Corruption and bid rigging in Malaysia

 

From Akhbar Satar

The Malaysia Competition Commission (MyCC) CEO recently said the government could save 15% on its annual expenditure, or RM13.5 billion, by ending collusion in bidding for government contracts.

MyCC is also proposing legislative amendments to incentivise individuals to report bid rigging. This is a commendable initiative. However, under Section 25 of the Malaysian Anti-Corruption Commission (MACC) Act 2009, it is already an offence to not report corrupt practices.

I have been conducting workshops on combating fraud, including in the government procurement system, for many years. Despite various assurances that the public procurement system has improved, annual reports from the auditor-general continue to tell a different story.

Every year, these reports highlight cases of procured goods, services and works that are paid for well above market prices, are underutilised or are of substandard quality.

Bid rigging is an illegal practice in which competing parties collude to determine the winner of a bidding process.

There are four basic schemes involved in bid rigging in public procurement:

Bid suppression: Bidders withdraw their bids so that a particular bidder can win;

Bid rotation: Bidders take turns winning contracts;

Market division: Bidders agree to divide markets based on product, customer, service, or geographical area; and

Complementary bidding: Bidders submit artificially high bids to ensure a specific bidder wins.

An honest senior civil servant once lamented that what was intended to be a purchase of a motorcycle ended up being a bicycle, while the government paid 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 expenditure, including development, goods and services, and asset purchases.

MACC recently reported that 70% of complaints it received from January to July were related to public procurement. This was an increase from 69% in 2023 and 67% in 2022.

Investigations into public procurement increased to 66% as of July 2024, compared with 59% and 60% in 2023 and 2022, respectively.

Weaknesses in the public procurement system have been exploited, leading to significant losses in public procurement funds, as consistently highlighted in the auditor-general’s reports.

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

These findings align with former auditor-general Ambrin Buang’s estimate that up to 30% of the value of public projects have been lost due to mismanagement and corruption.

Ambrin said government officers should adhere to the law and resist political intervention in government procurement, which carries a high risk of fraud and corruption.

There is therefore a need to change outdated practices, such as political interference and prioritising the interests of large businesses in government procurements.

A beneficial ownership clause should be added to the MACC Act 2009 to identify who truly owns, enjoys and controls a company, even if the title to some property or security is in another’s name.

Since bid rigging is widespread, it can be prevented by having trained officers equipped with basic knowledge, experience or advanced data analysis tools to scrutinise data and identify patterns or red flags of bid rigging.

These include:

• Qualified bidders failing to submit bids;
• A specific contractor consistently winning in a geographic market;
• Losing bidders receiving subcontract work from the winning or highest bidder;
• Withdrawal of the lowest tenderer who then becomes a subcontractor;
• Tenders from contractors at very high prices without 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 email;
• Bids from competitors in identical envelopes;
• Bids from competitors written in the same handwriting; and
• Replicated errors, such as identical spellings or font usage.

 

Ultimately, there is little value in importing the best internal control policies and the most expensive software from Harvard or Oxford if those managing them lack integrity.

If the personnel involved possess integrity and moral values, a simple software solution from a local university could be sufficient to combat corruption in the country.

The main issue lies in the integrity of individuals and the 

reward

 factors offered by contractors.

We must improve our integrity. The top leadership in an organisation should have strong moral principles, set a good example and walk the talk. They must be transparent and clean. - FMT

Akhbar Satar holds a professorial chair and is the director of the Institute of Crime & Criminology at HELP University. He is also the president of the Malaysian Integrity and Governance Society.

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.