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Money Matters

Bidding collusions

By Mansoor Ahmad
Mon, 12, 21

Procurements in Pakistan are largely made on the rules laid down by the Public Procurement Authority or in some cases on the guidelines provided by the World Bank. Still, procurement of items at higher than market prices invariably takes place.

Bidding collusions

Procurements in Pakistan are largely made on the rules laid down by the Public Procurement Authority or in some cases on the guidelines provided by the World Bank. Still, procurement of items at higher than market prices invariably takes place.

Public procurement consumes a large portion of national budgets and is therefore a lucrative market (According to World Bank 15-20 percent of GDP for most developing countries). Based on this, the public procurement in Pakistan translates in up to Rs1.052 trillion annually.

Money is pilfered through anti-competitive practices in the form of collusive bidding / bid rigging that can take many forms. Some of the broad categories, which are not mutually exclusive, include cover bidding where one or more bidders submit bids which are highly unlikely to be accepted, to give an impression of competition bidding.

They indulge in suppression, where one or more competitors who normally bid do not submit their bids so that a particular competitor’s submission is accepted. Collusive bidding agreements can be very difficult to detect as they are negotiated in secret.

Some inside information or search and inspection is usually required to establish such conspiracies. All the regulatory agencies like National Accountability Bureau (NAB), Federal Investigation Agency (FIA) and Competition Commission of Pakistan (CCP) must act together to uncover these practices.

Moreover, the whistleblowers should be fully protected and duly rewarded to ensure that inside secrets are shared with the investigators.

There are other ways as well as when major players in high value contracts collide to agree to do rotation where competitors take turns in submitting the lowest bid for similar projects. In addition, some big players agree to restrict to specific markets where the others agree not to enter.

This is known as market allocation, under which competitors divide up markets geographically or sector-wise and agree not to compete in each other’s portion. Yet another way to eliminate competition from the bidding process is to ensure the competitors share in the contract through sub-contracting.

Under this arrangement, the competitors agree that those who submit a losing bid or do not bid will be subcontracted on the project by the winner. All these practices escalate the rates abnormally.

Even if the prices quoted are 30 percent higher than the market prices, the state is parting with Rs300 billion annually.

This amount could be saved if global best practices for procurement are adopted in letter and spirit.

Fair public procurement practices have been established in most of the developed economies, but in most of the developing countries the public procurement practice is like that of Pakistan.

The above malpractices occur in large procurement processes. A substantial amount is also spent on procurements at departmental level. In these cases, there are many bidders and collusive practices are not possible.

In such cases the tenders for procurements are written in a way that ensures that only one supplier qualifies and the remaining stay out of it.

In medicines, we use the concept of generic name, meaning thereby that any drug manufacturer producing a drug under its generic name can qualify to compete in the bidding process. In case of other items, the technical descriptions are advertised (in very rare cases the branded product is mentioned). This procedure gives the impression that the procurement procedure is transparent.

It is not so in many cases. For instance, there are many instances when a low specification product is advertised.

Only those that could supply according to those specifications are qualified to participate. Others that have much better specifications are disqualified even if they quote lower prices than the prices quoted by bidders with lower specifications.

The bids that do not exactly comply with the advertised specifications are not opened. To bring transparency all bids for the same products (even if specifications differ) should be opened.

The procurement officer must then give the reasons for rejecting high specification bids with lower prices. If this is not done, the state would continue to buy low specs items at very high prices.

If high spec bidders come up with lower prices, then the procurement officer could ask the low specs bidder to at least match the prices offered by high specs bidder (which are sometimes two times lower).

It is worth noting that the successful bidder after execution of the order faces delays in payments or approvals by the competent authority.

They must grease the palms at every stage of the entire process. This is the reason that most bidders factor in this cost in their bid. The bribe is paid indirectly by the taxpayers.


The writer is a staff member