Nova workboard

a blog from young economists at Nova SBE

Bid rigging in Czech Republic

The Czech authority for competition policy (ÚOHS) would like to focus more on penalizing tacit agreements among candidates of public contracts. A planned revision of a law for protection of competition is supposed to enable a more dynamic procedure against such agreements. These practises are often associated with corruption and they are also well organised. Tacit agreements among candidates of public contracts are also known as bid rigging.

Now I would like to explain more this concept. Bid rigging can have many forms. It can be for example an agreement which includes who will present „the best“ price offer in the competition. „The lowest“ price, in that case, can be about ten percent higher than the real value of execution of a contract. However, tacitly colluded candidates present their offers in this way, so that the others seem to be even more expensive (so called covered offers). The contract owner will choose the lowest one, still a quite high price. In the next public contract, candidates will change and somebody else will offer a seemingly lowest price and so on.

This type of offers is the most often way bid rigging is implemented. In practice the presention of covered offers can be the following: a candidate agrees with presenting of an offer, which is higher than the winner’s offer, determined in advance. Or the candidate presents the offer, about which he knows that it is too high to be accepted; the candidate can also present the offer, which includes special conditions, about which he knows that they are unacceptable for the contract owner. The covered offers are in these cases used in order to create the semblance of authentic competition. This way can be combined with the resignation of the winner of the competition, who, for example, states that he is not able to realize that contract due to lack of capacity or other reasons. Then the other firm will get the contract for the bid price, which is much more higher than the price estimated by the contract owner and also than the real price of the contract.

The antitrust authority wants to defend against these tacit agreements through a planned big revision of the law for protection of competition. The candidates convicted from this kind of agreements will face not only the fine but also, for example, the loss the access to public contracts for three years. The proposal also expects that the company that will state the tacit agreement to the antitrust authority in the moment, when nobody knows about it, can avoid to the fine.

I think that there is really necessary to do something with that, especially in the Czech Republic, because the Czech Republic belongs among the countries where the situation is really bad according the Transparency International. For example public contracts in Czech Republic swallow 650 millions crowns (cca 25 millions €) up. The bottom border of estimate the overpricing of public contracts, mostly in the sectors like construction, information technology, consultancy or legal services and of that what will „get lost“ on the way, illegally in private pockets, is between 10 % to 20 %. As we can see the larger intervention is really necessary and we can hope that the situation will get better with the revision.

Petra Handlířová

 

References:

[1] http://www.denik.cz/ekonomika/tajne-dohody-firem-uohs-pritvrdi-v-     boji20110601.html

[2] http://www.otvez.cz/formy_bid_riggingu/

[3] http://ekonom.ihned.cz/c1-56049140-mezinarodni-srovnani-cesko-patri-na-spici-  ve-zneuzivani-verejnych-zakazek

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Author: studentnovasbe

Master student in Nova Sbe

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