The complementary roles of international trade rules and competition policy: public procurement

1. The complementary roles of international trade rules and competition policy: public procurement Robert Anderson Counsellor, WTO Secretariat (Team leader for government procurement and competition policy) CUTS Policy Roundtable on "Competition Issues in Public Procurement UNCTAD Room XXII Geneva, 5 December 2014

2. Matters to be addressed

3. What is collusive tendering? • Cartelization in regard to public procurement processes. Also known as “bid rigging”. • Essence of the offense is an agreement between competitors (e.g., to bid high, to not bid, to submit “cover” bids, etc.) • Competitor may agree not to bid in return for promise of a sub-contract • Often also involves side payments to competitors who “lose” and/or rotation of who wins • As with other cartels, normally carried on in secret

4. Suspicious signs • The same group of suppliers always submit bids and each wins in a regular pattern. • All bids are consistently higher than the procuring entity’s internal estimate. • A company always bids high and then gets a sub-contract from the wining bidder. • A competitor submits its own and another competitor’s bid or the competitor’s bid looks the same but with a few specific changes. • A company official states that he does not expect his firm to win or that a bid (“is only a courtesy”).

5. Why should we care about collusive tendering and what can we do about it? • Collusive tendering imposes heavy costs on public treasuries and therefore on taxpayers (can raise the costs of goods and services procured by 20-30 %, sometimes more) • Undermines confidence in governments • Particularly detrimental due to the economic importance and essential role public procurement plays: • A large proportion of Gross Domestic Product (15-20 % in most countries, more in some cases) • Supports essential functions of government, vital for development and social policy purposes: • Provision of transportation and other vital infrastructure (airports, highways, ports) • Public health (hospitals, medicines, water and sewer systems) • Schools and universities

6. Tools for deterring collusive tendering The obvious: • Effective competition law enforcement, reinforced by tools such as leniency measures for cartel breakers. • Education of the supplier community: certificates of independent bid preparation/similar measures. • Education of procurement officials (suspicious signs, internal estimates), • Inter-agency collaboration And the perhaps not-so-obvious: • Pro-active measures to expand the pool of potential competitors and introduce enhanced supplier diversity, e.g. through competition advocacy and trade liberalization

7. Implementing procurement policies that maximize competition: opening up to international trade

8. The WTO Agreement on Government Procurement (GPA) as a competition enabler • Agreement covers 43 WTO Member jurisdictions (soon to be 45): ensures non-discriminatory conditions of competition in procurements “covered by the Agreement”. • Procedural and institutional requirements to reinforce competition on the merits (e.g. technical standards to be based on objective and (where possible) international standards; independent bid challenge procedures). • Main limitation as a competition enabler: gaps in the Agreement’s coverage. • But: prospects for deepening/broadening of coverage over time.

9. Factors currently enhancing the significance of the GPA (1): increasing membership of the Agreement worldwide • Currently, the GPA covers 43 WTO Members including the EU and its 28 member States; most other developed countries (i.e. US, Canada, Japan; Liechtenstein, Iceland, Norway and Switzerland); plus Hong Kong, China; Israel; Korea; Singapore; Chinese Taipei; Aruba and Armenia. • Two more Members (Moldova and New Zealand) approved to join in October 2014. • Eight more WTO Members currently seeking accession (Albania, China, Georgia, Jordan, the Kyrgyz Republic, Moldova, Oman, and Ukraine). • Five additional WTO Members have commitments eventually to seek GPA accession : the former Yugoslav Republic of Macedonia, Mongolia, the Russian Federation, Saudi Arabia and Tajikistan.

10. Factors currently enhancing the significance of the GPA (2): the policy context • Enhanced importance of the procurement sector in light of: (i) the global economic crisis; and (ii) emerging economies’ infrastructure needs. • Also greater emphasis on procurement and good governance as an underpinning of development. • Increased pressures for policies potentially limiting access to important procurement markets. • GPA and/or bilateral/regional agreements embodying similar disciplines are the main tool of exporting economies to preserve market access rights in this crucial sector.

11. The potential role of “buy local” requirements as a factor facilitating collusion • US: Erie County v. Morton Salt (6th Circuit; 2012). • Canada: Quebec infrastructure markets. • The Swiss experience. • OECD Global Forum on Competition (February 2013): relevance of buy local requirements AND confluence of collusion and corruption concerns in specific cases.

12. Some remarks on transparency and competition (1) • Necessity of minimum transparency measures in light of: • Public accountability and good governance (anti-corruption) concerns; • Sheer need to generate responsive tenders and good results (customer satisfaction) -- only possible if we share (some) information on desired characteristics of the goods/services being sought. • Also, some transparency measures (e.g. basic requirement to advertise; availability of information on how to be listed, etc.) are fundamentally pro-competitive: • they facilitate participation by suppliers from “outside the club” • Generally, transparency reinforces and is complementary to competition-enhancing measures.

13. Some remarks on transparency and competition (2) • Word of caution: too much transparency can facilitate collusion under certain circumstances (!), e.g. • information on mid- to longer term procurement planning (may facilitate agreements, bid rotation), • public bid opening, post-award publications (may facilitate policing, cartel stability). • Balancing of interests needed. • Need for agency vigilance/public education.

14. Concluding remarks • The duality of trade and competition concerns in regard to public procurement. • Growing importance of the GPA in the present global environment. • Significance of collusive tendering for GPA objectives, and vice versa. • Complementary roles and interests of international trade rules, national competition policies and procurement officials.

15. For further information: • Anderson, Robert D. (2010). "The WTO Agreement on Government Procurement (GPA): An Emerging Tool of Global Integration and Good Governance," Law in Transition, Autumn 2010, pp. 1-8 to 8-8; available at: http://www.ebrd.com/downloads/research/news/lit102.pdf. • Anderson, Robert D., Philippe Pelletier, Kodjo Osei-Lah and Anna Caroline Müller (2011). “Assessing the Value of Future Accessions to the WTO Agreement on Government Procurement (GPA): some New Data Sources, Provisional Estimates, Suggested Approaches and Related Observations” (Working Paper). • Anderson, Robert D., William E. Kovacic and Anna Caroline Müller, “Ensuring integrity and competition in public procurement markets: a dual challenge for good governance,” in Arrowsmith and Anderson, eds. (2011). • Arrowsmith, Sue and Robert D. Anderson, eds. (2011). The WTO Regime on Government Procurement: Challenge and Reform (Cambridge University Press: 2011).