Experience William E. Kovacic George Washington University/Kings - PowerPoint PPT Presentation

Government Procurement, Competition, and Corruption Control: Lessons from International Experience William E. Kovacic George Washington University/King’s College London National Workshop on the Revised WTO Government Procurement Agreement Brasilia, 2-3 May 2018

Harmful Tendencies • Public Tenders as Collusion Targets – Large funds + procurement system weaknesses – Frequently robbed and regularly replenished bank • Collusion/Corruption Nexus: Government Insiders as Facilitators – Blocking entry – Manipulating award process

Global Links: Collusion/Corruption • Brazil: Car Wash • US: Guam and Thyphoon Paka • Quebec: Construction Industry • Germany: Combat Boots for Armed Forces • Japan: Bridges and Railway Construction • Singapore: Subway System

Estimating Harm: Corruption • Public Contracting: $2.6 Trillion Per Year • Reduced Productivity and Economic Growth – Infrastructure/ social programmes – Lost trust threatens democracy – Discourages foreign investment – Social inequality

Estimating Harm: Bid Rigging in Public Procurement Markets • Estimates: 10-25% Overcharge • Harsh Impact for Disadvantaged • Note: – If cartels raise aggregate procurement prices 20% higher, saving of even 1% may save more than annual operating cost of some competition agencies

This Afternoon’s Agenda • Why Cartels Succeed or Fail • Procurement System Vulnerabilities • International Experience: Antidotes • Caveat: Personal Views Only • Contact: wkovacic@law.gwu.edu

Resources • Anderson & Kovacic, Competition Policy and International Trade Liberalisation: Essential Complements to Ensure Good Performance in Public Procurement Market s, 2009 Public Procurement Law Review 43 • Anderson, Kovacic & Mueller, Ensuring Integrity and Competition in Public Procurement , in The WTO Regime on Government Procurement: Challenge and Reform 67 (Sue Arrowsmith & Robert Anderson, eds., Cambridge Univ. Press, 2011)

Essential Cartel Tasks • Form Consensus • Detect Cheating • Punish Cheating • Repel External Threats – Disruptive entry – Supplier resistance

Common Public Procurement Collusion Techniques • Tendering – Bid rotation – Cover bids – Unjustified joint bidding • Side Payments – Example: subcontracting • Opposition to Entry

What Helps Cartel Coordination • Frequent, Repeated Tendering Opportunities • Standardization/Homegeneity • Transparency of Contract Awards, Pricing • Suppression of Entry • Side-Payments • Assistance from government insider

Corruption: Means • Bribes – Cash – Holidays – Other in-kind transfers • Promises of Future Employment

What Undermines Cartel Coordination • New Entry and Market Participation • Supplier Cleverness – Shift from frequent smaller tenders to lesser number of larger tenders – Nuanced revelation of tender outcomes: alternative disclosure, transparency devices

International Experience • Well-Publicized Mechanisms • Strong Procurement Teams • Tender Design • Pre- and Post-Award Reviews • Fast Track Dispute Resolution • System Oversight/Monitoring

Procurement Team Improvements • Contract Managers – Training: Competition awareness – Learning from experience • Legal Counsel

Tender Design • Objective and clear rules • Balance Anti-corruption and Antitrust Objectives (transparency and auction design) • Anti-Collusion/Corruption Clauses – Certificate of independent pricing • Simplified Bidding Mechanisms

Pre- and Post-Award Reviews • Pre-Award Reviews – Defective specifications • Post-Award Reviews – Deviations from award criteria – Misapplication of award criteria

Detection: Monitoring and Data Analytics • Suspicious Bidding and Award Patterns – Geographic exclusivity – Rotation of awards – Withdrawals – Subcontracting Behavior • Leniency, Whistleblowing. and Rewards

Domestic Cooperation: Competition Agency and Procurement Officials • Training About Warning Signs • Monitoring and Data Analysis • Procurement Design – Access – Particpation – Domestic reviews

International Cooperation • Significant Domestic Collusion Episodes • Detection Methods • Cross-Border Cartels

GPA Contributions • Disruptive Force of Greater Market Access • Undermines Supplier Collusion • Safeguard Against Purchaser Corruption