THE Malaysian Competition Commission (MyCC) CEO recently stated that the government can save 15% on its annual expenditure or RM13.5 bil by ending collusion in bidding for government contracts.
MyCC is also proposing legislative amendments to incentivise people to report bid-rigging. This is a good initiative. Nevertheless, it is still an offence not to report corrupt practices under Section 25 of the Malaysian Anti-Corruption Commission (MACC) Act 2009.
I have been conducting workshops on combating frauds that encompass the government procurement system for many years.
Despite having read various assurances that the public procurement system has been improved, annual reports by the Auditor-General continues to tell me a different story.
Every year, the report highlights cases of procured goods, services and works that are being paid for well above market prices, under-utilised or are sub-standard in quality.
In essence, bid rigging is an illegal practice that involves competing parties colluding to choose the winner of a bidding process.
Massive leakage
There are four basic schemes involved in bid-rigging conspiracies in public procurement: Firstly,
- Bid suppression: This is where bidders withdraw their bids so that a particular bidder can win;
- Bid rotation: This is where bidders take turns to win contracts;
- Market division: This is where bidders agree to bid and divide markets based on product, customer, service or geographical areas;
- Complementary bidding: This is where bidders submit artificially high bids so as to ensure that a particular bidder wins.
An honest senior civil servant once offered the analogy of bid-rigging as a situation where the purchase was for a motorcycle but instead a bicycle was delivered yet the government ended up paying the price of a car.
Public procurement has been identified as one of the government’s activities most vulnerable to collusion, corruption, manipulation and fraud.
Government procurement accounts for at least 40% of the yearly budget allocated by the government for public expenditures, including development, goods and services and purchase of asset.
The MACC said 20% of the complaints it received between 2022 and July 2024 were on public and private procurement matters.
Investigations into public procurement have increased to 66% as of July 2024 this year compared with 59% and 60% in 2023 and 2022 respectively.
Both the weaknesses and abuse in the public procurement system have led to huge amounts of losses in public procurements funds which have been occurring and recurring pursuant to the Auditor-General’s (AG) reports.
The World Bank estimated that 20% to 30% of the country’s budget for public contracts have been consumed by corruption. The findings run parallel with former AG Tan Sri Ambrin Buang’s projection that up to 30% of the country’s public projects’ value had been lost due to mismanagement and corruption.
He believes that fines, transfers and wage cuts are no longer realistic as punishment for those who do not respond appropriately to the recommendations in the AG’s Report. Neither is there fear of punishment nor are the culprits God fearing.
Upholding integrity is not easy
Ambrin further opined that government officers should stick to the law and ignore political interventions in government procurements which carried a high risk of fraud and corruption.
This is in line with Prime Minister Datuk Seri Anwar Ibrahim’s assertion that leakages could be plugged if corruption is eradicated at all levels, including changing the old way of doing things, namely by allowing political interference and prioritising the interest of big businessmen in government procurements.
Since bid rigging is widespread, it can be prevented by having trained officers armed with the basic knowledge or experience of using Benford’s Law or advanced data analysis tools to scrutinise the data to identify specific patterns or the red flags such as (not exhaustive):
- Qualified bidders failing to bid;
- Why a certain contractor always wins in a specific geographic market;
- Losing bidders getting subcontract work from the winning or the highest bidder;
- Withdrawal of the lowest tenderer who then become the sub-contractor;
- Contractor’s tenders at very high price for no logical cost justification;
- Improper acceptance of late bids;
- Bids that are very similar except for a few key lines;
- Bids from competitors arriving from the same fax number or e-mails in envelopes of the same style or with the same handwriting; and
- Errors been replicated such as same spelling and using same font.
While it is good that the government has strengthen its internal control policies and having leveraged technologies such as e-procurement systems, it is the human factor that ultimately determines and makes the final decision on who gets the contracts.
However, there is no point importing the best internal control policies or the most expensive software tools from Harvard or Oxford if the handlers have no integrity.
If the handlers possess integrity and moral values, a simple software from a local university is more than enough to tackle corruption in the country.
The main problem is the issue of integrity of respective individuals and the hedonistic “reward” factor awarded by the contractors.
In this regard, the top leadership in an organisation must have strong moral principles, able to show good example and walk the talk. They must also be squeaky clean and be seen as clean. – Sept 25, 2024
Datuk Seri Dr Akhbar Satar is director at the Institute of Crime & Criminology of HELP University and is president of the Malaysian Integrity and Governance Society.
The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.
Main image credit: Korea Times
