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 can save 15 per cent on its annual expenditure or RM13.5 billion. MyCC is also proposing legislative amendments to incentivise people to report bid-rigging.

It is 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 frauds that includes the government procurement system over many years, and 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 and sub-standard in quality.

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

There are four basic schemes involved in bid-rigging conspiracies in public procurement: Firstly, Bid Suppression – this is where bidders withdrawing their bids so that a particular bidder can win; Secondly Bid Rotation – this is where bidders taking 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 is a situation where the purchase was for a motorcycle, but instead gets a bicycle and 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 per cent of the yearly budget allocated by the government for public expenditures, including development, goods and services, and purchase of asset.

The Malaysian Anti-Corruption Commission said 20 per cent of complaints received between 2022 and July 2024 were on public and private procurement matters. The investigations into public procurement have increased to 66 per cent as of July 2024 this year compared with 59 per cent and 60 per cent 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 procurements funds, which have been occurring and reoccurring pursuant to the Auditor’s General (AG) reports.

The World Bank estimated that 20 to 30 per cent of the country's budget for public contracts have been consumed by corruption. The findings concurred with former auditor general Tan Sri Ambrin Buang's projection, who said that up to 30 per cent of the country's public projects' 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 as punishment for those who do not respond appropriately to the recommendations in the AG Report. So, there is no fear of punishment and are not God fearing.

Ambrin said 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 the Prime minister who had said 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 businessmen in government procurements.

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

Since to bid rigging is widespread, it can be prevented by having trained officers armed with the basic knowledge, experience or using 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 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 emails, in envelopes of the same style, or with the same handwriting, and
• errors replicated such as same spelling across and using same font.

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

However, it 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, 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 factor “reward” awarded by the contractors.

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

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

Datuk Seri Dr Akhbar Satar holds a professorial chair and the director at Institute of Crime & Criminology, HELP University and is the president of Malaysian Integrity and Governance Society. The views expressed in this article are the author's own and do not necessarily reflect those of Sinar Daily.