How to ensure your procurement achieves true value for money

As costs rise and budgets tighten, contracting authorities across the country are looking to ensure their procurement is achieving true value for money.

Staying alert to bid-rigging in your procurement is one critical way of doing so.

In this exclusive guest blog, Richard Brown - Assistant Director of Cartels Enforcement at the Competition and Markets Authority (CMA) - explains the dangers of bid-rigging, and how your team can avoid it.

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By being alert to bid-rigging dangers and how to report them, you can feel more confident that your procurement projects deliver true value for money.

The Competition and Markets Authority (CMA), the UK’s competition watchdog, is joining forces with Tussell to draw your attention to the risk of bid-rigging, what it looks like in practice, and how best to deter and report suspect supplier activity.

Bid-rigging explained

Bid-rigging is a form of procurement fraud, an anti-competitive arrangement between rival suppliers to undermine fair competition – it can increase prices by 20% or more.

Every year, billions of pounds are spent procuring goods and services in the UK, particularly by the public sector.  Where businesses compete to win contracts, purchasers get fair prices and choice, including more innovative products and services. However, if companies collude to rig bids for contracts and even decide amongst themselves who will win a tender, they rip off customers who often end up spending more than necessary, and for less in return.

The CMA has investigated a number of cases where public sector bodies have been the victim of anti-competitive supplier behaviour, including bid-rigging practices. The construction sector has been a particular area of focus for the CMA – with the CMA imposing £67 million in total fines across 5 separate enforcement cases – those affected included publicly funded projects.  You can read about these cases here.

Bid-rigging can occur in any sector and conditions that make illegality more likely include:

• Where there is a small number of suppliers,

• Homogenous products being sold,

• Stable demand in the market,

• Barriers to entry to the market,

• Where competing suppliers already know each other, perhaps via a trade association,

• and, significantly at the present time, in times of economic strain when businesses may be tempted to protect margins through illegal anti-competitive means.
  
  

Bid-rigging removes the incentive for companies to compete to win a contract, which in turn means purchasers do not get true value for money. It can artificially increase prices by 20% on average.

Types of bid-rigging to look out for

Bid rigging can come in a variety of forms. Some of the most common are:

Bid rotation

• Companies agree to take it in turns to have the most attractive bid on a project, thereby ensuring that they all have an agreed share of the market.

• This is usually done in conjunction with cover pricing and/or bid suppression.

Cover pricing

Companies that don’t intend to win the contract communicate with their competitors and agree to submit inflated prices for the job so that another (often pre-arranged) bid from another company looks much better value.

Bid suppression

Companies agree not to submit a bid at all, which means other firms face less competition to win the contract.

This is normally done in exchange for some kind of payment, or as part of an arrangement where the winning bidder then sub-contracts part of the work out to the non-competing firm.

Red flags

Those involved in bid-rigging will often go to great lengths to hide wrongdoing – however there are some common red flags you should be alert to, that can signal anti-competitive practices at play.  You should be on the look out for the following:

Suspicious bidding information red flags

• Identical bids, perhaps in individual line items

• Unusually higher bids than expected

• Less detail in bids than expected

• You don’t get as many bids as you were expecting

• A company bids higher on some bids than on others

• Bid prices drop when a new bidder is involved

• Same increments between bids

• Signs of alteration/ last minute changes

Suspicious bidding behaviour red flags

• A likely bidder fails to submit a bid

• Lowest bidder rejects the contract

• Successful bidder later subcontracts to a supplier that submitted a higher bid

• Same supplier generally wins (against same competitors)

• Same suppliers submit bids but all appear to take equal turns in winning

• Suspicious comments by bidders - let slip knowledge of rival bids or that a contract ‘belongs’ to a certain supplier or suppliers ‘own’ certain areas
  
  

How to reduce risk - 4 steps to take:

• Be aware of what bid rigging is – make use of CMA advice

• Design and manage your procurement process in a way that reduces the risk of bids being rigged

• Recognise ‘red flags’ - the different kinds of suspect activities/patterns of behaviour

• Know how to report suspicious activity to the CMA

If you think a supplier could be acting illegally, never be tempted to confront them yourself as this could tip off those involved to destroy evidence and jeopardise a future investigation.  Your first point of call should be to raise your concerns internally, seek legal advice and contact the CMA to report your concerns.

Tools to help you

There are tools and advice on the CMA’s Cheating or Competing campaign page to help procurers spot and report harmful anti-competitive practices among suppliers, including:

• A free e-learning tool designed specifically for public sector procurers

• A 60-second-summary with advice for public sector procures

• Animated videos that explain behaviours that are illegal under competition law
  
  

CMA staff are available to talk to public sector procurement teams about how to reduce the risks of bid-rigging, drawing out lessons learnt from cases and the typical 'red flags' to watch out for.

To arrange a CMA presentation for your procurement team, contact: CMA_ProcurementSupport@cma.gov.uk

It is important for all public sector procurers to be alert to the dangers of bid-rigging and that you take steps to reduce the risks of being a victim, including reporting it if you think something looks suspicious. Only then can you be confident that you are getting the best deal and making the best use of resources.

How to report

If you’ve seen something suspicious in relation to any of your contracts, then please contact us. We will take your suspicious seriously and we have strong powers of investigation to take action:

Call the CMA: 020 3738 6888 and / or email: cartelshotline@cma.gov.uk

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Richard Brown is an Assistant Director in the Cartels Enforcement team within the Competition and Markets Authority (CMA).  He has led investigations in a number of cartel investigations (both civil and criminal cases).  Most recently Richard investigated a construction cartel case where 10 construction firms have provisionally been found to have illegally colluded to rig bids for demolition and asbestos removal contracts.
 
Richard is by background a criminal barrister who practiced for ten years in the criminal courts defending and prosecuting the full range of criminal offences. He then joined the Government Legal Service in 2008 working at the Serious Organised Crime Agency where he conducted civil recovery proceedings, aiming to seize the proceeds of unlawful conduct.

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To learn more about the CMA, and to access their resources on spotting and avoiding anti-competitive procurement activities, visit the CMA's website..

Tussell's market intelligence platform is also helping contracting authorities to drive value for money in their procurement. To learn how, visit www.tussell.com/gov.