Secret deals between tenderers 'raising prices by 60%'

The European Commission (EC) has published new public procurement guidance aimed at tackling the “recurring phenomenon” of collusion in public contracts.

In the notice issued to European contracting authorities, the EC said firms could take advantage of emergencies such as the Covid-19 pandemic to artificially restrict competition.

The EC said the practice is a “recurring phenomenon in public procurement markets”, particularly key economic sectors such as construction, IT or health.

It estimated illegal secret agreements between firms could raise the price paid by public authorities by up to 60% when compared to normal market conditions. 

The EC said: “In emergencies such as the Covid-19 pandemic public authorities’ urgent need to quickly procure large quantities of supplies and services for health systems may exacerbate this risk.

“Some companies may try to take advantage of the emergency and artificially restrict competition to maximise their gains at the expense of public finances.”

It added there were several reasons why addressing collusion in public procurement posed “particular challenges” for national authorities. 

The sophisticated nature of many agreements allows collusion to go undetected during the award procedure and it is uncovered and prosecuted “usually long after the contract has been fully performed”, it said. 

“Contracting authorities usually follow relatively stable purchasing patterns, with frequently repeated award procedures, similar quantities and standard product or service specifications without major changes compared to previous procedures. This predictability of demand facilitates illicit market sharing among operators, as it guarantees a ‘fair’ return for each one of them.”

The EC added that contracting authorities often “lack properly trained and experienced staff capable of detecting collusion in a given award procedure”.

It added that in most cases where collusion is uncovered, “competition enforcement and penalties are carried out after the damage is done”.

The notice detailed tools that the EC said would support member states and contracting authorities to build capacity, including making resources available to address suspected collusion, using incentives to reward staff that actively detect and report possible cases of collusion, and training for procurement staff. 

The EC added it would foster cooperation between national central procurement and competition authorities to “ensure efficient and continuous support”.

The notice also included guidance on areas such as designing award procedures to deter collusion between tenderers, detecting potential collusion when evaluating tenders, and reacting to suspected collusion.

Two UK construction firms were fined a total of £9.5m by the Competition and Markets Authority for a cartel to control the price and supply of roofing material.

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