Competition Commission of India
INTRODUCTION
Markets bring together buyers and sellers who interact with each other to produce mutually beneficial outcomes. Best economic outcomes are produced in markets characterised by a high level of competition between producers of goods and services. High competition in markets among sellers ensure lower prices, better quality and incentivises continuous innovation on the supply side. On the other hand, where competition between producers/suppliers is low, buyers have to settle for higher prices, lower quality and lack of innovation, which not only diminishes consumer welfare but also impacts overall health of the economy.
If there is relatively less competition in a market, the reasons can be either structural or behavioural.
Structurally, there may naturally exist only a handful of producers/suppliers in the market due to specialised nature of product, limited access to raw materials, high barriers to entry such as technology or capital investment.
Competition may also be hindered through anti-competitive behaviour of an enterprise either on its own or together with other enterprises. On its own accord, a dominant entity in a market can abuse its dominance by charging unfairly high prices, imposing unfair condition(s) or denying market access to a potential entrant. On the other hand, acting in unison, producers/suppliers may collude amongst each other, whereby they may together decide to charge high prices, reduce output or divide markets (either product-wise or geographically) amongst each other.
Competition is vital in Public Procurement. Public procurement, which essentially entails purchase of goods and services by the public sector, is a key economic activity of governments. Procurement of goods and services in India is carried out by various ministries, departments, municipal and other local bodies, statutory corporations and public undertakings both at the Centre and at the State level.
The primary objective of an effective procurement policy is the promotion of efficiency, i.e. selection of a supplier with the lowest price or, more generally, the achievement of the best value for money. Effective public procurement avoids mismanagement and waste of public funds. Vigorous competition among suppliers helps governments realize these objectives. Conversely, when competition is curtailed – for example, when suppliers engage in bid rigging, taxpayers’ money is wasted as governments pay more than a fair price.
Competition Concerns in Public Procurement
The competition concerns arising from public procurement are largely the same that can arise in an ordinary market context such as collusive agreements between bidders during the tender process. The overarching concern with public procurement is that, because formal rules governing public procurement make communication among rivals easier, they can promote collusion among bidders and therefore reduce rivalry, with detrimental effects on the efficiency of the procurement process. In particular, in those instances where entry is difficult and when bidding is not based on a ‘winner-takes-all’ competition, collusion can emerge as easily in auctions and bidding processes as in ordinary economic markets.
It is frequently noticed that the procurement mechanism adopted in public procurement is itself not designed keeping in mind the importance of competition in ensuring efficient outcome. Moreover, in some cases the mechanism itself is facilitating anti-competitive practices. The peculiarity in case of public procurements is that, due to the regulations and legislations, the officials have limited strategic options to curb such practices. Whereas a private purchaser can choose his purchasing strategy flexibly, the public sector has limited options to respond dynamically to anti-competitive behaviors owing to strict regulatory/ legislative framework and detailed administrative regulations/ procedures at multiple levels. These rules are set as an attempt to avoid any abuse of discretion by the public sector. However, at times, full transparency of the procurement process and its outcome can promote collusion.
Importance of Competition in Public Procurement
An efficient public procurement policy can affect competition in a number of ways:
(i) Short-term effects on competition amongst potential suppliers i.e. effects on the intensity of competition amongst existing suppliers in a particular tender is just one possible effect, but it is not the only one.
(ii) Apart from immediate impact (loss of public money) of anti-competitive practices, there is a deeper consequence on overall efficiency in the domestic market.
Public procurement can have other, longer-term effects on competition as public procurement can affect important features of market (such as the degree of innovation, the level of investment, vertical integration etc.). This in turn would be reflected in the level of competition in future tenders.
Role of Competition Authority in Public Procurement
Reducing collusion in public procurement requires strict enforcement of competition laws and education of public procurement agencies at all levels of government to help them design efficient procurement processes and detect collusion.
A. Enforcement
The most direct way for the competition authority to promote competition in the public procurement market is to identify and correct bid-rigging through strict law enforcement. By increasing the bid-rigging detection rate and heavily punishing identified bid-riggers, the competition authority can effectively prevent bid-rigging as companies will learn that the benefits of bid-rigging is smaller than the loss they will suffer once their collusion is identified.
Many jurisdictions have specific prohibitions in their competition laws forbidding bid rigging or considering bid rigging as per se violation of the competition rules. In India, the Competition Act, 2002 specifically prohibits bid-rigging or collusive bidding (direct or indirect) under section 3(1) read with section 3 (3) (d) thereof. It is one of the four horizontal agreements that are presumed to have Appreciable Adverse Effect on Competition (AAEC).
The Competition Commission of India (‘Commission’/ CCI) is empowered to inquire into such anti-competitive agreements, and to impose on each person or enterprises which are parties to such agreements, a penalty of up to 10% of the average turnover or income for the last three preceding financial years.
Further, in case such agreement has been entered into by a cartel, the Commission may impose upon each producer, seller, distributor, trader or service provider included in that cartel, a penalty of up to three times of its profit for each year of the continuance of such agreement or 10% of its turnover or income for each year of the continuance of such agreement, whichever is higher.
The penalty can therefore be severe, and result in heavy financial and other cost on the erring party.
In case an enterprise is a ‘company’, its directors/officials who are guilty are also liable to be proceeded against.
In addition, the Commission has the power to pass, inter alia, any or all of the following orders under section 27 of the Act:
i. direct the parties to a cartel agreement to discontinue and not to re-enter such agreement;
ii. direct the enterprises concerned to modify the agreement;
iii. direct the enterprises concerned to abide by such other orders as the Commission may pass and comply with the directions, including payment of costs, if any;
iv. and pass such other order or issue such directions as it may deem fit.
Recent Amendments [Competition (Amendment) Act, 2023]
The Competition (Amendment) Bill, 2022, was introduced in Parliament in August 2022 and was referred to the Parliamentary Standing Committee on Finance. The Committee submitted its report in December 2022 with its recommendations. Thereafter, the Bill was passed by the Lok Sabha on 29.03.2023 and by the Rajya Sabha on 03.04.2023. The Presidential assent was accorded on 11.04.2023.
The Competition (Amendment) Act, 2023 amended certain provisions of the Competition Act, 2002. Some salient provisions of the Amendment Act having nexus with competition issues in public procurement are as follows:
Limitation Period
A limitation period of 03 years has been provided for filing information/ reference before CCI for alleged contraventions of Section 3 (anti-competitive agreements) and Section 4 (abuse of dominant position).
Penalties
While calculating turnover for imposing penalty for established contraventions of the provisions of Section 3 (anti-competitive agreements) or Section 4 (abuse of dominant position) of the Act, the “global turnover” of an enterprise derived from all the products and services provided by the enterprise, may be taken into account.
Leniency Plus
The CCI is now empowered to grant an additional lesser penalty, whereby enterprise(s) already under investigation for one cartel may provide disclosure with respect to another cartel. Such disclosure will enable the enterprise disclosing the information, to receive a penalty reduction in the first cartel, without prejudice to the enterprise also obtaining a lesser penalty for other disclosed cartel.
Broadened scope of anti-competitive agreements
The Amendment Act broadens scope of the provisions of Section 3 of the Act that deals with anti-competitive agreements by providing for ‘any other’ agreements within the purview thereof.
‘Hub and Spoke’ Arrangements/ facilitators under presumptive rule of AAEC
The Amendment Act also extends presumption of appreciable adverse effect on competition (AAEC) for an enterprise or association of enterprises or a person or association of persons, which is not engaged in identical or similar trade, to be part of the agreement under Section 3(3) if it participates or intends to participate in furtherance of such agreement.
B. Advocacy
CCI aims to promote a culture of competition compliance amongst all its stakeholders, which include, Central and State governments, business enterprises, trade associations, professional bodies, consumers, academia among others. The Commission regularly conducts events such as seminars, workshops, trainings etc. with these stakeholders to sensitize them on benefits of competition and various means to achieve and ensure it. Rich advocacy literature on competition is also published by the Commission to help and guide the stakeholders on this subject. This includes detailed ‘Advocacy Booklets’, ‘Competition Compliance Manual’, ‘Competition Assessment Toolkit’ and CCI’s quarterly newsletter ‘Fair Play‘ among others.
Many competition authorities are also involved in advocacy efforts to increase awareness of the risks of bid rigging in procurement tenders. The old adage of ‘Prevention is better than cure’ holds true of competition enforcement as well. There are many examples of educational programs to this end. Some authorities have regular bid rigging educational programs for procurement agencies; others organize ad hoc seminars and training courses. These outreach programs have proved extremely useful for a number of reasons:
(i) They help competition and public procurement officials to develop closer working relationships;
(ii) They help educate procurement officials about what they should look for in order to detect bid-rigging through actual examples of bidding patterns and conduct which may indicate that bid-rigging is occurring;
(iii) They train procurement officials to collect evidence that can be used to detect bid rigging conduct and prosecute better;
(iv) They help educate public procurement officials and government investigators about the cost of bid rigging on the government and ultimately on the taxpayers; and
(v) They warn procurement officials not to participate in bid rigging and other illegal conduct which undermines competition in procurement tenders.
State Resource Person (SRP) Scheme
Furthering the competition advocacy mandate, CCI introduced SRP Scheme in the year 2019-20 to strengthen advocacy with state government departments and PSUs. The focus of SRP scheme is on making public procurement transparent and competitive.
The State Resource Person Scheme reflects the new ground realities and a collective consensus when it comes to accomplishing the growth oriented goals of the Indian economy. This Scheme is an illustration of Centre-State cooperation and mirrors the earnestness with which the principle of “cooperative federalism” has been implemented. This approach will help CCI to liaise with the States and help the departments and PSUs working in the State, develop a deeper understanding of competition law nuances.
Such an understanding goes a long way in augmenting the enforcement efforts of the Commission, particularly in the area of procurement.
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PUBLIC PROCUREMENT AND BID-RIGGING
The process of Public Procurement involves multiple bidders bidding in a tender floated by the buyer. When, instead of competing with one another, bidders agree with each other on distorting the bidding process towards manipulating bidding outcomes, such Cartels take the form of ‘bid-rigging’ or collusive bidding.
Types of Bid Rigging
1. Bid coordination: The bidders collude to quote same or similar rates that are much higher than the reasonable prices to force the buyer to settle the procurement at exorbitant prices.
2. Cover bidding: Cover bidding is designed to give the appearance of genuine competition, by way of giving supporting bids, for the leading bid-rigger.
3. Bid suppression: Bid suppression means that a company does not submit a bid for final consideration in support of the leader.
4. Bid rotation: In bid-rotation schemes, conspiring firms continue to bid but they agree to take turns being the winning (i.e., lowest qualifying) bidder in a group of tenders of a similar nature.
5. Market allocation: Competitors carve up the market and agree not to give competitive bids in relation to procurement process for certain customers or in certain geographic areas.
6. Phantom bidding: Phantom bidding is a deceptive practice used to trick legitimate bidders into bidding more than they would have otherwise. It involves creating fake bids from non-existent companies to create an illusion of competition.
Section 3(3)(d) of the Competition Act, 2002 specifically deals with bid-rigging, which reads as follows:
Any agreement entered into between enterprises or associations of enterprises or persons or associations of persons or between any person and enterprise or practice carried on, or decision taken by, any association of enterprises or association of persons, including cartels, engaged in identical or similar trade of goods or provision of services, which- directly or indirectly results in bid rigging or collusive bidding, shall be presumed to have an appreciable adverse effect on competition.
It can be inferred from the reading of Section 3(3)(d) that agreements that amount to rigging of bids are presumed to have an ‘appreciable adverse effect on competition‘ (AAEC). These are agreements amongst competing bidders or potential bidders that affect the prices they will bid for, or the attempt to secretly influence the outcome of, a contract or a series of contracts.
Thus, CCI is empowered to penalize any form of bid rigging in public procurement under Section 3(3)(d) and Section 27 of the Act. Such instances of bid rigging can be brought to the notice of the Commission through an Information, a reference made to it by the Central Government or a State Government or a statutory authority. The Commission can also initiate enquiry on its own accord.
Penalties have been imposed on erring parties in many cases of bid rigging by the Commission. Chapter on ‘Recommended Best Practices‘ discusses some of such cases.
The Ministry of Finance has also revised its Manual for Procurement, wherein there is a specific mention of cartel formation.
Manual for Procurement of Goods 2017
7.5.8 Cartel Formation/Pool rates
“It is possible that sometimes a group of bidders quote the same rate against a tender. Such pool/cartel formation is against the basic principle of competitive bidding and defeats the very purpose of an open and competitive tendering system. Such and similar tactics to avoid/ control true competition in a tender leading to ‘Appreciable Adverse Effect on Competition’ (AAEC) have been declared as an offence under the Competition Act, 2002, as amended by the Competition (Amendment) Act, 2007. Such practices should be severely discouraged with strong measures. In case of evidence of cartel formation, detailed cost analysis may be done by associating experts, if necessary. Besides, suitable administrative actions can be resorted to, such as rejecting the offers, reporting the matter to trade associations, the Competition Commission or National Small Industries Corporation (NSIC) etc., and requesting them, inter-alia, to take suitable strong actions against such firms. New firms may also be encouraged to get themselves registered for the subject goods to break the monopolistic attitude of the firms forming a cartel. Changes in the mode of procurement [Global Tender Enquiry (GTE) instead of Open Tender Enquiry (OTE)] and packaging/slicing of the tendered quantity and items may also be tried. A warning clause may also be included in the bid documents to discourage the bidders from indulging in such practices.”
Role of Procurement Ofcers in Detection of Bid-Rigging
An officer entrusted with responsibility of planning, designing and implementing the tendering process and bound by the cannons of financial propriety is responsible for, and plays a crucial role in the detection of any signs of bid-rigging and eventual penalizing by CCI. Being at the heart of the process of bidding, such an Officer is in the best position to identify any red flags that might hint at a possibility of any mischief being involved on the part of the bidders.
Apart from simply reporting any possible cases of bid rigging to the CCI, the Office-in-Charge of Public Procurement also has a crucial responsibility in designing the tender process in a manner that makes it as less prone to bid-rigging as possible, if not ‘bid-rigging proof’. If the manner in which tenders are planned, designed and implemented is made ‘competition-efcient‘, the chances of manipulation of tendering process can be minimized.
The procurement Officers may identify:
i) Industry, Product and Service Characteristics that help support collusion;
ii) Warning signals of Bid-Rigging and;
iii) Competition distortions caused by government policies and laws which require periodical reviews.
I) Industry, Product and Service Characteristics that help Support Collusion
The Organization for Economic Co-operation and Development (OECD) has enlisted typical industry and product characteristics of markets that are prone to collusion. These are:
(i) Small number of companies: Bid rigging is more likely to occur when a small number of companies supply the good or service. The fewer the number of sellers, the easier it is for them to reach an agreement on how to rig bids.
(ii) Little or no entry: When few businesses have recently entered or are likely to enter a market because it is costly, hard or slow to enter, firms in that market are protected from the competitive pressure of potential new entrants. The protective barrier helps support bid-rigging efforts.
(iii) Market conditions: Significant changes in demand or supply conditions tend to destabilize ongoing bid-rigging agreements. A constant, predictable flow of demand from the public sector tends to increase the risk of collusion. At the same time, during periods of economic upheaval or uncertainty, incentives for competitors to rig bids increase as they seek to replace lost business with collusive gains.
(iv) Industry associations: Industry associations can be used as legitimate, pro-competitive mechanisms for members of a business or service sector to promote standards, innovation and competition. Conversely, when subverted to illegal, anti-competitive purposes, these associations have been used by company officials to meet and conceal their discussions about ways and means to reach and implement a bid rigging agreement.
(v) Repetitive bidding: Repetitive purchases increase the chances of collusion. The bidding frequency helps members of a bid-rigging agreement allocate contracts among themselves. In addition, the members of the cartel can punish a cheater by targeting the bids originally allocated to him. Thus, contracts for goods or services that are regular and recurring may require special tools and vigilance to discourage collusive tendering.
(vi) Identical or simple products or services: When the products or services that individuals or companies sell are identical or very similar, it is easier for firms to reach an agreement on a common price structure.
(vii) Few ‘if any’ substitutes: When there are few, if any, good alternative products or services that can be substituted for the product or service that is being purchased, individuals or firms wishing to rig bids are more secure knowing that the purchaser has few, if any, good alternatives and thus their efforts to raise prices are more likely to be successful.
(viii) Little or no technological change: Little or no innovation in the product or service helps firms reach an agreement and maintain that agreement over time
II. Warning Signals of Bid Rigging
The following factors are helpful in detecting bid-rigging:
(i) Warning Signals in Bids
- The same supplier is often the lowest bidder.
- There is a geographic allocation of winning tenders. Some firms submit tenders that win in only certain geographic areas.
- Regular suppliers fail to bid in a tender they would normally be expected to bid but have continued to bid for other tenders.
- Some suppliers unexpectedly withdraw from bidding.
- Certain companies always submit bids but never win.
- Each company seems to take a turn being the winning bidder.
- Two or more businesses submit a joint bid even though at least one of them could have bid on its own or the lowest bidder does not bid for the full tendered quantity.
- The winning bidder repeatedly sub-contracts work to unsuccessful bidders.
- Competitors regularly socialize or hold meetings shortly before the tender deadline.
- Only a small number of the bidders which bought the tender documentation have submitted bids.
- None of the bidders have participated in the tender although there are a number of bidders available in the market for the work/service.
- On the day set for opening the bids, only one or several of the bidders are present.
- Same bidder has been found to be technically disqualified although was found qualified in the past against same Performance Qualification conditions/same procurement.
- Only one bidder found qualified after number of stages of a tender.
- Bidder has participated in the tender as consortium/Joint Venture with other bidders.
- Number of partner firms participated as Joint Venture/Consortium does not commensurate with their respective experiences/requirement.
- Number of bidders are as much as number of packages tendered under the Main Project.
(ii) Warning Signals in Documents
- Bids were prepared by the same person or were prepared jointly.
- Identical mistakes/ corrections in the bid documents or letters submitted by different companies, such as spelling errors.
- Bids from different companies contain similar handwriting or typeface or use identical forms or stationery.
- Bid documents from one company make express reference to competitors’ bids or use another bidder’s letterhead or fax number.
- Bids from different companies contain identical mis-calculations.
- Bids from different companies contain a significant number of identical estimates of the cost of certain items.
- The packaging from different companies have similar postmarks or post metering machine marks.
- Bid documents from different companies indicate numerous last minute adjustments, such as the use of erasers or other physical alterations.
- Bid documents submitted by different companies contain less detail that would be necessary or expected, or give other indications of not being genuine.
- Two or more bidders offered same nomenclature or brand name of specialized product although they claim to be manufacturers.
- Bids submitted by firms are sister concerns or have common directors in their Board of Directors or having more than 50% stake or shareholding in the other fi
- Bids submitted by the bidder is incomplete or submit less credentials although have the potential to do the work or qualify in the tender.
- Bids of one or more bidders have the same language mistakes or some stylistic similarities (the use of identical terminology, identical mistakes in the calculations, identical crossing outs or changes of certain figures, identical handwriting when the tender documentation should be completed in handwriting).
- When submitted electronically the documents of the different bidders, contain edits made by the same people, or edits made at one and the same time.
- Bidders are having the same address! office! authorized signatory etc.
- Bidders having position of common Key Managerial Person (KMP) or Partner or Proprietor.
- Bidders using same email ids.
- Bids received from same IP address.
- Bids submitted within short span of time.
(iii) Warning Signals in Bid Pricing
Bid prices can be used to help uncover collusion. When other bids are much higher than the winner’s bid, bidders may be using a cover bidding scheme. Bid prices that are higher than the engineering cost estimates or higher than prior bids for similar tenders may also indicate collusion. The following may be considered suspicious:
- Sudden and identical increases in price or price ranges by bidders that cannot be explained by cost increases.
- Anticipated discounts or rebates disappear unexpectedly.
- Identical pricing can raise concerns especially when one of the following is true:
– Suppliers ‘prices were the same for a long period of time,
– Suppliers’ prices were previously different from one another,
– Suppliers increased price and it is not justified by increased costs, or
– Suppliers eliminated discounts, especially in a market where discounts were historically given.
- A large difference between the price of a winning bid and other bids.
- A certain supplier’s bid is much higher for a particular contract than that supplier’s bid for another similar contract.
- There are significant reductions from past price levels after a bid from a new or infrequent supplier, e.g. the new supplier may have disrupted an existing bidding cartel.
- Local suppliers are bidding higher prices for local delivery than for delivery to destinations farther away.
- Similar transportation costs are specified by local and non-local companies.
- Only one bidder contacts wholesalers for pricing information prior to a bid submission.
- Different bidders submit very similar price offers or the prices they offer are different from one another by the same margin that has been observed as part of their participation in other procedures of the same contracting authority.
- A new participant in the market submits a bid and at the same time the traditional participants reduce their price offers drastically compared to the offers they have submitted before for similar projects of the same or other contracting authorities.
- The market prices of the products purchased under similar public procurement procedures are stable and do not change over a comparatively long period of time.
- Overall discount/discount in separate envelope or letter head is being quoted by bidders.
- Lower rate for less quantity. (stating vendor has that quantity surplus out of older order)
- Part quantity to tendered specification, balance at higher rate to different specification.
(iv) Warning Signals in the Statements of Bidders
Suspicious statements that suggest that companies may have reached an agreement or coordinated their prices or selling practices.
(v) Warning Signals in the Behavior of Bidders
Meetings or events at which suppliers may have an opportunity to discuss prices, or behavior that suggests a company is taking certain actions that only benefit other firms. Forms of suspicious behavior could include the following:
- Suppliers meet privately before submitting bids, sometimes in the vicinity of the location where bids are to be submitted.
- Suppliers regularly socialize together or appear to hold regular meetings.
- A company requests a bid package for itself and a competitor.
- A company submits both its own and a competitor’s bid and bidding documents.
- A bid is submitted by a company that is incapable of successfully completing the contract.
- Several bidders make similar enquiries to the procurement agency or submit similar requests or materials.
- There is evidence revealing that a payment has been made on the part of the winning bidder to other bidders or market participants which have not participated in the bidding.
- The winning bidder subcontracts part of the procurement to other bidders or market participants which have not taken part in the bidding.
- Certain bidders always or often participate in bidding but never win whereas other bidders rarely take part in bids but when they do, they necessarily are the winning bidders.
- A given bidder always submits the lowest offers, or always submits the highest possible price offer.
- Several bidders withdraw their bid without a relevant reason for that.
III. Competition Distortions Caused by Government Policies and Laws Competition distortions may be caused by government policies and laws which require periodical reviews. Some such factors causing distortions to fair competition in bid riggings are:
Limiting number of suppliers
The number of suppliers in the procurement process may be limited when procurement rules lay down technical specification in terms of a proprietary product and do not lay down generic specifications.
Barriers to entry
There is a tendency among public procurers to restrict participation to select big and reputed firms. Often this is done to reduce the cost of evaluating bids or to ensure the stability and quality of supply. However, this tendency could raise high entry barriers for new entrants leading to inefficient outcomes.
Competitive Neutrality
Competitive neutrality aims to provide a level playing field to public as well as private entities in the markets. The markets tend to be distorted as a result of structural advantages enjoyed by public entities which may cause distortionary effects on competition.
Information Asymmetry
It has been observed that there is no information available in the public domain suggesting goods or services and their quantum to be procured by the public authorities and sudden decision to procure any good or service strains the existing capacity of supply which creates a price pull factor often leading to inefficient procurement.
Check List
In order to avoid bid-rigging, a check-list can be devised, which can be used by procuring agencies. Such a check-list can be on following lines:
- Learn about the market and suppliers
- Maximize participation of potential bidders
- Define requirements clearly and avoid predictability
- Minimize communication among bidders to the extent possible
- Use Certificates of Independent Bid Determination (CIBD) on an affidavit.
CIBD typically require each bidder to sign a statement under oath that:
– it has not agreed with its competitors about bids, and it has not disclosed bid prices to any of its competitors,
– it has not agreed to join or collude with others in any form which could lead to bid rigging in any manner whatsoever, and it has not attempted to convince a competitor to rig bids.
Methodology to Reduce the Risk of Bid Rigging
The procurement officials may reduce the risk of bid-rigging by adopting following methodology:
(i) Gather all Relevant Information of the Product/ Services
- Be aware of the characteristics of the market from which one will purchase and recent industry activities or trends that may affect competition for the tender.
- Determine whether the market in which one will purchase has characteristics that make collusion more likely.
- Collect information on potential suppliers, their products, their prices and their costs. If possible, compare prices offered in B2B procurement.
- Collect information about recent price changes. Inform oneself about prices in neighboring geographic areas and about prices of possible alternative products.
- Collect information about past tenders for the same or similar products.
- Coordinate with other public sector procurers and clients who have recently purchased similar products or services to improve your understanding of the market and its participants.
- If one uses external consultants to help estimate prices or costs, ensure that they have signed confidentiality agreements.
- Arrive at a preliminary calculation of the fair, cost-oriented price offers that could be submitted under the specific public procurement procedure.
(ii) Encourage Participation of Maximum Potential Bidders
- Avoid unnecessary restrictions that may reduce the number of qualified bidders. Specify minimum requirements that are proportional to the size and content of the procurement contract. Do not specify (unless unavoidable)minimum requirements that create an obstacle to participation, such as control on the size, composition, or nature of firms that may submit a bid.
- Requiring large monetary guarantees from bidders as a condition for bidding may prevent otherwise qualified small bidders from entering the tender process. If possible, ensure amounts are set only so high as to achieve the desired goal of requiring a guarantee.
- To the extent possible, qualify bidders during the procurement process in order to avoid collusive practices among a pre-qualified group and to increase the amount of uncertainty among firms regarding the number and identity of bidders. Avoid a very long period of time between qualification and award, as this may facilitate collusion.
- Reduce the preparation costs of the bid. This can be accomplished in a number of ways: –
– By streamlining tendering procedures across time and products (e.g. use the same application forms, ask for the same type of information, etc.).
– By packaging tenders (i.e. different procurement projects) to spread the fixed costs of preparing a bid.
– By keeping official lists of approved contractors or certification by official certification bodies.
– By allowing reasonable time for firms to prepare and submit a bid. For example, consider publishing details of pipeline projects well in advance using trade and professional journals, websites or magazines.
– By using an electronic bidding system, if available.
- Do not disqualify bidders from future competitions or immediately remove them from a bidding list if they fail to submit a bid on a recent tender.
- Be flexible in regard to the number of firms from whom you require a bid. For example, if you start with a requirement for 5 bidders but receive bids from only 3 firms, consider whether it is possible to obtain a competitive outcome from the 3 firms, rather than insisting on a re-tendering exercise, which is likely to make it all the more clear that competition is scarce.
- The tender documentation should contain clear and specific requirements as special attention is paid to the technical specifications of the procurement with a view to ensuring that they are unambiguous as well as easy to understand and implement.
- Draft the technical specifications of the procurement by putting emphasis on its aims, rather than describing the way in which it should be implemented; in this sense, a specific description of the products or services should be avoided and emphasis should be put on the functional requirements they need to meet.
(iii) Train Staff Members
- Implement a regular training program on bid rigging and cartel detection for your staff, with the help of the competition agency or external legal consultants.
- Store information about the characteristics of past tenders (e.g., store information such as the product purchased, each participant’s bid, and the identity of the winner).
- Periodically review the history of tenders for particular products or services and try to discern suspicious patterns, especially in industries susceptible to collusion.
(iv) Adopt a policy to review selected tenders periodically
- Undertake comparison checks between lists of companies that have submitted an expression of interest and companies that have submitted bids to identify possible trends such as bid withdrawals and use of subcontractors
- Conduct interviews with vendors who no longer bid on tenders and unsuccessful vendors.
- Establish a complaint mechanism for firms to convey competition concerns. For example,clearly identify the person or the office to which complaints must be submitted (and provide their contact details) and put in place a mechanism to maintain confi
- Make use of mechanisms, such as a whistleblower system, to collect information on bid rigging from companies and their employees. Consider launching requests in the media to invite companies to provide the authorities with information on potential collusion.
- Whistleblower Protection: Establish internal procedures that encourage or require officials to report suspicious statements or behaviour to the competition authorities in addition to the procurement agency’s internal audit group and comptroller, and consider setting up incentives to encourage officials to do so.
- Establish cooperative relationships with the competition authority and share data of suspect cases.
(v) Define Requirements of Procurement clearly (so as not to leave any room for the suppliers to define key terms to its own advantage).
(vi) Criteria for evaluating tender should be such that facilitates participation by maximum number of bidders in the bidding process, especially the small and medium level bidders.
(viii) Public Procurement tenders should encompass a wider definition of goods and services so as to obtain competitive price.
Steps that Procurement Officials Should Take in Case of Suspected Bid-Rigging
- Have a working understanding of the Competition Act, 2002 and other related laws/ rules dealing with public procurement.
- Do not discuss one’s concerns with suspected participants.
- Keep all documents, including bid documents, correspondence, envelopes, etc.
- Keep a detailed record of all suspicious behavior/events/ statements.
- After consulting with internal legal staff, consider whether it is appropriate to proceed with the tender offer.
- File a formal reference with the CCI. (Please refer FAQs available on website of CCI detailing the procedure for filing information/ references)
Steps for Procurement Officials in Suspected Bid-Rigging Cases
Reducing collusion in public procurement requires efficient regulatory mechanism, strict enforcement of competition laws and awareness among public procurement agencies at all levels towards the adverse impacts of collusion. Fight against corruption and competition promotion policies are highly complementary.
The policy planners, public procurement officials should work with CCI as a team to deter bid rigging through robust enforcement, increased vigilance, and better designed public procurement programs.
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DIAGNOSTIC TOOLKIT
“Diagnostic Toolkit – Towards Competitive Tenders” has been designed by the CCI to enable the procurement officers to evaluate their procurement systems and facilitate them to make such systems more competitive in nature and less prone to bid rigging. The objective is to build capacity in organizations involved in procurement on planning, designing and implementing ‘competition-efficient‘ procurement processes, which would go a long way towards ensuring an efficient use of precious public funds.
Who will be using the Diagnostic Tool?
The Diagnostic Tool is designed to help the officers dealing with procurement in procuring agencies such as Central Government, State Governments, Municipalities, Public Sector Units (PSUs) and other statutory authorities.
The Diagnostic Tool is a self-assessment exercise that enables the officer dealing with procurement to analyse the procurement process based on past data/information available. Sets of questions are provided regarding each stage of procurement process i.e. planning, design, selection, execution and monitoring. Thus, this tool can be used at any stage of procurement by indentor purchaser, as applicable. As an exercise in self-assessment, the officer will answer these questions to self and based on such answers, will be guided by the tool to identify possible gaps in the procurement process from a competition point of view, following which appropriate steps for improvement will be suggested. The Tool also contains a range of methods for detecting suspicious conduct of bidders, to deal with it internally and procedure of filing a reference with the CCI.
Objectives of the Diagnostic Tool
This tool shall:-
- Equip officers with the information to appreciate various dimensions of the procurement processes.
- Provide a standardized diagnostic method and implementation guide to improve the quality of tenders.
- Help detect anti-competitive behavior amongst the participants of the tenders.
- Promote best practices developed to design tenders and bring competitiveness along with transparency, confidentiality, objectivity and efficiency in the tender processes.
- Help in capacity building of the personnel actually engaged in the procurement processes and sensitize them about the advantages of competition in procurement.
Why use the Diagnostic Tool?
- To enable a robust procurement system in government organizations.
- To design tenders that results in value for money.
- To detect anti-competitive practices at an early stage.
- To refer cases of bid-rigging to the CCI.
Diagnostic – Self-Assessment of Procurement System
For better and efficient procurement system, procurement Officers should devise a system of self-assessment of procurement system in place. Following steps towards this may be helpful:
STEP 1 – Data Collection
As part of self assessment of procurement system, the first step is to collect all available information/data of past tenders issued on the subject matter of procurement during the last 3- 5 years. Data may also be collected, if available, for similar tenders issued in the past by any other unit of your organization. The data so collected will serve as a reference for conducting self assessment for all five stages of the tender process i.e. Planning, Design, Selection, Execution and Monitoring.
STEP 2 –Application of Data to Past Tenders
Apply the Diagnostic Questions to data of the past tenders. On the basis of the ‘yes’ or ‘no’ response, it can be ascertained whether the tender was competition compliant or not.
STAGE 1: PLANNING
1. Whether market information2 on the subject of procurement was collected before inviting bids?
| IF, YES | IF, NO |
| Competition Compliant | Not Competition Compliant |
2. Whether you have directly awarded work to suppliers without following the process of tendering?
| IF, YES | IF, NO |
| Not Competition Compliant | Competition Compliant |
3. Whether past tenders on the subject matter of procurement has led to a single vendor / only a few vendors situation?
| IF, YES | IF, NO |
| Not Competition Compliant | Competition Compliant |
4. Whether procurements have been made by packaging of two or more tenders ?
| IF, YES | IF, NO |
| Competition Compliant | Not Competition Compliant |
5. Whether any lists of the suppliers have been updated?
| IF, YES | IF, NO |
| Competition Compliant | Not Competition Compliant |
6. Whether bids are invited at definite/predictable times?
| IF, YES | IF, NO |
| Not Competition Compliant | Competition Compliant |
7. Whether bids are invited at definite/predictable quantities?
| IF, YES | IF, NO |
| Not Competition Compliant | Competition Compliant |
8. Whether detailed estimate has been prepared for the subject work by following due process as per GFR/Procurement Manual/through GeM?
| IF, YES | IF, NO |
| Competition Compliant | Not Competition Compliant |
9. Whether the tender was widely advertised?
| IF, YES | IF, NO |
| Competition Compliant | Not Competition Compliant |
10. Whether sufficient numbers of competent bidders likely to comply with the required technical specifications are available?
| IF, YES | IF, NO |
| Competition Compliant | Not Competition Compliant |
STAGE 2: DESIGN
1. Whether the qualification criteria (Professional/Technical/Financial) for the bidders was restrictive in proportion to the requirement of the work involved(which might have reduced the number of bidders)?
| IF, YES | IF, NO |
| Not Competition Compliant | Competition Compliant |
2. Whether the change in qualification criteria (Professional/ Technical/ Financial) from pervious tender(s) have been deliberated (wherever applicable)?
| IF, YES | IF, NO |
| Competition Compliant | Not Competition Compliant |
3. Whether a particular brand or names of particular firms was/were mentioned in the qualification criteria for the bidders?
| IF, YES | IF, NO |
| Not Competition Compliant | Competition Compliant |
4. Whether lessons learnt from pervious tender(s) have been incorporated (wherever applicable)?
| IF, YES | IF, NO |
| Competition Compliant | Not Competition Compliant |
5. Whether conditions (which discourage competition) such as getting NOC from a manufacturer / getting certification from only one particular agency/ testing specified in the tender?
| IF, YES | IF, NO |
| Competition Compliant (unless such conditions are required |
Not Competition Compliant |
6. Whether warning clause (including a provision for penal action) has been included in the bid documents to discourage the bidders from indulging in collusive practices?
| IF, YES | IF, NO |
| Competition Compliant | Not Competition Compliant |
7. Whether provision of Integrity pact has been included in the tender documents?
| IF, YES | IF, NO |
| Competition Compliant | Not Competition Compliant |
8. Whether the following disclosures were inserted in the tender document:
I. Disclaimer that suspected instance of collusion will be reported.
| IF, YES | IF, NO |
| Competition Compliant | Not Competition Compliant |
II. Disclosure to inform all sub-contracting arrangements including those made after the contract with the competitors and notification to the procuring agencies if winning bidder assigns contract to a competitor.
| IF, YES | IF, NO |
| Competition Compliant | Not Competition Compliant |
III. A statement confirming that the bids have been developed independently from their competitors.
| IF, YES | IF, NO |
| Competition Compliant | Not Competition Compliant |
IV. Disclosure of any prior conduct involving anti-competitive behaviour, in India or overseas.
| IF, YES | IF, NO |
| Competition Compliant | Not Competition Compliant |
STAGE 3: SELECTION
1. Have the tenders been uploaded on the Central Public Procurement Website or any departmental/organizational website (for example Railways)?
| IF, YES | IF, NO |
| Competition Compliant | Not Competition Compliant |
2. Is the selection process or methodology clearly defined in the tender document?
| IF, YES | IF, NO |
| Competition Compliant | Not Competition Compliant |
3. Does it minimize communication between bidders during tender process ?
| IF, YES | IF, NO |
| Competition Compliant | Not Competition Compliant |
4. Were the tenders based primarily on prices?
| IF, YES | IF, NO |
| Not Competition Compliant | Competition Compliant |
5. Were some efforts made for vendor development?
| IF, YES | IF, NO |
| Competition Compliant | Not Competition Compliant |
6. Are there similarities between vendor applications or proposals?
I. Two or more proposals contain similar handwriting, typographical, or mathematical errors.
| IF, YES | IF, NO |
| Not Competition Compliant | Competition Compliant |
II. Two or more proposals are sent from the same mailing address, email address, uniform resource locator address, fax number, or overnight courier account number.
| IF, YES | IF, NO |
| Not Competition Compliant | Competition Compliant |
III. Bids from different bidders were submitted from the same IP address.
| IF, YES | IF, NO |
| Not Competition Compliant | Competition Compliant |
IV. Bank drafts were from same branch of a bank to pay tender documents or earnest money.
| IF, YES | IF, NO |
| Not Competition Compliant | Competition Compliant |
V. Two or more proposals reflect that last-minute changes (such as white-outs and cross-outs) were made to alter price quotes.
| IF, YES | IF, NO |
| Not Competition Compliant | Competition Compliant |
VI. Two or more proposals having common address or authorized signatory.
| IF, YES | IF, NO |
| Not Competition Compliant | Competition Compliant |
VII. Two or more proposals having common Key managerial Person/ Partner/ Proprietor.
| IF, YES | IF, NO |
| Not Competition Compliant | Competition Compliant |
VIII. The document properties of two or more electronic proposals show that the proposals were created or edited by one vendor.
| IF, YES | IF, NO |
| Not Competition Compliant | Competition Compliant |
IX. Document was authored by someone other than the supplier making the submission.
| IF, YES | IF, NO |
| Not Competition Compliant | Competition Compliant |
7. Have following patterns developed among competing vendors?
I. Over a series of awards, competing vendors rotate as the award winner.
| IF, YES | IF, NO |
| Not Competition Compliant | Competition Compliant |
II. Over a series of awards, routine competing vendors win the same or similar amounts of work.
| IF, YES | IF, NO |
| Not Competition Compliant | Competition Compliant |
III. Over a series of awards, one vendor always wins, regardless of competition.
| IF, YES | IF, NO |
| Not Competition Compliant | Competition Compliant |
IV. As compared with prior quotes, a smaller number of vendors submitted proposals for a particular award.
| IF, YES | IF, NO |
| Not Competition Compliant | Competition Compliant |
V. Regular suppliers decline to participate in tender for no reasons.
| IF, YES | IF, NO |
| Not Competition Compliant | Competition Compliant |
VI. Bidders are offering overall discount in bid/ separate envelope.
| IF, YES | IF, NO |
| Not Competition Compliant | Competition Compliant |
VII. Different bidders are controlled/owned by members of same family.
| IF, YES | IF, NO |
| Not Competition Compliant | Competition Compliant |
VIII. Are local suppliers bidding higher rates?
| IF, YES | IF, NO |
| Not Competition Compliant | Competition Compliant |
8. Have vendors demonstrated behaviour that suggests that they worked together on the award?
I. A vendor submits a proposal for a procurement or grant award, and you know that the vendor lacks the ability to provide the goods or services requested.
| IF, YES | IF, NO |
| Not Competition Compliant | Competition Compliant |
II. A vendor submits multiple proposals.
| IF, YES | IF, NO |
| Not Competition Compliant | Competition Compliant |
III. A vendor makes statements on the phone or by e-mail indicating advance knowledge of a competitor’s prices or likelihood of winning the award.
| IF, YES | IF, NO |
| Not Competition Compliant | Competition Compliant |
IV. The bidder whose bid has been found to be the lowest evaluated bid withdraws from the procurement process.
| IF, YES | IF, NO |
| Not Competition Compliant | Competition Compliant |
V. The bidder whose bid has been accepted, fails to sign the procurement contract or fails to provide the security as may be required for the performance of the contract.
| IF, YES | IF, NO |
| Not Competition Compliant | Competition Compliant |
VI. Voluntary discounts have been given by bidders after the price discovery process.
| IF, YES | IF, NO |
| Not Competition Compliant | Competition Compliant |
VII. Number of empanelled/Qualified contractors have not submitted their bids.
| IF, YES | IF, NO |
| Not Competition Compliant | Competition Compliant |
VIII. More than one losing bidder submits identical line item bids on nonstandard line items.
| IF, YES | IF, NO |
| Not Competition Compliant | Competition Compliant |
IX. Bids have been received from such bidders/contractors who are incapable of successfully performing the contract.
| IF, YES | IF, NO |
| Not Competition Compliant | Competition Compliant |
X. Competitors have changed prices in similar amounts at about the same time.
| IF, YES | IF, NO |
| Not Competition Compliant | Competition Compliant |
STAGE 4: EXECUTION
1. Was the product that was procured/service rendered/contract undertaken eventually up to the mark and did it provide the best value for money?
| IF, YES | IF, NO |
| Competition Compliant | Not Competition Compliant |
2. Were the terms and conditions in past tenders that were originally stipulated changed / amended in any substantial manner?
| IF, YES | IF, NO |
| Not Competition Compliant | Competition Compliant |
3. Has any of the Winning Bidder sub- contracted his work in past?
| IF, YES | IF, NO |
| Not Competition Compliant | Competition Compliant |
4. Are there any patterns in the price data that suggest similarity of prices quoted in the bids?
| IF, YES | IF, NO |
| Not Competition Compliant | Competition Compliant |
RECOMMENDED BEST PRACTICES
Some of the recommended best practices that may be followed by procurement officers at various stages of procurement process are discussed below:
PLANNING STAGE
1. Collect Market Information: –
Collecting market information and subsequent analysis helps the procuring agency to get a clear picture of the market and facilitates appropriate designing of the tender. Information may be collected on the relevant parameters (such as characteristics of the product, number of suppliers, size of the market, prevailing prices, prices in neighboring areas, prices of substitutes, price trend of raw materials, transport costs, information on past tenders for similar products etc.).
Usually markets that are susceptible to bid rigging are characterized by –
Relatively low number of suppliers
– Product has no/poor substitutes in the market
– Product is highly specialized in nature
– Demand for product is stable and can be forecasted with relative certainty
– Rising Price of product despite cost of raw material stable
Commission has dealt with number of cases in which it found bidders in contravention of the Act while observing the following market conditions which are conducive of cartelization and bid rigging:
- Small number of companies: A fewer number of companies is likely to incentivize them to collude as the chance to monitor the behaviour of all the players in a cartel is easier. In Re: Aluminium Phosphide Tablet Manufacturers , Commission noted that there are only four manufacturers of Aluminium Phosphide Tablets in India which are quoting identical prices for last eight years and sales were restricted only to the government agencies which made collusion not difficult.
- and are, used to also indulge in anti-competitive acts. Quoting of identical prices by bidders followed by their meeting of trade associations makes relevant factor in inquiry of bid rigging. In Re: Western Coalfield ,Industry associations: These are often used to promote pro-competitive activities that further the cause of their constituent firms. However, they canCommission noted that identical price bids by the bidding firms engaged in sand and coal transportation followed by their association, Central India Mining and Transport Association (CIMTA), demanding higher prices in the tenders floated by the Western Coal Fields Ltd. makes such demand of CIMTA a relevant factor in the inquiry of bid-rigging.2.
2. Do NOT Directly award work: –
Direct award to suppliers on nomination basis should not be encouraged as it inhibits competition. Effective competition can be enhanced if sufficient number of credible bidders participate in the tendering process. It is also imperative to receive the requirement from the user department promptly in order to give procuring division sufficient time to design the tender and also give time to the participating firms to prepare and submit their bids. Delays in assessment of need may lead to shortcut procurement procedures that dilute transparency and prevent achieving value for money. It may also lead to delays in delivery of goods. Paucity of time is often given as a reason for direct award of contract.
3. Combine/package tenders: –
The packaging of tenders helps in spreading the fixed costs to prepare a tender. Regular procurement opportunities and repetitive bidding increases the chances of collusion as it helps members of a bid rigging agreement to allocate contracts amongst themselves. This is so because in a packaged tender, the winner takes all and there is accordingly, less scope for bid rigging. Tenders should be carried out at irregular intervals, and for dissimilar amounts and quantities, making collusive agreements difficult to reach.
4. Publication of details of tenders: –
Tenders may be published on the Procuring Agency’s /Company’s website and Central Public Procurement Portal. The requirement of publishing tender details on newspaper may be dispensed with to save costs.
5. Deposit of Earnest Money: –
Earnest Money Deposit (EMD) amount may be kept at 3-4 %. Prescribing huge
EMD discourages participation.
6. Follow the due process as per General Financial Rules (GFR)/ Procurement Manual:-
Prepare the detailed estimate for the subject work by following due process as per GFR/ Procurement Manual.
7. Make procurement through GeM:-
The procurement officer must make the procurement through the GeM website unless intended items/works services not available on GeM.
DESIGN STAGE
1. Avoid Single vendor/ very few vendors situation:
Sometimes, against advertised/limited tender cases, the procuring entity may not receive a sufficient number of bids and/ or after analysing the bids, ends up with only one responsive bid – the situation is referred as ‘Single Offer’. This may be due to the fact that:
i) The procurement was not satisfactorily advertised or sufficient time was not given for submission of bids;
ii) The qualification criteria were restrictive and;
iii) Prices are unreasonable in comparison to market values. In all such likely cases:
– The procuring authority should design the tender to meet the expected outcome and not the manner in which it is to be achieved. Thus, the emphasis should be on ‘what’ to achieve rather than ‘how’ to achieve.
– The procuring authority should ensure that specifications are developed to ensure value for money, level playing field and wide competition in procurement. The procurement agencies should spell out the specifications in a vendor neutral manner. (e.g. not specifying a brand of a product, or not specifying names of particular firms as examples in the tender etc.).
– The procuring agency should not apply conditions that are restrictive and unreasonable or that require NOC, (e.g. getting NOC from a manufacturer / getting certification from only one particular agency/ testing) etc. (unless required for example ISO 2008; ISO 2014).
– The procuring agency should not apply professional, technical and financial conditions or terms of reference that may either be disproportionate to the need identified or tilt the tender in favour one or a group of vendor(s) or contractor(s) in order to artificially restrict competition. Care must be taken to ensure that conditions such as size, composition or nature of firms, monetary guarantees do not become too restrictive to create obstacles to participate in the bids. Such conditions leads to a situation where only a few bidders may be able to compete and qualify for bidding.
2. Avoid Pre-qualification criteria:
The clause for pre-qualification / registration is introduced to ensure a ready list of suppliers for faster procurement. This list must be updated continuously or at least once in a year to ensure that entry of new firms are not barred for a long period of time. There is no need to have pre- qualification process for regular procurement process. The technical evaluation can serve as pre-qualification. The information on the list of registered bidders should be made available on the Central procurement portal as it makes it easy to access information and promotes competition in the long run8.
3. Ensure insertion of necessary disclosures by the bidders:
Disclaimers and disclosures regarding prior transaction creates awareness amongst the bidders about their duties and also helps in reducing the possibility of cartels as it encourages voluntary compliance. The disclosure of independent bids should include an undertaking that no consultation, contract, arrangement orunderstanding with any competitors, directly or indirectly has occurred with regards to prices; methods, factors or formula used to calculate, intention to submit or not submit a bid; the submission of a bid that is non-conforming; the quality, quantity, specification of delivery particulars of products or services to which the call for bid relates; the terms of the bid etc. Inclusion of disclaimer and disclosure will nudge the bidders towards integrity in the bidding process.
4. Ensure insertion of warning clause: A warning clause (including a provision for penal action) must be included in the bid documents to discourage the bidders from indulging in collusive practices. It must be mentioned that suspected instance of collusion should be reported.
In Foundation for Common Cause v. PES Installations Pvt. Ltd. and Anr9.
The Commission while acting on information filed by an NGO found that three firms (bidders) had rigged bids in tender floated by the Hospital Services Consultancy Corporation (HSCC) for the procurement of equipment at the Sports Injury Centre, Safdarjung Hospital, New Delhi.
The Commission noted that the evaluation committee of bids after opening the bids changed the operation cost and maintenance cost after realizing that detailed estimates were never prepared for the complete work as tender design and specification were uncertain. Commission observed that earlier INR 10 crore were allocated for the quoted product with warranty of 5 years, Comprehensive Maintenance Cost (CMC) for 5 years and operational and running cost for 10 years but the contract was given at INR 16 crore with 5 years warranty and 5 years of operation cost.
The Commission held that in case where tender specifications, terms and conditions and estimated cost are uncertain, firms tend to collude and manipulate the entire bidding process to their advantage. Wide variations in bid prices quoted by the firms and initial cost estimates projected in Notice Inviting Tender (NIT) shows that firms had taken advantage of lack of expertise with HSCC. A better tender design and better cost estimation would have avoided asituation where winning firm was awarded contract at price almost 142% more than the estimated cost of bid.Moreover, HSCC combined conventionally two different segments i.e. Modular Operation Theatre (MOT) and Medical Gas Manifold System (MGMS) into one and asked bidders to have relevant experience in both the segments, resulting in elimination of competent suppliers specializing in one single field. This qualification criterion led to single vendor type of situation also.
SELECTION STAGE
1. Clearly define selection process or methodology in the tender document: To ensure that there is a competition compliant tendering process, it must be ensured that the selection processes are clearly defined in advance within the tender document.
2. Conduct Electronic Bidding:
The Government of India has issued guidelines to upload the tenders electronically on the website (www.eprocure.gov.in) or specific departmental websites for this purpose. Encouraging procurement agencies to use electronic bidding systems makes it accessible to a wider group of bidders. It enables the bidders to download the tender schedule free of cost and submit bids online. It also widens the supply base, increases transparency, reduces delays and is cost-effective.
3. Maintain Confidentiality:
The bid selection process should be confidential and the mode of submission of the bid physically in office should be discouraged as it may lead to last minute communication/signaling/deal making between the bidders. The bids should be received in a sealed envelope. Consider carefully what information to reveal at the time of bid opening. Only such information should be revealed to the bidders that is essential.
4. Award of Tenders:
A single stage tender based primarily on price does not reveal efficient results. Price as the only parameter for awarding contract can lead to inefficient procurement. Quality of the work may be compromised as price is the only criteria and the winning bidder may supply low quality product or give poor services. It may also encourage collusive bidding as it is easier to manipulate the price bid.
Any of the past cases where the lowest bidder had refused to accept the award and/ or the tender was subjected to negotiation, may also be indicative of collusive bidding.
Check reasons for not awarding to the lowest bidder in the past. If no cogent reason is there, there could be a possibility of withdrawal of bid by the winning bidder for some other consideration. Also check the reasons for negotiation of the price, as the price quoted may be higher than market price on account of cover bidding.
5. Check for similarities among proposals of bidders:
The award may be the victim of collusion, if on close examination of the proposals
or applications submitted by the competing vendors are similar in following ways:
– Proposals contain similar handwriting, typographical, or mathematical errors.
– Two or more proposals are sent from the same mailing address, e-mail address, uniform resource locator address, fax number, or overnight courier account number.
– Bank drafts/ cheques were made from same bank to pay tender documents or earnest money.
– Proposals contain apparent last-minute changes (such as white-outs and cross-outs) to alter price quotes.
– The document properties of two or more electronic proposals show that the proposals were created or edited by one vendor.
– Two or more proposals have common address or authorized signatory
– Two or more proposals have common Key Managerial Person/ Partner/ Proprietor.
– The document was authored by someone other than the supplier making the submission.
6. Action that may be taken by Procurement Officers
– Collect further information
– Do not discuss with suspected participants
– Keep documents, including bid documents, correspondences, envelopes
– Keep records of all suspicious behavior
– Report the matter to CCI ( Please refer FAQs available on website of CCI detailing the procedure for filing information/ references)
7. Check for discerning patterns among winning bidders: –
The award may be the target of collusion if review of the outcome of prior awards for the same product or service shows patterns over time. The absence of regular suppliers may indicate that they have not participated in the bid to avoid competition in exchange of some other consideration. Such patterns may be as follows:
– Over a series of awards, competing vendors rotate as the award winner.
– Over a series of awards, routine competing vendors win the same or similar amounts of work.
– Over a series of awards, one vendor always wins, regardless of competition.
– The vendor that wins the award subcontracts work to losing vendors or to vendors that withdrew their proposals or refused to submit proposals.
– As compared with prior awards, a smaller number of vendors submitted proposals for the current award.
– Regular suppliers declined to participate in tender for no reasons.
– Local suppliers bidding higher rates.
8. Look out for suspicious behavior:
The award may be the target of collusion if suspicious behaviour indicates that vendors worked together rather than competed for the award. Such behavior may consist of the following:
– A vendor submits a proposal for a procurement or grant award, and it is known that the vendor lacks the ability to provide the goods or services requested.
– A vendor brings multiple proposals to an in-person procurement or grant process or submits multiple proposals.
– A vendor makes statements on the phone or by e-mail indicating advance knowledge of a competitor’s prices or likelihood of winning the award.
– The bidder whose bid has been found to be the lowest evaluated bid withdraws from the procurement process.
– The bidder whose bid has been accepted, fails to sign the procurement contract or fails to provide the security as may be required for the performance of the contract.
– Voluntary discounts have been given by bidders after the price discovery process.
– Number of empanelled/Qualified contractors have not submitted their bids.
– More than one losing bidder submits identical line item bids on nonstandard line items.
– Bids have been received from such bidders/contractors who are incapable of successfully performing the contract.
– Competitors have changed prices in similar amounts at about the same time.
Case References
Commission has found bidders indulging in following suspicious activities in various cases which procurer should monitor while evaluating the bids:
– Two bidders shared a common fax number and were related through common directors10.
– Bidder have stated that their blue ink pen being used to fill up the cover page of the tender got exhausted when they were filling the price schedule. Hence, they used black pens to fill the price schedule of their bids. Such a co-incidence casts doubt upon the activities of the bidders .11
– Tender documents were usually submitted in-person and the rates were normally filled with hand. It was further observed that the tender documents were to be submitted by 2:00 p.m. on May 08, 2009 and bid was to be opened at 3:00 p.m. on the same day. For submitting the bids, representatives of the bidding companies made common entries in the Visitors’ Register. In fact, a representative of one bidding company made these entries on behalf of the representatives of other competitors as well .12
– Scrutiny of the bid documents revealed that the 19 firms had similar handwriting in which the prices were quoted in figures and words in their respective bid documents. Demand Drafts (DDs) amounting to Rs.2000/- towards payment of tender documents fee by some of the bidders; both of same dates were in sequence and hence made from the same banker and at the same time. DDs having been submitted from one bank or set of banks by different banks were corroborative evidence to show some kind of collusion in rigging the bids13.
– Quoting identical prices right upto the last paisa alone is a very strong indicator towards a possible collusion amongst the bidders14.
Foundation for Common Cause v. PES and Anr15
ommission noted suspicious behavior of about three bidding firms [PES Installations Pvt. Ltd. (PES), MDD Medical Systems (MDD) and Medical Product Services (MPS)] as there was huge difference between the two losing firms (PES and MPS) and the winning bidder (MDD) in addition to one bid submitted by the losing firm (MPS) despite knowing the fact that neither it nor winning bidder (MDD) is eligible to bid. It established the fact that bidders acted in concert to share the profits by submitting complementary bids. Moreover, losing bidder (PES) despite being a major player in installation of quoted products submitted a losing bid by quoting a substantially higher financial bid and allowed MDD to win. It was a clear case of bid rigging in the form of subcontracting wherein PES submitted a losing bid in favor of MDD and thereafter received subcontract from MDD. The story gets complicated with PES bagging contract for similar work at different hospital with MDD and MPS submitting complementary bids.
In Re: Alleged cartelization in the matter of supply of spares to Diesel Loco Modernization Works, Indian Railways, Patiala, Punjab 16
Commission found all the three Research Designs & Standards Organization (RDSO) of the Indian Railways approved vendors guilty of rigging the bids in a tender floated by the Diesel Loco Modernization Works (DLMW) for procurement of feed valves used in diesel locomotives. Commission discerned that two out of three bidders submitted complementary bids in response to the tender enquiry under consideration as two bidders were not, as a matter of fact, in competition with the third bidder in the procurement process. Offer of one bidder was found technically suitable, but its offer was passed over as it did not submit the cost of tender documents and other firm’s offer was passed over as it did not accept the warranty clause as per conditions of the contract.
Cartelization by public sector insurance companies in rigging the bids submitted in response to the tenders floated by the Government of Kerala for selecting insurance service provider for Rashtriya Swasthya Bima Yojna 17
In this case the Commission investigated ‘bid rigging’ by the Insurance Companies, in the tender floated by the Government of Kerala on 18 November 2009 for selecting the insurance service provider for implementation of the ‘Rashtriya Swasthya Bima Yojana’ (RSBY) (Tender). The Tender was intended as public procurement for social welfare schemes for families below the ‘poverty line’.
The CCI considered the minutes of meetings attended by the parties which confirmed that the winner of the Tender was pre-decided by the Insurance Companies and that the Insurance Companies has agreed to share the business resulting from the Tender among them in an agreed ratio in which (United India Insurance Company Limited) UIICL quoted the lowest price.
The CCI also found that UIICL, in order to annually raise the premium price, terminated its contract with the Government of Kerala and forced re-tendering in the subsequent years 2011-12 and 2012-13. Both times, all four of the Insurance Companies, among others, submitted bids for the tenders and UIICL’s price bid was found to be the lowest among the technically qualified bidders. The contract was thus re-awarded to UIICL in 2011-12 and 2012-13 at the raised premium priced demanded by it. The CCI observed that in both these years, UIICL entered into business sharing arrangements with other Insurance Companies, namely, National Insurance Company Ltd. (NICL) and New India Assurance Company Ltd. (NIACL).
The internal office notes of UIICL and OICL indicated that the UIICL had contemplated jointly quoting higher premiums with the other Insurance Companies and that OICL had participated in joint meetings of the Insurance Companies. For these foregoing reasons, the CCI concluded that the Insurance Companies were cartelising to fix higher insurance premium rates. The CCI ordered the Insurance Companies to cease and desist from such anti-competitive practices and also imposed penalties on them.
Delhi Jal Board v. Grasim Industries Limited and Others 18
Delhi Jal Board (DJB) (the Informant) has been procuring Poly Aluminum Chloride (PAC), Alum (coagulant) and Liquid Chlorine (LC) (disinfectant) from the Opposite Parties for purification of water through tendering process. The Informant alleged that in case of negotiations over the bid price of PAC/LC, the Opposite Parties used to negotiate/ decrease the prices, to an equal extent and that the Opposite Parties were bidding collusively by quoting similar prices with a difference of INR 200-400 for certain quantity of the said chemicals from the year 2006-07 till the year 2012.
The Commission observed that the rates besides simultaneously increasing every year were converging on a narrow band. Also, despite the fact that the plants were located in different geographical, the rates quoted by all the bidders remained substantially similar. It was also observed that in normal market conditions, the freight rate/km should decrease with the increase in the distance covered. However, contrary to the same, the freight rate of Gujarat Alkalies and Chemicals Ltd (GACL) which was farthest from DJB had the highest freight rate.
On examination of the cost of production of the product by the respective companies, the CCI observed that the cost of production of GACL has been nearly constant whereas the cost of production of Grasim Industries Ltd (GIL) and Aditya Birla Chemicals (India) Ltd. (ABCIL) has been increasing, which was contrary to explanations of narrow band pricing offered by the parties, which attributed the same to PAC being a homogenous product.
The examination of the rates offered by the parties to other customers also revealed that the parties have been charging DJB higher rates than the rest of their customers. With respect to the conduct of GIL and ABCIL, it was noted that they have been continuously and throughout the tender process exchanging vital information with each other, be it sharing of the bid documents, prices to be quoted or even the negotiated prices to be offered.
Accordingly, in the absence of an economic rationale behind the behaviour of quoting similar rates by the bidders together with the prolonged supra-competitive pricing by GACL, the bid rotation, the tenders floated by other municipal corporations and the exchange of vital information taken in totality were sufcient enough as ‘plus factors’ and established concerted action and meeting of minds.
Consequently, the bidders i.e. ABCIL, GIL and GACL were found to have acted in a concerted manner in contravention of the provisions of Section 3(1) read with Section 3(3)(d) of the Act.
The Informant in this case was using explosives manufactured by OPs for mining operations depending upon the type of coal mines. It used to procure explosives via a two stage process i.e. by inviting techno-commercial bids and price bids. However, after 2007-08 the Informant initiated Electronic Reverse Auction (ERA) for inviting bids. It was submitted that the respondents were in possession of 75 % of the total market and acted in a cartel like manner to hinder the transparent bidding process.
It was submitted that the OPs did collective boycott of ERA for running contracts in January 2010, collectively gave threats to stop/stopping the supply of coal to the informant, and fixed bid prices in 2009.
It was submitted that the OPs did collective boycott of ERA for running contracts in January 2010, collectively gave threats to stop/stopping the supply of coal to the informant, and fixed bid prices in 2009.
In Re: Aluminium Phosphide Tablet Manufacturers20
In a reference case against Excel Crop Care Limited (“Excel”), United Phosphorous Limited (“United”), and Sandhya Organics Chemicals (“Sandhya”), the Food Corporation of India alleged that OPs had formed a cartel and agreed to raise bid prices between 2007 and 2009 for Aluminium Phosphide Tablets (APT). FCI also claimed the companies had submitted identical rates in the tenders for the purchase of APT since 2002. The DG also found that the companies had uniformly boycotted a tender offer made by FCI in 2011.
Considering the arguments and findings, the CCI ruled the companies had violated the provisions of Section 3 by their actions between 2009 and 2011. CCI held the “coincidence” of identical price quoting had a zero percent chance of happening without some type of agreement. Despite no “physical” evidence, the circumstantial evidence was enough. The companies had varying cost structures and geographical locations that would, in normal circumstances, assume different bid prices. Accordingly, penalty was imposed at the rate of 9% of the total turnover of the companies
EXECUTION STAGE
1. Evaluate past performance:
The overall success rate of the past procurement processesmaybe evaluated to appreciate the outcomes of procurement. However, the importance of performance records should not be overemphasized for future contracts and wherever possible other relevant experience may be considered.In case of low performance, review reasons for such low performance and review procurement conditions for future tenders.
2. Review changes in Terms and Conditions:
Any subsequent substantive change in the original terms and conditions should raise suspicion of collusive behaviour as it may affect the expected outcomes. Review reasons for change in terms of contract to see likelihood of collusion.
3. Discourage Sub- Contracting:
The tender document should require bidders to disclose upfront if they intend to use subcontractors. In case the winning bidder sub- contracts the work to unsuccessful bidders or the winning bidder does not accept the contract or is later found to be a sub- contractor of the winning party then it must raise suspicion about collusive tendering. Similarly, greater vigilance is required if two or more businesses submit a joint bid even though at least one of them could have bid on its own, as it could be a way to split profits among bid riggers.
4. Check patterns in Prices for Price-Fixing:
Price Fixing occurs when there is an agreement among competitors to raise, fix or otherwise maintain the price of goods or services.
(a) The patterns in bid prices submitted by different parties indicate there might be collusive behavior in bid prices. If the price quoted in the bids is similar, especially when the production capacity and utilization for each bidder is different; this is a strong indicator of price fi
(b) Any sudden or identical increase in prices or price range would indicate that the bidders have no legitimate justification for increasing the bid price.
(c) The variation in the location of each bidder would normally be reflected in the bid price; any uniformity in the bid price should be viewed with suspicion.
(d) Price differences between winning bid and other bids indicate that the winning bid is not actually cost effective, but rather has been selected as such due to inflated prices being quoted by the other bidders – a form of cover bidding.
A comparative analysis of the bids offered by the same bidder, wherever possible also helps gauge the approximate cost incurred by that bidder. A significant difference between the same kinds of bids would clearly indicate that the bid price is being manipulated and inaccurate.
Tendering Authority (Procurers) should look for following price patterns which are conducive of a bid rigging and which have been noticed by the Commission:
- Most of the bidders quoted rates @ INR 66.50 (all inclusive), despite located differently;
- Identical quotes up to the last paisa alone is a very strong indicator towards a possible collusion;
In Foundation for Common Cause V. PES and Anr21
The evaluation committee of the Safdarjung Hospital (tendering authority) changed the terms and conditions, regarding the Comprehensive Maintenance Contract and Operation and Maintenance Cost, at the time of the evaluations of bids and added few additional items after Notice Inviting Tender (NIT) and pre-bid meeting. Moreover, winning bidder (MDD) did not have technical qualifications i.e. condition of exclusivity and requisite experience which was overlooked by the tendering authority. This led to bidders to collude and manipulate the entire bidding process to their advantage because of lack of expertise with tendering authority. Finally, the order was placed at almost 142% more than the estimated cost of bid with reduced warranty and charges. Moreover, losing bidder (PES) is a major player in installation of quoted products but still submitted a losing bid by quoting a substantially higher financial bid and allowed MDD to win. It is a case of bid rigging in the form of sub contracting wherein PES submitted a losing bid in favor of MDD and thereafter received a sub contract from MDD.
MONITORING STAGE
1.Establish a Complaint Handling System:
The establishment of complaint handling mechanism helps in identifying any anti-competitive behavior and making improvements in future bids.
2. Establish a Whistleblower System:
The whistleblower system is a robust way to gauge any anti-competitive concerns/ cartel detection. However, care must be taken to ensure that false complaints or anonymous / pseudonymous complaints do not derail the procurement process.
3. Regularly Conduct Internal Audits:
The diagnostic tool can be used as an internal audit of the procurement process. The persons undertaking the diagnostic analysis should be technically competent and should also be aware of the market segments in which the procurement is taking place. Any suspicious tenders may be reported to the CCI for further investigation.
4. Training Programs:
Conducting training programs would not only equip the employees with the requisite information to identify bid rigging on the supply side, but also apprise them of the way a procurement process is supposed to be run (a demand side issue).
5. Educate yourself about Lesser Penalty Programme and refer it to any bidder in knowledge of a cartel:-
The Lesser Penalty Programme is internationally the best means of detecting presence of a cartel. This programme enables an entity which is a part of or has inside knowledge of a cartel to voluntarily disclose details of such a cartel to the Commission in exchange of Lesser Penalty that may be levied to the entity. If any bidder approaches you with any such information or willingness to disclose such information, refer the Lesser Penalty Programme of CCI to such party and encourage it to file a lesser penalty application with the Commission.
Please refer to FAQs available on website of CCI detailing Lesser Penalty Programme.
NOTE:
1Fighting bid rigging in public procurement. Report on implementing the OECD Recommendation 2016; available at https://www.oecd.org/daf/competition/Fighting-bid-rigging-in-public-procurement-2016-implementation-report.pdf
2Market information, may include alternative specifications available, new technology, price trends, whether subscription to the relevant websites where price trends are available.
3More packaging would lead to lesser coordination among bidders, should be followed whenever possible.
4There could be situations where pre-bid meetings, which are essential part of the tender process are held in presence of participating bidders and hence, cannot be avoided.
6Suo-Moto Case no. 02/2011; dated 23.04.2012; available at https://cci.gov.in/antitrust/orders/details/792/0
7Case no. 34 of 2015; dated on 14.09.2017; available at https://cci.gov.in/antitrust/orders/details/783/0
8Depending on the exigency of requirement, sometimes at short notice, PSUs are required to procure material. Normal NIT have a closing window of 21-28 days. If a panel of eligible suppliers re-created through a tender process, subsequent procurement could be through limited tender through this empaneledsupplier’s rote. This would save time and effort. The empanelment may be kept open once a quarter so that new entrants can also be considered.
9Case No. 43 of 2010; dated on 16.04.2012; available at https://cci.gov.in/antitrust/orders/details/866/0
10Suo Moto Case No. 04 of 2013; dated 10.06.2015; available at https://www.cci.gov.in/antitrust/orders/details/860/0
11Case No. 34 of 2015; dated 14.09.2017; available at https://www.cci.gov.in/antitrust/orders/details/783/0
12Suo Moto Case No. 02 of 2011; dated 23.04.2012; available at https://www.cci.gov.in/antitrust/orders/details/792/0
13Ref Case No. 05 of 2011; dated 21.02.2013; available at https://www.cci.gov.in/antitrust/orders/details/908/0
14Suo Moto Case No. 03 of 2012; dated 05.02.2014; available at https://www.cci.gov.in/antitrust/orders/details/825/0
15Case No. 43 of 2010; dated on 16.04.2012; available at https://cci.gov.in/antitrust/orders/details/866/0
16Suo Moto Case No. 03 of 2012; dated 05.02.2014; available at https:// cci.gov.in/ antitrust/ orders/ details/825/0
17Suo Moto Case No. 02 of 2014; dated 10.07.2015; available at https://cci.gov.in/antitrust/orders/details/852/0
18 Ref. Case Nos. 03 & 04 of 2013; dated 05.10.2017; available at https://cci.gov.in/antitrust/orders/details/776/0
19Case No. 06 of 2011; dated 16.04.2012; available at https://www.cci.gov.in/antitrust/orders/details/809/0
20Suo-Moto Case No. 02/2011; dated 23.04.2012; available at https://cci.gov.in/antitrust/orders/details/792/0
21Case No. 43 of 2010; dated 16.04.2012; available at https://cci.gov.in/antitrust/orders/details/866/0
