Public procurement and fair competitive tendering
Public procurement is one of the fields where the risk of corruption is higher than average. Contracting entities do not always pay enough attention to creating real competition.
Public contracts are supply, service or public works contracts that public purchasers, in other words contracting entities, conclude with external suppliers. Contracting entities are usually state and local authorities, joint municipal authorities, unincorporated municipal enterprises, bodies governed by public law, and church authorities. Procurements are paid from public funds.
Public procurements have great financial significance for the national economy, as their total annual value in Finland is estimated to be over EUR 30 billion. That is almost one-fifth of Finland's gross domestic product.
Unfortunately, corruption, malpractice and old boy networks are too often associated with public procurement procedures. Practices that aim to guarantee the selection of a certain supplier are particularly common. On the other hand, procurements are not even always put out to tender, but the contracting entities award contracts directly to the supplier of their preference.
The Act on Public Procurement and Concession Contracts requires that public procurements be put out to tender. The purpose of competitive tendering is to ensure that the use of tax revenues is as cost-effective as possible.
New competitive tender processes must always be publicly announced in HILMA, a portal intended for the purpose. This ensures that as many suppliers as possible have an opportunity to submit their tenders for the contract.
Direct award of contracts without competitive tendering is allowed only in certain cases specified in the Act.
Providing all potential suppliers with an equal and non-discriminating opportunity to be awarded a contract prevents corruption and grey economy.
Fair competitive tendering: here is what you should do
Sometimes contracting entities follow the rules only ostensibly. In that case, they do not make sufficient effort to create real competition.
Check that persons participating in the decision-making concerning a public procurement are not disqualified.
Make also sure that the criteria applied in the assessment of tenders are
- of economic significance
- related to the object of the contract
- not vague to the extent that a pre-selected supplier could be chosen
- not too restrictive nor tailored for a given supplier.
Bear in mind that favouring local companies or 'tried and tested' tenderers is corruption. For example, it is not permissible to apply comparison criteria that require a previous contractual relationship with the contracting entity or favour the local supplier. On the other hand, the criteria must not give the contracting entity too much freedom in comparing the tenders either.
The invitation to tender must specify the criteria to be applied in the selection of the winning tenderer. If the criteria are missing, lawful procurement is not possible.
Tenderers must not be given an opportunity to affect the criteria.
Prevent cartels
Tenderers may also act unethically in competitive tendering, for example by setting up a cartel. In a cartel, the tendering companies work together to increase their profits. Companies try to keep such agreements secret so that the organisation putting a contract out to tender would think that they are competing against each other normally.
Cartels limit the production of goods and services and reduce the range of goods and services available. Furthermore, they raise the prices above competitive levels. Cartels and other activities that breach competition law often also involve other forms of corruption.
If you suspect a cartel, do not reveal your suspicion to the companies involved, because spreading the information among the suspects will hamper the investigation. Instead, contact the cartels group of the Finnish Competition and Consumer Authority. The Competition and Consumer Authority also has an online tip-off form that you may use for this purpose.
See what kind of signs may indicate a cartel in a competitive tender process.
Plan your procurement processes so that the risk of cartels is as low as possible to begin with. Observe the following guidelines issued by the Finnish Competition and Consumer Authority.
Plan your competitive tender process so that you will receive as many appropriate, competing tenders as possible.
In large-scale processes, it may be a good idea to divide the procurement into smaller units so that small and medium-sized enterprises are also capable of participating. It is also a good idea to have units of different sizes, and the number of the units should be different from the number of potential tenderers. This way it will be more difficult for the tenderers to agree among themselves which company will win.
In small purchases, do not exclude any potential suppliers from the list of tenderers even if they had not participated in the previous competitive tender process.
Avoid repeated contracts of the same value. When the competitive tender process is not predictable, it is more difficult for the actors in the field to agree among themselves how they will share the contracts.
Whenever possible, change the duration of the contract period and the geographical area for which the services are being tendered. Look actively for new potential tenderers.
Collect and save information about the prices, tenderers, winners and subcontractors of the previous competitive tender processes.
By comparing the details of the previous processes with the details of the current one, you can estimate whether the tenderers have agreed among themselves that they will take turns in winning the contract. This also enables you to assess whether the tenderers have divided the profits between the cartel members by concluding subcontracts.
Consider whether you could present the place where the contract will be executed in some other manner than by inviting all potential tenderers to the place at the same time. If you invite tenders for small purchases by email, enter the names of the recipients into the bcc field. This way the recipients will not see who else has been requested to submit a tender.
If you use a consultant in the preparation of a public procurement, pay attention to the fact that the consultant may have ties to some of the tenderers. Is it possible that the consultant could try to prepare the competitive tender process so that a given company would win?
Make sure that the consultant has signed a confidentiality agreement and declared his or her potential conflicts of interest.
Under competition law, cartels are always prohibited. However, an explicit prohibition of cartels entered into the invitation to tender may serve as a deterrence and lead to real competition.
You can, for example, state that you will report all suspicions of anti-competitive agreements to the Finnish Competition and Consumer Authority. You can also request that the tenderers report all essential information about their communications with the other tenderers, provide information about their subcontractors and affirm that they have drawn up the tender independently.
It is possible to include a contractual penalty clause in a contract. The clause defines a contractual penalty that a company must pay if it turns out that it has been involved in a cartel. This way, the contracting entity will receive at least the amount of the contractual penalty in compensation for the damage caused by the cartel.
The existence of a contractual penalty may also make companies realise that the contracting entity is monitoring the situation and actively looking for possible cartels.
The company that has submitted the cheapest tender in a cartel may try to improve its profits by separately charging for part of the job performances as additional work.
Inform the tenderers about the fact that additional work and costs exceeding the budget will be closely monitored also during the contract period to reveal any cartels. This alone may help create real competition.
Remember that making essential changes to a contract is prohibited under the Act on Public Procurement and Concession Contracts.
Read more about public procurement
The Public Procurement Advisory Unit is maintained by the Ministry of Economic Affairs and Employment and the Association of Finnish Local and Regional Authorities. It provides contracting entities with answers to their questions concerning public procurement.
The Finnish Competition and Consumer Authority (FCCA) applies the Competition Act and other provisions governing competition. Pursuant to these provisions, the FCCA intervenes in situations involving illegal anti-competitive agreements, such as cartels. In addition, the FCCA oversees public procurement, especially illegal direct procurements. Anyone who feels that a contracting entity has failed to comply with the procurement legislation can submit a tip to the FCCA.
The Tutkihankintoja.fi service provides citizens and companies with information about government spending. Citizens can search information about state purchases and how public funds are spent. For companies, the service offers market intelligence.