Competitive bidding processes in the public sector: Procuring good value for taxpayer money
As governments across Canada enact stimulus measures in support of the country's economic recovery, the framework for public procurement is increasingly important. In procuring goods and services, all levels of government should favour competitive bidding processes to protect public value.
Competitive bidding between firms drives lower prices, higher quality and increased innovation. Open and competitive bidding processes ensure Canadians get the highest value for their tax dollars, allowing governments to reduce costs and improve the quality of goods and services procured.
Competition underpins a productive, innovative and resilient economy. It plays an important role in public procurement processes which, in normal times, can account for 15% or more of a country's GDP.Footnote 1 Given their scope, public procurement policies can have long-term impacts on the ability and incentives of firms to compete across sectors of the economy.
As seen since the onset of the pandemic, there are circumstances where governments should favour a rapid response over a competitive procurement process, including when dealing with an urgent circumstance, or when evidence shows only a single supplier can truly meet the procurement need. However, as Canada navigates the recovery process, governments should focus on balancing the benefits of competitive procurement processes with the need for urgent action.
Vigilance against bid-rigging: Ensuring the integrity of procurement
Even when governments use a competitive bidding process, they must remain alert to the risk of bid-rigging by potential suppliers. Bid-rigging is a criminal offence under the Competition Act, and occurs when two or more bidders:
- submit bids arrived at by agreement or arrangement
- agree that one or more parties will refrain from bidding; or
- agree that one or more parties will withdraw a previously submitted bid
Bid-rigging undermines the value of the competitive bidding process by allowing suppliers, rather than market forces, to dictate price and quality. Based on the Competition Bureau's experience, bid-rigging can increase the cost of multi-million dollar public procurements by over 30%,Footnote 2 diverting public funds to colluding bidders.
Because of its covert nature, bid-rigging is inherently difficult to detect. However, there are multiple warning signs that public officials can look out for including:
- large price deviations between the winning bid and other bids
- identical irregularities across independent bids
- winning bidders refusing to accept a contract once awarded
- once awarded, winning bidders subcontracting to losing bidders
Governments can also deter bid-rigging by designing procurement processes that:
- maximize the pool of potential bidders and build understanding of bidder capabilities
- require disclosure regarding potential subcontractors and their pricing
- require bidders to submit a certificate of independent bid determination
- involve follow up interviews with unsuccessful vendors to understand bid rationale
Canadians expect value for their public funds. Competitive procurement processes are more important than ever as governments begin to invest in Canada's economic recovery.
Any government department or agency, whether federal, provincial, territorial or municipal, should not hesitate to contact the Competition Bureau for assistance in preventing or detecting bid-rigging behaviour.
Anyone with evidence of bid-rigging or other cartel conduct related to public procurement is encouraged to report it to the Competition Bureau.
For a complete list of the Competition Bureau's guidance on bid-rigging see Bid-rigging: detecting, preventing and reporting.
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