Bid-rigging in Malaysia - are you at risk?

 The Malaysian Competition Commission (MyCC) CEO stated that by ending collusion in bidding for government contracts, the government could save 15 percent on its annual expenditure or RM13.5 billion.

MyCC is also proposing legislative amendments to incentivise people to report bid-rigging. It is a good initiative. However, under Section 25 of the MACC Act 2009, it is still an offence not to report corrupt practices.

I have been conducting workshops on combating fraud, including those in the government procurement system, for many years. Despite various assurances that the public procurement system has been improved, annual reports by the auditor-general continue 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 and substandard in quality.

Bid-rigging is an illegal practice that involves competing parties colluding to choose the winner of a bidding process.

‘Pay for a car, get a bicycle’

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; secondly, bid rotation - this is where bidders take turns to win contracts; thirdly, market division - this is where the bidders agree to bid and divide markets based on product, customer, service, or geographical areas; fourthly, the 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 lamented that it was a situation where the purchase was for a motorcycle but instead gets a bicycle, and the government ends 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 percent of the yearly budget allocated by the government for public expenditures, including development, goods and services, and asset purchases.

The MACC said 20 percent of complaints received between 2022 and July 2024 were on public and private procurement matters. Investigations into public procurement have increased to 66 percent as of July 2024 this year, compared with 59 percent and 60 percent in 2023 and 2022, respectively.

These weaknesses in the public procurement system have been abused and have led to huge amounts of losses in public funds, which have been occurring and reoccurring pursuant to the auditor-general’s reports.

The World Bank also estimated that 20 to 30 percent of the country’s budget for public contracts had been consumed by corruption.

Punishment no longer adequate

The findings concurred with former auditor-general Ambrin Buang’s projection that up to 30 percent of the country’s public project value had been lost due to mismanagement and corruption.

He believes that punitive measures, such as fines, transfers, and wage cuts, are no longer realistic punishments for those who do not respond appropriately to the recommendations in the auditor-general’s report. 

So, the perpetrators do not fear punishment or even God.

Ambrin said government officers should stick to the law and ignore political interventions in government procurements, which carry a high risk of fraud and corruption.

This is in line with the prime minister’s statement that leakages could be stopped if corruption was eradicated at all levels, including changing the old way of doing things, namely political interference and prioritising the interest of big businesses in government procurements.

Prime Minister Anwar Ibrahim

A beneficial owner should be inserted in the MACC 2009 Act to identify who truly owns, enjoys and controls the company even though the title to some form of property or security is in another’s name.

Since bid-rigging is widespread, it can be prevented by having trained officers armed with basic knowledge and experience.

They can use Benford’s Law or advanced data analysis tools to scrutinise the data to identify patterns or red flags of bid-rigging such as (not exhaustive): 

• qualified bidders failing to bid,

• why a certain contractor always win in a specific geographic market,

• losing bidders getting subcontract work from the winning or the highest bidder,

• withdrawal of the lowest tenderer, who then becomes the sub-contractor,

• contractor’s tenders at a 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 emails, in envelopes of the same style, or with the same handwriting, and 

• errors replicated, such as the same spelling across and using the same font.

While it is good that the government has strengthened its internal control policies and has leveraged technologies such as e-procurement systems, in the end, it is the human factor that determines and makes the final decision on who gets the contracts.

However, there is no point importing the best internal control policies and the most expensive software tools from Harvard or Oxford if the handlers have no integrity.

If the handlers possess integrity and moral values, simple software from a local university is more than enough to tackle corruption in the country.

The main problem is the integrity of respective individuals and the hedonistic factor “reward” awarded by the contractors.

Improve the levels of integrity. The top leadership in an organisation must have strong moral principles, show a good example, and walk the talk.

They must be squeaky clean and must be seen as clean. - Mkini

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AKHBAR SATAR holds a professorial chair and is a director at the Institute of Crime & Criminology, Help University and is the president of the Malaysian Integrity and Governance Society.

The views expressed here are those of the author/contributor and do not necessarily represent the views of MMKtT.