Collusion in bids for state contracts

Both businesses and state officials can face prosecution for rigging bids to favour one party

Government authorities recently have investigated several cases involving collusion in competitive bidding for government contracts, according to local media reports. It is certainly not the first time such suspicions have been aroused.

Collusion is an offence under the Act Governing Offences Concerning Price Offers to State Agencies, BE 2542 (1999), generally known as the bid rigging law. It penalises various acts engaged in by government agencies, including state enterprises and people who hold political positions. Collusion in competitive bidding may also violate the Government Procurement and Supplies Management Act, BE 2560 (2017), known as the procurement law.

These offences generally occur when a government official or competing bidders collaborate in the submission of bids in order to ensure one of the bidders wins. This may involve avoiding fair price competition, or preventing the offer from being made to other bidders, or by taking advantage of government agencies in a way that is not part of the normal course of business.

It is not difficult for government authorities to investigate collusion in competitive bidding, because “every contact leaves a trace”, according to Yuthana Sivaraks, a partner specialising in administrative contracts and law and government procurement with the Bangkok office of the international law firm Baker McKenzie.

Collusion always leaves evidence behind. The investigation then may trace connections between groups of shareholders, directors, addresses, and auditors for signs that may show collusion. In practice, collusion may also be shown from the behaviour of the competitive bidders themselves.

In some cases, the violation originates with government officials themselves when they ask a private company to find a competitive bidder to submit a bid even though there is only one distributor for the products. If the private company agrees to find a competitive bidder by setting up a fake transaction with a shelf company, then collusion happens. If this is the case, both the government officials and private individuals may be subject to severe penalties under the law.

In some cases, the violation arises from the bid specifications or conditions being designed or fixed to assist one bidder, and prevent other bidders from having an opportunity to fairly compete. This type of offence — known as “lock spec” in the local vernacular — is quite severe, and is punishable by life imprisonment.

Under the concept of conspiracy under the Penal Code, the law also penalises anyone who cooperates to commit the offence as a “conspirator”.

In determining who will be a conspirator, the court will consider the degree of involvement. The person who employs or asks the offender, the “instigator,” is also subject to punishment pertaining to the principal offence.

The law also penalises any person who assists the offender as a “supporter”, which means anyone who performs any act to assist in or facilitate the commission of an offence by any other person before or at the time of committing the offence, which will subject them to a penalty. This is also stated in the procurement law.

To comply with the law, the government officials must select an appropriate procurement method when it is suitable. The private-sector bidders must also act in good faith rather than just focusing on the sale of their products or services. If the offence is committed for the interest of a legal entity, the legal entity’s representative may also be jointly liable. This may be the case if the representative gave his or her consent to, or had knowledge of, the offence, and in doing so the representative also possessed dishonest intent in committing the offence.

To keep pace with growing expectations, both globally and locally, for transparency in business conduct, all parties need to ensure their understanding of the required practices to avoid potential risks that might arise out of non-transparent business practices. Such practices may have once passed unnoticed but will not be condoned in today’s enforcement environment.