The Independent Consumer and Competition Commission (“ICCC”) would like to support the call by the Prime Minister, Hon. James Marape for all contractors to do “fair bidding with (the) right price” to be awarded with State contracts (The National, Monday, 03rd June, 2019, p.2).
ICCC Commissioner and Chief Executive Officer, Paulus Ain said in support of this call the ICCC would like to inform business houses, relevant stakeholders and the public that bid rigging in public procurement is a serious anti-competitive conduct and is criminal in nature.
Mr. Ain said if a company or person is found to be engaging in such conduct, they can be prosecuted and if found guilty, severe penalties (both civil and criminal penalties) may be applied by the Courts under the Independent Consumer and Competition Commission Act 2002 (“ICCC Act”).
“Bid-rigging is a major cause of over-priced tenders, resulting in low quality and substandard infrastructure.”
“PNG relies heavily on tender processes to procure construction services for public infrastructure and other public services such as health and education. Therefore, this is an important call by the Prime Minister to our contractors providing services in PNG to “play by the rules going forward.””
According to the Consumer and Competition Framework Review: Final Report and Recommendations, that was released in 2017 and supported by the Department of Treasury and the Asian Development Bank “bid-rigging is a particular form of price fixing that is of serious concern in an economy that relies heavily on tendering and where genuine competitive bidding is essential to keep prices low and quality and innovation high.”
Mr. Ain added that price fixing is seen as the worst form of anti-competitive conduct where competitors discuss the price, rebates, discounts, and supply among other things, to charge consumers.
“This results in the consumers ending up with substandard goods and services paid for at a high price. Price fixing is defined under Section 53 of the ICCC Act and strongly prohibited by Section 50.”
In a public procurement process, if parties to a tender talk to each other and discuss the price each party will be bidding, with the aim of making the bid favorable to one of them, then such behavior is anti-competitive in nature and is called bid-rigging. Parties may reach an agreement that the winning party will then give out sub-contracts or pay the other parties some monetary gifts for keeping to the agreement.
This then results in over-priced projects with low quality output. This is because the bidding is not done in a competitive manner which would ultimately result in the best firm being engaged to produce quality output. The users of such substandard public infrastructure are the ultimate losers, including the overall economy of a nation.
Mr. Ain said the State also loses out in the end for spending too much at the expense of other social services such as health and education.
“ICCC is therefore looking at initiating a market study into the procurement market in PNG to better understand the drivers of bid-rigging and the costs associated with such anti-competitive conduct.”
“The ICCC intends to work with the newly established National Procurement Commission on this study and understand the dynamics to the procurement processes and how competition can be fostered in public tendering and procurement processes.”