Public procurements: CCP actions expose 'bid rigging' phenomenon

The latest enforcement actions undertaken by the Competition Commission of Pakistan (CCP) have brought 'bid rigging' in public procurements to the limelight, raising concerns that the national economy is being inflicted annual loss worth billions of rupees.
Sources told Business Recorder here on Monday that in a recent case of cartelisation amongst the manufacturers of electric power equipment, the CCP detected 22 suspected companies involved in bid rigging through mutual price fixation and share allocation. The three relevant markets where cartelisation was unveiled were switchgear, energy meters, and transformers.
The procurement cost in one financial year for the three above mentioned products is roughly estimated to be Rs 100 billion, sources informed adding that eight power distribution companies (Discos) are involved, and it is an understanding that for Pesco alone the procurement of these three products cost around Rs 15 billion.
Further insight into the issue of bid rigging revealed that Pakistan, because of its large public sector, spends an estimated 25 to 30 percent of its GDP on public procurement. "With such an enormous public procurement volume, the importance of restricting an anti-competitive and corrupt practice such as collusive bidding is paramount," sources said.
Sources referring to the Transparency International (TI) Pakistan said that the TI reckons that Pakistan can save $4 billion per annum by preventing corruption and collusion in public procurement. Pakistan's Public Procurement Regulatory Authority (PPRA) estimates $8 billion in savings annually, if corruption in public procurement, including the elimination of bid rigging, is put to an end.
The CCP is uniquely situated to investigate and prosecute bid rigging. "It is the only statutory body in Pakistan that has a legal mandate to specifically prevent and prosecute collusive bidding in contracts, as per section 4 of the Competition Act, 2010. Taking this responsibility seriously, the prevention and prosecution of collusive bidding is a top priority for the CCP," sources maintained.
In order to increase its efficacy of detecting and prosecuting collusive bidding, the CCP is committed to building its internal capacity through training of its officers to develop the requisite skill-set needed to curb this menace. Once the internal capacity of the commission has been fully developed, the CCP plans to partner with other stakeholders including PPRA, public sector organisations and other law enforcement agencies, to work co-operatively to tackle collusive bidding, sources added.
According to the inquiry report of the CCP on bid rigging, based on the impounded documents recovered from the offices of two companies and the Pakistan Electric Power Equipment Manufacturers Association (PEMA), the enquiry Committee finds, prima facie, violation of cartelisation amongst the manufacturers of electric power equipment. The PEMA and its 22 members have been found, prima facie, involved in bid rigging through price fixing and share allocation. The Enquiry Report reveals that not only such members collude on the aspect of price and share allocation but also delivery schedule; important clauses of tender documents including performance bond, Performance guarantee, payment and sales tax & SED documents.
The evidence impounded included SOPs, minutes of the meetings, emails and letters exchanged among the manufacturers, tender documents and their comparative statements etc. The existence of SOPs or reference thereto is found to ensure the implementation of decisions taken collectively pertaining to various economic aspects of the products by these manufacturers.
The enquiry also reveals that impounded documents include specific 'cartel warning' to manufacturers/bidders from Discos. With respect to procuring agencies, based on the impounded document, there is indication in the enquiry that Discos may have engaged in anti-competitive behaviour (one instance relating to discussion with manufacturers on price of one particular category of low loss transformer), CCP inquiry report added.