Bid rigging and e-sourcing

The Office Of Fair Trading claims to have uncovered more and more evidence of bid rigging in the UK construction industry. See here from Yahoo news today, here from The London Times Online on March 22nd.

The OFT press release here gives some more detail on the substance of the claims:

The investigation has uncovered evidence of bid rigging activities which include cover pricing, where companies obtain a price from a competitor in the tender process which is not designed to win the contract but is intended to give the appearance of competition. The Competition Appeal Tribunal has fully endorsed the OFT’s decision in its investigations and confirmed that cover pricing is anti-competitive and contravenes the Chapter I prohibition. In some instances the OFT has also found evidence in the current investigation of compensation payments or ‘bungs’ being passed between competitors in exchange for a cover price.

The construction industry has a reputation for resisting e-sourcing in general and e-auctions in particular as suppliers. I wonder how much of this reticence is down to a fear that e-auctions (in particular) make it harder for cartels to operate? Certainly, if you read this article from the World Bank  about an e-rfp system implemented in Andhra Pradesh, India (hat tip to Andrew Moorhouse for passing it on) – there is a view out there that e-sourcing systems may be a good way to combat cartels and collusion. According to the document there were some pretty blatant abuses in the manual system. One of which was:

Cartel formation to suppress competition: Through dubious means, the participating bidders would gather the list of prospective bidders for a procurement request. They would use this information to lobby for formation of syndicates or cartels and bid at higher quotations.

 

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