Buyers using traditional procurement processes are handing industrial cartels and colluding suppliers the tools they need to succeed!
I recently attended a refresher course with CIPS on ‘Applying Public Procurement Regulations’, and then the following day I listened to a number of presentations from experts at the Local Government Procurement Expo. A common theme cropped up on both days: industrial cartels are succeeding where traditional procurement processes are used.
But what do we mean by cartels? Why is this problem occurring and how can we avoid it? Below I have a quick go at answering these questions.
CMA (Competition and Markets Authority) defines and describes cartels as follows –
“Cartels are illegal. They’re a form of stealing that stop businesses, consumers and taxpayers getting a fair deal. Having a cartel in your supply chain can raise prices by 30% or more from competitive levels. Cartels operate in secret and can be difficult to spot.”
CIPS guidance says that procurement strategy should be based around delivering the best value for money solution, and it is important to ensure that there is competition within the marketplace. Any collusion or fix to inflate prices clearly breaches this guidance, in fact they state that:
“Conduct such as collusion, bid-rigging, fraud and corruption which affects the outcome of the procurement process is a malicious violation of competition law.”
It’s crystal clear that any collusion or corruption is dangerous for your procurement – not only can it artificially inflate prices so you end up paying far more than you really should, but it can also invalidate your project outcome. So how is this still happening within procurement projects?
Whilst traditional procurement processes aim to deter collusion and corruption, they aren’t always good at detecting this behaviour. The techniques they use to detect malpractice include a dialogue or negotiated process and holding independent interviews and supplier engagement sessions with bidders.
But these just aren’t working well enough – the reason? Comparative scoring methodologies. Essentially any MEAT methodology that awards points using a comparative, averaged or otherwise connected calculation based on another bid. In these cases, it’s most often the cheapest compliant bid that wins. However, this directly allows one bid score to be controlled by another – giving cartels the control and influence they want over your competition.
So how do we avoid this malpractice and ensure you have full control over your competition? The solution is clear – by scoring bids independently you can run a fair competition. Our Real Value for Money (RVfM) methodology does just this; adopted by the UK Ministry of Defence (where it’s known as Willingness to Pay) and many other UK Government bodies, RVfM removes the comparative scoring element in its entirety. By adopting RVfM you can have full confidence in your project outcome, gain vastly improved control over your bidders, and can detect and deter cartels from the outset.
More information on our ground breaking RVfM methodology is available in this White Paper, written by Peter Marshall our Professional Services Director. Or take a look at our RVfM datasheet here for a quick overview.
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Get in touch with us to find out more about achieving best possible procurement outcomes including detecting and deterring cartels from your competition.
Sources – https://www.gov.uk/government/publications/screening-for-cartels-tool-for-procurers / https://www.cips.org/en-gb/knowledge/procurement-topics-and-skills/understand-need—market-and-options-assessment/cartels-competition/