Risk

Collusion between project officer and bidder

Clientelism and favouritism can corrupt the procurement process and leave the project owner with poor value for money.

Risk type: Practice

Risk driver: Internal; External

DESCRIPTION

Procurement processes are a hotspot for corruption. Collusion between project officers and bidders include illicit practices such as tailoring project specifications to a specific bidder, providing insider information, limiting tender advertising, and shortening tender periods. Inflated prices and overstated requirements of services and materials may be accepted by project officers when bribes are agreed upon. Other bidders may be excluded from the tender for unverifiable reasons. Or a project officer can illicitly avoid the tender procedure altogether and directly award the contract to a specific company.1

These forms of clientelism and favouritism in the awarding of contracts can lead to poor value for money in construction of infrastructure, implementation of maintenance contracts, and supply of other services and goods.

RED FLAGS

  • Manipulation of procurement thresholds
  • Frequent use of exceptions, e.g. emergency procurement, to avoid competitive tendering
  • Unreasonable prequalification requirements
  • Contract specifications that are too narrow or too broad
  • Failure to make bidding documents available to all bidders
  • Short or inadequate notice to bidders
  • Complaints from losing or excluded bidders
  • Several contract awards to the same company
  • Award to a company other than the highest-qualified bidder
  • Award to a company other than the lowest-priced bidder
  • Disqualification of bidders for unverifiable reasons
  • Conventional market prices and discounts (e.g. volume discounts) not applied in the winning bid
  • Winning bid that is very close to budget or cost estimate
  • Overly sophisticated proposed design in the bid

KEY GUIDING DOCUMENTS

TI and WIN, 2008, Global Corruption Report 2008 Corruption in the Water Sector, Transparency International (TI) and Water Integrity Network (WIN), Berlin, Germany

Stansbury, C. and Stansbury, N., 2008, Examples of Corruption in Infrastructure, Global Infrastructure Anti-Corruption Centre (GIACC)

Davis, J., 2004, Corruption in Public Service Delivery: Experience from South Asia’s Water and Sanitation Sector. World Dev. 32, 53–71

GENERAL EXAMPLES

Free holiday from a contractor2

Location: n.a.

A procurement manager is managing a competitive tender between sub-contractors. One of the contractors offers a free holiday to the procurement manager if the procurement manager awards the contract to the sub-contractor. The procurement manager does so.

Contractor meetings3

Location: South Asia

[In water and sanitation (W&S) service provision] field staff often pointed to the procedures by which professional engineering staff award and implement construction contracts with private firms. Two processes operate to subvert fair and honest contracting in W&S services: contractor cartels and political influence in contractor selection.

TARGETED EXAMPLES

Setup of company by procurement manager2

Target group: Utilities, Public institutions

Location: n.a.

[Example adapted by WIN from the original source for the utility context:] A procurement manager is required to organize the hire of dredges for the network extension of the utility. Dredge hire companies are at that time offering discounts of approximately 25% off their published hire prices for long-term hires. The procurement manager and two friends set up a company (‘Dregeco’) that is registered in the names of the two friends. Half the shares in Dregeco are secretly held in a nominee account for the procurement manager. Dregeco obtains a quote including a discount from a dredge hire company. The procurement manager obtains the published rate sheets (excluding discounts) from two other crane companies. Dregeco supplies a written quote to the contractor to supply the cranes at a rate slightly lower than the published rates of the two other dredge hire companies, but at a higher rate than the rate quoted to Dregeco by the original company. The procurement manager uses the two rate sheets and the quote from Dregeco as three competitive quotes, and awards the contract for the supply of dredges to Dregeco. These documents are placed on the procurement file, creating the false impression that there has been genuine competitive pricing, and that the hire contract has been awarded to the cheapest supplier. Dregeco makes a profit. The procurement manager does not disclose to the contractor his interest in Dregeco. The contractor pays more for the hire than it would have if the contract had been awarded, including a discount, to one of the other dredge hire companies.

FULL REFERENCES

  1. TI and WIN, 2008, Global Corruption Report 2008 Corruption in the Water Sector, Transparency International (TI) and Water Integrity Network (WIN), Berlin, Germany
  2. Stansbury, C. and Stansbury, N., 2008, Examples of Corruption in Infrastructure, Global Infrastructure Anti-Corruption Centre (GIACC)
  3. Davis, J., 2004, Corruption in Public Service Delivery: Experience from South Asia’s Water and Sanitation Sector. World Dev. 32, 53–71
Last updated 10 October 2017

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