Competition Policy

Competition Issues in Public Procurement

This year’s theme for the World Competition Day being “Competition Issues in Public Procurement”, the event explored how integrating principles of fair competition in public procurement could help in more efficient utilisation of government revenues. When competition is curtailed, more than fair price is paid for lower quality goods and services and taxpayers’ money is wasted. It is, therefore, important that the procurement process is not distorted by practices such as collusion, bid rigging, lack of competitive neutrality or abuse of dominance.

Competition exists everywhere; it is an important issue and has a major role in international trade. Competition is good not only for static and dynamic efficiency but also for the allocation of goods and services. In static efficiency, it can bring more choices for consumers, and better quality of choices offered. In a dynamic efficiency with time, costs are reduced, quality is improved and of course prices are decreased, while the advantages for consumers increase. With competition, the allocation of goods and services also improve over time.

CUTS International has been campaigning for the establishment of World Competition Day to raise awareness about the importance of competition in economies. By raising awareness of the obstacles that impede competitive environments, the hope is that better measures can be taken to deter anticompetitive practices and foster an economic environment conducive to both consumers and producers. CUTS International organizes events every year to celebrate the World Competition Day with a specific theme to provide a forum for discussion of anti-competitive practices and the steps that can be taken to discourage them.

This year too CUTS International organized a Roundtable in Geneva on December 5th to commemorate the anniversary of the UN adoption of the “Set of Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Practices” resolution on December 5th, 1980. This year’s theme was “Competition Issues in Public Procurement”. The event took place in Palais des Nations with support from UNCTAD NGO service and was attended by several representatives of Geneva missions as well as the relevant international organizations. Mr. Philippe Brusick, former head of Competition Branch of UNCRAD and the President of CUTS International Geneva General Assembly chaired while Mr. Robert D. Anderson, Counselor and Team Leader for Government Procurement and Competition Policy, Intellectual Property Division, WTO Secretariat, made the key presentation on this year’s theme.

Mr. Philippe Brusick began the event describing why competition is critically important to economic success, and why the international community needs to facilitate an economic climate conducive to industries and other trade stakeholders. He explained that competition is a part of all facets of life, and that competition in all sectors of the economy benefits consumers. Competition increases both static and dynamic efficiency, and helps encourage equitable allocation of resources throughout the economy and society. In order to best encourage an economic environment conducive to competition, Mr. Brusick stressed the importance of deterring anti-competitive processes and restrictive business practices. He then described some of the steps that have been taken by both governments and international organizations to deter these practices. One specific step was the “Set of Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Practices” adopted by the UN General Assembly on December 5th, 1980. This resolution helped codify some of the rules and practices against policies that encouraged monopolies and duopolies, thus hampering competition. Specifically, the resolution targets cartel agreements, vertical restraints, and the concentration of enterprises through mergers and acquisitions. As it is one of the only major resolutions aimed at facilitating competition, the anniversary of that date has become World Competition Day.

With this background established, Mr. Robert D. Anderson then took over to give his presentation on “The complementary roles of international trade rules and competition policy: public procurement”. He stressed that there are important logical linkages between competition policy and international trade and development, and that those linkages need to be acknowledged during policy negotiations in order to establish an effective and cohesive framework. Specifically, he examines this concept in the context of public procurement.

One of the primary obstacles that states face in ensuring competitive practices in the context of public procurement is the issue of collusive tendering. Collusive tendering is essentially cartelization in the public procurement process wherein competitors agree to bid high, not to bid, or to submit cover bids. Mr. Anderson outlines the “suspicious signs” that states should look out for to uncover instances of public procurement cartelization. These include, inter alia, bids that are consistently higher than the procuring entity’s internal estimate, companies that always bid high and subsequently receive subcontracts from the winning bidder, and regular patterns of bid offers and wins.

In his presentation, Mr. Anderson also highlights the economic importance of public procurement, and by extension, the profound impact that the cartelization of public procurement can have on the overall economy. First, he mentions that collusive tendering often translates into significant costs for public treasuries and taxpayers. This in turn undermines public confidence in governments, which can have lasting political ramifications. He explains that public procurement constitutes a large proportion of most countries’ GDPs (15-20%), and that it supports the essential functions of government by providing critical infrastructure and services.

He then turns to what can be done to address the issue, dividing the proposed responses into the obvious, and not so obvious. In the obvious category, he lists effective competition law enforcement, education of the supplier community, education of procurement officials, and inter-agency collaboration as the primary measures that can be undertaken. In the not so obvious category, he explains the importance of taking pro-active measures to expand the pool of potential competitors, and of facilitating supplier diversity. He states that with a larger and more diverse applicant pool, the environment will be less susceptible to the formation of monopolies and duopolies. Another less obvious measure is the discouragement of “buy national” procurement policies. Mr. Anderson argues that it encourages monopolistic tendencies, and therefore the discontinuation of these policies is integral to the assurance of a more competitive public procurement environment.

Mr. Anderson also mentions the WTO’s Agreement on Government Procurement (GPA), and its efforts to ensure fair and transparent competitive measures by the government, and hence to encourage competition in the public procurement sector. At present, the agreement covers forty-three WTO members, and ensures non-discriminatory conditions in the procurements that are covered by the agreement. It emphasizes the importance of procurement and good governance as keys to successful development. In a broader sense, Mr. Anderson explains that trade liberalization in general is a powerful tool for discouraging monopolies and encouraging development, as long as there are regulations in place in parallel to ensure transparency and a balance between the needs of the public and the private sector.

After Mr. Anderson’s presentation, a brief discussion ensued wherein some of the delegates in attendance voiced their concerns about the GPA as it relates to developing countries. They expressed that they were not certain that the GPA held value for developing countries, and that it was not clear to them whether joining the GPA would truly benefit their countries.

Mr. Anderson and Mr. Brusick concluded the event by reiterating the dualistic nature of trade and competition, especially in regard to public procurement. Because of this, they stressed the importance of cracking down on collusive tendering and other anti-competitive practices. States are encouraged to take the necessary measures to address these issues, whether that be at a national level, or a regional level – the important thing is to formulate comprehensive and cohesive reforms that discourage anticompetitive practices. As Mr. Anderson and Mr. Brusick stressed, “the roles and interests of international trade rules, national competition policies, and procurement officials are all complementary”. As such, by undertaking a more comprehensive and all-encompassing strategy toward addressing anti-competitive practices, states can effectively improve many aspects of their economic situation.