to supply in as efficient a manner as possible, in order to win the right to supply.

In some cases however parties compete unfairly. In order to win a contract they employ measures such as big-rigging or other anti-competitive agreements so as to influence the outcome of a contract. Bid rigging may include cases where competitors agree:

  • To submit a non-competitive bid that is too high to be accepted or contains terms which are unacceptable to the buyer. This creates the impression that the bidding process is competitive. However this often acts as a cover for high prices which are included in the bid with the otherwise reasonable terms.
  • Not to submit a bid, or to withdraw a bid from consideration under an arrangement where the non-bidder is offered a subcontract from the successful bidder.

Section 13 of the Fair Competition Act CAP 326C (Act) forbids bid-rigging as well as agreements that:

a) directly or indirectly fix purchase or selling prices or determine any other trading conditions;

b) limit or control production, markets, technical development or investment;

c) provide for the artificial dividing up of markets or sources of supply;

d) affect tenders to be submitted in response to a request for bids;

When any form of bid-rigging occurs, the prices of the goods or services are driven upwards and the purchaser is forced to outlay greater amounts of expenditure than they would in an otherwise competitive environment. The practice also ultimately forces consumers to pay more. It is therefore imperative that the procurement process is monitored for this type of conduct.

Although it is fundamentally the competition agency’s responsibility to investigate this type of conduct, businesses and Government have a role to play in monitoring their procurement process so as to ensure ‘fair play’. In order to monitor the process and assist in eliminating this type of conduct, there are some measures that can be adopted by procuring agents. These include:

  1. Have clear requirements – Clear tender requirements make it easier for firms to understand what is expected of them and may in fact encourage additional firms to enter the process.
  2. Limit communication among bidders – If the procurement process is designed to make it difficult for potential bidders to identify their competitors, then bid rigging becomes more difficult. This can be achieved by keeping terms and conditions of bids confidential as far as is legally possible.
  3. Avoid splitting contracts - If suppliers submit identical bids, it is preferable not to split the contract between them. One should also reserve the right not to award a contract if the process is not competitive.
  4. Learn about the market – It is particularly useful to gather information about potential suppliers’ prices and costs, including prices in other geographic areas or for similar products. This will help in determining what terms are acceptable.
  5. Identify markets which may be prone to bid rigging – Special precautions may need to be taken in designing procurement procedures which involve markets where there are:

a) a small number of bidders,

b) standardised or simple products, or

c) little or no entry of competing firms in the market.

The adoption of these measures should result in a procurement process that is transparent, more competitive, and provides greater accountability on both the purchaser and bidder. The above is especially pertinent in cases of public procurement where public funds are utilised. An effective procurement process which is free from anti-competitive conduct is critical for stable markets and has the ability to become a credible saving mechanism. It has further been proven that enabling this type of competitiveness and transparency in government procurement can lead to the improvement of national welfare. Procurement entities should therefore be vigilant and follow the aforementioned approaches so as to ensure a procurement environment which is fair and free from anti-competitive conduct.

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