curbing fraud, corruption, and collusion in the roads...
TRANSCRIPT
Curbing Fraud, Corruption, and Collusion in the Roads Sector
The World BankIntegrity Vice Presidency
THE WORLD BANK
1818 H Street, N.W.Washington, DC 20433
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Curb
ing Fraud
, Co
rruptio
n, and
Co
llusion in the R
oad
s Sector
The Wo
rld B
ankInteg
rity Vice Presid
ency
June 2011
2011 Th
e Intern
ational B
ank for R
econstru
ction an
d Developm
ent/T
he W
orld Ban
k
Integrity V
ice Presiden
cyT
he W
orld Ban
k Grou
pM
SN U
11-1100W
ashin
gton D
C 20433
http://w
ww
.worldban
k.org/integrity
All righ
ts reserved
Th
e fin
dings, in
terpretation an
d conclu
sions expressed h
ere are those of th
e auth
or (s) and do n
ot necessarily refl
ect th
e views of th
e Board of E
xecutive D
irectors of the W
orld Ban
k or the govern
men
ts they represen
t. Th
e World B
ank
cann
ot guaran
tee the accu
racy of the data in
cluded in
this w
ork.
Righ
ts and
Perm
issions
Th
e material in
this w
ork is copyrighted. C
opying an
d/or transm
itting portion
s or all of this w
ork with
out perm
is-sion
may be a violation
of applicable law. T
he W
orld Ban
k encou
rages dissemin
ation f its w
ork and w
ill norm
ally gran
t permission
promptly.
For permission
to photocopy or reprin
t any part of this w
ork, please send a requ
est with
complete in
formation
to the
Integrity V
ice Presiden
cy at the address stated above.
Co
ntents
AC
KN
OW
LE
DG
ME
NT
S
v
FO
RE
WO
RD
v
ii
EX
EC
UT
IVE
SU
MM
AR
Y
Ix
I. IN
TR
OD
UC
TIO
N
1
Developm
ent Im
pact of Roads
1
II. W
OR
LD
BA
NK
INV
ES
TIG
AT
IVE
FIN
DIN
GS
5
III. C
OL
LU
SIO
N IN
RO
AD
TE
ND
ER
S
11
A.
Evidence from
Non
-Ban
k Projects
12B
. C
artel Theory
12C
. D
eveloped Cou
ntry E
xperience
13D
. E
ffect of Collu
sion on
Tender P
rices 13
IV.
FR
AU
D A
ND
CO
RR
UP
TIO
N IN
CO
NT
RA
CT
IMP
LE
ME
NT
AT
ION
1
7
V.
CO
MB
AT
ING
CO
LL
US
ION
, FR
AU
D, A
ND
CO
RR
UP
TIO
N
19
A.
Measu
res to Redu
ce Collu
sion
19P
un
ish cartelization
severely 19
Create in
centives for th
e exposure of cartels
20
Revise ten
dering ru
les 20
Requ
ire indepen
dent bid certifi
cates 23
Retain
an in
dependen
t procurem
ent evalu
ator 23
B.
Measu
res to Redu
ce Fraud an
d Corru
ption
24Stren
gthen
the en
gineer
24
Hire a tech
nical au
ditor 25
En
gage civil society mon
itors 26
Develop accu
rate cost estimates
26
Ch
eck the w
ealth of key procu
remen
t agency offi
cials 26
C.
Longer-Term
Capacity-B
uildin
g Measu
res 27
Modern
ize the roads sector agen
cy 27
Strength
en com
petition law
enforcem
ent
27
Cu
rbin
g F
rau
d, C
orru
ptio
n, a
nd
Co
llusio
n in
the
Ro
ad
s Se
cto
r
iv
D.
Experim
ental M
easures
27Im
pose ceiling on
bids 28
Use com
petitive negotiation
28
Con
tract out procu
remen
t 28
E.
Issues for C
onsideration
by Ban
k Operation
s Staff 29
Trade-offs between
Transparen
cy and C
ollusion
30
Subcon
tracting as a facilitator of capacity-bu
ilding an
d collusion
30
Cu
stomizin
g measu
res to address fraud an
d corruption
in civil w
orks contracts
30
Developin
g expertise on cost estim
ating an
d detecting collu
sive bidding
30
Reevalu
ate curren
t contract m
anagem
ent form
31
Target enforcem
ent on
engin
eering fi
rms
32
Increase con
tingen
t of professional W
orld Ban
k staff with
road engin
eering expertise
32
Spend m
ore on corru
ption preven
tion in
projects 32
VI.
CO
NC
LU
SIO
N
35
RE
FE
RE
NC
ES
3
7
AN
NE
X 1
: PR
OV
ING
BID
RIG
GIN
G O
N R
OA
DS
TE
ND
ER
S
45
AN
NE
X 2
: RE
FO
RM
S T
O P
UB
LIC
PR
OC
UR
EM
EN
T IN
OE
CD
CO
UN
TR
IES
4
7
TablesTable 1. Miscon
duct C
ases in W
orld Ban
k Roads P
rojects: Sanction
s Imposed
6
Table 2. Miscon
duct C
ases in W
orld Ban
k Roads P
rojects: Sanction
s Pendin
g or Not Sou
ght
7
Table 3. Estim
ated Cartel O
vercharges
14
Table 4. Resu
lts of Au
dit of Zam
bian R
oads Projects
17
BoxesB
ox 1. World B
ank D
efin
itions of M
iscondu
ct 2
Box 2. C
ollusion
and C
artels 8
Box 3. Ten
Indicators of C
ollusive B
idding
12
Box 4. P
ublish
ing C
ost Estim
ates: the Trade off B
etween
Transparen
cy & C
ollusion
21
Box 5. C
ombatin
g Collu
sion by C
han
ging th
e Procu
remen
t Process
22
Box 6. C
ertificate of In
dependen
t Price D
etermin
ation
24
Box 7. U
sing C
ompetitive N
egotiation to C
ircum
vent a C
artel: the U
S Experien
ce 29
Box 8. R
educin
g Fraud an
d Corru
ption in
Civil W
orks 31
Ackno
wled
gm
ents
Th
is report was au
thored by R
ichard M
essick (INT
) un
-der th
e direction of Leon
ard McC
arthy, Vice P
resident,
INT, an
d Galin
a Mikh
lin-O
liver, Director for Strategy
and C
ore Services, INT. V
aluable in
puts w
ere pro-vided by A
nders A
gerskov with
support from
Virgin
ia Fatou
rou-Papan
ikolaou, A
lba Struga, an
d Ath
ene A
. V
ila-Boteler of IN
T’s P
reventive Services U
nit.
Helpfu
l comm
ents an
d contribu
tions w
ere provided by colleagu
es across INT, in
cludin
g in particu
lar Stephen
Z
imm
erman
(INT
OP
), Jonath
an Sh
apiro (INT
OP
), Sim
on R
obertson (IN
TO
P), Leon
ard New
mark
(INT
OP
), Susan
Hu
me (IN
TSC
), An
nie Yau
(INT
SC),
and D
avid Bern
stein (IN
TSC
), and n
um
erous col-
leagues in
SDN
, OP
CS, th
e regions, LE
G, an
d GSD
,
inclu
ding M
arc Juh
el (TW
ITR
), Gou
tham
i Padam
(TW
ITR
), Hu
dayberdi Ah
medov (T
WIT
R), Pau
l B
ermin
gham
(OP
CO
S), Bern
ard Becq (O
PC
PR
), Maria
Van
nari (O
PC
PR
), Moses W
asike (OP
CFM
), Rich
ard A
. Calkin
s (Con
sultan
t), Jack Titsw
orth (O
PC
FM), Pat
Rogers (O
PC
CS), C
harles K
enny (C
enter for G
lobal D
evelopmen
t), Luc Lecu
it (EA
CT
F), Carolin
a Mon
salve (E
CSS5), B
ill Patterson (C
onsu
ltant), G
aël Raballan
d (A
FTP
R), D
onald M
phan
de (AFT
FM), T
ina Soreide
(U4), Steve B
urgess (E
AP
CO
), Joel Turkew
itz (EA
PV
P),
Ah
san A
li (EA
PP
R), C
ecilia D. V
ales (EA
PP
R), T
herese
Ballard (G
SDP
R), A
nton
io Capobian
co (OE
CD
), Ben
G
eiricke (EC
SSD), Fran
k Fariello (LEG
OP
), Row
ena M
. G
orospe (LE
GO
P), L
auren
ce Folliot Lalliot (L
EG
OP
), an
d An
eta K. W
ierzynska (C
onsu
ltant).
Simon Robertson/World Bank
Forew
ord
From earliest tim
es one of th
e strongest in
dicators of a society’s developm
ent h
as been its road in
frastructu
re, or lack th
ereof. At its h
eight, th
e Rom
an E
mpire repu
t-edly bu
ilt the best en
gineered an
d most com
plex road n
etwork w
orldwide. T
he O
ld Testamen
t also contain
s referen
ces to the an
cient K
ing’s H
ighway. C
orduroy
roads were bu
ilt in G
lastonbu
ry, En
gland in
3300 BC
w
ith street pavin
g going back to early hu
man
settlemen
t arou
nd 4000 B
C in
the In
dus V
alley on th
e Indian
sub-
contin
ent. O
ur h
istory speaks roads.
Well plan
ned, properly m
aintain
ed, and safe roads are
critical for econom
ic growth
and overcom
ing poverty
in developin
g coun
tries. Th
e roads sector has been
a m
ajor target for developmen
t fin
ancin
g over the en
tire h
istory of the W
orld Ban
k and rem
ains im
portant today.
Betw
een 2000 an
d 2010, the W
orld Ban
k comm
itted close to $56 billion
for road constru
ction an
d main
te-n
ance an
d expects to contin
ue its active su
pport for the
roads sector in its clien
t coun
tries for years to come.
Wh
ile roads projects supported by th
e World B
ank
Grou
p have h
ad consisten
tly positive developmen
t re-su
lts, dangers of frau
d, corruption
, and collu
sion plagu
e th
e sector worldw
ide. Th
ough
this is a problem
for both
developed and developin
g coun
tries it is mu
ch m
ore costly in
terms of opportu
nity costs an
d lost econom
ic grow
th for developin
g coun
tries. Given
the im
portance
of roads to the poor, th
is challen
ge is of special signifi
-can
ce to the W
orld Ban
k.
To help ou
r clients safegu
ard their roads projects from
frau
d, corruption
, and collu
sion, th
e World B
ank m
ust
be inn
ovative and learn
more system
atically from ou
r experien
ces and th
ose of our developm
ent partn
ers and
client cou
ntries. T
his report of th
e Preven
tive Services U
nit of th
e World B
ank’s In
tegrity Vice P
residency
(INT
) supports th
is effort by turn
ing both
the resu
lts of IN
T’s investigation
s and th
e experiences of developed
and developin
g coun
tries into practical advice abou
t a ran
ge of measu
res in order to stem
collusion
in ten
ders for roads con
tracts, and frau
d and corru
ption in
con-
tract execution
.
Ein
stein said, “W
e can’t solve problems by using the sam
e kind of thinking w
e used when w
e created them.” So w
e n
eed to revisit past practices, drawin
g on th
e know
ledge of th
ose on th
e groun
d in clien
t coun
tries.
Th
e report recognizes th
at condition
s across borrowin
g cou
ntries differ sign
ifican
tly, as they do in
developed cou
ntries, an
d that w
hat w
orks in on
e coun
try may n
ot in
anoth
er. Th
e measu
res we offer are n
ot panaceas, or
“cookbook” solution
s. Diagn
oses of the n
ature of th
e problem
s are importan
t in devisin
g possible solution
s. O
ur aim
is to spur dialogu
e amon
g all stakeholders on
h
ow to im
prove the w
ay the W
orld Ban
k and its clien
ts do bu
siness in
the roads sector.
Th
e bad new
s is that en
surin
g the in
tegrity of roads projects is a ch
allenge for m
any developed and devel-
oping cou
ntries sin
ce fraud, corru
ption an
d collusion
h
istorically prove resistant to easy treatm
ent or sim
ple solu
tions. T
he en
couragin
g new
s is that th
e coun
tries th
at are comm
itted to stampin
g out th
ese problems can
draw
upon
the learn
ing an
d successfu
l experiences of
Cu
rbin
g F
rau
d, C
orru
ptio
n, a
nd
Co
llusio
n in
the
Ro
ad
s Se
cto
r
viii
many oth
ers. Th
e corrupt can
be bested. Fraud can
be thw
arted. Collu
ding n
etworks can
be coun
tered and
even broken
.
We w
ant th
is report to be a living docu
men
t, the breed-
ing grou
nd for n
ew solu
tions, as w
e seek to protect and
safeguard an
importan
t driver of growth
. Th
e World
Ban
k and oth
er developmen
t partners stan
d ready to h
elp.
Robert B
. Zoellick
May 2011
Executive Sum
mary
Becau
se an exten
sive, well m
aintain
ed netw
ork of roads is essen
tial for econom
ic developmen
t, road constru
c-tion
and m
ainten
ance projects h
ave been a m
ainstay of
the W
orld Ban
k’s lendin
g portfolio since its fou
ndin
g. T
his lon
g experience in
the roads sector is refl
ected in
favorable project evaluation
s. Th
e Ban
k’s Indepen
dent
Evaluation
Grou
p reports that roads an
d other tran
s-port projects con
sistently score h
igher on
measu
res of ou
tcomes, in
stitution
al developmen
t, and su
stainability
than
non
-transport projects an
d the B
ank’s Q
uality
Assu
rance G
roup h
as foun
d that roads projects are
well-su
pervised.
At th
e same tim
e, roads projects aroun
d the globe re-
main
plagued by frau
d, corruption
, and collu
sion. A
Tran
sparency In
ternation
al poll ranked con
struction
as th
e indu
stry most pron
e to corruption
and a su
rvey of in
ternation
al firm
s revealed that com
panies in
the
constru
ction in
dustry w
ere more likely th
an fi
rms in
any oth
er sector to have lost a con
tract because of bribery.
World B
ank-fi
nan
ced projects are not im
mu
ne. R
ough
ly on
e-fourth
of the 500 plu
s projects with
a Ban
k-fun
ded roads com
ponen
t approved over the past decade drew
on
e or more allegation
s of fraud, corru
ption, or collu
-sion
; to date, the B
ank’s In
tegrity Vice P
residency (IN
T)
has con
firm
ed allegations in
25 projects resultin
g in 29
cases of miscon
duct u
nder B
ank ru
les.
Th
e most com
mon
forms of w
rongdoin
g in th
ese 29 cases are collu
sion am
ong fi
rms biddin
g on a project
and frau
d and corru
ption in
the execu
tion of th
e re-su
lting con
tract. Th
e Ban
k has con
trols to reduce th
ese form
s of miscon
duct—
procurem
ent process review
s, fi
nan
cial audits, an
d field su
pervision—
and eviden
ce
suggests th
at losses in B
ank-fi
nan
ced programs are less
than
in th
ose not su
bject to Ban
k oversight. N
oneth
eless, for th
e developing cou
ntries of th
e world, any loss on
a road project, w
heth
er fun
ded by the W
orld Ban
k or not,
is un
acceptable.
Th
is report explores how
the W
orld Ban
k and develop-
ing n
ations can
reduce losses from
collusion
in procu
re-m
ent an
d fraud an
d corruption
in con
tract execution
, draw
ing on
wh
at INT
has learn
ed from its investiga-
tions of B
ank-fu
nded roads projects, investigation
s and
reports by borrowin
g coun
try governm
ents, an
d the
experience of developed cou
ntries. T
he aim
is twofold:
(a) to provide inpu
t into th
e World B
ank’s review
of its policies an
d processes as part of the on
going reform
of its bu
siness m
odel, and (b) to in
form a broader dialogu
e on
ways to preven
t collusion
in procu
remen
t, and frau
d an
d corruption
in con
tract execution
in all roads proj-
ects—n
o matter th
e fun
ding sou
rce.
Th
e report begins w
ith a review
of the fi
ndin
gs in 29
cases of miscon
duct in
World B
ank-fu
nded projects. It
follows w
ith an
analysis of th
e inciden
ce of collusion
in
procurem
ent in
non
-Ban
k projects and estim
ates of its im
pact on project price. It th
en exam
ines m
easures
developed coun
tries have taken
to attack collusion
and
suggests h
ow th
ey can be adapted to th
e environm
ent
in developin
g coun
tries. Some steps w
ill be the sam
e regard
less of the cou
ntry con
text. A cou
ntry sh
ould h
ave law
s penalizin
g bid rigging, m
arket division, an
d other
forms of collu
sive behavior alon
g with
the com
mitm
ent
and capacity to en
force them
. Oth
er steps will depen
d u
pon th
e market con
ditions an
d other cou
ntry-specifi
c circu
mstan
ces and risks.
Cu
rbin
g F
rau
d, C
orru
ptio
n, a
nd
Co
llusio
n in
the
Ro
ad
s Se
cto
r
x
Some cou
ntries m
ay wish
to limit su
bcontractin
g or revise th
e rules govern
ing h
ow fi
rms qu
alify to bid on
con
tracts. Oth
er coun
tries may d
ecide th
at more sign
if-ican
t chan
ges in p
rocurem
ent p
rocedu
res are required
. T
he rep
ort suggests th
at in con
siderin
g such
reforms,
trade-offs m
ay be required
to ensu
re that th
e values of
transp
arency, cap
acity-build
ing th
rough
subcon
tract-in
g, and
other goals are p
ursu
ed in
a man
ner th
at does
not in
advertently lim
it comp
etition by facilitatin
g collu
sion.
Wh
ile preventin
g fraud an
d corruption
durin
g the ex-
ecution
of a road contract sh
ould be everybody’s job,
the stan
dard road contract u
sed by the W
orld Ban
k and
most developin
g coun
tries assigns th
is responsibility
to the con
sultin
g engin
eer. Th
e engin
eer approves all paym
ent requ
ests and ch
ange orders, en
surin
g in every
instan
ce that th
e road is built accordin
g to specification
s an
d that valu
e for mon
ey is received. Th
e engin
eer is thu
s the gu
ardian of project in
tegrity. In W
orld Ban
k-su
pported projects, how
ever, INT
has fou
nd in
stances
wh
ere the en
gineer w
as asleep at the post an
d others
wh
ere the post w
as altogether deserted. Stren
gthen
ing
the en
gineer, ch
angin
g the in
centives faced on
the
job, or even retain
ing a secon
d guardian
to guard th
e fi
rst guardian
are some of th
e suggestion
s the report
advances.
A n
eed to appoint som
eone to gu
ard the gu
ardian is
a sign of a system
ic problem an
d INT
’s fin
dings ech
o earlier reports by govern
men
ts, NG
Os, academ
ics, and
donor agen
cies; collusion
and corru
ption are som
etimes
deeply ingrain
ed in th
e roads sector. Th
e schem
es may
involve not on
ly firm
s but roads agen
cy personn
el and
even sen
ior officials. In
these later cases, th
e system feeds
off itself. Th
e high
er the collu
ders raise the price, th
e m
ore they can
pay in bribes an
d kickbacks. Th
e more
they pay, th
e more th
ey have to ch
eat the govern
men
t to m
ake a profit. T
he m
ore corruption
, the m
ore all w
rongdoers stan
d to gain. T
hus all h
ave a shared in
terest in
busin
ess as usu
al.
Wh
en collu
sion or corru
ption is system
ic, chan
ge requ
ires breaking th
e cycle of abuse by brin
ging in
som
eone from
the ou
tside—a prosecu
tion service, an
ti-corru
ption agen
cy, competition
law au
thority, su
preme
audit in
stitution
, or, in th
e case of a local governm
ent,
the n
ational govern
men
t. If senior offi
cials are involved, in
troducin
g an ou
tsider can be particu
larly challen
ging.
Wh
en corru
ption is deeply in
grained, sh
ort-term pallia-
tives, such
as an in
dependen
t procurem
ent evalu
ator or tech
nical au
ditor, may be th
e answ
er. More drastic m
ea-su
res may also be requ
ired and th
e report reviews th
ree: th
e use of bid ceilin
gs, competitive n
egotiation, an
d tu
rnin
g procurem
ent over to an
indepen
dent agen
t.
Not all corru
ption is system
ic, and thu
s not all reform
s requ
ire such
signifi
cant steps. In
the W
orld Ban
k-su
pported Bali U
rban Infrastructure Project, th
e cir-cu
lation of ten
der notices to fi
rms in
other provin
ces defeated a local biddin
g ring. In
the P
hilippin
es, civil society m
onitors u
ncovered corru
pt schem
es in a variety
of governm
ent con
tracts, and in
the secon
d phase of th
e N
ational Road Im
provement and M
anagement P
roject, civil society grou
ps will m
onitor all ph
ases of the w
ork.
Th
e report suggests th
at, in addition
to expandin
g proj-ect-level preven
tive measu
res, more atten
tion sh
ould
be paid to project supervision
, especially in h
igh-risk
environm
ents, w
ith a particu
lar focus on
verification
of cost estim
ates and th
e identifi
cation of collu
sive bid-din
g. A review
of the W
orld Ban
k’s supervision
strategy for roads projects m
ay also be in order, som
ethin
g that
migh
t inclu
de ensu
ring th
at seasoned road en
gineers are
available to assist clients an
d enh
ance tech
nical su
pervi-sion
of the projects.
Non
e of the steps recom
men
ded are costless, but th
e losses from
collusion
, corruption
, and frau
d can be su
b-stan
tial. Th
is report seeks to spur a dialogu
e inside an
d ou
tside the W
orld Ban
k on h
ow to m
ore effectively com-
bat collusion
, fraud an
d corruption
and thu
s produce
better developmen
t outcom
es.
Introd
uction
Th
e World B
ank’s In
tegrity Vice-P
residency investigates
miscon
duct in
Ban
k-fun
ded projects and advises W
orld B
ank staff an
d borrowin
g coun
try personn
el on corru
p-tion
prevention
measu
res. Wh
en IN
T fi
nds m
iscondu
ct in
a World B
ank-fu
nded project, th
e Ban
k can bar th
e fi
rms or in
dividuals involved from
bidding on
futu
re W
orld Ban
k-fin
anced con
tracts. It can also provide in
-form
ation to n
ational law
enforcem
ent au
thorities in
the
coun
try or coun
tries wh
ere the m
iscondu
ct occurred or
wh
ere the com
panies or in
dividuals reside for possible
crimin
al prosecution
. Its preventive u
nit distills investi-
gative fin
dings in
to them
atic reports like this an
d other
docum
ents th
at it shares w
ith W
orld Ban
k staff and bor-
rowin
g coun
try personn
el to help th
em redu
ce miscon
-du
ct in fu
ture projects.
Wh
ile docum
entin
g cases of miscon
duct, IN
T often
learn
s of corrupt sch
emes prevalen
t in a cou
ntry or
across an en
tire indu
stry. For example, IN
T’s investiga-
tion in
to the P
hilippin
e First National R
oad Improvem
ent and M
anagement P
roject revealed practices that in
flated
highw
ay constru
ction costs th
rough
out th
e nation
. INT
also fou
nd eviden
ce of schem
es involving bribery an
d siph
onin
g of fun
ds durin
g contract execu
tion in
roads projects in
Ban
gladesh, C
ambodia, In
dia, Indon
esia, the
Ph
ilippines, an
d Senegal.
Develo
pm
ent Imp
act of R
oad
s
In th
e period 2000–2010, the W
orld Ban
k lent close to
$56 billion for road con
struction
and m
ainten
ance—
sligh
tly less than
20 percent of th
e Ban
k’s total lendin
g over th
e past decade. Lendin
g for roads constitu
tes a
signifi
cant portion
of the W
orld Ban
k’s portfolio for good reason
: an exten
sive and w
ell-main
tained n
etwork
of primary, secon
dary, and feeder roads is critical for
econom
ic growth
and poverty alleviation
. As th
e Ban
k’s tran
sport strategy for 2008–2012 explains, “B
ecause of
their h
igh an
d diverse fun
ctionality an
d wide ran
ge of ben
eficiaries, roads h
ave become an
essential com
ponen
t of all n
ational tran
sport systems, u
sually con
sum
ing
the greatest proportion
of public an
d private invest-m
ent resou
rces in both
infrastru
cture an
d services” (W
orld Ban
k 2008a, 48). A cross-cou
ntry an
alysis done
for the 1994 W
orld Developm
ent R
eport confi
rms th
e im
portance of roads for developm
ent, fi
ndin
g a strong
and con
sistent lin
ear relationsh
ip between
the exten
t of a cou
ntry’s road n
etwork an
d its level of developmen
t (W
orld Ban
k 1994, 16).
Cou
ntry-level stu
dies also show
the developm
ent im
pact of road con
struction
. In ru
ral India, road investm
ent
sharply boosted agricu
ltural produ
ctivity and grow
th
(Fan, H
azell, and T
horat 1999). In
Ch
ina an
d Th
ailand,
road investmen
ts contribu
ted signifi
cantly to grow
th in
both
farm an
d non
-farm ou
tput (Fan
et al. 2000, 2002, 2004), a fi
ndin
g recently replicated in
Ugan
da (Gollin
an
d Rogerson
2010). In M
exico, increases in
investmen
t in
roads led to a strong an
d positive increase in
labor produ
ctivity (Deich
man
n et al. 2002). A
n an
alysis from
the U
nited States poin
ted to the steep declin
e in pu
blic spen
ding on
road infrastru
cture as th
e likely cause of a
fall-off in produ
ctivity in m
anu
facturin
g in th
e 1970s (Fern
ald 1999).
Road
s projects are an
imp
ortant p
art of the W
orld
Ban
k’s portfolio becau
se, as the B
ank’s In
dep
end
ent
I
Cu
rbin
g F
rau
d, C
orru
ptio
n, a
nd
Co
llusio
n in
the
Ro
ad
s Se
cto
r
2
Evaluation
Grou
p h
as observed, th
e poor are often
their
prim
e benefi
ciary (World
Ban
k 2007, 4). In E
thiop
ia, access to all-w
eather road
s redu
ced p
overty by almost
seven p
ercent an
d in
creased con
sum
ption
growth
by 16.3 p
ercent (D
ercon et al. 1998). A
hm
ed an
d H
ossain
(1990) foun
d th
at better road access by th
e rural p
oor in
Ban
gladesh
increased
hou
sehold
incom
e from both
w
ages and
micro-bu
siness earn
ings. In
rural V
ietnam
, th
e poor rep
orted th
at the greatest ben
efit th
ey real-ized
from im
proved
access to roads w
as edu
cational;
child
ren w
ere able to attend
school year-rou
nd
(Songco
2002). An
assessmen
t of a World
Ban
k-fun
ded
road
project in
Morocco fou
nd
that it n
ot only boosted
pro-
du
ctivity and
encou
raged th
e plan
ting of h
igher-valu
e crop
s but also im
proved
access to health
services and
in
creased sch
ool attend
ance levels (K
han
dker, L
avy, and
Film
er 1994).
Becau
se road
s projects are esp
ecially imp
ortant for
poverty red
uction
, the im
pact of frau
d, corru
ption
, and
collusion
in su
ch p
rojects is of special sign
ifican
ce to th
e World
Ban
k. Evid
ence gath
ered by IN
T sh
ows th
at th
is imp
act can be qu
ite substan
tial. In th
e Cam
bodia P
rovincial R
ural In
frastructu
re Project, collu
sion sh
arply
infl
ated con
struction
costs. In In
don
esia, the u
se of su
bstand
ard con
struction
materials red
uced
the u
se-fu
l life of a road
and
dam
aged th
e vehicles u
sing it.
Accord
ing to tru
cking association
represen
tatives in
Ban
gladesh
, poorly m
aintain
ed ro
ads h
alve the u
se-fu
l life of mem
bers’ vehicles. IN
T also saw
contractors
fraud
ulen
tly failing to com
ply w
ith su
ch essen
tial safety featu
res as lane m
arkings, resu
lting in
a sharp
ly in-
creased risk of accid
ents.
On
e of the ch
allenges in
preven
ting frau
d, corru
p-
tion, an
d collu
sion in
the road
s sector is that th
ere are so m
any ways th
ey can seep
into th
e process
of design
ing, ten
derin
g, and
man
aging con
struc-
tion con
tracts (Patterson an
d C
hau
dh
uri 2007). T
he
2006 Project A
pp
raisal Docu
men
t for the Paraguay
BOX 1
Wo
rld B
ank Defi
nitions o
f Misco
nduct
The Wo
rld B
ank deb
ars any contracto
r found
to have eng
aged
in one o
r mo
re of the fo
llow
ing fo
rms o
f m
iscond
uct on a B
ank-funded
contract:
Co
rrupt p
ractice: offering
, giving
, receiving o
r soliciting
, directly o
r indirectly, o
f anything o
f value to influence
imp
rop
erly the actions o
f another p
arty.
Fraudulent p
ractice: any act or o
missio
n, including
a misrep
resentation, that kno
wing
ly or recklessly m
isleads,
or attem
pts to
mislead
, a party to
ob
tain a financial or o
ther benefit o
r to avo
id an o
blig
ation.
Co
llusive practice: an arrang
ement b
etween tw
o o
r mo
re parties d
esigned
to achieve an im
pro
per p
urpo
se, includ
ing to
influence imp
rop
erly the actions o
f another p
arty.
Co
ercive practice: im
pairing
or harm
ing, o
r threatening to
imp
air or harm
, directly o
r indirectly, any p
arty or
the pro
perty o
f the party to
influence imp
rop
erly the actions o
f a party.
Ob
structive practice: d
eliberately d
estroying
, falsifying, altering
or co
ncealing o
f evidence m
aterial to the
investigatio
n or m
aking false statem
ents to investig
ators in o
rder to
materially im
ped
e a Bank investig
ation
into alleg
ations o
f a corrup
t, fraudulent, co
ercive or co
llusive practice; and
/or threatening
, harassing o
r intim
idating
any party to
prevent it fro
m d
isclosing
its know
ledg
e of m
atters relevant to the investig
ation o
r fro
m p
ursuing the investig
ation, o
r acts intended
to m
aterially imp
ede the exercise o
f the Bank’s insp
ection
and aud
it rights.
Source: W
orld
Bank (2006a).
Intro
du
ction
3
Road M
aintenance Project id
entifi
ed 36 areas at risk
of corrup
tion in
the d
esign, p
lann
ing, aw
ard, an
d
man
agemen
t of a roads con
tract and
recomm
end
ed
mon
itoring 59 d
ifferent in
dicators (W
orld B
ank 2006b,
146–154). Wh
ile in an
ideal w
orld borrow
ing cou
n-
try person
nel overseein
g roads p
rojects wou
ld w
atch
everythin
g everywh
ere always, tim
e and
other resou
rces are lim
ited. T
he aim
of this rep
ort is to help
policym
ak-ers p
rioritize oversight resou
rces by iden
tifying recu
r-rin
g forms of m
iscond
uct in
roads p
rojects that cau
se sign
ifican
t harm
and
suggestin
g measu
res to redu
ce or elim
inate th
em.
Wo
rld B
ank Investigative Find
ings
A review
of INT
cases in th
e last ten years provides criti-
cal insigh
ts into th
e natu
re of the problem
s that m
ay arise in
roads projects in term
s of the variou
s forms of
fraud, corru
ption an
d collusion
, and th
e World B
ank’s
ability to detect, investigate, and san
ction su
ch m
is-con
duct. T
his data can
inform
and gu
ide the reform
s u
nderw
ay in th
e Ban
k’s busin
ess model an
d the related
policies and processes. G
iven its lim
itations, h
owever,
this data can
not be u
sed to extrapolate the scale of th
e problem
. Moreover, m
any of the preven
tive measu
res bein
g introdu
ced in projects are relatively recen
t and
their im
pact and cost effectiven
ess require close observa-
tion an
d adaptation.
In th
e 10-year period July 1, 1999, to Ju
ne 30, 2009,
INT
foun
d miscon
duct in
25 World B
ank-fu
nded roads
projects. Sanction
s were im
posed in ten
cases and pro-
ceedings are pen
ding in
anoth
er five. San
ctions w
ere not
pursu
ed in th
e remain
der for one of several reason
s: the
governm
ent h
ad already imposed effective pen
alties, the
evidence w
as too dated or was in
suffi
cient, or th
e sever-ity of th
e violation did n
ot merit th
e comm
itmen
t of re-sou
rces required to see th
e matter th
rough
the san
ctions
process. Th
ere were also in
stances w
hen
the pu
rsuit of
sanction
s wou
ld have requ
ired revealing in
formation
th
at was obtain
ed in con
fiden
ce or that m
ight pu
t wit-
nesses in
jeopardy
All cases th
at result in
sanction
s are in th
e public do-
main
and su
mm
aries are posted on IN
T’s w
ebsite (w
ww
.worldbank.org/integrity). Table 1 lists th
e ten roads
cases by coun
try with
a brief description of th
e project, its dates of operation
, and th
e principal form
s of mis-
condu
ct foun
d. More th
an on
e case may arise from
a
single project or m
iscondu
ct on separate projects m
ay be treated as a sin
gle case. Thu
s, for ease of reference, cases
in th
e table are separated by high
lightin
g. Cases w
here
proceedings are pen
ding or w
here san
ctions w
ere not
sough
t remain
confi
dential. Table 2 provides a gen
eral description
of each of th
ese 19.
Th
e data in th
e two tables m
ust be in
terpreted with
care:
Th
e 29 cases arising from
the 25 projects w
ere open
ed on th
e basis of complain
ts INT
received, not
as the resu
lt of drawin
g a representative sam
ple of th
e 540 projects with
a road compon
ent approved
durin
g this period. T
herefore, n
o inferen
ce about
the in
cidence or degree of frau
d, corruption
, or col-lu
sion in
the W
orld Ban
k’s roads portfolio can be
drawn
from th
ese data alone.
Th
e fact that som
e coun
tries have m
ore cases than
oth
ers does not n
ecessarily mean
there is m
ore frau
d, corruption
, and collu
sion in
their roads sec-
tor than
in th
e roads sector in oth
er coun
tries. Cases
vary signifi
cantly in
scope and, as n
oted above, th
ere are instan
ces wh
ere miscon
duct on
separate projects w
as lum
ped together in
a single case an
d oth
ers wh
ere more th
an on
e case arose from a sin
gle project.T
he data do n
ot capture all attem
pts to corrupt th
e procu
remen
t process. Depen
ding u
pon risk levels
and n
ational procu
remen
t capacity, a certain per-
centage of con
tracts in every B
ank-fu
nded project is
reviewed. B
ecause roads projects are con
sidered high
risk for corru
ption, th
e World B
ank’s procu
remen
t specialists review
a large nu
mber of con
tracts in
these projects an
d have u
ncovered efforts to falsify
II
Cu
rbin
g F
rau
d, C
orru
ptio
n, a
nd
Co
llusio
n in
the
Ro
ad
s Se
cto
r
6
a bidder’s prior experience, fi
nan
cial strength
, and
other qu
alification
s; the su
bmission
of fraudu
lent
bid securities; an
d bidding pattern
s that su
ggest collu
sion. W
hen
miscon
duct is su
spected, remedial
action can
be taken on
the spot. IN
T is also n
oti-fi
ed and depen
ding on
its priorities, may open
an
investigation. IN
T data thu
s does not captu
re all
instan
ces of miscon
duct in
World B
ank-fu
nded
projects or remedies applied to address it.
Despite th
e caveats, these 29 cases do provide im
por-tan
t insigh
ts into m
iscondu
ct in W
orld Ban
k-fun
ded roads projects. T
hey sh
ow fi
rst the differen
t ways in
w
hich
World B
ank staff eith
er discover or learn of th
e
TABLE 1
Misco
nduct C
ases in Wo
rld B
ank Ro
ads P
rojects: Sanctio
ns Imp
osed
Co
untryP
roject
Pro
ject d
atesC
ollusio
nFraud
in im
plem
entation
False d
ocum
ents
Bang
ladesh
Third R
oad
Rehab
ilitation and
M
aintenance: One co
ntract for
supervisio
n of ro
ad reco
nstruction.
1997–2005
Third R
oad
Rehab
ilitation and
M
aintenance: One co
ntract for d
esign
and sup
ervision o
f feeder ro
ads.
1997–2005
Cam
bo
dia
Provincial R
ural Infrastructure: Seventeen ro
ad rehab
ilitation co
ntracts, total $8.9
millio
n.
2003–2010
India
And
hra Pradesh State H
ighw
ay: Two
co
ntracts for ro
ad w
idening
and
strengthening
of hig
hways, to
tal $91 m
illion.
1997–2004
Indo
nesiaSum
atra Reg
ion R
oad
s: Twenty-tw
o ro
ad
rehabilitatio
n contracts, rang
ing fro
m
$56,025 to $614,415.
1997–2005
Second
Sulawesi U
rban D
evelop
ment:
One co
ntract to refurb
ish road
s in villag
es, $18,300.
1997–2002
Second
Sulawesi U
rban D
evelop
ment:
One co
ntract to o
versee desig
n eng
ineering w
ork, $320,000.
Kenya
Urb
an Transpo
rt Infrastructure: A co
ntract to
build
a GIS d
atabase o
f urban ro
ad
inventory and
cond
ition survey, $2.7
millio
n.
1993–2005*
Philipp
inesFirst N
ational R
oad
Imp
rovem
ent and
Manag
ement: Tw
o co
ntracts to
rehabilitate and
upg
rade ro
ads and
b
ridg
es, $33.2 millio
n.
1999–2007
Senegal
Urb
an Develo
pm
ent and D
ecentralization
Prog
ram: Tw
o ro
ad rehab
ilitation
contracts, $99,270 and
$133,440.
1997–2004
Urb
an Mo
bility Im
pro
vement: Three
contracts fo
r road
constructio
n wo
rks.2000–2008
Key:
violatio
n substantiated
; * violatio
n reasonab
ly suspected
Wo
rld B
an
k Inve
stiga
tive F
ind
ing
s
7
TABLE 2
Misco
nduct C
ases in Wo
rld B
ank Ro
ads P
rojects: Sanctio
ns Pend
ing o
r No
t Soug
ht
Reg
ion
Pro
ject descrip
tion
Pro
ject d
atesC
ollusio
nFraud
ulentIm
plem
entation
False d
ocum
entation
Africa,
Eastern
Euro
pe,
Central
Asia
Wo
rks and E
mp
loym
ent: One co
ntract fo
r prep
aration o
f tender d
ocum
ents for
paving
three streets, two
for technical
studies, and
one fo
r road
pavem
ent sup
ervision, to
tal $57,634.
2000–2007
Transpo
rt Develo
pm
ent: One ro
ad
rehabilitatio
n contract, $7.5 m
illion.
2005–2010
Ro
ads Im
pro
vement Pro
ject. Co
ntract to
imp
rove m
ajor hig
hway, U
S$24 m
illion.
2006–2013
Municip
al Develo
pm
ent: Co
ntract to
rehabilitate fo
ur city streets, $727,000.2002–2007
*
East &
So
uth Asia
Transpo
rt: Three contracts fo
r rehab
ilitating flo
od
-dam
aged
road
s, each $2.5 m
illion.
1998–2005
Transpo
rt: One co
ntract for sup
ply and
installatio
n of eq
uipm
ent, $128,700.1998–2005
Infrastructure Develo
pm
ent Fourteen
contracts fo
r repair o
f floo
d-d
amag
ed
road
s, $35 millio
n total.
1997–2007
Rehab
ilitation: Tw
o ro
ad rehab
ilitation
contracts, $83,524 and
$69,261.2001–2005
Ro
ad Im
pro
vement: Six co
ntracts for
wid
ening and
strengthening
highw
ays.2001–2008
Reg
ional R
oad
s: Three maintenance
contacts, rang
ing fro
m $83,853 to
$267,005.
Urb
an Develo
pm
ent: One co
ntract to
refurbish ro
ads in villag
es, $13,700.
Urb
an Develo
pm
ent: One co
ntract to
refurbish ro
ads in villag
es, $16,000.
Urb
an Develo
pm
ent: Co
ntract for
ped
estrian road
imp
rovem
ent, $120,000.
Ro
ads Infrastructure: A
contract
for co
nsulting services fo
r pro
ject p
reparatio
n, $2.89 millio
n.R
egio
nal Transpo
rt: One training
co
ntract and o
ne desig
n and
supervisio
n contract, $2.7 m
illion to
tal.
2001–20092001–2009
Reg
ional Transp
ort: Tw
o co
ntracts to
build
two
road
s, $14.5 millio
n total.
(continued
on next p
age)
Cu
rbin
g F
rau
d, C
orru
ptio
n, a
nd
Co
llusio
n in
the
Ro
ad
s Se
cto
r
8
miscon
duct. In
eight in
stances, th
e World B
ank w
as alerted by com
petitors of the fi
rms san
ctioned; in
an-
other seven
Ban
k staff discovered the m
iscondu
ct; in
five eviden
ce was u
ncovered in
the cou
rse of a fidu
ciary review
jointly con
ducted by IN
T an
d regional staff; bor-
rowin
g coun
try officials fl
agged suspiciou
s activity in
three an
d the su
pervising en
gineer in
two.
Th
ese data also show
the types of m
iscondu
ct most
often fou
nd in
World B
ank-fu
nded projects. In
the 29
cases the th
ree most com
mon
forms w
ere:
Collusion—
bidders agreed amon
g them
selves wh
o w
ould w
in th
e bid (see Box 2).
False documentation—
typically, the su
bmission
of false docu
men
ts to qualify to bid.
Fraud in the implem
entation of a contract—u
sually
overbilling or u
ndersu
pplying m
aterials durin
g con-
tract execution
, often w
ith th
e conn
ivance of project
overseers.
As th
e tables indicate, in
many cases m
ore than
one
type of miscon
duct w
as substan
tiated; for example, in
th
e Cam
bodian P
rovincial Rural Infrastructure P
roject, IN
T docu
men
ted all three. A
cross all 29 cases, INT
sub-
stantiated ten
instan
ces of collusion
and h
ad reasonable
groun
ds to believe it was presen
t in fou
r more projects.
It also substan
tiated 11 instan
ces of fraudu
lent docu
-m
ents an
d nin
e of fraud du
ring con
tract execution
.
Other form
s of miscon
duct w
ere less comm
on. In
a proj-ect in
Asia IN
T u
ncovered eviden
ce that officials of the
project overseeing the m
inistry had hidden
interests in
the w
inn
ing bidder; kickbacks to career govern
men
t em-
ployees, elected officials, political parties, or som
e combi-
nation
were alleged in
several projects in Sou
th and E
ast A
sia and Latin
Am
erica. Two W
orld Ban
k staff skimm
ed
(continued
)
BOX 2
Co
llusion and
Cartels
Co
llusion
refers to
any
com
binatio
n o
r ag
reement—
no m
atter how
inform
al—am
ong
sellers, to
raise or fix p
rices or rig
bid
s or to
red
uce o
utput
in o
rder
to
increase p
rofits.
Altho
ugh the term
cartel is often used
when the
collusive arrang
ement is a fo
rmal ag
reement,
the econo
mic effects o
f collusio
n and cartels
are the
same.
In line
with
usage
in m
any O
EC
D
countries,
this p
aper
uses the
terms
interchangeab
ly.
Source: O
EC
D (1990).
TABLE 2
Misco
nduct C
ases in Wo
rld B
ank Ro
ads P
rojects: Sanctio
ns Pend
ing o
r No
t Soug
ht
Reg
ion
Pro
ject descrip
tion
Pro
ject d
atesC
ollusio
nFraud
ulentIm
plem
entation
False d
ocum
entation
Hig
hways M
anagem
ent: One
consultancy co
ntract for the
develo
pm
ent and im
plem
entation o
f a C
entral Ro
ads D
atabase System
, a B
ridg
e Manag
ement System
and a
Ro
ad M
aintenance System, $2.5 m
illion.
2002–2013*
Latin A
merica
Rural Investm
ent: Eleven ro
ad and
one
brid
ge rehab
ilitation co
ntract, ranging
fro
m $30,000 to
$300,000.
1998–2006*
*
Ro
ad R
ehabilitatio
n and M
aintenance: Fifty-fo
ur contracts fo
r maintenance o
f ro
ads, rang
ing fro
m $6,200 to
$47,000.
1998–2005
Ro
ad R
ehabilitatio
n and M
aintenance: O
ne contract fo
r supp
ly and transp
ort
of co
bb
lestones, $2.7 m
illion.
2006–2011
Key:
violatio
n substantiated
; * violatio
n reasonab
ly suspected
.
Wo
rld B
an
k Inve
stiga
tive F
ind
ing
s
9
fun
ds from a project in
Africa an
d were su
bsequen
tly dism
issed and then
prosecuted by n
ational au
thorities.
As th
e sections below
demon
strate, INT
’s fin
dings
are consisten
t with
the m
ost comm
on in
tegrity risks
affecting roads projects in
developing an
d developed cou
ntries. B
etter un
derstandin
g of these risks sh
ould
enable th
e World B
ank an
d its borrowers to detect an
d address th
em m
ore effectively.
Co
llusion in R
oad
Tenders
Th
e World B
ank’s m
andate requ
ires that it give “du
e at-ten
tion to con
siderations of econ
omy an
d efficien
cy” w
hen
fun
ding a project; its P
rocurem
ent G
uidelin
es th
erefore require th
at, in all bu
t a few n
arrowly cir-
cum
scribed instan
ces, the con
tracts it fin
ances be let
competitively (W
orld Ban
k 2010a, 7). In roads projects,
competition
most com
mon
ly takes the form
of a one-
stage sealed-bid auction
. Th
e agency respon
sible for the
project prepares a description of th
e work requ
ired and
solicits bids from eligible fi
rms. B
ids are kept confi
den-
tial un
til a specified day, w
hen
they are open
ed in pu
blic an
d the bidder offerin
g the low
est price is declared the
win
ner. W
hen
bidders have equ
al access to inform
a-tion
about th
e proposed work an
d compete w
ith on
e an
other to w
in th
e tender, th
is meth
od of awardin
g con-
tracts produces econ
omy an
d efficien
cy (Milgrom
2004; M
cAfee an
d McM
illan 1987).
Evidence gath
ered by INT, h
owever, su
ggests that road
contract aw
ards are not alw
ays the resu
lt of competition
. For exam
ple, Ban
k-fun
ded roads contracts requ
ire a bid-der to su
bmit a bill of qu
antities, a docu
men
t show
ing
the m
aterials, equipm
ent, an
d labor it expects to use to
build th
e road along w
ith th
eir costs. In a com
petitive m
arket, a bidder calculates u
nit prices for each
item on
th
e basis of its cost structu
re, estimates th
e amou
nts
required, an
d arrives at its bid price. Bu
t in a series of
contracts in
an A
sian cou
ntry IN
T fou
nd an
omalies an
d in
consisten
cies in u
nit costs an
d totals for line item
s that
show
ed that bidders h
ad worked backw
ards from a pre-
determin
ed price.
In an
investigation in
Ban
gladesh, eviden
ce show
ed th
at compan
ies paid project officials u
p to 15 percent
of the con
tract value in
exchan
ge for contract aw
ards. A
Kenyan
inform
ant said th
at “collusion
was rife” in
the
nation’s roads sector, an
allegation later con
firm
ed by the
Kenyan
Roads A
uth
ority and th
e Kenyan
An
ticorruption
C
omm
ission (G
overnm
ent of K
enya 2007, 2004). After
interview
ing several fi
rms an
d governm
ent offi
cials in
Cam
bodia, INT
investigators conclu
ded that th
ere were
strong in
dications th
at “a well-establish
ed cartel,” aided an
d abetted by governm
ent offi
cials, controlled th
e aw
ard of roads contracts. In
the P
hilippin
es, “Nu
merou
s w
itnesses in
dependen
tly inform
ed INT
investigators th
at a well-organ
ized cartel, man
aged by contractors
with
support from
governm
ent offi
cials, improperly in
-fl
uen
ced [Departm
ent of P
ublic W
orks and H
ighways]
contract aw
ards and set in
flated prices on
projects fun
d-ed by th
e Ban
k and oth
ers.” (World B
ank n
.d., 3) On
e In
donesian
responden
t explained th
at “the In
donesian
collu
sive system h
ad been operatin
g for 32 years, and
many view
ed the ‘free m
arket’ system as cou
nter to th
e cu
ltural n
orm of con
sensu
s and cooperation
,” a state-m
ent con
sistent w
ith reports by In
donesia’s com
petition
law au
thority (Soem
ardi 2010) and sch
olarly research
(Van
Klin
ken an
d Aspin
al (2011).
Besides th
ese examples, som
e INT
cases labeled “false docu
men
tation” in th
e tables may be th
e result of col-
lusion
as well. In
a project in E
astern E
urope, a W
orld B
ank procu
remen
t specialist alerted INT
to a pattern in
th
e bids on a street reh
abilitation con
tract that su
ggested bid riggin
g. Th
e cost figu
res in th
e bids subm
itted by th
e only tw
o firm
s competin
g were virtu
ally identical—
down
to the sam
e typos in both
. Th
e only differen
ce in
the tw
o bids was th
e total price: one w
as 1 percent
below th
e engin
eering cost estim
ate, and th
e other w
as
III
Cu
rbin
g F
rau
d, C
orru
ptio
n, a
nd
Co
llusio
n in
the
Ro
ad
s Se
cto
r
12
1 percent h
igher. W
hile IN
T cou
ld not su
bstantiate col-
lusion
in th
is case, it did fin
d that th
e high
bidder had
provided a false bid security. W
hen
firm
s have agreed
in advan
ce wh
ich on
e will “w
in” the con
tract, the des-
ignated losers frequ
ently su
bmit h
igher “cover bids”
to camou
flage th
e agreemen
t (Khu
malo, N
qojela, and
Njsan
e 2009) Furth
er, because ban
ks charge for issu
ing
a bid security, cover bidders often
falsify the secu
rity to save m
oney. C
ollusion
was also likely in
a case in Latin
A
merica in
wh
ich th
ree firm
s that su
bmitted low
bids on
a contract w
ere disqualifi
ed for reasons th
at INT
su
spected were aim
ed at keeping n
ew en
trants ou
t, a com
mon
strategy for preserving a bid-riggin
g schem
e (Lam
bert-Mogilian
sky forthcom
ing).
How
comm
on is collu
sion in
roads projects? Neith
er the
data in IN
T fi
les nor in
formation
from any oth
er source
can provide a defi
nitive an
swer. B
ut th
e INT
fin
dings,
considered w
ith th
e results of oth
er case studies of th
e roads sector in
developing cou
ntries, th
e experience in
developed cou
ntries, an
d cartel theory, su
ggest that col-
lusion
in roads projects in
developed and developin
g cou
ntries is sign
ifican
t.
A. E
vidence fro
m N
on-B
ank Pro
jects
Staff of the O
verseas Develop
men
t Institu
te reported
evid
ence of an
ind
ustry-w
ide cartel to fi
x prices on
road
s contracts in
Ugan
da (B
ooth an
d G
olooba-Mu
teb
2009). In Tan
zania, a review
by a former P
rime M
inister
disclosed
an in
du
stry-wid
e cartel in th
e roads sec-
tor (Govern
men
t of Tanzan
ia 1996). In 2005 In
dian
D
epu
ty Govern
men
t Secretary Sanjeet Sin
gh told
p
articipan
ts at an in
ternation
al conferen
ce that car-
tels in th
e roads sector op
erated in
various In
dian
states (Sin
gh 2005). A
joint stu
dy by the G
overnm
ent
of Nep
al, the A
sian D
evelopm
ent B
ank, th
e U.K
.’s D
epartm
ent for In
ternation
al Develop
men
t, and
the
World
Ban
k conclu
ded
that in
recent years n
o tend
er in
the N
epalese con
struction
ind
ustry h
ad been
free of collu
sion (G
overnm
ent of N
epal 2009). A
statisti-cal an
alysis of bids in
road ten
ders by th
e Lith
uan
ian
comp
etition agen
cy strongly su
ggested collu
sion am
ong
firm
s there (G
overnm
ent of L
ithu
ania 2008); a 2009
World
Ban
k study of p
ublic p
rocurem
ent in
Arm
enia
noted
wid
espread
reports of collu
sion in
tend
ering
(World
Ban
k 2009b); and
in 2005 th
e Slovakia An
ti-M
onop
oly Offi
ce un
covered a cartel am
ong road
con-
struction
firm
s (Govern
men
t of Slovakia 2005). At th
e 9
th Global Foru
m on
Com
petition
in 2010, th
e govern-
men
ts of Colu
mbia, Peru
, Pakistan, an
d Tu
rkey all re-p
orted th
at cartels were op
erating in
their road
s sector (O
EC
D 2010a).
B. C
artel Theory
It is not su
rprising th
at cartels are comm
on in
the road
constru
ction in
dustry in
developing cou
ntries. R
oad
BOX 3
Ten Indicato
rs of C
ollusive B
idd
ing
1. N
umb
er of co
ntract award
s to a sp
ecific firm2.
Project b
id tab
ulations
3. Firm
s that subm
itted a b
id later b
ecame a sub
contracto
r on that p
roject
4. R
otatio
n of firm
s that are the low
bid
der
5. A
consistent p
ercentage d
ifferential betw
een the firms’ b
ids
6. A
specific p
ercentage o
f the available w
ork in a g
eog
raphic area g
oes to
one firm
or to
several firms o
ver a p
eriod
of tim
e7.
A co
nsistent percentag
e differential b
etween the lo
w b
id and
the engineer’s estim
ate8.
Locatio
n of the lo
w b
idd
er’s firm versus lo
cation o
f the second
and third
low
bid
ders’ firm
s9.
Variations in unit b
id p
rices subm
itted b
y a bid
der o
n different p
rojects in the sam
e setting10.
Num
ber o
f firms that req
uested b
id p
ackages versus the num
ber actually sub
mitting
a bid
Source: G
overnm
ent of the U
nited States (2004).
Co
llusio
n in
Ro
ad
Ten
de
rs
13
constru
ction an
d repair markets ten
d to be domin
ated by th
e same few
firm
s; the “produ
ct,” a road, is standard-
ized; prices are relatively insen
sitive to deman
d; entry is
often diffi
cult, an
d market con
ditions are predictable. In
addition
, wou
ld-be competitors often
exchan
ge infor-
mation
about both
past and fu
ture opportu
nities an
d develop ties th
rough
subcon
tracting, join
t ventu
res, and
mem
bership in
trade associations. T
he presen
ce of any on
e of these factors in
creases the likelih
ood of collusion
. W
hen
all are present, th
e probability of collusive beh
av-ior is very h
igh (G
rout an
d Sonderegger 2005).
Th
e award
ing of con
tracts throu
gh p
ublic ten
ders ag-
gravates the ten
den
cy toward
cartelization in
the sector.
To ensu
re that con
tracts are fairly award
ed an
d corru
p-
tion risks m
inim
ized, both
borrowin
g coun
try govern-
men
ts and
Ban
k procu
remen
t rules requ
ire that ten
ders
be cond
ucted
transp
arently. Yet, as exp
lained
below,
disclosu
re of some kin
ds of in
formation
facilitates collu
sion.
C. D
evelop
ed C
ountry E
xperience
Collu
sion in
the biddin
g for road contracts is a problem
for developed cou
ntries as w
ell. Th
e U.S. D
epartmen
t of Ju
stice laun
ched a vigorou
s effort in th
e late 1970s to stam
p out bid riggin
g in au
ctions for state h
ighway
contracts, brin
ging cases in
20 states that resu
lted in 400
crimin
al convictions, fi
nes of $50 m
illion, an
d 141 jail sen
tences betw
een 1979 an
d 1983 (Flax 1983). Despite
these efforts, on
e-third of all Ju
stice Departm
ent cartel
prosecution
s in th
e followin
g four years w
ere for bid riggin
g on state h
ighway con
struction
contracts (Joyce
1989). On
ly in th
e 1990s did cartel prosecution
s begin
to decline, a tren
d officials attribu
te to both th
e imposi-
tion of stiff pen
alties for collusion
and ch
anges in
state procu
remen
t laws to abolish
publication
of contract es-
timates, pu
blic openin
g of bids, and conven
ing of m
eet-in
gs wh
ere all bidders can atten
d (Govern
men
t of the
Un
ited States 2008).
Th
e Un
ited States is not th
e only in
dustrialized n
a-tion
wh
ere cartels are active in th
e roads sector. R
epresentatives of D
enm
ark, France, G
ermany, Japan
, Sw
eden, an
d the U
nited K
ingdom
told a 2008 OE
CD
forum
that cartels operated in
their roads an
d constru
c-tion
indu
stries (OE
CD
2008b). In 1992, th
e Du
tch par-
liamen
t conclu
ded that th
e entire con
struction
indu
stry in
the N
etherlan
ds was cartelized (V
an den
Hu
evel 2006); in
2000 the Sw
iss Com
petition C
omm
ission con
-clu
ded that th
e market for road su
rfacing in
the n
orth-
eastern part of th
e coun
try was con
trolled by a cartel (H
üsch
elrath, Leh
eyda, and B
eschorn
er 2009), and in
2010 th
e Konkurransetilsynet, N
orway’s com
petition au
-th
ority, fin
ed two com
panies for collu
ding on
highw
ay bridge m
ainten
ance ten
ders (Govern
men
t of Norw
ay 2011). A
noth
er indication
that collu
sion con
tinu
es to be a problem
in developed cou
ntries is th
e work of th
e O
EC
D. O
ver the past decade it h
as held fi
ve conferen
ces an
d issued h
alf-dozen papers on
how
to combat bid rig-
ging an
d cartelization in
the con
struction
sector.
D. E
ffect of C
ollusio
n on Tend
er Prices
Th
e effect of a cartel is to raise prices above wh
at they
wou
ld be in a com
petitive market. A
n an
alysis of bids from
the A
merican
state of Florida show
ed that collu
-sion
on h
ighway con
tracts increased prices by 8 percen
t (G
upta 2001) an
d a similar stu
dy foun
d prices in Sou
th
Korean
highw
ay constru
ction m
arkets to be 15 percent
high
er than
they w
ould h
ave been w
ithou
t collusion
(Lee an
d Hah
n 2002). T
he D
utch
parliamen
t estimated
that cartelization
added as mu
ch as 20 percen
t to the
price the govern
men
t of the N
etherlan
ds paid on con
-stru
ction con
tracts (Van
den H
euvel 2006), and col-
lusion
on con
struction
contracts in
Japan is th
ough
t to h
ave raised prices anywh
ere from 30–50 percen
t (W
oodall 1996: 48). Surveyin
g econom
ic studies an
d ju
dicial decisions con
tainin
g 1,040 estimates of cartel
overcharges, C
onn
or (2009) foun
d the m
edian cartel
overcharge w
as 25 percent.
Th
ese estimates are alm
ost all drawn
from cartels op-
erating in
developed nation
s. Wh
at evidence th
ere is from
developing cou
ntries su
ggests the im
pact is even
greater there. U
sing in
formation
from don
or-fun
ded roads projects in
29 coun
tries, Estach
e and Iim
i (2008) estim
ated that collu
sion can
increase th
e per-kilometer
cost for buildin
g a road by as mu
ch as 40 percen
t—from
$0.5 m
illion to $0.7 m
illion. IN
T com
pared the w
inn
ing
Cu
rbin
g F
rau
d, C
orru
ptio
n, a
nd
Co
llusio
n in
the
Ro
ad
s Se
cto
r
14
bids on don
or-fin
anced roads projects in
the P
hilippin
es again
st engin
eering costs estim
ates and fou
nd a 30 per-
cent varian
ce; earlier estimates ran
ge from 20–60 per-
cent (B
atalla 2000). Prices in
Tanzan
ia in th
e 1990s were
foun
d to be 15–60 percent above com
petitive prices (G
overnm
ent of Tan
zania 1996); a 2003 investigation
in
Rom
ania revealed th
at contractors con
spired to mark
up th
e price of concrete u
sed in road con
struction
by 30 percen
t (Oxford B
usin
ess Grou
p 2004); and a Tu
rkish
governm
ent stu
dy show
ed that, th
anks in
part to cartel-ization
, road constru
ction costs in
Turkey w
ere 2.5 times
high
er than
in th
e Un
ited States (Gön
enç, Leibfritz, an
d Y
ilmaz 2005).
Cartel-set prices in
developing cou
ntries are h
igher th
an
those fi
xed by cartels in developed cou
ntries for tw
o reason
s.
Fear of prosecution
moderates cartel overch
arges in
developed coun
tries. Mem
bers of a New
York State h
ighway bid-riggin
g ring cou
nseled each
other to
limit excess profi
ts on ten
ders to 20–25 percent rath
-er th
an 40–50 percen
t. As on
e conspirator explain
ed du
ring a trial, “gettin
g too greedy” migh
t trigger an
investigation (State of N
ew York v. H
endrickson B
rothers Inc., 840 F.2d 1065 (2n
d Cir. 1988)). B
y con
trast, cartels in m
any developing cou
ntries often
have little reason
to fear law en
forcemen
t auth
ori-ties. B
angladesh
, Cam
bodia, and th
e Ph
ilippines,
three cou
ntries w
here roads sector cartels h
ave oper-ated, h
ave no com
prehen
sive anti-cartel legislation
(D
abbah 2010). Even
wh
ere an effective law
is on th
e books, m
any developing cou
ntries h
ave yet to create in
stitution
s that can
enforce it (Stew
art, Clarke, an
d Joekes 2007; Z
oghbi 2009).
As staff in
the B
ank’s tran
sport sector h
ave ob-served
, “governm
ent offi
cials are often involved
” in
the cartel (W
orld B
ank 2009a, 42). IN
T investiga-
tors were told
that foreign
firm
s wan
ting to bid
on
roads con
tracts in B
anglad
esh w
ere warn
ed by
a senior road
s agency offi
cial that th
ey wou
ld be
disqu
alified
if they u
nd
ercut th
e price local fi
rms
had
agreed on
. In In
dia, a sen
ior official rep
orted
that “road
mafi
as” of contractors, en
gineers, th
e local p
olice, civil servants, “an
d last bu
t not least
local politician
s” all consp
ire to keep p
rices on road
con
tracts above market rates (Sin
gh 2005); an
d in
exp
lainin
g roads sector corru
ption
in th
e state of Jh
arkhan
d, a civil society activist told
the N
ew York
Tim
es that “th
e nexu
s of politician
s, contractors
and
bureau
crats is very strong” (Polgreen
2010). In
Ugan
da, “th
e tend
ering p
rocess has been
turn
ed
into a bu
siness by p
oliticians at th
e district to settle
their econ
omic p
roblems. . . . [T
hey] p
ressure evalu
-ation
teams” to select certain
contractors (O
luka
and
Ssenn
oga 2008).
For a cartel to “succeed,” its m
embers m
ust (a) agree on
w
ho w
ill “win” th
e tender an
d at wh
at price, (b) curb
“cheatin
g” or un
dercuttin
g the agreed price by in
dividu-
al mem
bers, and (c) preven
t non
mem
bers from disru
pt-in
g the agreem
ent by su
bmittin
g a lower bid (Leven
stein
and Su
slow 2006). C
artels rarely fin
d perman
ent fi
xes to th
ese problems. Som
e mem
bers cheat to boost sh
ort-term
profits or n
ew en
trants su
cceed in su
bmittin
g a w
inn
ing bid. Even
wh
en th
e cartel is able to dictate w
ho can
bid and h
ow m
uch
, there are often
periods of in
stability durin
g wh
ich th
e price to some cu
stomers is
at or near th
e market price. B
ut w
hen
governm
ent of-
ficials participate in
the cartel, its du
rability is virtually
assured. T
hey can
dictate wh
ich m
ember w
ill “win” th
e bid an
d at wh
at price, rejecting bids th
at un
dercut th
e agreed price an
d refusin
g to permit n
on-cartel m
embers
TABLE 3
Estim
ated C
artel Overcharg
es
Ro
ad co
ntracts
State of Flo
rida
8%
Rep
ublic o
f Ko
rea15%
Tanzania15–60%
Philipp
ines20–60%
Samp
le 29 develo
ping
countries
40%
All co
nstruction co
ntracts –
Netherland
sU
p to
20%
Japan
30–50%
All cartels
25
%
See text for so
urces.
Co
llusio
n in
Ro
ad
Ten
de
rs
15
to bid. Gam
betta and R
euter (1995) reported th
at or-gan
ized crime fam
ilies perform th
e same fu
nction
s for cartels in
Sicily and N
ew York: w
here fam
ily mem
bers police com
pliance w
ith th
e cartel agreemen
t throu
gh
intim
idation an
d violence an
d take a share of th
e cartel’s profi
ts in retu
rn. T
he effect is th
e same as w
hen
govern-
men
t officials en
force a cartel agreemen
t: the lon
g-term
stability of the cartel.
Fraud and
Co
rruptio
n in C
ontract Im
plem
entation
Th
e risk of miscon
duct in
roads projects does not en
d w
ith con
tract award. A
win
nin
g bidder may frau
du-
lently bill for w
ork not don
e, materials n
ot supplied,
or both. Eviden
ce INT
gathered in
a project in A
frica sh
ows frau
dulen
t claims am
oun
ting to 15–20 percen
t of th
e bid price. An
INT
analysis of tw
o contracts let
un
der a road project in A
sia foun
d that frau
d may h
ave in
flated th
e fin
al price on each
contract by as m
uch
as 25 percen
t. INT
substan
tiated miscon
duct du
ring con
tract perform
ance in
nin
e of the 29 cases sh
own
in Tables 1
and 2 an
d suspected, alth
ough
was u
nable to su
bstanti-
ate, its presence in
several more.
Reports from
Zam
bia suggest th
e scope of one form
of frau
d—fu
rnish
ing su
bstandard m
aterials durin
g con-
tract implem
entation
. Zam
bian con
tractors, engin
eers, an
d governm
ent offi
cials surveyed in
2008 reported that
providing m
aterials of lower qu
ality than
the con
tract called for w
as the sin
gle most “u
neth
ical” practice in th
e in
dustry (Sich
ombo et al. 2009) an
d a 2010 audit of 18
Zam
bian roads projects join
tly fin
anced by th
e govern-
men
t and don
ors, show
n in
Table 4, confi
rmed th
eir view
(Govern
men
t of Zam
bia 2010). As th
e data there
reveals, substan
dard cemen
t was su
pplied in all projects
wh
ile in h
alf the projects th
e concrete w
as weaker th
an
required. IN
T fou
nd sim
ilar levels of fraud in
a contract
in In
donesia: th
e road was 40 percen
t thin
ner th
an th
e con
tract specified an
d the con
tractor used 13 percen
t less asph
alt than
required.
For the con
struction
of roads and oth
er civil works,
the W
orld Ban
k requires borrow
ers to use a variation
of a form con
tract for constru
ction developed by th
e In
ternation
al Federation of C
onsu
lting E
ngin
eers, kn
own
by its French
acronym “FID
IC” (Jaeger an
d Hök
2010). Th
e FIDIC
contract provides th
at the govern
-m
ent agen
cy issuin
g the con
tract will h
ire an en
gineer—
an in
dividual, or, for large projects, a fi
rm—
to oversee con
tract performan
ce (World B
ank 2010b, ¶3.1). T
he
engin
eer mu
st be expert in th
e design an
d constru
ction
of roads, for the FID
IC con
tract requires th
at he observe
the w
ork as it progresses, testing com
pleted sections to
ensu
re they m
eet specification
s, certifying th
e contrac-
tor’s invoices, evaluatin
g and passin
g on its requ
ests to
IV
TABLE 4R
esults of A
udit o
f Zam
bian R
oad
s Pro
jects
Defect fo
und in p
roject
Percentag
e o
f contracts
affected
Imp
rop
erly sized ag
greg
ate p
articles44%
Too
much clay
75%
Ag
greg
ates did
not m
eet crushing
strength
67%
Base thinner than req
uired81%
Surface dressing
layers thinner than req
uired82%
Cem
ent content less than
specified
100%
Co
ncrete samp
les weaker than
required
50%
Source: G
overnm
ent of Zam
bia (2010).
Cu
rbin
g F
rau
d, C
orru
ptio
n, a
nd
Co
llusio
n in
the
Ro
ad
s Se
cto
r
18
vary from th
e original plan
s, and resolvin
g confl
icts betw
een th
e borrower an
d the con
tractor (Ndeku
gri, Sm
ith, an
d Hu
ghes 2007). If th
e engin
eer fin
ds that
the bu
ilder is supplyin
g substan
dard materials or less
material th
an requ
ired, infl
ating invoices, or oth
erwise
trying to m
ilk the con
tract, he m
ust refu
se to certify the
contractor’s paym
ent requ
ests. Th
e engin
eer is explicitly respon
sible for the qu
ality of the project an
d thus be-
comes th
e implicit gu
ardian of its in
tegrity.
Despite th
e engin
eer’s responsibility for project in
teg-rity, th
ere is evidence th
at engin
eers have eith
er failed to spot frau
d or corruption
in project execu
tion or becom
e w
illing participan
ts. In a project in
Latin
Am
erica, INT
investigators un
covered evidence th
at the en
gineer cer-
tified invoices for ch
arges not covered by th
e contract.
In In
donesia, en
gineers adm
itted they w
ere bribed to ign
ore fraud, explain
ing th
at if they did n
ot go along, lo-
cal officials “in
on” the frau
d wou
ld refuse to h
ire them
on
futu
re governm
ent projects. In
a project in A
frica, IN
T received in
formation
that in
return
for approving
infl
ated invoices the en
gineer received 15 percen
t of the
amou
nt overbilled. T
he practice is apparen
tly wide-
spread in th
at coun
try; durin
g the investigation
INT
learn
ed that th
e builder h
ad instru
cted its local affiliate
to “develop partnersh
ips with
local consu
ltants,” so th
at if th
ey were appoin
ted engin
eers on fu
ture projects, th
ey w
ould be su
re to cooperate with
similar sch
emes.
Co
mb
ating C
ollusio
n, Fraud,
and C
orrup
tion
Th
is section d
escribes a range of m
easures p
olicymak-
ers shou
ld con
sider to m
itigate the risks of collu
sion,
corrup
tion an
d frau
d in
road
contract p
rocurem
ent
and
project execu
tion. “O
ne size d
oes not fi
t all” is a stap
le of the d
evelopm
ent literatu
re and
one th
at hold
s for both
procu
remen
t rules an
d m
itigation m
easures
(Mariel 2003). A
ccordin
gly, in d
iscussin
g the variou
s recom
men
dation
s, the rep
ort iden
tifies th
e risk profi
les an
d cou
ntry con
texts wh
ere they are m
ost likely to be ap
prop
riate.
Th
e recomm
end
ation
s advan
ced ran
ge from
mo
dest
chan
ges in p
rocu
remen
t pro
cedu
res to m
ore fu
nd
a-m
ental, exp
erimen
tal measu
res that m
ay be required
w
here corru
ptio
n is p
articularly en
trench
ed. So
me
cou
ntry-level refo
rms, su
ch as law
s severely pen
alizing
bid riggin
g or ch
anges to
pu
blic pro
curem
ent ru
les, can
be pu
t in p
lace relatively quickly. So
me p
roject-
level preven
tive measu
res, such
as retentio
n o
f ind
e-p
end
ent w
atchd
ogs o
r strict scrutin
y of p
rocu
remen
t o
fficials’ fi
nan
ces, may take m
ore tim
e. Over th
e lon
ger term
the go
al sho
uld
be to bu
ild effective in
stitutio
ns
to en
force an
ti-cartel laws an
d m
anage th
e natio
n’s ro
ad n
etwo
rk. Bu
t again, n
on
e of th
e measu
res de-
scribed are m
eant to
be ado
pted
with
ou
t close an
alysis o
f market con
ditio
ns, th
e strength
of n
ation
al institu
-tio
ns, th
e degree o
f po
litical comm
itmen
t to refo
rm,
and
oth
er cou
ntry-level facto
rs.
A. M
easures to R
educe C
ollusio
n
Punish cartelization severely
To combat collu
sion an
d cartelization, cou
ntries sh
ould
enact law
s that m
ake bid rigging, m
arket division, an
d oth
er cartel-related behavior illegal. T
hese law
s need to
contain
“effective sanction
s of a kind an
d at a level ad-equ
ate to deter firm
s and in
dividuals from
participating
in cartels.” (O
EC
D 1998) D
eterring collu
sion can
require
more th
an crim
inal pen
alties; a Eu
ropean C
omm
ission
Wh
ite Paper argues th
at to effectively deter cartels, sanc-
tions m
ust give th
ose harm
ed by cartel pricing, su
ch
as road users, th
e right to su
e for damages (E
uropean
C
omm
ission 2008).
To enable effective en
forcemen
t, the an
ti-cartel laws
may n
eed to be supplem
ented w
ith reform
s to the law
s of eviden
ce. Un
til recently, m
ost developed coun
try cou
rts required direct eviden
ce of an agreem
ent to prove
the existen
ce of a cartel, a deman
ding stan
dard often
interpreted to requ
ire testimony from
one of th
e partici-pan
ts. Con
trary to that th
inkin
g, as An
nex 1 explain
s, on
ce Am
erican an
d Eu
ropean cou
rts had h
eard more
cartel cases, they becam
e more com
fortable relying on
in
direct or circum
stantial eviden
ce. With
wh
at is now
kn
own
about th
e harm
cartels cause (Tran
sparency
Intern
ational 2009), developin
g coun
try courts sh
ould
V
Cu
rbin
g F
rau
d, C
orru
ptio
n, a
nd
Co
llusio
n in
the
Ro
ad
s Se
cto
r
20
ensu
re that th
ey do not m
ake it too difficu
lt for their
enforcem
ent agen
cies to prove the existen
ce of a cartel.
Create incentives for the exp
osure of cartels
Even if cou
rts accept circum
stantial eviden
ce, noth
ing
provides surer proof of a cartel th
an th
e testimony of a
participant or w
itness to a bid-riggin
g schem
e. Th
ose w
ith in
formation
about a bid-riggin
g ring sh
ould be
encou
raged to come forw
ard. To do so, governm
ents
shou
ld consider gran
ting im
mu
nity to w
itnesses w
illing
to provide credible evidence of a cartel. C
onsideration
also m
ay be given to offerin
g wh
istleblowers rew
ards com
men
surate w
ith th
e savings realized from
the break-
up of a cartel. A
llowin
g wh
istleblowers to sh
are in th
e recovery can
provide a powerfu
l incen
tive for comin
g forw
ard (Depoorter an
d De M
ot 2005).
Mem
bers of cartels shou
ld also be given
an in
centive
to disclose th
e nam
es of the oth
er particip
ants. T
he
OE
CD
(2003) recomm
end
s grantin
g imm
un
ity to the
first fi
rm or in
divid
ual to reveal th
e cartel’s existence
and
the W
orld B
ank itself en
courages con
tractors to reveal p
revious m
iscond
uct on
World
Ban
k-fin
anced
con
tracts. Recen
t research sh
ows th
at such
lenien
cy p
rograms n
ot only are effective in
revealing th
e exis-ten
ce of cartels but can
also discou
rage their form
ation
(Miller 2009).
Revise tend
ering rules
To ensu
re fairness an
d reduce corru
ption in
the pro-
curem
ent process open
, transparen
t procedures for
the aw
ard of public con
tracts are recomm
ended
(Transparen
cy Intern
ational 2006). T
he m
ore transpar-
ency, th
e more likely th
e contractor is fairly ch
osen an
d th
e less likely corruption
will seep in
to the process. B
ut
disclosure of certain
kinds of in
formation
may also
increase th
e risk that fi
rms w
ill fix prices (A
nderson
, K
ovacic, and M
üller 2010; O
EC
D 2008b; G
overnm
ent of
the U
nited K
ingdom
2004). Th
e data in B
ox 4 provides an
illustration
; cost estimates on
46 separate contracts
were pu
blicly disclosed prior to tenderin
g, and in
every
case the w
inn
ing bid w
as virtually iden
tical to the esti-
mate—
an alm
ost certain sign
of collusion
.
Becau
se transparen
cy in pu
blic procurem
ent can
fa-cilitate collu
sion, agen
cies that en
force the com
peti-tion
laws in
both developed an
d developing cou
ntries
caution
procurem
ent staff to con
sider carefully w
hat
inform
ation abou
t a tender to release (G
overnm
ent of
the N
etherlan
ds 2010; Govern
men
t of El Salvador 2010;
Govern
men
t of Brazil 2008; G
overnm
ent of th
e Un
ited K
ingdom
2004, Govern
men
t of France 2003, 2000). T
he
dilemm
a for policymakers is th
at the m
ore they try to
reduce th
e risk of corruption
throu
gh greater tran
spar-en
cy, the greater th
e risk of collusion
. Becau
se carteliza-tion
is so prevalent in
public ten
ders of all kinds, m
any O
EC
D cou
ntries h
ave revised their pu
blic tender ru
les to redu
ce transparen
cy in several respects. A
list of the
reforms differen
t OE
CD
coun
tries have in
troduced is
contain
ed in A
nn
ex 2.
Policymakers in developing countries m
ay wish to consid-
er such revisions as well to ensure rules governing public
tenders strike the right balance between transparency on
the one hand and the risk of collusion on the other. While
different economic conditions and different institutional
settings make it unlikely that any w
ill adopt the OE
CD
re-form
list wholesale, the accum
ulating evidence shows that
some changes are effective in a w
ide array of institutional and econom
ic settings. Following are som
e examples of
procurement process changes to consider in appropriate
situations. (Box 5 illustrates how
changes to the procure-m
ent process helped combat collusion).
a. Bid
der p
re- and p
ost-q
ualification
Road agen
cies un
derstandably w
ant to en
sure th
at firm
s biddin
g on a ten
der will h
ave the fi
nan
cial strength
an
d techn
ical capacity to perform th
e work if th
ey win
th
e tender. Poten
tial contractors are thu
s comm
only
required to “prequ
alify,” that is, to docu
men
t their fi
-n
ancial an
d techn
ical ability to execute th
e contract in
th
e event th
ey win
the bid. In
deed, for all major civil
works con
tracts, the W
orld Ban
k’s Standard B
idding
Docu
men
ts provide that on
ly “exceptionally” an
d “with
previou
s approval of the W
orld Ban
k” can a post-aw
ard
Co
mb
atin
g C
ollu
sion
, Fra
ud
, an
d C
orru
ptio
n
21
review of th
e win
ner’s capabilities be su
bstituted for
prequalifi
cation (W
orld Ban
k 2010b, v). At th
e same
time, prequ
alification
requirem
ents can
discourage
some fi
rms from
bidding, an
d the few
er firm
s that bid,
the h
igher th
e win
nin
g bid (Estach
e and Iim
i 2008; Froeb an
d Shor 2005; B
rann
man
and K
lein 1992). T
he
OE
CD
(2008a) thus recom
men
ds that prequ
alification
con
ditions be carefu
lly drawn
to ensu
re that qu
alified
firm
s are not exclu
ded from th
e competition
.
Policymakers m
ay wan
t to consider in
at least some
cases elimin
ating prequ
alification
all together in
fa-vor of a post-qu
alification
review of th
e win
ner’s
qualifi
cations. T
he W
orld Ban
k recomm
ended th
at In
donesian
officials con
sider scrapping prequ
alification
requirem
ents on
simple goods an
d small w
orks in its
2001 report on In
donesia’s procu
remen
t policies (World
Ban
k 2001, 20). A m
ore recent review
of World B
ank-
fun
ded roads projects in A
frica recomm
ended expan
d-in
g post-qualifi
cation to larger con
tracts (Alexeeva,
Padam, an
d Qu
eiroz 2008, 41). Post-qualifi
cation w
as in
troduced in
to the B
ali Urban Infrastructure P
roject in
Indon
esia and is bein
g used in
the secon
d phase of th
e N
ational Roads Im
provement and M
anagement P
roject in
the P
hilippin
es and th
e Northern C
orridor Transport Im
provement P
roject in K
enya. Post-qualifi
cation in
-creased th
e nu
mber of bidders on
contracts in
the B
ali project, an
d the early resu
lts from K
enya are promisin
g. O
n all th
ree Kenya ten
ders for wh
ich post-qu
alification
w
as used, th
e tenders attracted th
ree or four qu
alified
BOX 4
Pub
lishing C
ost E
stimates: the Trad
e off B
etween Transp
arency & C
ollusio
n
In the name o
f transparency, m
any countries p
ublish their eng
ineers’ estimates o
f the cost o
f build
ing a ro
ad
and in its lo
an agreem
ents the Wo
rld B
ank som
etimes req
uires pub
lication. W
hen the market is co
mp
etitive, p
ublishing
the estimates can p
rod
uce low
er bid
s (De Silva et al. 2008). Pub
lishing the estim
ates also ensures
that all bid
ders are o
n an equal fo
oting
, for co
mp
anies with clo
se ties to the ro
ads autho
rity often o
btain the
estimates “und
er the table.”
Set against these b
enefits is the risk that pub
lication o
f the estimate w
ill facilitate collusio
n. When firm
s are neg
otiating
an agreem
ent on a co
llusive price, co
st estimate p
rovid
es a target o
r focal p
oint fo
r their ag
reement (K
nittel and Stang
o 2003). This effect is illustrated
in an INT co
mp
arison o
f the estimated
price
against the w
inning b
id o
n 46 contracts fo
r road
constructio
n and rep
air let during
2009 and 2010 und
er a B
ank-financed p
roject in an E
astern Euro
pean co
untry. The chart belo
w p
lots the d
ifferences in millio
ns of U
.S. d
ollars b
etween the tw
o. The red
line is the estimate; the b
lue line, almo
st invisible b
ecause it tracks the red
one so
closely, is the w
inning b
id. This d
egree o
f corresp
ond
ence is unimag
inable in the ab
sence of co
llusion.
Co
st Estim
ates v. Winning
Bid
s
0 1 2 3 4 5
14
710
1316
1922
2528
3134
3740
4346
Cu
rbin
g F
rau
d, C
orru
ptio
n, a
nd
Co
llusio
n in
the
Ro
ad
s Se
cto
r
22
bids, more th
an th
e average wh
en prequ
alification
was
required. M
ore tellingly, th
e win
nin
g bids were below
th
e engin
eer’s estimates, rare in
Kenyan
road tenders.
b. B
id p
ackage d
esign
Procu
remen
t officials often
have sign
ifican
t discretion
wh
en decidin
g how
to let a road constru
ction project.
A project to bu
ild a 500 km road m
ight be ten
dered as a sin
gle contract or divided in
to two con
tracts of 250 km
each or ten
contracts of 50 km
each. D
ifferent packages
have differen
t competitive effects. W
hile larger pack-
ages encou
rage interest from
intern
ational fi
rms an
d are su
bject to the m
ore rigorous in
ternation
al competitive
bidding procedu
re, they also can
reduce com
petition
by discouragin
g participation from
small fi
rms th
at can
build on
e or two 50 km
segmen
ts, but lack th
e experi-en
ce or fin
ancial stren
gth to bu
ild a 500 km road. O
ne
way to balan
ce the com
peting in
terests is to tender th
e larger 500 km
project as ten 50 km
contracts, bu
t allow
larger firm
s to combin
e segmen
ts in th
eir bids and even
su
bmit a sin
gle bid for the en
tire road. Kn
owin
g that
smaller com
panies are com
peting on
shorter segm
ents,
the large fi
rm w
ill have an
incen
tive to “sharpen
its pen-
cil”— th
at is, cut its price —
to win
the con
tract. At th
e sam
e time, kn
owin
g that large in
ternation
al firm
s can
bid on a package can
deter local firm
s from riggin
g bids am
ong th
emselves.
Besides allow
ing fi
rms to bid on
one or m
ore prede-term
ined segm
ents, th
e tender m
ight also allow
them
BOX 5
Co
mb
ating C
ollusio
n by C
hanging
the Pro
curement P
rocess: The B
ank’s Exp
erience with
the Bali U
rban Infrastructure P
roject
Wo
rld B
ank staff becam
e suspicio
us when o
nly three bid
s were sub
mitted
for o
ne of the first co
ntracts on
the Bali U
rban Infrastructure Pro
ject. Suspicio
ns were heig
htened w
hen, desp
ite wid
e variations in lab
or and
m
aterials prices o
n the bid
ders’ b
ills of q
uantity, the prices sub
mitted
by all three w
ere within 0.02 p
ercent of
the engineer’s estim
ate. When ad
ditio
nal investigatio
n confirm
ed the existence o
f a bid
-rigg
ing cartel, the
Bank m
ade a num
ber o
f changes to
the pro
curement p
rocess to
increase com
petitio
n:
Procurem
ent notices w
ere wid
ely pub
licized in b
oth natio
nal and p
rovincial p
apers in p
rom
inent place and
in larg
e typefaces.
Local autho
rities’ attemp
ts to lim
it eligib
le bid
ders to
local firm
s were reb
uffed.
Bid
ders’ q
ualifications w
ere evaluated after, rather than b
efore, the tend
er.M
andato
ry particip
ation in p
re-bid
meeting
s, which had
given co
lluders an o
pp
ortunity to
agree o
n prices
and intim
idate firm
s not p
art of the ring
, was end
ed.
A co
mp
laint handling
mechanism
was intro
duced
that allow
ed co
ntractors and
com
munity m
emb
ers to
anonym
ously rep
ort fraud
, collusio
n, corrup
tion, and
intimid
ation.
The imp
act of the chang
es was d
ramatic. A
s the table b
elow
show
s, bid
s dro
pp
ed fro
m am
ounts virtually
identical to
the engineer’s estim
ate to am
ounts 35–40 p
ercent less. Overall, the p
roject team
estimated
saving
s of 15–30 p
ercent on co
ntracts let po
st-changes.
Bid
s for $50,000 C
ontract: B
est Three Bid
s as Percentag
e of E
ngineer’s E
stimate
Orig
inalP
ost-chang
es
98.9%58.0%
99.7%67.6%
100.0%68.0%
Co
mb
atin
g C
ollu
sion
, Fra
ud
, an
d C
orru
ptio
n
23
to offer to build segm
ents of th
eir choosin
g. As is
sometim
es done in
World B
ank-fu
nded projects, bid-
ders could su
bmit a bid on
the con
dition th
at the total
award w
ill not exceed a specifi
ed amou
nt. T
he bids on
th
e various com
ponen
ts of the project w
ould be open
ed sequ
entially. O
nce a fi
rm’s specifi
ed limit is reach
ed, its bids w
ould n
ot be considered on
the rem
ainin
g compo-
nen
ts. Sequen
tial bidding provides in
centives for fi
rms
to bid on m
ore projects with
out w
orrying abou
t taking
on m
ore work th
an th
ey can h
andle (A
llen, C
ulkin
s, and
Mills 1988). M
ixing u
p the “m
enu” of con
tract offers in
these w
ays makes it h
arder for firm
s to agree beforehan
d on
wh
o will w
in w
hat.
c. Pre-bid
meeting
s and sub
contracting
Pre-ten
der meetin
gs should, w
henever practical, be
limited to on
e firm
at a time. A
s the author of the fi
rst econ
omics textbook w
arned, “People of the sam
e trade seldom
meet together, even
for merrim
ent an
d diver-sion
, but the conversation
ends in
a conspiracy again
st the pu
blic or in som
e contrivan
ce to raise prices” (Smith
1937 [1776], 128). While on
e-on-on
e meetin
gs increase
the risk that a procurem
ent offi
cial will provide a favored
firm
with con
fiden
tial inform
ation or otherw
ise tilt the procu
remen
t process, safeguards can
be introdu
ced to m
inim
ize this risk. An
outsider can
attend, or video re-
cordings or tran
scripts can be m
ade and circu
lated.
Subcontracting can also facilitate collusion, for it can be a w
ay of dividing the profits realized from bid rig-
ging. Testimony in a crim
inal prosecution of collusion in roads contracting in O
klahoma revealed such a schem
e. C
ompetitors of the B
oce Com
pany allowed it to w
in a tender “w
ithout having to fight,” and in exchange Boce
agreed to subcontract all the work in one region to a com
-petitor (U
nited States v. Metropolitan Enterprises, Inc., 728
F.2d 444 (10th C
ir. 1984)). Countries w
ith a large number
of capable firms should consider banning subcontract-
ing among com
petitors altogether or, as the January 2011 European C
omm
ission Green Paper on procurem
ent reform
suggests, barring subcontracting by firms w
hich participated in the tender (E
C 2011). If subcontracting is
permitted, data should be kept and analyzed periodically
for any signs that suggest collusive arrangements.
Req
uire indep
endent b
id certificates
Successfu
l prosecution
of a road constru
ction cartel re-
quires sh
owin
g that m
embers actu
ally agreed to rig bids on
a tender. A
lthou
gh, as A
nn
ex 1 explains, m
any courts
now
accept circum
stantial eviden
ce of collusion
, prov-in
g collusion
can still be diffi
cult an
d time-con
sum
ing.
By con
trast, it is relatively easy to show
that fi
rms traded
price lists, shared cost data, or exch
anged in
formation
abou
t the bids th
ey inten
ded to subm
it, practices that
the U
.S. Suprem
e Cou
rt has h
eld are anticom
peti-tive (U
nited States v. Container C
orporation, 393 U.S.
333, 337 (1969)) and th
at the E
uropean
Com
mission
h
as recently said sh
ould be con
sidered a restriction
of competition
(Eu
ropean C
omm
ission 2010). T
hus,
one approach
to easing a prosecu
tor’s burden
is to (a) requ
ire firm
s to subm
it a certificate th
at they did n
ot com
mu
nicate w
ith on
e anoth
er and (b) m
ake falsifica-
tion of th
e certificate a seriou
s crime. To prove a viola-
tion, all th
e prosecution
wou
ld then
have to do is sh
ow
that fi
rms com
mu
nicated. B
ox 6 describes the elem
ents
of such
a certificate; m
odel certificates are available
in E
nglish
(Govern
men
t of the U
nited States 2007),
French
(Govern
men
t of Can
ada 2010), and Span
ish
(Govern
men
t of El Salvador 2010).
Retain an ind
epend
ent procurem
ent evaluator
INT
has fou
nd eviden
ce in som
e cases that th
ose re-spon
sible for policing th
e tenderin
g process condon
ed, or even
encou
raged, collusion
. Wh
ere this risk is presen
t, in
troduction
of an ou
tsider into th
e tender evalu
ation
process can redu
ce that risk. For exam
ple, in th
e second
phase of th
e Ph
ilippine N
ational Roads Im
provement and
Managem
ent Project an
indepen
dent procu
remen
t eval-u
ator has been
hired to w
ork alongside th
e Departm
ent
of Pu
blic Works an
d Highw
ays procurem
ent offi
cials. T
he term
s of reference provide th
at the evalu
ator mu
st develop “specifi
c systems to iden
tify or detect indica-
tors of corrupt practices in
the bids, in
cludin
g collu-
sion, price-riggin
g, fraud, obstru
ction or coercion
.” (G
overnm
ent of th
e Ph
ilippines 2007a) A
lthou
gh th
e evalu
ator cann
ot veto the h
ighway departm
ent’s deci-
sions, h
e mu
st regularly report h
is fin
dings to th
e World
Cu
rbin
g F
rau
d, C
orru
ptio
n, a
nd
Co
llusio
n in
the
Ro
ad
s Se
cto
r
24
Ban
k and oth
er partner organ
izations. Lesson
s from
the P
hilippin
e experience w
ill be used to gu
ide futu
re arran
gemen
ts.
B. M
easures to R
educe Fraud
and
Co
rruptio
n
Strengthen the eng
ineer
As th
e discussion
above show
ed, the en
gineer in
a FIDIC
w
orks contract is th
e first lin
e of defense again
st fraud
and corru
ption. W
hen
ever a roads agency u
ses this or
any contract th
at grants sim
ilar powers to th
e engin
eer, th
e engin
eer’s role in com
bating corru
ption sh
ould be
made explicit an
d measu
res taken to h
elp him
discharge
his respon
sibility. Thu
s, for example, th
e comm
on prac-
tice of hirin
g the en
gineer after th
e contractor h
as begun
w
ork, wh
ich im
mediately pu
ts the en
gineer in
a “catch-
up” m
ode, shou
ld be discouraged.
Road con
struction
contracts sh
ould expressly requ
ire th
e engin
eer to imm
ediately report any activity that
suggests frau
d or corruption
. Becau
se line m
anagers in
roads au
thorities are som
etimes participan
ts in corru
pt sch
emes, th
e engin
eer shou
ld send th
e report to others
as well, or in
lieu of, its roads agen
cy coun
terpart: the
head of th
e agency, th
e transport m
inister, or th
e chief
prosecutor or h
ead of an an
ticorruption
agency. W
ith
World B
ank-su
pported contracts, it sh
ould in
clude th
e W
orld Ban
k itself. A su
spicion of corru
pt or fraudu
lent
activities shou
ld be high
lighted in
a covering n
ote or execu
tive sum
mary.
Po
licymakers sh
ou
ld also
examin
e the u
tility of (a)
creating in
centives fo
r the en
gineer to
expo
se fraud
an
d corru
ptio
n, (b) p
enalizin
g engin
eers that fail
to d
etect either, an
d (c) severely san
ction
ing th
ose
wh
o p
articipate in
fraud
ulen
t or corru
pt sch
emes.
Sanctio
ns co
uld
range fro
m rep
aymen
t of fees to
fin
es an
d stiff p
rison
terms. B
ecause th
e engin
eer enters in
to
a relation
ship
of tru
st with
the bo
rrower, w
hich
he
betrays if he p
articipates in
corrup
tion
, harsh
er pen
al-ties th
an th
ose levied
on
oth
er particip
ants m
ay be w
arranted
.
How
engin
eering services are procu
red may also m
erit review
. Shou
ld price be the on
ly factor as it is often so
now
? Or sh
ould selection
follow a tw
o-step process that
focuses on
“quality” fi
rst (inclu
ding past gen
eral per-form
ance, an
d success in
deterring or rootin
g out frau
d an
d corruption
in particu
lar), and price secon
d, for
BOX 6
Certifi
cate of Ind
epend
ent Price D
eterminatio
n
A C
ertificate of Ind
epend
ent Price Determ
ination req
uires the bid
der to
warrant that:
The prices in the b
id have b
een arrived at ind
epend
ently, witho
ut any consultatio
n, com
municatio
n, or
agreem
ent with any o
ther bid
der o
r com
petito
r relating to
(a) prices, (b
) the intention to
subm
it a bid
, or
(c) the metho
ds o
r factors used
to calculate the p
rices offered
.The p
rices in the bid
have not b
een and w
ill not b
e disclo
sed b
y the bid
der, d
irectly or ind
irectly, to any
other b
idd
er or co
mp
etitor b
efore b
id o
pening
(in the case of a sealed
solicitatio
n) or co
ntract award
(in the case o
f a nego
tiated so
licitation), unless o
therwise req
uired b
y law.
No
attemp
t has been m
ade o
r will b
e mad
e by the b
idd
er to ind
uce any other firm
to sub
mit o
r not to
sub
mit an o
ffer for the p
urpo
se of restricting
com
petitio
n.
The statement is m
ade und
er the pro
visions o
f a law that im
po
ses stiff penalties fo
r lying in the statem
ent filed
. The bid
der can b
e pro
secuted, if the o
nly evidence is that it d
isclosed
bid
prices to
its com
petito
rs or
attemp
ted to
convince its co
mp
etitors to
rig b
ids. The evid
ence needed
to p
rove a vio
lation o
f the Certificate
of Ind
epend
ent Price Determ
ination is sig
nificantly less than that needed
to p
rove an illeg
al agreem
ent.
Source: G
overnm
ent of the U
nited States (2007).
Co
mb
atin
g C
ollu
sion
, Fra
ud
, an
d C
orru
ptio
n
25
those w
ho h
ave met th
e quality requ
iremen
ts. Wou
ld it m
ake sense to adopt a poin
t system th
at factors in qu
al-ity an
d price? Wh
at criteria could h
elp ensu
re an objec-
tive evaluation
of the en
gineer’s qu
ality?
Differen
t ways of d
etermin
ing th
e engin
eer’s fees sh
ould
also be explored
to ensu
re that all in
centives,
inclu
din
g the fee stru
cture, are con
sistent w
ith th
e en
gineer’s qu
asi-fid
uciary role. For exam
ple, w
here
the risk of corru
ption
du
ring con
tract perform
ance
is particu
larly high
, wou
ld it m
ake sense to agree to a
combin
ation of a fi
xed fee for basic w
ork and
an h
ourly
rate for certain kin
ds of tests an
d in
spection
s relating
to integrity risks? W
hat safegu
ards cou
ld be in
trodu
ced
into su
ch arran
gemen
ts to avoid u
nn
ecessary testing
and
verification
proced
ures to sim
ply in
crease the fee?
Th
ese and
similar issu
es shou
ld be exam
ined
with
a view
of strength
enin
g the en
gineer’s role in
help
ing d
e-tect an
d ad
dress frau
d an
d corru
ption
du
ring con
tract im
plem
entation
.
Hire a technical aud
itor
Wh
ere there is a risk th
at the en
gineer w
ill be drawn
in
to a circle of corrupt actors, it can
be min
imized or
elimin
ated by retainin
g anoth
er overseer to “guard th
e gu
ardian” (Hu
rwicz 2007). T
he classic gu
ardian of th
e gu
ardian in
a roads project is a techn
ical auditor. U
nlike
a fin
ancial au
ditor, wh
ose review is con
fin
ed to the
fin
ancial statem
ents an
d supportin
g docum
entation
, a tech
nical au
ditor periodically inspects th
e project to ascertain
that th
e materials an
d labor provided “were
appropriate to their in
tended pu
rpose and w
ere deliv-ered in
the qu
antity, qu
ality, and location
or disposi-tion
specified” (Patterson
and C
hau
dhuri 2007, 181).
A tech
nical au
ditor will be h
ired for the secon
d phase
of the P
hilippin
e National R
oads Improvem
ent and M
anagement P
roject. Th
e terms of referen
ce provide, am
ong oth
er thin
gs, that th
e auditor w
ill (a) investi-gate th
e quan
tity and qu
ality of site surveys at com
-pleted w
orks, (b) review th
e audit su
pport provided to th
e project, (c) review all su
pervision reports on
the
contracts carried ou
t un
der the B
ank’s in
ternation
al com
petitive bidding ru
les, (d) test on-site th
e quality of
contractors’ m
aterials, (e) audit all ch
ange orders th
at
wou
ld increase th
e contract price by 15 percen
t or more,
and (f) con
duct a com
prehen
sive completion
review of
all civil works an
d of the h
ighway departm
ent’s su
pervi-sion
of each con
tract (Govern
men
t of the P
hilippin
es 2007b).
Even th
e threat of a tech
nical au
dit can redu
ce corrup-
tion. In
a field experim
ent con
ducted as part of th
e B
ank’s K
ecamatan D
evelopment P
rogram in
Indon
esia, on
e group of villages participatin
g in a n
ationwide road
constru
ction program
was told beforeh
and th
at their
projects wou
ld be audited an
d all projects were su
bse-qu
ently au
dited. In a secon
d group, au
dits were n
either
threaten
ed nor con
ducted. T
he differen
ce between
am
oun
ts claimed on
the con
tractors’ invoices and th
e am
oun
ts actually spen
t was on
average 8 percent less in
th
ose villages that w
ere subject to au
dit than
in th
ose villages th
at were n
ot (Olken
2007).
Th
e challen
ge wh
en h
iring a tech
nical au
ditor is ensu
r-in
g that th
is second gu
ardian rem
ains a faith
ful gu
ard-ian
, serving th
e interests of th
e borrower rath
er than
bein
g drawn
into a sch
eme to ch
eat it. Wh
ile profes-sion
al norm
s and th
e auditor’s ch
aracter provide one
guaran
tee of faithfu
lness, creatin
g a powerfu
l econom
ic in
centive for th
e auditor to rem
ain h
onest provides
more assu
rance. T
his can
be accomplish
ed by fostering
econom
ic condition
s that h
andsom
ely reward h
onesty
and severely pu
nish
its absence. A
uditors w
ho perform
a job w
ell shou
ld be paid well an
d those w
ho su
ccum
b to corru
ption fi
ned an
d imprison
ed.
More im
portan
t than
chan
ging th
e cost-benefi
t cal-cu
lus for a sin
gle job is creating a m
arket in w
hich
th
ose wh
o perform
well w
ill enjoy a stead
y stream of
remu
nerative w
ork and
those w
ho d
on’t, won’t—
in
short, a m
arket wh
ere the d
iscoun
ted p
resent valu
e of fu
ture reven
ues exceed
s the im
med
iate profi
t real-ized
from th
e one-tim
e acceptan
ce of a bribe. In m
any
markets, from
the lon
g-distan
ce trade in
comm
odities
in th
e Mid
dle A
ges to the sale of con
sum
er app
liances
in m
odern
times, th
e benefi
ts of a good rep
utation
an
d th
e harm
from a p
oor one h
ave deterred
brib-ery an
d oth
er types of sh
ort-term, op
portu
nistic
behavior (G
reif 2006; Klein
1997). Th
e key in every
instan
ce is seeing th
at inform
ation abou
t an au
ditor’s
Cu
rbin
g F
rau
d, C
orru
ptio
n, a
nd
Co
llusio
n in
the
Ro
ad
s Se
cto
r
26
perform
ance is w
idely circu
lated to fu
ture em
ployers, a
role the W
orld B
ank cou
ld assu
me as p
art of its know
l-ed
ge-sharin
g work. It is also im
portan
t that em
ployers
consid
er repu
tation w
hen
hirin
g an au
ditor—
an ap
-p
roach th
at may, as it d
id in
the U
.S., require revision
s to p
ublic ten
der ru
les (Kellm
an 2002).
Eng
age civil society m
onitors
Non
governm
ental organ
izations (N
GO
s) or comm
un
ity advocacy grou
ps can be w
atchdogs, too. For civil society
groups th
e challen
ge is less remain
ing in
dependen
t of th
e corrupt sch
eme th
an h
aving th
e resources an
d ex-pertise to effectively m
onitor a roads project. A
lthou
gh
the In
donesian
research fou
nd th
at comm
un
ity-level m
onitorin
g did not preven
t corruption
in roads projects
(Olken
2007), Ph
ilippine N
GO
s have en
joyed a good deal of su
ccess in m
onitorin
g procurem
ents an
d un
-coverin
g corruption
in th
e health
and edu
cation sectors
(Ram
kum
ar 2008, 52–61). Indeed, in
one case a local
group, albeit on
e wh
ose mem
bership in
cluded a civil
engin
eer, discovered the u
se of substan
dard cemen
t in a
provincial road con
struction
project (Cadapan
-An
tonio
2006–07, 656–657).
An
imp
ortan
t com
plem
ent to
engagin
g civil society
mo
nito
rs is requ
iring th
e pu
blicatio
n o
f the co
ntract
and
related d
ocu
men
tation
such
as aud
it repo
rts, fu
nd
disb
ursem
ent sch
edu
les, and
pro
ject perfo
r-m
ance rep
orts. A
s Ken
ny (2010) argu
es, pu
blicatio
n
of su
ch in
form
ation
raises the th
reat of scru
tiny by
the m
edia an
d civil so
ciety, thu
s redu
cing th
e likeli-h
oo
d o
f brib
ery and
oth
er corru
pt p
aymen
ts. Th
e C
on
structio
n Secto
r Transp
arency In
itiative, a join
t D
FID
-Wo
rld B
ank in
itiative, fin
anced
a wo
rking p
a-p
er that item
izes the in
form
ation
that sh
ou
ld b
e dis-
closed
(Co
ST 2009).
A n
um
ber of well-resou
rced NG
Os are m
onitorin
g th
e second ph
ase of the P
hilippin
e National R
oads Im
provement and M
anagement P
roject and on
e, the
Transparen
cy and A
ccoun
tability Netw
ork, has pro-
duced a soph
isticated guide to m
onitorin
g procurem
ent
contracts for roads an
d other civil w
orks (Cern
a 2009). Fu
nds to su
pport this m
onitorin
g arrangem
ent are
provided by the A
ustralian
Aid A
gency. It is co-fi
nan
cing
the project w
ith a $1.1 m
illion gran
t supportin
g the
Netw
ork and oth
er civil society mon
itors (World B
ank
2008b, 68).
Develop
accurate cost estimates
Critical to evalu
ating bids are reliable, in
dependen
t, cu
rrent estim
ates of the projected cost of th
e contract.
Cost estim
ates shou
ld be prepared usin
g the sam
e level of detail th
e indu
stry uses, an
d shou
ld reflect w
hat th
e procu
ring au
thority is w
illing to pay for perform
ance
of the con
templated w
ork. Th
e U.S. D
epartmen
t of Tran
sportation advises th
at estimates sh
ould be w
ithin
10 percen
t of the low
bid for at least half of th
e projects. “If th
is degree of accuracy is n
ot being ach
ieved over . . . on
e year, confi
dence in
the en
gineer’s estim
ates may
decline” (G
overnm
ent of th
e Un
ited States 2004). Wh
ere th
ere is a history of cartelization
in th
e roads sector, care m
ust be taken
to ensu
re that cu
rrent estim
ates do not
reflect past in
stances of overpricin
g (Feinstein
, Block,
and N
old 1985).
Check the w
ealth of key procurem
ent ag
ency officials
More th
an 100 W
orld B
ank clien
t coun
tries require
design
ated civil servan
ts and
elected offi
cials to peri-
odically su
bmit statem
ents sh
owin
g their in
come an
d
assets (Messick 2009). T
hese statem
ents can
be used
by en
forcemen
t agency p
ersonn
el or civil society to com
pare w
hat is rep
orted abou
t the valu
es of hom
es, th
e nu
mber of cars ow
ned
, and
so forth, w
ith w
hat
real estate and
autom
obile registries show
and
wh
at visu
al insp
ections an
d in
terviews w
ith n
eighbors an
d
friend
s reveal. Th
e Ph
ilipp
ine C
enter for In
vestigative Jou
rnalism
cond
ucted
such
“lifestyle checks” on
mid
-level offi
cials of the cou
ntry’s tax service, fi
nd
ing th
at m
any h
ad sign
ifican
tly un
derstated
the valu
e of their
hom
es or lied abou
t the n
um
ber of cars they ow
ned
(B
atino 2003), an
d an
Ind
onesian
magazin
e recently
reported
that th
e coun
try’s Au
ditor G
eneral h
ad accu
-m
ulated
enorm
ous u
nd
eclared w
ealth d
urin
g a career in
the tax agen
cy (Temp
o 2010). Cou
ntries w
ithou
t
Co
mb
atin
g C
ollu
sion
, Fra
ud
, an
d C
orru
ptio
n
27
incom
e and
asset declaration
laws sh
ould
enact th
em;
those w
ith su
ch law
s shou
ld en
sure th
at key procu
re-m
ent agen
cy person
nel are covered
and
the law
s vigor-ou
sly enforced
.
C. Lo
nger-Term
Cap
acity-Build
ing
Measures
Mod
ernize the roads sector ag
ency
Wh
ile ind
epen
den
t watch
dogs, civil society m
onitor-
ing, an
d th
e other sh
ort-term m
easures d
iscussed
in th
is rep
ort offer ways to d
efeat the collu
sion an
d frau
du
lent
schem
es INT
foun
d m
ost prevalen
t in B
ank-fu
nd
ed
roads p
rojects, no solu
tion w
ill succeed
in th
e long ru
n
with
out a m
odern
, profession
al, and
capable en
tity to m
anage a n
ation’s road n
etwork. To be effective, th
e road
agency m
ust h
ave app
ropriate p
owers, skills an
d
resources, an
d op
erate with
in an
effective framew
ork of accou
ntability, in
ternal con
trols, and
perform
ance
measu
remen
t. It mu
st have th
e auth
ority and
capacity
to carry out its regu
latory, plan
nin
g, fin
ance an
d invest-
men
t, coordin
ation, an
d m
anagem
ent resp
onsibilities;
it also mu
st have th
e techn
ologies, equip
men
t and
ef-fi
cient an
d tran
sparen
t processes an
d p
rocedu
res to en
able efficien
t use of resou
rces allocated to th
e roads
sector, inclu
din
g effective man
agemen
t of risks. Help
ing
a coun
try build
such
an en
tity begins w
ith a can
did
assessm
ent of th
e auth
ority’s weakn
esses and
iden
tifica-
tion of m
easures n
eeded
to add
ress them
. Th
e second
p
hase of th
e Ph
ilipp
ine N
ational Road Im
provement
and Managem
ent Project is a good
examp
le of such
ef-forts. A
s reflected
in th
e Project A
pp
raisal Docu
men
t, th
e loan bu
dgets $6 m
illion to su
pp
ort strength
enin
g m
easures for th
e Dep
artmen
t of Pu
blic Works an
d
Highw
ays, inclu
din
g the in
trodu
ction of n
ew bu
si-n
ess processes, a m
ore robust in
ternal au
dit staff, an
d
imp
roved fi
nan
cial man
agemen
t (World
Ban
k 2008b, 52–56). To ach
ieve sustain
ability and
move to scale in
h
elpin
g client cou
ntries bu
ild an
d m
aintain
sustain
-able road
netw
orks with
min
imu
m losses to frau
d,
corrup
tion an
d collu
sion, it is essen
tial that th
e World
B
ank an
d its p
artners su
pp
ort the cou
ntries’ efforts in
bu
ildin
g strong, effective an
d accou
ntable road
s sector in
stitution
s.
Strengthen com
petition law
enforcement
Road con
struction
and m
ainten
ance is ju
st one of m
any in
dustries in
wh
ich law
enforcem
ent au
thorities h
ave discovered cartels. O
ver 300 cartels in in
dustries as
diverse as ready-mix con
crete, vitamin
s, fin
e art, snow
rem
oval, and in
travenou
s solution
s have been
un
earthed
in developed cou
ntries (O
EC
D 2003). L
ike roads sector cartels, th
ese others h
ave also caused en
ormou
s damage
by raising prices, fu
rnish
ing sh
oddy goods, and corru
pt-in
g governm
ent offi
cials. To detect and prosecu
te cartels, th
e OE
CD
(2003) recomm
ends th
at law en
forcemen
t au
thorities h
ave in place th
e followin
g powers:
Th
e power to gran
t lenien
cy to cartel participants
willin
g to give evidence again
st other m
embers
Th
e ability to condu
ct un
ann
oun
ced visits to mem
-bers’ offi
ces to review docu
men
ts and electron
ic eviden
ceT
he au
thority to take oral testim
ony from m
embers’
employees for u
se in crim
inal an
d civil proceedings
Th
e right to u
se listenin
g devices and oth
er special investigative m
easures to collect in
formation
and
evidence
Bu
ilding an
institu
tion th
at can w
ield these pow
ers re-spon
sibly and effectively takes tim
e, but th
e damage car-
tels in any sector do to th
e econom
y and polity of devel-
oping n
ations argu
es for giving priority to stren
gthen
ing
the en
tities that en
force competition
law. A
nu
mber of
organization
s provide techn
ical assistance to com
peti-tion
law au
thorities; th
e Un
ited Nation
s Con
ference
on Trade an
d Developm
ent spon
sors peer reviews of
enforcem
ent efforts an
d hosts an
ann
ual m
eeting of
competition
law agen
cies from developin
g nation
s (U
NC
TAD
2010) and th
e OE
CD
, the W
orld Ban
k, and
other m
ultilateral an
d bilateral agencies also fu
rnish
variou
s forms of tech
nical assistan
ce.
D. E
xperim
ental Measures
Wh
ere the risks of frau
d, corruption
and collu
sion are
particularly h
igh, tradition
al reform m
easures, su
ch
as trainin
g staff, modern
izing facilities, an
d upgradin
g in
formation
and com
mu
nication
s techn
ology, will n
ot
Cu
rbin
g F
rau
d, C
orru
ptio
n, a
nd
Co
llusio
n in
the
Ro
ad
s Se
cto
r
28
by them
selves be effective (World B
ank 2008c, 32). To
address the issu
es, inn
ovative, creative, and less con
-ven
tional steps m
ay be required. T
his section
describes th
ree such
measu
res for consideration
in h
igh-risk
situation
s.
Imp
ose ceiling on b
ids
Th
e Ph
ilippines is experim
entin
g with
a cap on bids; for
each con
tract the procu
ring agen
cy calculates a m
axi-m
um
price. With
roads and oth
er infrastru
cture con
-tracts, im
plemen
ting regu
lations specify in
detail how
th
e maxim
um
price is to be calculated (G
overnm
ent of
the P
hilippin
es 2003). Bids over th
e budget are rejected
and if, after tw
o roun
ds of bidding, n
o company h
as su
bmitted a price equ
al to or less than
the m
aximu
m,
the agen
cy then
“directly negotiates a con
tract with
a tech
nically, legally an
d fin
ancially capable su
pplier, con
tractor or consu
ltant.” (G
overnm
ent P
rocurem
ent
Reform
Act, R
epublic A
ct 9184, § 43(e))
Th
ere are risks to this approach
. Absen
t genu
ine com
pe-tition
, the ceilin
g price almost certain
ly puts a fl
oor on
the bid price, som
ethin
g that appears to h
ave happen
ed in
Japan w
hen
road cartels were in
existence (M
cMillan
1991). In
addition, cost estim
ates on road con
tracts can
be un
reliable because m
arket condition
s chan
ge, engi-
neers can
make errors in
the estim
ation process, an
d th
ere is always th
e possibility that corru
ption w
ill creep in
to the process. M
oreover, if no com
pany bids at or below
the ceilin
g price and th
e procurin
g agency decides
to go forward w
ith th
e procurem
ent, it w
ill have to en
ter in
to direct negotiation
s with
a firm
, an action
wh
ich, as
explained below
, creates its own
set of problems.
An
analysis of the early experien
ce with the P
hilippines’
use of bid ceilings is expected to appear in
2011. While
in the m
eantim
e the World B
ank is n
ot permittin
g the P
hilippines to use ceilin
g prices on B
ank-fun
ded con-
tracts let under its in
ternation
al competitive biddin
g procedures, the B
ank has agreed to perm
it the practice on
contracts usin
g nation
al competitive biddin
g procedures so lon
g as four condition
s are met: (a) the bid docum
ents
are freely and easily accessible, (b) the ceilin
g price is based on
the engin
eering cost estim
ate, (c) the procuring
agency staff is train
ed on price estim
ation techn
iques an
d bid variance an
alysis, and (d) a system
is in place to
mon
itor and com
pare bid prices against the estim
ate.
Use com
petitive neg
otiation
Wh
ere roads cartels are particularly en
trench
ed, poli-cym
akers migh
t experimen
t with
a form of com
peti-tive n
egotiation. T
he procu
ring agen
cy chooses a fi
rm
it believes qualifi
ed to build th
e road in qu
estion an
d n
egotiates a price. It could be lu
mp su
m, cost-plu
s, or som
e combin
ation. If th
e firm
is not in
terested or is un
-w
illing to accept th
e price offered, the agen
cy goes on to
anoth
er firm
. Th
ere is a risk of corruption
in th
e form
of favoring on
e contractor over an
other or n
egotiating
too high
a price. To help address su
ch risks, com
petitive n
egotiation sh
ould: (a) be lim
ited to clearly defin
ed situ-
ations, (b) su
bject to appropriate safeguards, su
ch as a
prior short-listin
g of firm
s based on specifi
c criteria and
(c) adopt clear and tran
sparent objectives again
st wh
ich
to condu
ct negotiation
s with
each sh
ort-listed firm
to obtain
the best proposal.
Contract out p
rocurement
Wh
en state capacity is especially w
eak and th
e involve-m
ent of h
igh-level political offi
cials in procu
remen
t w
idespread, a foreign com
pany can be retain
ed to ad-m
inister th
e entire procu
remen
t process from project
identifi
cation to design
, tenderin
g, and con
tract man
-agem
ent. T
his is a broader application
of the in
depen-
dent w
atchdog approach
described above, and th
e same
concern
s about en
surin
g that th
e procurem
ent agen
t is gen
uin
ely indepen
dent an
d that repu
tation m
echan
isms
are in place apply—
only on
a mu
ch larger scale.
Hirin
g an in
dependen
t procurem
ent agen
t is not w
ith-
out its problem
s, how
ever. New
ly hired agen
ts face steep learn
ing cu
rves that often
delay procurem
ents an
d na-
tional agen
cies displaced by the agen
ts can lose in
terest in
, and ow
nersh
ip of, the projects h
andled by th
e agents
(Ali an
d Moss 2010). T
he biggest draw
back with
inde-
penden
t procurem
ent agen
ts is that th
ey can u
ndercu
t efforts to bu
ild local procurem
ent capacity.
Co
mb
atin
g C
ollu
sion
, Fra
ud
, an
d C
orru
ptio
n
29
World
Ban
k experien
ce with
ind
epen
den
t agents in
Sou
thern
Sud
an an
d C
ambod
ia show
s two p
itfalls to avoid
wh
en retain
ing an
ind
epen
den
t agent. In
Sou
thern
Sud
an th
e agent d
id n
ot field
suffi
cient staff
to provid
e the train
ing requ
ired (P
rice Waterh
ouse
Coop
ers 2008) wh
ile in C
ambod
ia the agen
t’s terms
of reference om
itted cap
acity build
ing (A
li and
Moss
2010). Ban
k experien
ce with
ind
epen
den
t agents in
cu
stoms in
An
gola and
Mozam
bique, h
owever, illu
s-trate th
e advantages w
hen
these p
roblems are avoid
ed.
In both
coun
tries the cu
stoms fu
nction
was con
tracted
out, w
ith a d
eadlin
e for turn
ing resp
onsibility back
over to the govern
men
t. Corru
ption
was sh
arply
redu
ced in
the sh
ort run
and
over the lon
g term n
a-tion
al capacity w
as built (M
itchen
er and
Mau
rer 2010; M
wan
gi 2004). Com
mon
to both efforts w
as not on
ly a clear u
nd
erstand
ing on
the d
eadlin
e for han
din
g back resp
onsibility, bu
t also suffi
cient resou
rces for the
ind
epen
den
t agent to ru
n th
e custom
s agency an
d to
train n
ational staff.
E. Issues fo
r Co
nsideratio
n by B
ank O
peratio
ns Staff
Th
e four objectives u
nderlyin
g the W
orld Ban
k procure-
men
t policy—tran
sparency, fair treatm
ent, capacity
buildin
g, and com
petition—
are sometim
es in ten
sion.
Policies that advan
ce transparen
cy, fair treatmen
t, or capacity bu
ilding can
un
dercut com
petition; on
the
other h
and, th
ose that fu
rther com
petition m
ay inad-
vertently com
promise on
e or more of th
e other th
ree. As
the W
orld Ban
k reviews its procu
remen
t policy, it wou
ld be im
portant to con
sider trade-offs between
these
objectives, adapted to the specifi
c coun
try’s risks and
circum
stances, in
cludin
g the state of com
petition, th
e
BOX 7
Using
Co
mp
etitive Neg
otiatio
n to C
ircumvent a C
artel: the US exp
erience
The Am
erican military used
com
petitive neg
otiatio
n to circum
vent a cartel in the Rep
ublic o
f Ko
rea in the 1970s.
The military reg
ularly tendered
for g
oo
ds and
services from
Ko
rean firms and
its rules required
that all but
the very smallest co
ntracts be let co
mp
etitively. Procurem
ent officers enco
untered the sam
e pro
blem
s evid
ent in the road
s sector to
day, co
llusion co
upled
with co
rruptio
n underp
inned b
y a culture that eschewed
co
mp
etition.
At first p
rocurem
ent officials so
ught to
overco
me these p
rob
lems thro
ugh stricter enfo
rcement o
f the R
epub
lic’s com
petitio
n laws. C
artels were infiltrated
and evid
ence of co
llusion w
as turned o
ver to So
uth K
orean p
rosecuto
rs. Local p
rocurem
ent staff caught furthering
cartel activities were p
rosecuted
. Altho
ugh
a few cartels w
ere bro
ken up, the results w
ere disap
po
inting; cartels reg
roup
ed and
wo
rse, in several cases, info
rmants w
ere murd
ered.
Frustrated w
ith the lack of p
rog
ress, senior p
rocurem
ent staff turned to
nego
tiated p
rocurem
ents, similar to
the tw
o-stag
e tendering
often used
in tight co
nstruction m
arkets (Davis and
Do
rnan 2008). The pro
curement
officer cho
se a firm he b
elieved cap
able o
f do
ing the w
ork and
invited it in to
nego
tiate a deal. A
fixed p
rice m
ight b
e nego
tiated o
r som
etimes, as in the case o
f two
-stage tend
ering, the firm
wo
uld w
ork o
n a cost- p
lus b
asis. The results exceeded
expectatio
ns; prices w
ere 10–15 percent less than tho
se under “co
mp
etitive” b
ids, and
the kickbacks and
violence asso
ciated w
ith “com
petitive” tend
ers disap
peared
.
The key to the m
ilitary’s success was its “clean,” ind
epend
ent pro
curement p
ersonnel. Pro
curement staff
stoo
d o
utside the netw
ork o
f collusio
n and co
rruptio
n that authorities so
ught to
defeat, ad
ministering
the rules evenhand
edly and
with integ
rity, thus acting as a d
e facto ind
epend
ent pro
curement ag
ent.
Source: M
artin (1983).
Cu
rbin
g F
rau
d, C
orru
ptio
n, a
nd
Co
llusio
n in
the
Ro
ad
s Se
cto
r
30
capacity and perform
ance of th
e responsible agen
cies, su
ch as h
ighway au
thorities, th
e effectiveness of an
ticor-ru
ption an
d competition
laws, an
d the track record of
the preven
tion an
d enforcem
ent au
thorities. T
he follow
-in
g discussion
covers some issu
es that em
erged in th
e con
text of this review
that m
ay merit con
sideration as
part of the reform
.
Trade-offs b
etween Transp
arency and
Collusion
As discu
ssed above, wh
ile open an
d transparen
t pro-cedu
res for the aw
ard of public con
tracts help en
sure
fairness an
d reduce corru
ption in
the procu
remen
t process, disclosu
re of certain kin
ds of inform
ation m
ay also facilitate cartelization
and price-fi
xing. (A
nderson
, K
ovacic, and M
üller 2010; O
EC
D 2008b). T
he m
ost clear-cu
t example is th
e requirem
ent th
at the n
ame of
each bidder an
d the am
oun
t of the bid be pu
blicly dis-closed. P
ublish
ing all bids received both
elimin
ates the
risk that a corru
pt official w
ill accept a high
-priced or n
oncon
formin
g bid and reassu
res firm
s subm
itting bids
they are bein
g treating equ
ally. Bu
t as Stigler (1964) ex-plain
s in a classic article on
collusion
, cartels are un
der con
stant th
reat of breakdown
from secret price cu
ts by a m
ember seekin
g to expand bu
siness at th
e expense of
the oth
er mem
bers. How
can collu
ders protect against
an ou
tbreak of competitive pricin
g?
“Th
e system of sealed bids, pu
blicly opened
with
full iden
tification
of each bidder’s price
and specifi
cations, is th
e ideal instru
men
t for th
e detection of price-cu
tting. T
here ex-
ists no altern
ative meth
od of secretly cuttin
g prices (bribery of pu
rchasin
g agents aside).
Ou
r . . . prediction, th
en, is th
at collusion
will
always be m
ore effective against buyers w
ho
report correctly and fu
lly the prices ten
dered to th
em” (48).
Wh
ere the risk of collu
sion is particu
larly high
, thou
ght
shou
ld be given to ach
ieving th
e goals of transparen
cy in
alternative w
ays. Such
alternatives sh
ould be design
ed in
a man
ner th
at main
tains pu
blic confi
dence in
gov-ern
men
t institu
tions an
d processes and addresses th
e
risk of corruption
. Limitin
g the pre-bid con
ferences to
one fi
rm at a tim
e, wh
ile requirin
g that each
meetin
g be atten
ded by an in
dependen
t party and in
clude a video-
recording or a m
eeting tran
script, is a good example of
an altern
ative that can
be considered in
high
-collusion
environ
men
ts. Havin
g an in
dependen
t evaluator certify
that th
e lowest price w
as chosen
is anoth
er.
Subcontracting
as a facilitator of cap
acity-build
ing and
collusion
Allow
ing less experien
ced local compan
ies to subcon-
tract with experien
ced intern
ational fi
rms gives them
the chan
ce to learn n
ew techn
iques and build dom
estic ca-pacity. H
owever, w
hen losin
g bidders are permitted to be-
come subcon
tractors to the win
nin
g firm
, subcontractin
g can
be a way colluders pay on
e another off for stickin
g together. A
s suggested above, where the risks of collusion
are high, con
sideration should be given
to prohibiting
subcontractin
g with losin
g bidders or at least mon
itoring
subcontractin
g patterns to iden
tify collusion risks.
Custom
izing m
easures to add
ress fraud
and corrup
tion in civil works contracts
Faced with
the risk of frau
d and corru
ption in
World
Ban
k-fun
ded civil works con
tracts, the B
ank’s procu
re-m
ent specialists h
ave developed various m
itigation
measu
res, sum
marized in
Box 8. T
he effectiven
ess and
replicability of these m
easures m
erit furth
er evaluation
an
d discussion
by the W
orld Ban
k’s transport sector an
d procu
remen
t specialists as part of the reform
process.
Develop
ing exp
ertise on cost estimating
and
detecting
collusive bid
ding
To prevent collu
sion an
d corruption
in roads projects,
accurate cost estim
ates and th
e ability to spot collusion
are essen
tial. Th
e World B
ank sh
ould con
sider becom-
ing a cen
ter of excellence for both
, creating a cadre of
experts on each
topic wh
o can follow
developmen
ts in
the fi
eld, train cou
ntry cou
nterparts, an
d step in
wh
en cou
ntry capacity is w
eak. With
its Road C
osts
Co
mb
atin
g C
ollu
sion
, Fra
ud
, an
d C
orru
ptio
n
31
Kn
owledge System
, a database of historical in
formation
on
roadwork costs per kilom
eter, the W
orld Ban
k has
taken th
e first step w
ith cost estim
ating. A
n easy fi
rst step for iden
tifying collu
sive bidding w
ould be to begin
an
alyzing bids su
bmitted on
projects. A n
um
ber of tests h
ave been developed to determ
ine w
heth
er bids were
arrived at indepen
dently an
d they can
be programm
ed u
sing stan
dard statistical packages (Bajari an
d Ye 2003; Porter an
d Zon
a 1993). Th
e World B
ank sh
ould en
sure
that fi
rms biddin
g on B
ank-fu
nded projects su
bmit th
e data n
ecessary to condu
ct these tests in
mach
ine-read-
able form. T
he investm
ent requ
ired to build on
these
first steps w
ould be m
inim
al and th
e potential payoffs—
with
a projected lendin
g program of $7–8 billion
for FY
11—en
ormou
s.
Reevaluate current contract m
anagem
ent form
Like th
e FIDIC
mod
el on w
hich
it is mod
eled, th
e W
orld B
ank’s w
orks contract form
makes th
e engin
eer th
e central fi
gure in
contract ad
min
istration. T
his form
of contract m
anagem
ent origin
ated in
19th cen
tury
En
gland
and
in th
e 1950s spread
to develop
ing cou
n-
tries wh
ere it seemed
well su
ited to th
eir need
s (Lyon
1995). Th
e un
certainties in
build
ing p
ublic w
orks in
the th
en largely u
nkn
own
settings in
develop
ing
coun
tries created sign
ifican
t risks, ones th
at could
not
be specifi
ed, let alon
e allocated
by detailed
contract
langu
age. Mu
ch h
ad to be left to w
ork throu
gh on
the
groun
d as th
e project p
rogressed, creatin
g the p
ossibil-ity th
at the con
struction
of road
s and
other critically
need
ed in
frastructu
re wou
ld be stalled
as the con
trac-tor an
d th
e governm
ent squ
abbled over w
ho w
as re-sp
onsible for w
hat u
nforeseeable even
t. Exacerbatin
g th
e tension
, the bu
ilder w
as inevitably from
a devel-
oped
coun
try and
possessed
a high
degree of tech
nical
know
ledge, w
hile th
e develop
ing cou
ntry clien
t had
little. A
strong, tech
nically com
peten
t engin
eer, ind
e-p
end
ent of both
(and
, imp
ortantly, w
ith th
e pow
er to m
ediate th
eir disp
utes an
d so keep
the p
roject on
track) provid
ed a w
orkable solution
.
As d
evelopin
g coun
tries gained
experien
ce and
exper-
tise with
infrastru
cture con
struction
, how
ever, they
BOX 8
Red
ucing Fraud
and C
orrup
tion in C
ivil Wo
rks
1. E
nsure accurate cost estim
ates (quantities and
, mo
re imp
ortantly, unit rates) to
exclude the up
-front
inflated p
add
ing that serves as a reference co
ver to hid
e the high b
id p
rices do
wnstream
.2.
Be sure the b
ill of q
uantity is correct to
minim
ize variations in the d
ow
nstream im
plem
entation o
f unit rate/ad
-measurem
ent contracts.
3. E
ncourag
e, where feasib
le, a lump
sum o
utput-b
ased ap
pro
ach for tend
ering and
contract im
plem
entation
to red
uce the po
ssibility o
f do
wnstream
quantity variatio
ns during
contract im
plem
entation. Pro
vide
concurrent training
of b
orro
wer staff and
private secto
r contracto
rs in the app
lication o
f the lump
-sum
outp
ut-based
app
roach in the p
rocurem
ent and im
plem
entation o
f civil wo
rks contracts.
4. Includ
e contract p
rovisio
ns that pro
vide an incentive fo
r contracto
rs to d
eliver cost saving
s at the end o
f the co
mp
leted co
ntract (final com
pleted
contract p
rice vs. initial contract aw
ard p
rice) — fo
r examp
le, b
onuses o
r a percentag
e of the co
st savings.
5. C
losely sup
ervise constructio
n supervisio
n, preferab
ly throug
h external international eng
ineering firm
s, alo
ng w
ith indep
endent technical aud
its and a hig
her level of q
uality checks by the B
ank during
pro
ject sup
ervision.
6. D
uring p
roject sup
ervision, the B
ank or its ap
po
inted aud
itors sho
uld rand
om
ly check the contracto
r’s and
superviso
ry consultant’s financial reco
rds, ap
plying
in practice the p
rovisio
n in the Bank’s Pro
curement
Guid
elines, standard
bid
ding
do
cuments, and
standard
form
s of co
ntract, which allo
ws the B
ank to
undertake such aud
its.
Source: W
orld
Bank p
rocurem
ent staff.
Cu
rbin
g F
rau
d, C
orru
ptio
n, a
nd
Co
llusio
n in
the
Ro
ad
s Se
cto
r
32
saw less n
eed for a p
owerfu
l engin
eer; in resp
onse, th
e W
orld B
ank an
d oth
er intern
ational fi
nan
cial institu
-tion
s have p
rogressively mod
ified
the FID
IC con
tract to stren
gthen
the govern
men
t’s control of th
e engin
eer. W
hereas th
e engin
eer once in
dep
end
ently d
etermin
ed
wh
ether a con
tractor’s invoice was in
order an
d th
ere-fore sh
ould
be paid
, that is n
o longer th
e case. Likew
ise, th
e curren
t version of th
e FIDIC
contract u
sed by th
e W
orld B
ank gives th
e governm
ent th
e pow
er to replace
the en
gineer at any tim
e with
no real in
pu
t from th
e con
tractor.
Wh
ile the m
ove away from
a powerfu
l, indepen
dent en
-gin
eer was prom
pted by many factors, project in
tegrity does n
ot appear to have been
one. W
ith th
e growin
g recogn
ition of th
e harm
from frau
d and corru
ption
in road w
orks, the developm
ent com
mu
nity sh
ould
reevaluate th
e way roads con
tracts are man
aged. Is a w
eakened en
gineer overseen
by a sometim
es-corrupt
agency th
e best guaran
tor of project integrity? A
re those
forms of project m
anagem
ent th
at assign th
e engin
eer’s respon
sibilities to different en
tities more likely to redu
ce corru
ption? Sh
ould th
e engin
eer be more in
dependen
t of govern
men
t? Advan
ces in th
e econom
ic study of con
-stru
ction con
tracts (Ch
akravarty and M
acLeod 2006) an
d the accu
mu
lated experience from
different form
s of con
struction
contract m
anagem
ent (e.g., K
luen
ker 2001) provide a w
ealth of in
formation
for considerin
g su
ch issu
es.
Target enforcem
ent on engineering
firms
If the en
gineer’s role in
project integrity is to be
strength
ened, th
en corru
pt engin
eers mu
st be severely san
ctioned. IN
T w
ill do its part by targeting en
gineers
in its investigation
s of miscon
duct in
Ban
k-fun
ded road an
d infrastru
cture projects. W
hen
ever it is determin
ed th
at an en
gineer h
as been involved in
corruption
, that
engin
eer shou
ld be debarred for a lengthy period an
d borrow
er coun
tries shou
ld be urged to cease h
iring h
im
on n
on-B
ank-fi
nan
ced projects. Tanzan
ia already does so. Its procu
remen
t law provides th
at any firm
that h
as been
debarred “by a foreign cou
ntry, in
ternation
al or-gan
ization or oth
er foreign in
stitution
s on grou
nds of
fraud or corru
ption” cann
ot compete for a govern
men
t
contract for th
e same len
gth of tim
e (Govern
men
t of Tan
zania 2004). T
hese steps w
ill help to create a m
arket w
here on
ly hon
est engin
eers prosper.
Increase contingent of p
rofessional W
orld B
ank staff with road
engineering
exp
ertise
Wh
ile World B
ank su
pervision efforts n
ow stress fi
nan
-cial an
d fidu
ciary controls, despite th
eir usefu
lness th
ese efforts do little to detect m
alpractice and th
e practical im
pacts of corruption
in th
e realization of th
e works.
Since th
ird party techn
ical audit solu
tion w
ill remain
expen
sive and im
practical in m
any projects, a simpler
remedy to start tacklin
g this issu
e is to strength
en th
e profession
al techn
ical capacity of the B
ank’s project
teams. T
his m
eans m
aintain
ing a su
fficien
t nu
mber of
seasoned road an
d highw
ay engin
eers. At th
e design
stage these profession
als can detect poten
tial weakn
esses or om
issions an
d help m
ake bidding docu
men
ts more
reliable with
less room for in
terpretation or deliber-
ate miscon
ception. A
t the con
struction
stage they w
ill kn
ow w
here to look an
d wh
at to probe wh
en su
pervis-in
g road constru
ction or reh
abilitation. C
ombin
ed with
th
e fidu
ciary controls, th
is approach w
ould provide a
mu
ch-im
proved protection again
st corruption
in proj-
ect implem
entation
.
Spend
more on corrup
tion prevention in
projects
Com
bating corru
ption requ
ires not on
ly techn
ical skills, com
petence, an
d comm
itmen
t, but also re-
sources. A
n exam
ple of good practice is the secon
d ph
ase of the P
hilippin
e National R
oads Improvem
ent and M
anagement P
roject, wh
ich earm
arks $7.54 million
for an
ticorruption
activities, of wh
ich $1.14 m
illion is
part of the B
ank loan
and $6.40 m
illion a gran
t from
the A
ustralian
Aid A
gency. A
lthou
gh th
ese amou
nts
may seem
high
, between
the loan
and its ow
n fu
nds,
the G
overnm
ent w
ill spend $240 m
illion for roads
throu
gh th
e project. Given
the im
portance of corru
p-tion
prevention
to the u
ltimate su
ccess and su
stain-
ability of the roads projects an
d programs, th
e World
Co
mb
atin
g C
ollu
sion
, Fra
ud
, an
d C
orru
ptio
n
33
Ban
k shou
ld review its su
pervision strategy for th
e roads sector th
at looks at various factors, in
cludin
g budget
and skills. In
condu
cting su
ch review
, options to be con
-sidered m
ay inclu
de: (a) reallocating resou
rces towards
implem
entation
support; (b) establish
ing a tru
st fun
d to fi
nan
ce indepen
dent procu
remen
t oversight; an
d (c) grou
ping au
dits, review, an
d supervision
work for m
ul-
tiple projects to achieve econ
omies of scale.
Co
nclusion
As th
is report has sh
own
, fraud, collu
sion, an
d cor-ru
ption in
roads projects wreak en
ormou
s damage on
developin
g coun
tries. Roads cost m
ore to build th
an
they sh
ould, do n
ot last as long as th
ey ough
t to, and
the corru
ption proceeds can
pollute a n
ation’s political system
. Th
e aim of th
is report has been
to help redu
ce th
ese losses by sparking a dialogu
e amon
g policymakers
and stakeh
olders inside an
d outside th
e World B
ank on
developin
g solution
s to these problem
s. Th
is dialogue
shou
ld inclu
de the follow
ing elem
ents:
A robu
st assessmen
t of the im
pact an
d cost-
effectiveness of d
ifferent m
itigation m
easures
app
lied in
differen
t coun
tries (inclu
din
g un
der
World
Ban
k-fun
ded
projects in
Ken
ya, Ind
onesia,
Ph
ilipp
ines an
d oth
ers that in
clud
e robust m
itiga-tion
measu
res)
A review
of procurem
ent policies to address areas
that m
ay constrain
borrower au
thorities, th
e World
Ban
k, and its staff from
taking appropriate action
An
assessmen
t of wh
ether ch
anges are n
eeded in th
e cu
rrent m
odel for preparation an
d supervision
of roads projects an
d the relative roles of govern
men
t au
thorities, th
e engin
eering profession
, World B
ank
staff, and civil society represen
tativesA
n evalu
ation of experien
ce to date with
buildin
g effective pu
blic works in
stitution
s in borrow
ing
coun
tries.
INT
is ready to work w
ith its operation
al colleagues in
th
e Sustain
able Developm
ent N
etwork, th
e regions, an
d O
perations Policy an
d Cou
ntry Services an
d with
gov-ern
men
t coun
terparts, the private sector an
d civil soci-ety to advan
ce this dialogu
e.
VI
References
All W
eb sites were visited betw
een June 15, 2010, and April
15, 2011.
Ah
med, R
aisuddia, an
d Mah
abub H
ossain. 1990.
Developm
ental Impact of R
ural Infrastructure in B
angladesh. IFPR
I Research
Report N
o. 83. W
ashin
gton, D
.C.: In
ternation
al Food Policy R
esearch In
stitute. A
vailable at: http://books.google.com
/books?hl=en&
lr=&
id=jLxjsR
2OZ
r8C
&oi=
fnd&pg=
PA9&
dq=D
evelopmental+
impact+
of+rural+
infrastructure+in+
Bangladesh
&ots=
EM
IZboQ
q7_&sig=
ApX
RxFY
JIs1nP3Y
7N
xJvyaMuB
7M#v=
onepage&q&
f=false
Alexeeva, V
ictoria, Gou
tham
i Padam, an
d Cesar
Qu
eiroz. 2008. Monitoring R
oad Works C
ontracts and U
nit Costs for Enhanced G
overnance in Sub-Saharan A
frica. Wash
ington
, D.C
.: World B
ank,
Transport Sector B
oard. Available at: http://
siteresources.worldbank.org/IN
TT
RA
NSP
OR
T/
Resources/336291–1227561426235/O
BE
C_
BecasyO
portunidades_BancoM
undial.pdfA
li, Ah
san, an
d Shau
n M
oss. 2010. “Use of In
dependen
t P
rocurem
ent A
gents: T
he C
ambodian
Experien
ce.” P
resentation
to World B
ank Fidu
ciary Forum
, M
arch.
Allen
, Gary R
., Don
ald Cu
lkin, an
d Ch
eryl Mills. 1988.
Legal and Econom
ic Aspects of C
ompetitive M
arket B
ehavior. Ch
arlottesville, Virgin
ia: Virgin
ia Tran
sportation R
esearch C
oun
cil. Available at:
http://tug.cloverleaf.net/PD
FFiles/virginia.pdfA
nderson
, Robert D
., William
E. K
ovacic, and A
nn
a C
. Mü
ller. 2010. “En
surin
g Integrity an
d C
ompetition
in P
ublic P
rocurem
ent M
arkets: A
Du
al Ch
allenge for G
ood Govern
ance.” A
vailable
at: http://ww
w.oecd.org/dataoecd/12/1/44456320.
pdf.B
atalla, Eric C
. 2000. “De-in
stitution
alizing C
orruption
in
the P
hilippin
es: Identifyin
g Strategic R
equirem
ents for R
einventin
g Institu
tions,”
Paper prepared for Con
ference Spon
sored by the
KA
S and th
e DLSU
-YC
EA
, Makati, P
hilippin
es. A
vailable at: http://unpan1.un.org/intradoc/groups/public/docum
ents/apcity/unpan013117.pdfB
atino, C
larissa S. 2003. “4 BIR
, BO
C O
fficials Fail
Lifestyle Ch
ecks: Mism
atch in
Salary, Wealth
U
ncovered,” P
hilippine Daily Inquirer. Ju
ly 21.B
ajari, Patrick, and L
ixin Ye. 2003. “D
eciding B
etween
C
ompetition
and C
ollusion
,” Review
of Econom
ics and Statistics 85(4): 971–989.
Booth
, David, an
d Frederick Golooba-M
uteb. 2009.
The Political E
conomy of R
oads Reform
in Uganda.
London
: Overseas D
evelopmen
t Institu
te, W
orking Paper 307. A
vailable at: http://ww
w.odi.
org.uk/resources/download/3829.pdf.
Bran
nm
an, L
ance E
., and J. D
ouglass K
lein. 1992.
“Th
e Effectiven
ess and Stability of H
ighway B
id-riggin
g,” chapter 4 in
David B
. Au
dretsch an
d John
S. Siegfried, eds., Em
pirical Studies in Industrial O
rganization: Essays in H
onor of Leonard W. W
eiss. D
ordrecht, th
e Neth
erlands: K
luwer A
cademic
Pu
blishers.
Cadapan
-An
tonio, M
yrish T. 2006–07. “Participation
of C
ivil Society in P
ublic P
rocurem
ent: C
ase Studies
from th
e Ph
ilippines,” P
ublic Contracts Law
Journal 36(4): 629–665.
Cern
a, Toix. 2009. How
to Monitor P
ublic Procurem
ent: P
rocurement of G
oods and General Services.
Man
ila: Transparen
cy and A
ccoun
tability
Cu
rbin
g F
rau
d, C
orru
ptio
n, a
nd
Co
llusio
n in
the
Ro
ad
s Se
cto
r
38
Netw
ork. Available at: http://w
ww
.tan.org.ph/index.php?option=
com_docm
an&task=
cat_view
&gid=
42&Item
id=81
Ch
akravarty, Surajeet, an
d W. B
entley M
acLeod. 2006. C
onstruction Contracts (or: “H
ow to G
et the R
ight Building at the R
ight Price?”). B
onn
: Forschu
ngsin
stitut zu
r Zu
kun
ft der Arbeit,
Discu
ssion Paper N
o. 2125. Available at: http://pa-
pers.ssrn.com/sol3/papers.cfm
?abstract_id=902820
Con
nor, Joh
n M
. 2009. Price-Fixing O
vercharges, 2n
d ed., W
est Lafayette, Indian
a: Pu
rdue U
niversity.
Available at: http://w
ww
.agecon.purdue.edu/staff/connor/papers/P
RIC
E%
20FIXIN
G_
OV
ER
CH
AR
GE
S_FULL_T
EX
T.pdfC
oST [C
onstru
ction In
dustry Tran
sparency In
itiative] 2009. T
he W
orking Paper Series: A
Sum
mary.
Available at: http://w
ww
.constructiontransparency.org/R
esourceCentre/P
ublications/D
abbah, M
aher M
. 2010. International and Com
parative C
ompetition Law
. Cam
bridge: Cam
bridge U
niversity P
ress.D
avis, Cecily, an
d Peter Dorn
an. 2008. “T
he R
ise and
Rise of Tw
o-Stage Tenderin
g,” International C
onstruction Law R
eview 25: 511–517.
Deich
man
n, U
we, M
ariann
e Fay, Jun
Koo, an
d Somik
V. L
all. 2002. Econom
ic Structure, Productivity,
and Infrastructure Quality in Southern M
exico. Policy R
esearch W
orking Paper Series 2900.
Wash
ington
, D.C
.: World B
ank. A
vailable at: http://w
ww
-wds.w
orldbank.org/external/default/W
DSC
ontentServer/IW3P
/IB/2002/11/01/0000949
46_0210180511041/Rendered/P
DF/m
ulti0page.pdfD
epoorter, Ben
, and Jef D
e Mot. 2005. “W
histle
Blow
ing,” Suprem
e Court E
conomic R
eview 13,
2005; George M
ason Law
& E
conom
ics Research
Paper N
o. 04–56. Available at SSR
N: h
ttp://ssrn.
com/abstract=
622723 or doi:10.2139/ssrn.622723
Dercon
, Stefan, an
d Pram
ila Krish
nan
. 1998. C
hanges in Poverty in Rural Ethiopia 1989–
1995: Measurem
ent, Robustness Tests and
Decom
position. WP
S/98–7. Oxford: C
enter
for the Stu
dy of African
Econ
omics. A
vailable at: http://w
ww
.bepress.com/cgi/view
content.cgi?article=
1071&context=
csaeD
e Silva, Daksh
ina G
., Tim
othy Du
nn
e, An
uru
ddha
Kan
kanam
ge, and G
eorgia Kosm
opoulou
. 2008.
“Th
e Impact of P
ublic In
formation
on B
idding
in H
ighway P
rocurem
ent A
uction
s,” European E
conomic R
eview 52(1): 150–181.
Estach
e, An
tonio, an
d Atsu
shi Iim
i. 2008. Procurem
ent E
fficiency for Infrastructure Developm
ent and Financial N
eeds. Wash
ington
, D.C
.: World B
ank,
Policy Research
Workin
g Paper 4662.E
uropean
Com
mission
. 2011. Green
Paper on th
e M
odernization
of EU
Pu
blic Procu
remen
t Policy: Tow
ards a More E
fficien
t Eu
ropean P
rocurem
ent
Market. B
russels: C
OM
(2011) 15. Available at:
http://eur-lex.europa.eu/LexUriServ/LexU
riServ.do?uri=
CO
M:2011:0015:FIN
:EN
:PD
FE
uropean
Com
mission
. 2010. Gu
idelines on
the
Applicability of A
rticle 101 of the Treaty on
the
Fun
ctionin
g of the E
uropean
Un
ion to H
orizontal
Cooperation
Agreem
ents. B
russels: O
fficial
Journ
al of the E
uropean
Un
ion, 2011/C
11 /01. A
vailable at: http://ec.europa.eu/competition/anti-
trust/legislation/horizontal.html
Eu
ropean C
omm
ission. 2008. W
hite Paper on
Dam
ages A
ctions for B
reach of th
e EC
An
titrust
Ru
les. Bru
ssels: CO
M(2008) 165. A
vailable at: http://ec.europa.eu/com
petition/antitrust/actions-dam
ages/documents.htm
lFan
, Shen
ggan, P. H
azell, and S. T
horat. 1999.
Governm
ent Spending, Agricultural G
rowth and
Poverty: An A
nalysis of Interlinkages in Rural India.
IFPR
I Research
Report N
o. 110. Wash
ington
, D.C
.: In
ternation
al Food Policy Research
Institu
te.Fan
, Shen
ggan, P. H
azell, and S. T
horat. 2000.
“Govern
men
t Spendin
g, Agricu
ltural G
rowth
, an
d Poverty in R
ural In
dia. Am
erican Journal of A
gricultural Econom
ics 82 (4): 1038–1051.Fan
, Shen
ggan, L
. Zh
ang, an
d X. Z
han
g. 2002. Grow
th, Inequality, and Poverty in R
ural China: T
he Role
of Public Investm
ents. IFPR
I Research
Report N
o. 125. W
ashin
gton, D
.C.: In
ternation
al Food Policy R
esearch In
stitute.
Fan, Sh
enggan
, S. Jitsuch
on, an
d N. M
ethaku
nn
avut.
2004. The Im
portance of Public Investm
ent for R
educing Rural Poverty in M
iddle-Income
Countries: T
he Case of T
hailand. DSG
D D
iscussion
Paper N
o. 7. Wash
ington
, D.C
.: Intern
ational Food
Policy Research
Institu
te.
Re
fere
nce
s
39
Feinstein
, Jonath
an S., M
ichael K
. Block, an
d Frederick C
. Nold. 1985. “A
symm
etric Inform
ation an
d C
ollusive B
ehavior in
Au
ction M
arkets,” Am
erican E
conomic R
eview 75(3): 441–460.
Fernald, Joh
n G
. 1999. “Roads to P
rosperity? Assessin
g th
e Lin
k between
Pu
blic Capital an
d Produ
ctivity.” T
he Am
erican Econom
ic Review
89 (3): 619–638.Flax, Steph
en. 1983. “T
he C
rackdown
on C
olludin
g R
oadbuilders,” Fortune, O
ctober 3.Froeb, Lu
ke M., an
d Mikh
ael Shor. 2005. “A
uction
M
odels,” chapter 9 in
Hakrider, Joh
n, ed.,
Econom
etrics: Legal, Practical, and Technical Issues.
Ch
icago: Am
erican B
ar Association
.G
ambetta, D
iego, and Peter R
euter. 1995. “C
onspiracy
Am
ong th
e Many: T
he M
afia in
Legitimate
Indu
stries,” chapter 5 in
Fiorentia, G
ianlu
ca, and
Sam Peltzm
an, eds., T
he Econom
ics of Organized
Crim
e. Cam
bridge: Cam
bridge Un
iversity Press.
Gön
enç, R
auf,W
illi Leibfritz, and E
rdal Yilm
az. 2005. R
eformin
g Turkey’s P
ublic E
xpenditu
re M
anagem
ent. Paris: O
EC
D E
conom
ics D
epartmen
t Workin
g Papers No. 418.
Available at: http://w
ww
.oecd.org/official-docum
ents/displaydocumentpdf?cote=
EC
O/
WK
P(2005)5&
doclanguage=en
Golllin
, Dou
glas, and R
ichard R
ogerson. 2010.
Agriculture, R
oads, and Econom
ic Developm
ent in U
ganda. Nation
al Bu
reau of E
conom
ic Research
. W
orking Paper 15863. A
vailable at: http://ww
w.
nber.org/papers/w15863.
Govern
men
t of Brazil, D
epartamen
to de Proteção
e Defesa E
conôm
ica da Secretaria de Direito
Econ
ômico do M
inistério da Ju
stiça Esplan
ada dos M
inistérios. 2008. C
ombate a C
artéis em Licitações.
Brasília. A
vailable at: http://ww
w.com
prasnet.gov.br/banner/seguro/C
artilha_Licitacao.pdfG
overnm
ent of C
anada. 2010. Truquage des O
ffres: Sensibilisation et P
révention. Bu
reau de la
Con
curren
ce. Available at: http://w
ww
.bureaudela-concurrence.gc.ca/eic/site/cb-bc.nsf/fra/02601.htm
lG
overnm
ent of E
l Salvador, Superin
tenden
cia de C
ompeten
cia. 2010. Detectando y P
reviniendo O
fertas Colusorias en las C
ompras P
úblicas. San
Salvador. Available at: http://w
ww
.sc.gob.sv/up-loads/M
anual_ofertas_colusorias.pdf
Govern
men
t of France. C
onseil de la C
oncu
rrence. 2003.
Avis n
° 03-A-05 du
25 avril 2003 relatif à un
projet de décret réform
ant le code des m
archés pu
blics. Paris. A
vailable at: http://ww
w.autoritedelaconcur-
rence.fr/user/index.phpG
overnm
ent of Fran
ce. Con
seil de la Con
curren
ce. 2000. A
vis n° 00-A
-25 du 20 n
ovembre 2000 relatif à
un
projet de décret portant réform
e du code des
march
és publics. Paris. A
vailable at: http://ww
w.
autoritedelaconcurrence.fr/user/index.phpG
overnm
ent of K
enya, Kenyan
An
ticorruption
C
omm
ission. 2007. E
xamination R
eport into the System
s, Policies, Procedures and P
ractices of the R
oads Sub-Sector. Nairobi, K
AC
C, D
irectorate of P
reventive Services, Ju
ly.G
overnm
ent of K
enya, Min
istry of Plan
nin
g and
Nation
al Developm
ent. 2004. P
roceedings of the First K
enya-South Africa R
oundtable Discussion
on Science & Technology Partnerships R
elated to Infrastructure. N
airobi. Au
gust 31–Septem
ber 2. A
vailable at: http://ww
w.buildnet.co.za/akani/2004/
nov/pdfs/Kenya_SA
_Roundtable_P
roceedings.pdfG
overnm
ent of Lithu
ania. 2008. “C
ontribu
tion,” ch
apter in
OE
CD
2008b.G
overnm
ent of N
epal. 2009. A R
eview of C
ases of C
ollusion and Intimidation in P
ublic Procurem
ent: A
Way Forw
ard to Mitigate R
isks of Collusion and
Intimidation. K
atman
du.
Govern
men
t of the N
etherlan
ds, Neth
erlands
Com
petition A
uth
ority. 2010. Bid R
igging: D
etecting and Preventing C
ollusion in Procurem
ent.G
overnm
ent of N
orway. 2011. A
nn
ual R
eport of N
orwegian
Com
petition A
uth
ority 2010. Oslo:
Kon
kurran
setilsynet. A
vailable at: http://w
ww
.konkurransetilsynet.no/en/2010/
Govern
men
t of the P
hilippin
es, Departm
ent of
Pu
blic Works an
d Highw
ays. 2007a. Terms of
Referen
ce, Reform
Agen
da 007–02, Indepen
dent
Procu
remen
t Evaluator. A
vailable at: http://ww
w.
pegr.org.ph/pegr/fckuploadfolder/file/RA
007–02%20
TO
R%
20IPE
_22%20Jan%
202009_RP
T_V
2.pdfG
overnm
ent of th
e Ph
ilippines, D
epartmen
t of Pu
blic W
orks and H
ighways. 2007b. Term
s of Referen
ce, R
eform A
genda 007–05, In
dependen
t Techn
ical A
udit. A
vailable at:
Cu
rbin
g F
rau
d, C
orru
ptio
n, a
nd
Co
llusio
n in
the
Ro
ad
s Se
cto
r
40
http://ww
w.pegr.org.ph/pegr/fckuploadfolder/file/
RA
007–07%20T
OR
_%20Internal%
20Control-
Audit_R
FT_12Jun08%
202.pdfG
overnm
ent of th
e Ph
ilippines. 2003. Im
plemen
ting
Ru
les and R
egulation
s of Repu
blic Act 9184,
An
nex A
. Available at: http://w
ww
.comelec.
gov.ph/invi2bid/2009/RA
%209184_IR
R-A
%20
amended2_3rd%
20edition.PD
FG
overnm
ent of Slovakia, A
ntim
onopoly O
ffice. 2005.
Cartel A
greemen
t on H
ighway C
onstru
ction.
Available at: http://w
ww
.antimon.gov.sk/391/2097/
cartel-agreement-on-highw
ay-construction.axdG
overnm
ent of Tan
zania. 2004. P
ublic P
rocurem
ent
Act of 2004, Section
57. Available at: h
ttp://w
ww
.auwsa.or.tz/policies_regu
lations/
PR
OC
UR
EM
EN
T%
20AC
T%
202004.pdfG
overnm
ent of Tan
zania, P
residential C
omm
ission of
Inqu
iry Again
st Corru
ption. 1996. R
eport on the State of C
orruption in the Country. D
ar Es Salaam
.G
overnm
ent of th
e Un
ited Kin
gdom, O
ffice of Fair
Trade. 2004. Assessin
g the Im
pact of Pu
blic Sector P
rocurem
ent on
Com
petition. Lon
don: O
ffice
of Fair Trade. Available at: http://w
ww
.oft.gov.uk/shared_oft/reports/com
p_policy/oft742a.pdfG
overnm
ent of th
e Un
ited States, Delegation
of the
Un
ited States to the C
ompetition
Com
mission
. 2008. N
ote by the U
nited States. Paris: O
EC
D,
Jun
e. Available at: http://w
ww
.ftc.gov/bc/international/docs/C
onstruction_US.pdf
Govern
men
t of the U
nited
States, Dep
artmen
t of Ju
stice. 2007. Public P
rocurement: T
he Role of
Com
petition Authorities in P
romoting C
ompetition.
Available at: http://w
ww
.ftc.gov/bc/international/docs/pubproc.pdf
Govern
men
t of the U
nited States, D
epartmen
ts of Tran
sportation an
d Justice. 2004. G
uidelines on P
reparing Engineer’s Estim
ate, Bid R
eviews and
Evaluation. Available at: http://w
ww
.fhwa.dot.gov/
programadm
in/contracts/ta508046.cfm#s6
Govern
men
t of Zam
bia. 2010. Report of the A
uditor G
eneral on the Road D
evelopment A
gency for the Period January 2006 to Septem
ber 2009. Lu
saka. Available at: http://w
ww
.scribd.com/
doc/33544699/2006–2009-Auditor-G
eneral-Report-
on-Roads-D
evelopment-A
gency
Greif, A
vner. 2006. Institutions and the Path to the
Modern E
conomy: Lessons from
Medieval Trade.
Cam
bridge: Cam
bridge Un
iversity Press.
Grou
t, Paul A
., and Silvia Son
deregger. 2005. Predicting
Cartels. Lon
don: O
ffice of Fair Tradin
g. Available
at: http://ww
w.oft.gov.uk/shared_oft/reports/com
p_policy/oft773.pdf
Gu
pta, Srabana. 2001. “T
he E
ffect of Bid R
igging on
P
rices: A Stu
dy of the H
ighway C
onstru
ction
Indu
stry,” Review
of Industrial Organization, 19(4):
451–465.H
urw
icz, Leonid. 2007. B
ut Who W
ill Guard the
Guardians? Lectu
re Delivered u
pon R
eceiving
Nobel P
rize, Oslo. A
vailable at: http://nobelprize.org/nobel_prizes/econom
ics/laureates/2007/hur-w
icz_lecture.pdfH
üsch
elrath, K
ai, Nin
a Leheyda, an
d Patrick Besch
orner.
2009. “Assessin
g the E
ffects of a Road-Su
rfacing
Cartel in
Switzerlan
d,” Journal of Com
petition Law
& E
conomics 6(2): 335–374.
Jaeger, Axel-V
olkmar, an
d Götz-Sebastian
Hök. 2010.
FIDIC
: A G
uide for Practitioners. H
eidelberg: Sprin
ger.Joyce, Jon
. M. 1989. “E
ffect of Firm O
rganization
al Stru
cture on
Incen
tives to En
gage in P
rice Fixin
g,” Con
temporary Policy Issu
es 7(October):
19–33.K
ellman
, Steven. 2002. “R
evising Federal P
rocurem
ent,”
Public P
rocurement Law
Journal 31(4): 581–622.K
enny, C
harles. 2010. P
ublishing Construction C
ontracts and O
utcome D
etails. Wash
ington
, D.C
.: World
Ban
k, World B
ank Policy R
esearch W
orking Paper
5247, March
2010. Available at: http://charleskenny.
blogs.com/w
eblog/2010/04/publishing-construction-contracts-and-outcom
e-details.html
Kh
andker, Sh
ahidu
r, Victor Lavy, an
d Deon
Filmer.
1994. Schooling and Cognitive A
chievements of
Children in M
orocco. World B
ank D
iscussion
Paper 264. W
ashin
gton, D
.C.: W
orld Ban
k. A
vailable at: http://ww
w-w
ds.worldbank.org/exter-
nal/default/main?pageP
K=
64193027&piP
K=
64187937&
theSitePK
=523679&
menuP
K=
64187510&sea
rchMenuP
K=
64187283&theSiteP
K=
523679&entity
ID=
000009265_3970311124059&searchM
enuPK
=64187283&
theSitePK
=523679
Re
fere
nce
s
41
Khu
malo, Ju
nior, Pam
ela Nqojela, an
d Yongam
a N
jsane. 2009. C
over Pricin
g in th
e Con
struction
In
dustry: U
nderstan
ding th
e Practice W
ithin
a C
ompetition
Con
text. Pretoria. Paper prepared
for Fourth
An
nu
al Com
petition C
omm
ission,
Com
petition Tribu
nal an
d Man
dela Institu
te C
onferen
ce on C
ompetition
Law, E
conom
ics an
d Policy in Sou
th A
frica, Pretoria, Septem
ber. A
vailable at: http://ww
w.com
pcom.co.za/
fourth-competition-law
-conference/K
lein, D
aniel B
. 1997. Reputation: Studies in the
Voluntary E
licitation of Good C
onduct. An
n A
rbor, M
ichigan
: Un
iversity of Mich
igan P
ress.K
luen
ker, Chu
ck. 2001. “Risk vs C
onfl
ict of Interest
– Wh
at Every Ow
ner Sh
ould C
onsider W
hen
U
sing C
onstru
ction M
anagem
ent,” C
M eJournal,
Janu
ary. Available at: http://cm
aanet.org/files/risk_vs_conflict.pdf
Kn
ittel, Ch
ristopher R
., and V
ictor Stango. 2003. “P
rice C
eilings as Focal Poin
ts for Tacit Collu
sion:
Evidence from
Credit C
ards,” The A
merican
Econom
ic Review
93(5): 1703–1729.Lam
bert-Mogilian
sky, Arien
e. Forthcom
ing.
“Corru
ption an
d Collision
in P
rocurem
ent:
Strategic Com
plemen
ts,” chapter in
Susan
Rose-
Ackerm
an, ed., T
he International Handbook on the
Econom
ics of Corruption.
Lee, In K
won
, and K
yun
gdong H
ahn
. 2002. “Bid-R
igging
in A
uction
s for Korean
Pu
blic Works: C
ontracts
and Poten
tial Dam
ages,” Review
of Industrial O
rganization 21(1): 73–88.Leven
stein, M
argaret C., an
d Valerie Y. Su
slow. 2006.
“Wh
at Determ
ines C
artel Success?” Journal of
Econom
ic Literature 44(1): 43–95.Lyon
, M. B
eth. 1995. “T
he R
ole of the C
onsu
lting
En
gineer in
Developin
g Cou
ntry C
onstru
ction
Un
der FIDIC
Form C
ontract,” Law
& Policy in
International Business 26(1): 273–294)
Mariel, H
ector A. 2003. “G
overnm
ent C
ontracts U
nder
Argen
tine Law
: A C
omparative Law
Review
,” Fordham
International Law Journal 26: 1716–1753.
Martin
, George. 1983. A
nd Never the Tw
ain Shall Meet:
Cross-C
ultural Conflict in the A
dministrative
Process, U
.S. Military P
rocurement in K
orea. B
loomin
gton: In
ternation
al Developm
ent
Institu
te, Indian
a Un
iversity.
McA
fee, R. P
reston, an
d John
McM
illan. 1987. “A
uction
s an
d Biddin
g,” Journal of Econom
ic Literature 25(3): 699–738.
McM
illan, Joh
n. 1991. “D
ango: Japan’s Price Fixin
g C
onspiracies,” E
conomics and Politics 3(3):
201–218.M
essick, Rich
ard E. 2009. Incom
e and Assets D
eclarations: Issues to C
onsider in Developing a D
isclosure R
egime. B
ergen, N
orway: C
hr. M
ichelsen
Institu
te. A
vailable at: http://ww
w.cm
i.no/publications/publication/?3396=
income-and-assets-declarations
Milgrom
, Paul. 2004. P
utting Auction T
heory to Work.
Cam
bridge: Cam
bridge Un
iversity Press.
Miller, N
athan
H. 2009. “Strategic Len
iency an
d Cartel
En
forcemen
t.” Am
erican Econom
ic Review
, 99(3): 750–68.
Mitch
ener, K
ris, and N
oel Mau
rer. 2010. “Ren
ting
Institu
tions to C
ombat C
orruption
.” Available at
http://chartercities.org/blog/99/renting-institutions-to-com
bat-corruption-kris-mitchener-and-noel-
mauer
Mw
angi, A
nth
ony. 2004. “Mozam
bique,” ch
ap-ter 5 in
De W
ulf, Lu
c, and Jose B
. Sokol, eds., C
ustoms M
odernization Initiatives: Case Studies.
Wash
ington
, D.C
.: World B
ank.
Ndeku
gri, Issaka, Nigel Sm
ith, an
d Will H
ugh
es. 2007. “T
he E
ngin
eer un
der FIDIC
’s Con
ditions
of Con
tract for Con
struction
,” Construction
Managem
ent and Econom
ics 25(July): 791–799.
Organ
ization for E
conom
ic Cooperation
and
Developm
ent [O
EC
D]. n
.d. Guidelines for Fighting
Bid R
igging in Public P
rocurement: H
elping G
overnments to O
btain Best V
alue for Money. Paris:
OE
CD
.O
EC
D. 2010a. 9
th Global Forum
on Com
petition, Paris, February 18–19. A
vailable at: http://w
ww
.oecd.org/document/34/0,3343,
en_40382599_40393118_44060194_1_1_1_1,00.html
OE
CD
, Directorate for Fin
ancial, Fiscal, an
d En
terprise A
ffairs, Com
petition C
omm
ittee. 2010b. C
ollusion
and C
orruption
in P
ublic P
rocurem
ent,
Introdu
ctory Note by th
e Secretariat, Paris, O
EC
D. A
vailable at: http://ww
w.oecd.org/datao-
ecd/38/33/44511981.pdfO
EC
D. 2008a. Fighting C
artels in Public P
rocurement.
Paris: OE
CD
.
Cu
rbin
g F
rau
d, C
orru
ptio
n, a
nd
Co
llusio
n in
the
Ro
ad
s Se
cto
r
42
OE
CD
. 2008b. Policy Roundtables: C
onstruction Industry. Paris: O
EC
D.
OE
CD
. 2006. Prosecuting C
artels without D
irect Evidence. Paris: O
EC
D.
OE
CD
. 2003. Hard C
ore Cartels: R
ecent Progress and
Challenges A
head. Paris: OE
CD
.O
EC
D. 1998. R
ecomm
endation
of the C
oun
cil C
oncern
ing E
ffective Action
against H
ard Core
Cartels. Paris: O
EC
D. A
vailable at: http://ww
w.
oecd.org/dataoecd/39/4/2350130.pdf.O
EC
D. 1990. G
lossary of Indu
strial Organ
ization
Econ
omics an
d Com
petition L
aw. Paris:
OE
CD
. Available at: http://w
ww
.oecd.org/datao-ecd/8/61/2376087.pdf
Olken
, Ben
jamin
A. 2007. “M
onitorin
g Corru
ption:
Evidence from
a Field Experim
ent in
Indon
esia,” Journal of Political E
conomy 115 (2): 200–249.
Olu
ka, Pross N
agitta, and Fran
cis Ssenn
oga. 2008. Tackling C
orruption in Public P
rocurement: C
ase of Local G
overnment in U
ganda, Paper pre-pared for 3rd In
ternation
al Pu
blic Procu
remen
t C
onferen
ce,G3. A
vailable at: http://ww
w.unpcdc.
org/media/13246/tacklg%
20corrup%20in%
20pp%
20loc%20govt%
20in%20uganda.pdf
Oxford B
usin
ess Grou
p. 2004. Emerging R
omania.
London
.Patterson
, William
D. O
., and P
inki C
hau
dhuri. 2007.
“Makin
g Inroads on
Corru
ption in
the Tran
sport Sector T
hrou
gh C
ontrol an
d Preven
tion,” ch
apter 5 in
Cam
pos, J. Edgardo, an
d Sanjay P
radhan
, eds., T
he Many Faces of C
orruption: Tracking V
ulnerabilities at the Sector Level. Wash
ington
, D
.C.: W
orld Ban
k.Posn
er, Rich
ard A. 2001. A
ntitrust Law. C
hicago:
Un
iversity of Ch
icago Press, 2
nd ed.
Price W
aterhou
se Coopers. 2008. M
onitorin
g Agen
t R
eport to the M
DT
F-S Adm
inistrator, Fin
al R
eport. Janu
ary.Polgreen
, Lydia. 2010. “Righ
t-to-Kn
ow Law
Gives In
dia’s Poor a Lever,” N
ew York T
imes, Ju
ne 28.
Porter, Robert, an
d Dou
glas Zon
a. 1993. “Detection
of B
id-Riggin
g in P
rocurem
ent A
uction
s,” Journal of Political E
conomy 101: 518–538.
Ram
kum
ar, Vivek. 2008. O
ur Money, O
ur Responsibility:
A C
itizen’s Guide to M
onitor Governm
ent E
xpenditures. Wash
ington
, D.C
.: Intern
ational
Bu
dget Project. A
vailable at: http://ww
w.inter-
nationalbudget.org/library/publications/index.cfm
?fa=view
&id=
3520Sich
ombo, B
. et al. 2009. “Th
e Need for Tech
nical
Au
diting in
the Z
ambian
Con
struction
Indu
stry,” International Journal of P
roject Managem
ent 27: 821–832.
Sing, San
jeet. 2005. “Fighting C
orruption
in D
eveloping
Cou
ntries: D
imen
sions of the P
roblem in
India.”
Paper prepared for Good G
overnan
ce, Institu
tional
Integrity an
d Hu
man
Resou
rces Man
agemen
t for R
oad Adm
inistration
s, Session 2, In
tegrity in the
Road Sector, W
orld Road A
ssociation. A
vailable at: http://publications.piarc.org/en/sem
inars/semi-
nars_05/warsaw
_October05.htm
.Sm
ith, A
dam. 1937 [1776]. A
n Inquiry into the Nature
and Causes of the W
ealth of Nations. N
ew York:
Modern
Library, available at: http://w
ww
.econlib.
org/library/Smith
/smW
N.h
tml
Soemardi, Tresn
a. 2010. “Interface B
etween
Com
petition
Au
thorities, C
ompetition
Regu
lations, an
d Oth
er R
egulatory Fram
eworks an
d Institu
tions in
In
frastructu
re Service.” Report prepared for M
ulti-
year Expert M
eeting on
Services, Developm
ent
and Trade: T
he R
egulatory an
d Institu
tional
Dim
ension
. Gen
eva, UN
CTA
D, M
arch 17–19.
Available at: http://w
ww
.unctad.org/templates/Page.
asp?intItemID
=5353&
lang=1
Songco, Jocelyn
A. 2002. D
o Rural Infrastructure
Investments B
enefit the Poor? Evaluating Linkages: A
Global V
iew, a Focus on V
ietnam. Policy
Research
Workin
g Paper Series 2796. Wash
ington
, D
.C.: W
orld Ban
k. Available at: http://ideas.repec.
org/p/wbk/w
brwps/2796.htm
lStew
art, Taimoon
, Julian
Clarke, an
d Susan
Joekes. 2007. C
ompetition Law
in Action:
Experiences from
Developing C
ountries. Ottaw
a: In
ternation
al Developm
ent R
esearch C
entre.
Available at: http://w
ww
.idrc.ca/uploads/user-S/11781215481C
ompetition_Law
.pdf.Stigler, G
eorge J. 1964. “A T
heory of O
ligopoly,” Journal of Political E
conomy 71(1): 44–61.
Tempo. 2010. “H
adi’s Holdin
gs: State Au
dit Head an
d Form
er Director-G
eneral of Tax, H
adi Poernom
o, Failed to D
isclose All h
is Assets to th
e KP
K.” Ju
ne
23–29.
Re
fere
nce
s
43
Transparen
cy Intern
ational. 2009. C
oun
tering C
artels to E
nd C
orruption
and P
rotect the C
onsu
mer.
Berlin
: Transparen
cy Intern
ational. A
vailable at: http://w
ww
.transparency.org/publications/publications/policy_positions/pp_7_2009_cartels
Transparen
cy Intern
ational. 2006. H
andbook for Curbing
Corruption in P
rocurement. B
erlin: Tran
sparency
Intern
ational. A
vailable at: http://ww
w.trans-
parency.org/publications/publications/other/procurem
ent_handbookU
NC
TAD
[Un
ited Nation
s Con
ference on
Trade and
Developm
ent]. 2010. C
ompetition
Law
and
Policy Web Site: http://w
ww
.unctad.org/Templates/
StartPage.asp?intItemID
=2239&
lang=1
Van
den H
euvel, Grat. 2006. “T
he Parliam
entary
En
quiry on
Fraud in
the D
utch
Con
struction
In
dustry: C
ollusion
as Con
cept between
C
orruption
and State-corporate C
rime,” C
rime,
Law &
Social Change 44(2): 133–151.
Van
Klin
ken, G
erry and E
dward A
spinall. 2011.
“Bu
ilding R
elations: C
orruption
, Com
petition
and C
ooperation in
the C
onstru
ction In
dustry,”
chapter in
Edw
ard Aspin
all and G
erry van
Klin
ken, eds., T
he State and Illegality in Indonesia. Leiden
: KIT
LV P
ress.W
oodall, Brian
. 1996. Japan Under C
onstruction: C
orruption, Politics, and Public W
orks. Berkley:
Un
iversity of Californ
ia Press.
World B
ank. n
. d. Redacted R
eport: National R
oads Im
provement and M
anagement P
rogram (P
hase 1). W
ashin
gton, D
.C.: W
orld Ban
k, Integrity V
ice P
residency. A
vailable at: http://siteresources.world-
bank.org/INT
DO
II/Resources/IN
T_redactedre-
port_Philippines.pdf
World B
ank. 2010a. G
uidelines: Procurem
ent Under
IBR
D Loans and ID
A C
redits. Available at: http://
web.w
orldbank.org/WB
SITE
/EX
TE
RN
AL/
PR
OJE
CT
S/PR
OC
UR
EM
EN
T/0,,contentM
DK
:20060840~
menuP
K:84282~
pagePK
:84269~piP
K:6000
1558~theSiteP
K:84266,00.htm
l.W
orld Ban
k. 2010b. Standard Bidding D
ocuments:
Procurem
ent of Works &
User’s G
uide. May.
Available at: http://siteresources.w
orld-bank.org/IN
TP
RO
CU
RE
ME
NT
/Resources/
Works-4–07-ev2_M
ay2010_v2.pdf
World B
ank. 2009a. D
eterring Corruption and
Improving G
overnance in Road C
onstruction and M
aintenance. Wash
ington
, D.C
., World B
ank,
Transport Sector B
oard.W
orld Ban
k. 2009b. Repu
blic of Arm
enia: C
oun
try P
rocurem
ent A
ssessmen
t Report. W
ashin
gton,
D.C
.: World B
ank, R
eport No. 49975-A
M.
Available at: http://im
agebank.worldbank.org/serv-
let/WD
SContentServer/IW
3P/IB
/2009/10/05/000333037_20091005002008/R
endered/PD
F/499750ESW
0AM
0P1IC
0disclosed01011191.pdfW
orld Ban
k. 2008a. Safe, Clean, and A
ffordable . . .: Transport for D
evelopment. W
ashin
gton, D
.C.,
Transport Sector B
oard.W
orld Ban
k. 2008b. Project A
ppraisal, Ph
ase 2 of the
Nation
al Roads Im
provemen
t and M
anagem
ent
(AP
L) P
rogram. W
ashin
gton, D
.C.: W
orld Ban
k, A
pril 15. Available at: http://w
ww
-wds.w
orldbank.org/servlet/m
ain?menuP
K=
64187510&pageP
K=
64193027&
piPK
=64187937&
theSitePK
=523679&
entityID
=000334955_20080428082019
World B
ank, In
dependen
t Evaluation
Grou
p. 2008c. U
sing Know
ledge to Improve D
evelopment
Effectiveness: A
n Evaluation of World B
ank E
conomic and Sector W
ork and Technical A
ssistance, 2000–2006. Wash
ington
, D.C
. World
Ban
k. Available at: http://w
ww
-wds.w
orldbank.org/external/default/W
DSC
ontentServer/WD
SP/IB
/2009/05/22/000333037_20090522014837/R
endered/PD
F/485970PU
B0know
10Box338915B
01PU
BLIC
1.pdfW
orld Ban
k. 2007. A D
ecade of Action in Transport:
An Evaluation of W
orld Bank A
ssistance to the Transport Sector, 1995–2005. W
ashin
gton, D
.C.:
Th
e World B
ank, In
dependen
t Evaluation
Grou
p.W
orld Ban
k. 2006a. Expansion of Sanction B
eyond P
rocurement and Sanctioning of O
bstructive P
ractices. Wash
ington
, D.C
., July 28. A
vailable at: http://siteresources.w
orldbank.org/INT
DO
II/R
esources/SanctionsReform
06.pdfW
orld Ban
k. 2006b. Project A
ppraisal, Repu
blic of Paragu
ay, Road M
ainten
ance P
roject. Wash
ington
, D
.C.: W
orld Ban
k, July 24. A
vailable at: http://im-
agebank.worldbank.org/servlet/W
DSC
ontentServer/IW
3P/IB
/2006/08/08/000090341_20060808104830/R
endered/PD
F/36421.pdf
Cu
rbin
g F
rau
d, C
orru
ptio
n, a
nd
Co
llusio
n in
the
Ro
ad
s Se
cto
r
44
World B
ank. 2001. In
donesia C
oun
try Procu
remen
t A
ssessmen
t Report: R
eformin
g the P
ublic
Procu
remen
t System. W
ashin
gton, D
.C.: W
orld B
ank. A
vailable at: http://imagebank.w
orldbank.org/servlet/W
DSC
ontentServer/IW3P
/IB/2001/04
/27/000094946_01041707211320/Rendered/P
DF/
multi0page.pdf
World B
ank. 1994. W
orld Developm
ent Report 1994:
Infrastructure for Developm
ent. New
York: Oxford
Un
iversity Press.
Zogh
bi, Valen
tina. 2009. “Strategic P
riorities of C
ompetition
and R
egulatory A
gencies in
D
eveloping C
oun
tries,” chapter 3 in
Meh
ta, P
radeep S., and Sim
on J. Even
ett, eds., Politics Trium
phs Econom
ics? Political Econom
y and the Im
plementation of C
ompetition Law
and Econom
ic R
egulation in Developing C
ountries. New
Delh
i: A
cademic Fou
ndation
.
Proving
Bid
Rig
ging
o
n Ro
ads Tend
ers
It does not have to be made in w
riting; no form
alities are necessary, and no contractual sanctions or enforcem
ent measures are re-
quired. The fact of agreem
ent may be express
or implicit in the behavior of the parties.
Eu
ropean C
omm
un
ities v. F. Hoffm
an-la
Roch
e AG
, 4 C.M
.L.R. 22, 37 (2003).
As th
e Eu
ropean C
ourt of First In
stance observed in
th
e above excerpt from th
e Vitam
in Cartel case, collu
-sive agreem
ents com
e in m
any forms—
written
or oral, in
formal or form
al, express or implied. Parties to su
ch
agreemen
ts generally go to great len
gths to con
ceal their
existence, an
d so, particularly w
hen
an agreem
ent is
inform
al or implied, establish
ing its presen
ce in a legal
proceeding can
be a challen
ge. With
courts an
d competi-
tion agen
cies hearin
g an ever larger n
um
ber of allega-tion
s of collusive agreem
ents, h
owever, som
e comm
on
principles h
ave emerged for provin
g collusion
, a conver-gen
ce furth
ered by a rich cross-n
ational dialogu
e and an
expan
ding body of com
parative law sch
olarship.
All ju
risdictions distin
guish
between
direct and in
direct eviden
ce of collusion
. Direct eviden
ce is testimony de-
scribing, or docu
men
ts show
ing, a collu
sive agreemen
t. In
direct, or circum
stantial, eviden
ce consists of facts
and circu
mstan
ces from w
hich
an adm
inistrative body
or a court of law
can in
fer the existen
ce of a collusive
agreemen
t.
In cases of bid riggin
g, direct evidence w
ould in
clude th
e testim
ony of one or m
ore individu
als wh
o participated
in riggin
g by, for example, su
bmittin
g a cover bid or agreein
g not to bid. O
ther form
s of direct evidence
wou
ld inclu
de the testim
ony of those w
ho w
itnessed th
e riggin
g, such
as clerical or support staff of th
e compa-
nies involved, or fi
rms th
at were invited to rig th
e tender
but declin
ed. Docu
men
ts disclosing som
e or all of the
details of the bid riggin
g wou
ld be anoth
er form of di-
rect evidence.
Indirect eviden
ce is generally broken
down
into tw
o categories. T
here is fi
rst econom
ic evidence sh
owin
g th
e market is n
ot competitive. In
the case of road con
-tracts, it w
ould con
sist of evidence dem
onstratin
g that
condition
s make it likely th
at bidders do not com
pete for ten
ders. As th
e discussion
in th
is report show
ed, in
the roads sector in
most cou
ntries a pleth
ora of this
type of evidence w
ill likely be available: the produ
ct is h
ighly stan
dardized; prices are inelastic, th
at is, insen
si-tive to ch
anges in
costs; and a few
firm
s domin
ate the
market. W
hen
coupled w
ith a system
of open pu
blic ten
dering, th
e econom
ic case for collusion
is very strong.
Addition
al econom
ic evidence of collu
sion in
particular
cases wou
ld inclu
de (a) bids signifi
cantly in
excess of costs, (b) fi
rms w
ith excess capacity, or oth
er econom
ic in
centives to bid, declin
ing to do so, (c) th
e market
shares of th
e large firm
s remain
ing stable over tim
e, and
(d) a pattern of w
inn
ing bids sh
owin
g firm
s taking tu
rns
“win
nin
g” over time.
No m
atter how
strong th
e econom
ic evidence, cou
rts an
d competition
law agen
cies almost alw
ays require
some addition
al evidence to fi
nd collu
sion. T
he reason
is
An
nex 1
Cu
rbin
g F
rau
d, C
orru
ptio
n, a
nd
Co
llusio
n in
the
Ro
ad
s Se
cto
r
46
that th
e structu
re of some in
dustries alon
e can produ
ce n
oncom
petitive condition
s, wh
at is termed “oligopolistic
interdepen
dence,” even
with
out a collu
sive agreemen
t. T
his in
terdependen
ce is typically foun
d in m
arkets w
here a few
firm
s man
ufactu
re a hom
ogeneou
s prod-u
ct and prices are in
elastic and pu
blicly posted or an-
nou
nced. In
these m
arkets, it is in each
firm
’s long-ru
n
self-interest to m
aintain
supra-com
petitive prices, and
if all firm
s recognize th
is, an agreem
ent n
ot to compete
may n
ot be necessary. T
he u
se of a first-price, sealed-bid
auction
to award road con
struction
and m
ainten
ance
contracts m
akes oligopolistic interdepen
dence in
the
roads sector un
likely. On
the oth
er han
d, there can
be circu
mstan
ces—su
ch as w
hen
engin
eering costs esti-
mates are dissem
inated or th
e nam
es of all bidders and
the am
oun
ts each bid are revealed—
un
der wh
ich fi
rms
in th
e roads sector migh
t be able avoid competin
g with
-ou
t a collusive agreem
ent.
For this reaso
n, so
me evid
ence o
f an agreem
ent w
ill be u
seful to
assure th
e fact-fin
der th
at collu
sion
is p
resent. Su
ch ad
ditio
nal evid
ence is com
mo
nly
termed
a “plu
s factor,” an
d co
urts an
d com
men
tators
have id
entifi
ed vario
us typ
es, dep
end
ing u
po
n th
e
characteristics o
f the p
articular m
arket and
the typ
e o
f collu
sive arrangem
ent alleged
. On
e fairly exhau
stive list is in
OE
CD
2006. Exam
ples o
f plu
s factors in
the
road
s sector w
ou
ld in
clud
e (a) bids th
at are iden
ti-cal in
all or alm
ost every resp
ect except p
rice, (b) an
econ
om
etric or statistical an
alysis show
ing th
at the
bids w
ere no
t prep
ared in
dep
end
ently, (c) th
e subm
is-sio
n o
f fraud
ulen
t bid secu
rities by well-establish
ed
firm
s, (d) o
ral or w
ritten com
mu
nicatio
ns abo
ut p
lans
to bid
or th
e amo
un
t of a bid
, (e) agreemen
ts on
sub-
contractin
g, (f) the p
urch
ase of bid
din
g do
cum
ents by
firm
s that d
id n
ot bid
, and
(g) comm
un
ication
s and
m
eetings ju
st before a ten
der is d
ue.
As in
any factual determ
ination
, the eviden
ce mu
st be con
sidered as a wh
ole. Credible direct eviden
ce of bid riggin
g is often su
fficien
t to show
collusion
. In its ab-
sence, th
e econom
ic and n
onecon
omic eviden
ce will
be weigh
ed together. In
the roads sector, w
here th
e eco-n
omic eviden
ce of the absen
ce of competition
is likely to be stron
g, the plu
s factor or factors presented m
ay not
need to be as probative as th
ey wou
ld have to be w
hen
th
e econom
ic evidence is m
ore problematic (O
EC
D
2006, Posner 2001).
Refo
rms to
Public Pro
curement
in OE
CD
Co
untries
Ban
nin
g pre-bid meetin
gs with
more th
an on
e po-ten
tial supplier.
Limitin
g comm
un
ications betw
een bidders du
ring
the ten
der process.U
sing n
egotiated tenders an
d framew
ork agreemen
ts w
hen
collusive beh
avior persists.U
sing a ceilin
g price only if it is based on
thorou
gh
market research
and en
gineerin
g estimates an
d of-fi
cials are convinced it is very com
petitive. En
surin
g it is kept it con
fiden
tial.Takin
g precaution
s wh
en u
sing in
dustry con
sultan
ts to con
duct th
e tenderin
g process; ensu
ring th
ey have
not establish
ed workin
g relationsh
ips with
indi-
vidual bidders.
Wh
enever possible, requ
esting th
at bids be filed
anonym
ously (e.g. con
sider identifyin
g bidders with
n
um
bers or symbols) an
d allowin
g bids to be sub-
mitted by teleph
one or m
ail.
Keepin
g bidders’ identities con
fiden
tial and n
ot lim-
iting th
eir nu
mber u
nn
ecessarily.R
equirin
g bidders to disclose all comm
un
ica-tion
s with
competitors an
d to sign a C
ertificate of
Indepen
dent B
id Determ
ination
.B
ann
ing su
bcontractin
g in appropriate circu
m-
stance an
d at a min
imu
m requ
iring bidders to dis-
close in advan
ce if they in
tend to u
se subcon
tractors.B
ann
ing join
t bids wh
en appropriate as th
ey facili-tate com
mu
nication
and profi
t splitting am
ong bid
riggers.Su
bjecting extern
al consu
ltants to a reportin
g re-qu
iremen
t if they becom
e aware of im
proper com-
petitor behavior or any poten
tial confl
ict of interest.
Source: OE
CD
n.d.
An
nex 2
