Which are the damages that public agencies suffer as a consequence of bid rigging? Colombia's Competition Authority (Superintendence of Industry and Commerce: Miguel de Quinto; 2012) and the different competition authorities around the world have identified the damages with the extra-cost generated by the anticompetitive agreement, in comparison with the price that would have been obtained in a competitive tender.
With this in mind, what can the public agency do before the execution of the public contract? There are basically four options and moments in which the entity has powers to attack the collusion:
1. The first one is while planning the tender: According to the law and to our agency "Colombia Compra Eficiente", the entities must conduct a sectorial study -including the supply side- to determine the potential risks of collusion. This is also included in the recommendations of the OECD Competition Committee of 2014, in which it is stated that in the market studies, the entity has the responsibility to detect those potential risks of collusion.
Here arises one first problem: The entity is responsible for conducting a "proper" sector study in order to impede collusion. This issue is complex because in the contracting entities, for example a mayor's office, there are not always experts on competition, and particularly not in the detection of collusion. Second, even if it was discovered that there is a cartel that could affect the entity's contracting processes in this stage, the public agency cannot prevent the undertakings from entering the process (because the limitations to enter a tender are specifically listed in the law).
2. The second important moment is in the evaluation of the offers submitted in the tender: Regarding this moment of the tender, of the 16 collusion cases that were studied by the Competiton Authority before law 1340/2009, in 8 cases the procurement agency rejected the bidders that had apparently colluded, based on the opinion of an expert economist hired to develop a mathematical and economic model to verify the alleged anti-competitive conduct. However, all of those eight cases were closed by the Superintendence. Consequently, the judgment made by the procurement agency was mistaken 100% of the time. Evidently, this raises a risk to the procurement agency because there are consequences for rejecting bidders with no real justification (as the competition authority concluded that there was no such cartel).
3. The third option is to suspend the tender: For this matter, there are at least three entities that could suspend the procedure: (i) The first one is the procurement entity itself. The entity can suspend the tender even in the awarding hearing, when it needs to undertake an analysis of facts that can affect the final decision. There are 2 cases in Colombia in which the procurement agency suspended the procedure in order to verify the evidence and the facts that existed so far to corroborate whether there was or not collusion. The point is that in both cases, the Competition Authority concluded that there was no collusion. Then, the time of suspension did not helped at all. (ii) The second one is the Competition Authority, as it can suspend the anti-competitive conducts; but this power would allow suspending the participation of the alleged members of the cartel -i.e., the conduct-, not to suspend the process itself. This is complicated having in mind the timing of the tender, as suspending the bidders without suspending the tender would cause a huge traumatism to the process. (iii) The third and last is the Procuraduría General de la Nación, which has powers in the law and in the FTAs executed by Colombia to suspend the public tenders.
Concerning this suspension option, there are two conclusions: The first one is that 100% of the cases of collusion in which the entity decided to suspend the process to have more time for analysis, this extra time was not useful to prove collusion at all. Second, of the 16 cases of collusion that existed before law 1340/2009, 44% exceeded 3 years (counting since the commission of the conduct until the decision of the Superintendence), if 3 years were not sufficient for the Competition Authority to verify the existence of a cartel, what could be expected from a procurement entity in some few days, or 4 or 5 months of suspension? This option does not seem to be the most feasible to prevent collusion in the tenders.
4. Finally reaching the end of the tender is the hearing for awarding the contract.
In the case LP-IDU-05/1993, there were three bidders and only two could win (because the tender had been subdivided into two contracts). After the evaluation, the losing party denounced that he had been invited by the other 2 bidders to increase the prices and then split the difference. This reached the director of the IDU (procurement agency) who decided to suspend the process for 8 days and after that period, he declared the process voided, stating that the alleged collusion was so serious (because of the extra costs implied), that the contract could not be awarded under those conditions. After this decision, the two bidders that were wining according to the evaluation, challenged before the courts the director's decision and won. The court's opinion stated that the burden of proof of the collusion was not fulfilled by the procurement agency, because the existence of the collusive arrangements was not verified. Therefore, the court reversed the decision of the procurement agency and sentenced the entity to pay damages caused to both winning parties.
As we have seen throughout the analyzed cases, the burden of the proof to take any decision while the tender is ongoing is so high, that any option is absolutely unfeasible and there are no incentives for the entities to try to prevent the risk of collusion by themselves.
Consequently, the Competition Authority created the "ALCO" computer application, which is a checklist that shows red, yellow or green alerts regarding mainly the actions of the bidders, and depending on the result it suggests to the procurement agency to send information to the Superintendence, not to do something by itself.
- For further reference: "Collusive Tendering: The Paradigmatic Case for Public Entities". ARCHILA-PEÑALOSA, Emilio José and PABÓN-ALMANZA, Camilo. Revista Contexto No. 38. Universidad Externado de Colombia. Bogotá D.C. 2012.Also the seminar on damages for anticompetitive conducts, available on: https://www.youtube.com/watch?v=3yjli0RSFYg
- Lawyer from Universidad Externado de Colombia. Specialist in Financial Law of the Universidad de Los Andes. Master in Comparative Jurisprudence (M.C.L) at New York University (N.Y.U.) School of Law, New York. Studies in Development Law (DLC), International Development Law Institute, Rome.He has served as Chief of the Legal Office of the Ministry of Economic Development (now Ministry of Commerce, Industry and Tourism), as Deputy for Insurance affairs at the Superintendence of Banks; as Deputy for Competition affairs at the Superintendence of Industry and Commerce. As Superintendent of Industry and Commerce and as Chairman of Asobolsa.Currently he is Director of the Department of Economic Law at the Universidad Externado de Colombia, Arbitrator of the Bogota Chamber of Commerce and Arbitration Center, member of the Association of the High Justices - Asomagister, and founding partner of the law firm Archila Abogados.
- Lawyer from the Universidad Externado de Colombia. Specialist in Constitutional Law from the same University. Specialist in Public Management and Administrative Institutions from the Universidad de Los Andes. Studies in Economic Analysis of Contracts and Commercial Law at the University of Chicago.He has served as legal advisor on issues of consumer law before the Superintendence of Industry and Commerce, and as legal advisor of the Urban Development Institute -IDU-. Currently is associate attorney at law at Archila Abogados and professor at Universidad Externado de Colombia.