Bid rigging, as the term implies, is a form of collusion where competing entities conspire to manipulate the bidding process, often resulting in inflated prices and diminished competition. It is worth noting that bid rigging is expressly prohibited under the Competition Act 2010.
In September 2024, the Malaysia Competition Commission (“MyCC”) announced its fourth reported bid rigging case, following its first case in 2022. The number of reported cases is expected to rise, as MyCC is currently investigating over 500 companies involved in bid rigging for tenders worth more than RM2 billion. Notably, all reported bid rigging cases to date have occurred within the public procurement sector.
This raises a critical question: what triggered this uptick?
Government Efforts to Combat Financial Leakages
The line between outright corruption and anti-competitive practices can often become blurred if not properly analysed. While many are aware that public financial leakages frequently stem from corruption, it’s less commonly recognized that such leakages can also occur without corrupt elements, frequently due to anti-competitive practices.
A study by the Organisation for Economic Cooperation and Development (OECD) emphasizes the vital role public procurement plays in a nation’s economic development, accounting for over 15% of total expenditures. The primary threat to the prudent use of these funds remains in the form of bid rigging practices.
The OECD suggests that improved procurement processes to counter bid rigging could yield significant savings—equivalent to at least 1% of a country’s GDP. For Malaysia, this translates to potential savings of approximately USD 4.3 billion based on 2023 GDP estimates. That’s 4.3 billion reasons for the Malaysian government to reassess its current procurement practices.
And reassess it did.
In 2022, the Ministry of Finance issued a circular on Integrity in Public Procurement (PK 1.6), mandating that companies interested in government tenders comply with the Competition Act of 2010. This means that as of 1st June 2022, government agencies are required to address bid rigging cartels in public procurement and report any signs of such practices to MyCC.
With this circular in place, individuals or companies identified as engaging in bid rigging in public procurement not only face substantial fines from MyCC but also risk being blacklisted by the Ministry of Finance for five years.
The implementation of this circular has undoubtedly been successful, as evidenced by MyCC uncovering four reported bid rigging cases in just two years since its introduction, potentially saving the government millions of ringgit.
The initial successes from the collaborative efforts between the regulator and government agencies have helped to rebuild public trust in MyCC, which had previously been regarded as a "toothless tiger". This renewed confidence is particularly noteworthy, given that the recent announcement of four bid-rigging cases comes after a decade of operations without any identified instances of bid rigging.
Big Rigging in Private Procurement
While the government is taking proactive steps in public procurement, a critical question arises regarding the private sector: with no reported cases of bid rigging to-date, does this imply that the private sector enjoys a perfectly competitive market, free from anti-competitive practices?
However, the likelihood of that occurring is about the same as finding a DeLorean that actually time travels. It is simply impossible.
Much like the covert spies of the Cold War, bid-rigging practices can infiltrate markets secretly, influencing outcomes and distorting fair competition while evading detection. This leads us to an essential question: why have these practices gone unnoticed in the private sector?
A major contributing factor is the lack of awareness.
Unlike the Malaysian Anti-Corruption Commission (MACC), which frequently captures public attention with high-profile cases, MyCC’s cases rarely make front-page news. Another factor could be the perceived lack of strong advocacy efforts among the general public.
Even though the Act has been in force for over a decade, it is surprising that many private sector businesses remain unaware of its provisions or, in some cases, even of MyCC's very existence. A revealing example can be found in MyCC’s 2020 Market Review report, which focused on the wholesale and retail sectors. For those unfamiliar with what a market review entails, the Competition Act 2010 empowers MyCC to conduct thorough market examinations to identify factors that may prevent, restrict, or distort competition in any market.
Stranger than Fiction: Concerns in MyCC’s 2020 Market Review Findings
The primary aim of this Market Review, as detailed in the report, was to analyse market structure and evaluate supply chain activities to identify instances of anti-competitive behaviours in Malaysia’s wholesale and retail trade within specific sectors. This comprehensive 314-page report is publicly accessible on MyCC's website and specifically focuses on processed food and beverages, household cleaning products, personal care items, toiletries, and clothing sectors.
While this article does not intend to delve into every aspect of the report, it aims to highlight the perceptions of industry stakeholders regarding the identified anti-competitive practices in the surveyed sector. The market review involved interviews with 400 participants, including manufacturers, distributors, wholesalers, and retailers operating in the surveyed sectors.
The findings? Startling.
In the survey examining various anti-competitive scenarios, between 64% and 81% of industry participants either agreed or strongly agreed that such practices are widespread in each of the scenarios presented. Specifically concerning bid rigging, 75% of industry players recognized its presence within the sector. The remainder remained neutral, with less than 1% outright denying the existence of any anti-competitive practices.
This revelation is almost as shocking as a plot twist from an Alfred Hitchcock film. And like any classic Hitchcock film, the surprises don’t stop there.
Astonishingly, none of the 400 surveyed industry players were aware of the Competition Act or the existence of MyCC, despite the survey being conducted eight years after the Act came into effect.
Despite these concerning statistics, there have been no reported investigations or cases initiated in the four years since the findings were released. Although the report is publicly accessible, the significant issue remains overlooked, leaving many businesses vulnerable to these anti-competitive practices, including bid rigging. Even more alarming is that businesses engaged in these anti-competitive behaviours continue to operate without oversight. It is as if the dust has simply been swept under the rug.
Urgent Need for Awareness
The findings from MyCC’s 2020 Market Review report merely scratch the surface of a deeper issue. Anti-competitive practices, including bid rigging, are so ingrained and prevalent in the industry that they have become normalized in business operations. The pervasive nature of these practices, which are widely acknowledged according to the Market Review, points to a concerning reality: they are largely ignored, primarily due to the alarmingly low awareness of both the protective legislation and the regulator’s role among industry participants.
Moreover, this concern is limited to the surveyed sectors—what about other sectors?
With none of the 400 industry participants surveyed aware of the Competition Act 2010 or MyCC's existence, a significant barrier to addressing bid-rigging practices becomes evident: the lack of awareness. After all, how can one identify bid rigging without knowledge of protective legislation or an understanding of the regulator's role?
It’s time to take the Competition Act 2010 seriously and enhance awareness on competition laws within your organization. If you haven't reviewed your internal procedures yet, now is the perfect opportunity to do so. Inadequate procurement safeguards, coupled with a lack of awareness, create a fertile environment for potential collusion among bidders, allowing them to maximize profits at the expense of your business.
Stay vigilant and seek advice if necessary, as bidders have consistently evaded detection of anti-competitive bid-rigging through clever tactics, such as establishing dummy companies to create an illusion of competitiveness. In some cases, individuals within the tendering authority may craft specific requirements that only certain bidders can meet, effectively eliminating potential competitors through careful planning. While this may not necessarily violate the Competition Act 2010, it could signal underlying corruption.
Indeed, the DNA strand of bid rigging may comprise both corruption and anti-competitive practices, intertwined like a double helix, making detection challenging without robust safeguards. If your procurement officers facilitate bid-rigging practices in exchange for kickbacks, top management could face personal liability under Section 17A of the MACC Act (Amendment) 2018.
In addition to the risk of harming your reputation, there are severe penalties, including substantial fines and the possibility of lengthy prison sentences. The implications are serious, underscoring the vital need to uphold the integrity of your procurement processes.
Take Home Message
It's essential to take proactive steps now to safeguard your business against potential collusion issues and to promote a fair and competitive atmosphere in your procurement activities.
Now is the time to strengthen your internal compliance protocols to safeguard against these practices. Recognizing anti-competitive behaviours becomes increasingly difficult in the absence of awareness. The MyCC relies on the vigilance of the public and businesses to identify these issues; without their involvement, it’s like a sail unfilled by wind.
The findings of the Market Review, though alarming, should serve as a wake-up call for private sector businesses. These anti-competitive practices, including bid rigging, could be occurring right under your nose, much like a fighter jet flying low to evade radar detection. One thing is undoubtedly clear: the likelihood of anti-competitive practices happening in your industry is as certain as the Sun rising tomorrow.
*This article was published in the Edge newspaper (2nd December to 7th December edition)
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