Healthcare - February 2010
Bid-rigging decision - what to do now
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February 2010
The Office of Fair Trading (OFT) issued a decision (Decision) on 22 September 2009 to fine 103 construction companies that have been involved in bid rigging. This article considers the impact of the decision on the NHS, whether NHS organisations should consider taking steps to withdraw the fined companies from their tender lists, the risks they may face in doing so under procurement law, and other options that may be available.
Background
The Decision was made following an OFT investigation, following a review of tenders between 2000 to 2006, which concluded that many construction firms had engaged in bid-rigging activities contrary to the Competition Act 1998. The main bid-rigging activity was "cover pricing", whereby competitors would submit artificially high prices leaving the lowest priced bidder facing no genuine competition, and in some instances this was coupled with the successful bidder making "compensation payments" to its higher priced competitors. The majority of those fined had some discount on their fine for admitting their involvement during the investigation. The list of firms involved includes firms across the whole spectrum of the building industry.
Next steps: to exclude or not?
From the perspective of the NHS, the immediate response might be that it would be preferable to remove them from any tender lists. However, before doing this, one needs to be mindful of the information note published by the OFT alongside its Decision, and of procurement law generally.
It was interesting, and unusual, for the OFT to issue an information note. It provides recommendations which have been formulated in discussion with the Office of Government Commerce and the National Federation of Builders. The key points that the OFT makes are that:
- bid-rigging has been endemic in the industry (it found evidence of over 4000 instances involving over 1000 firms – the OFT limited its deeper investigation due to its limited resources); it is not, therefore, necessarily appropriate to single out those firms that have been fined for special treatment.
- it recommends that procuring bodies instead recognise that:
- it is wrong to assume other firms have not been involved in bid rigging
- those firms that have been investigated will now be fully aware of the competition rules and the implications of breach
- many of those firms have introduced or reinforced formal competition compliance programmes. One can expect that such compliance programmes will be detailed and will have full board support.
The note does not go on to mention that under the Enterprise Act 2002 there are in fact other provisions which may be pursued, though one speculates that the OFT raised the spectre of prosecutions under them to gain the necessary cooperation. These provisions are (i) the criminal cartel offence (section 188), which could result in imprisonment for up to 5 years and/or an unlimited fine; and (ii) disbarring of directors for up to 15 years, where they knew or ought reasonably to have known that their company was guilty of an infringement of competition law (section 204). Also, it should not be underestimated just how intrusive a competition investigation is, and how time-consuming and stressful it can be for management.
With this in mind, the strong message from the regulator is that there should be no greater risk of suffering from bid rigging activity by continuing to allow the affected firms onto NHS tender lists, and that in fact this might represent good news, in the sense that these firms are actually more likely to act in a competition–compliant manner. It might also be added that excluding such firms may reduce the level of competition between remaining tenderers.
From a procurement perspective, an NHS organisation can exclude a firm where, among other things, it has been convicted of a criminal offence relating to the conduct of its business; or has committed an act of grave misconduct in the course of its business. (Regulation 23(4)(d)(e) of the Public Contracts Regulations 2006).
However, if the OFT's recommendations are followed, one may decide not to exclude, but consider other actions to protect its position and manage its procurement processes to minimise the risks of bid rigging. The OFT recommends three OECD publications [1] which taken together provide sound practical advice for procurement management. The following is a summary checklist:
- Be informed before designing the tender process
- Design the tender process to maximise the potential participation of genuinely competing bidders
- Define your requirements clearly and avoid predictability
- Design the tender process to effectively reduce communication among bidders
- Carefully choose your criteria for evaluating and awarding the tender
- Raise awareness among your staff about the risks of bid rigging
- Look for warning signs and patterns when tenderers are submitting bids
- Look for warning signs and patters related to pricing
- Look for suspicious statements at all times
- Look for suspicious behaviour at all times
[1] OECD "Guidelines for Fighting Bid Rigging in Public Procurement"; "Detecting Bid Rigging in Public Procurement"; and "Designing Tenders to Reduce Bid Rigging".
If you would like further information or if you require advice on any of the above, please contact us on: enquiries@hempsons.co.uk
This news update is made available on the basis that no liability is accepted for any errors of fact or opinions it may contain. Professional advice should be obtained before applying the information to particular circumstances.
© Hempsons 2010
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