Public Procurement


The government procurement sector in Korea is very large. According to the Legal system of Korea (The National Contract Act) any contract in which the government agencies or the state are parties, should go through biddings.
2 methods in competition promotion in auction and bidding markets:
1) Indirect method – implementing corruption and bid rigging mechanisms (efforts and actions of the Korean Government):
• Improving the public procurement system (centralizing all operations through Public Procurement Service – the main
procurement institution conducting all the necessary operations);
• Adopting the electronic bidding system;
• Setting the principle “Free Competitive Bidding” – no restriction in terms of qualification for participation.
2) Direct method - detection and correction of collusive biddings – actions, policy tools and laws taking by Korea Fair Trade Commission (KFTC) :
• Monitoring cartels in by placing specific people to each national economic industry;
• Implementing “Bid Rigging Indicator Analysis System” (BRIAS), which automatically detects and analyses possibility of collusive biddings by using statistical and empirical analysis tools.


The Hungarian Competition Authority has not yet had a merger where specifically
“bidding market” characteristics would have been taken into account.
After, reading the examples regarding auctions, one of them concerning the bidding for electricity cross border transmission rights, and public procurement tenders, one of them bidding on motorway, also there were many on them, there were made some preliminary conclusions, that leads to maximize competition in auctions:
1. Ascending auctions with the number of rounds maximized as well as minimum bid requirements may prevent the market from clearing.
2. Smaller bidders may be helped to bid in certain cases by making the obtained quantity of goods
3. If a tender is cancelled and called for again, the risk of collusion is higher.
4. Attracting new bidders may be especially important if incumbent bidders have already
colluded in the past.
5. Having the same number of auctioned items and bidders proved to be conducive to collusion.


The intensity of competition in many markets strongly depends on the regulatory framework. In bidding markets, this dependency is particularly strong. In Switzerland, the Federal Act on Public Procurement, which is of high importance for bidding markets, is currently being revised. The objectives of the revision are:

• to modernise public procurement (e.g. by introducing electronic procedures);
• to clarify the legal terms in the realm of public procurement;
• to make public procurement more flexible (specific tender procedure for very complex projects);
• and to harmonise public procurement (today, 27 frameworks exist in Switzerland: one framework in each of the 26 cantons and one framework for the Confederation).

1. Competition issues in bidding markets: An overview

A whole set of factors influences efficiency and functioning of bidding markets. In order to analyze the relevant regulatory framework from a competition perspective, it must firstly be examined whether procuring entities have incentives to procure efficiently. Secondly, the framework must promote competition between (potential) suppliers.
Hard horizontal agreements between suppliers such as price fixing or market segmentation are assumed to eliminate effective competition according to Art. 5 para 3 ACart. However, the Swiss Competition Commission must prove that the presumption can be reversed and that the agreement cannot be justified by reasons of economic efficiency. The parties involved are nevertheless required to help in establishing the facts. If the Swiss Competition Commission proves that horizontal agreements eliminate effective competition or are not justified by reasons of economic efficiency, the involved enterprises are fined.
A special form of horizontal agreements are bidding consortia. On the one hand, bidding consortia aim at increasing the power of the involved suppliers and thus may tend to limit competition. On the other hand, allowing bidding consortia of enterprises can increase the number of potential bidders that would otherwise not be able to place a bid. Thus, competition would intensify.
According to a survey of the Federal Procurement Commission, about 50% of all suppliers in bidding markets have been affected by horizontal agreements in the past. This leads to the conclusion that collusionary practices are probably widespread in bidding markets. As there are not nearly as much cartel law cases as one would expect according to the mentioned survey, one must also conclude that such agreements are often difficult to disclose. The Secretariat of the Competition Commission has created a checklist of indications that help to identify collusionary practices in bidding markets.

2. Raccomandations

The Secretariat of the Competition Commission developed a set of measures that may foster competition in bidding markets (extract of all measures):

• Harmonization of the legal framework and juridical procedures: The fragmentation of cantonal procurement frameworks leads to a lack of transparency and legal uncertainties.
• Mandatory publication of tendering procedures on a single platform that is nationally and internationally accessible (reduces transaction costs).
• Creation of a legal framework for electronic procurement procedures: Electronic procurement procedures can contribute to lowering transaction costs for suppliers and procuring entities.
• A standardization and a decrease of threshold levels: they lead to better price/performance-ratio.
• An enhancement of flexibility for procuring entities thanks to the introduction of new procedures.
• Further transparency enhancements: The procuring entity should answer to all interested suppliers.
• Introduction of functional tender models: They increase flexibility for suppliers, reduce discriminations, and enhance the innovation potential.
• Limitation of qualification criteria to a reasonable level.
• Mandatory publication of selection criteria and weightings (before decisions are taken: it increases transparency and reduces the risk of capturing).
• Strict limits to the consideration of subjective criteria: All criteria that are either non-objective or discriminating should be excluded from tendering procedures as they increase the risk of capturing and harm competition.

So far, there have not been many cartel law cases in public procurement procedures. This is partly due to the fact that direct sanctions against cartel law infringements were only introduced in 2004 in Switzerland.


• The same supplier wins tenderings in a certain market all the time (consider existence of compensation payments to other potential suppliers).
• The same group of suppliers participates in certain tenderings and there seems to be a regular pattern of winning firms (consider rotation principle).
• The number of bids is unusually low.
• The offered price is significantly above the price level expected by the supplier.
• The offered price is significantly above price levels observed in the past.
• The difference in price between the bids seems to be unexplainable.
• The offered prices seem to fall significantly as soon as new or irregularly participating companies submit bids.
• Two or more companies submit a joint bid, although each of the companies should be able to place a bid alone.
• The winner of the bid closes subcontracts with companies that were not successful with their bids.
• Suppliers are not willing to offer discounts although they offered discounts in the past.
• Prices offered by regional companies are significantly higher in one region than in other regions.


BUNDESKARTELLAMT : public procurement tribunal


  • Competition* Transparency
  • Non-discrimination
  • Fair tendering procedures
Bundesagentur fϋr Arbeit:In its invitation to tender for the supply of network components to expand its network infrastructure, it explicitly asked for products of a certain component manufacturer. The Bundeskartellamt found that the invitation to tender was not only contrary to the provision demanding product neutrality but also contrary to the principle of competition and non-discrimination. According to the principle of non-discrimination, trade names may only be asked for as an exception and only with the addition “or equivalent”.
The design of a repository for the state library in Berlin The Bundeskartellamt ordered the contracting authorities to re-evaluate the request by a bidder to participate in the competition, since it was only evaluated according to the criterion “quality of design” and not to the others clearly distinguished in the invitation to tender. By not applying its own criteria, the contracting entity violated the principles of transparency, non-discrimination and fair tendering procedures.
The German Federal Ministry of Finance had shortened the deadline significantly because of the ongoing legislative process in which the ministry wanted to include results to be established by the contractor. The applicant was not able to make his request. The Bundeskartellamt found that the ministry had violated its obligation to stick to the statutory deadlines because there were no convincing reasons to shorten the deadline. A shortening of the deadline is only possible in cases of particular urgency that must not have their cause in the internal organization of the public entity. (Importance of deadlines)

2. BIDDING CONSORTIA: Collusive bidding is prohibited by Art. 81 EC Treaty and Section 1 of ARC. Bid rigging is also prosecuted as a criminal offence (Section 298 Penal Code).
Setting up a bidding consortium between two or more significant competitors is a cartel agreement if:

  • Both companies would have submitted a bid absent the agreement to bid jointly;
  • Bidding separately would have been a viable and rational business decision;
  • The agreement appreciably restricts competition.

EXCEPTIONS: bidders are allowed to submit a joint bid in an auction under specific conditions.

3. AUCTIONING OBLIGATIONS: effective remedy in antitrust enforcement and merger control

  • Structural remedies: selling parts of the company
  • Remedies aimed at opening up markets by reducing barriers to entry:
    • cost savings through auctions (increase in efficiency)
    • joint venture permission subject to auctioning conditions

4. MERGER: subject to the conditions for free entry for newcomers

  • The “bidding market defence” = because the market is characterized by auctions, it is impossible for the suppliers to have market power —> rejected
  • Geographic vicinity of the company to the place of tender —> credible bidders
  • Market shares are less significant in bidding markets if compared to other markets —> even though the market leader has high market shares, it nevertheless cannot act independently of competitors (due to a sufficient number of credible bidders)
  • Buyer power in bidding markets —> rejected (also bidders are able to influence the auction design, e.g. there is only a supplier able to meet the requirements)


JFTC : The Japan Fair Trade Commission

THE AIM: It is to address an aggressive policy capable to promote competition in a public procurement system and improve Bidding system, which in turns should prevent bid rigging.

THE ACTS: Japan has a specific prohibitions in their competition Laws forbidding bid-rigging, such as:

  • The Antimonopoly Act ( AMA), which came into effect in January 2006, with new measures which included increasing the surcharge rate, introducing a leniency program, and introducing compulsory measures for criminal investigations. It is expected that the revised AMA will make the provision prohibiting bid rigging more effective and will give entrepreneurs an incentive to voluntarily refrain from collusive bidding.
  • The Act Concerning Elimination and Prevention of Involvement in Bid Rigging, which provides to us a clear definition of BID RIGGING. In fact, it states that bid rigging is a “typical Cartel”, one of the most serious breaches of AMA. It is also considered a form of predetermining a bid winner, which restricts a competition in the Public market. As a result, It is seen by the JFFC as a form of “Unreasonable Restrain Trade”

INVOLVEMENT IN BID RIGGING: It can consist in two different situation. The General case refer to the case in which there is an entrepreneur or trade association engage in bid rigging. Instead, the Special case, that is called “the Kansey-dango” ( it is very common in Japan in the recent years) is a case in which the officials of procurement Institution get involved in a bid rigging, by instructing the entrepreneur to conduct collusive bidding. If the JFTC finds that entrepreneurs carry out acts of bid rigging violating the AMA and that an employee of a procurement institution is involved to a certain degree in this violation, then the JFTC identifies the involvement of the employee as a form of misconduct which is defined in the Involvement Prevention Act. Moreover, it is stated that the heads of procurement agencies must implement necessary improvement measures whenever they recocognize involment in bid rigging by their employees.

“Who have violated the AMA by conducting bid rigging shall incur absolute liability to those who have suffered damage from their Acts in cases for which the JFTC decision has been concluded” . JFTC believes that claims for damages will be effective for preventing bid rigging.

The JFTC endeavors to raise awareness about the details of the reports and survey results through holding a meeting between the JFTC and the liaison officials of other government agencies.


Authorities Involved:
1) Turkish Competition Authority (TCA called thereafter)
Original Name of the Authority: Türkiye Rekabet Kurumu
2) Privatisation Administration (PA called thereafter)
Original Name of the Authority: Özelleştirme İdaresi Başkanlığı
3) Prime Minister’s Office
The act including competition issues in Turkey is numbered as Act No 4054 (which you can find in English at

How it Works?
PA is responsible of executing privatisation transactions of state-owned companies/firms. However, it is compulsory for PA to ask the relevant opinions of TCA before the privatisation processes and approval. The task undertaken by TCA is to evaluate, seek and presume the results to be occured in the relevant market of privatisation, i.e. by means of its effects after privatisation and comments on possible distortions in the level of competition in the relevant market. Thus, TCA gives its priority to guarantee a competitive market after the privatisation transaction. From those point of views, the opinions of TCA is very important, because those decisions might have a direct or indirect effect on the type of privatisation, on the number participants etc. On the other hand, PA is bound to Prime Minister’s Office, Prime Minister can anytime get involved in the privatisation transaction if s/he thinks that there is something illegal, or if there occurs something which are against the public’s or state’s sake.


Authority of public procurement
The Office for the Protection of Competition of the Czech Republic.
Main areas
Construction and energy production sector, competition advocacy.
Character of areas
-primarily competition for the market and not on the market,
-the market shares of competitors are changing in time and it is not possible to result in the assessment of the market power,
-the role of market players is analysed by win/loss analysis,
-the more concentrated is the market, the more tending is to bid rigging.

1. case – Construction sector
Features of sector
-highly investment demanding, but barriers to entry construction sector may be considered insignificant,
-mainly heterogeneous products,
-public sector is often the major purchaser of the services,
-there are around 1600 companies operating on the market.
Proceeding of the Office
-no significant steps in order to prevent distortion of competition on construction market due to the fact that such a high concentration of companies would not lead to a creation of dominant position.

2. case – Energy sector
Features of sector
-one dominant company called ČEZ and 5 regional distribution companies,
-homogeneous product.
Proceeding of the Office
Aim: to weak dominant position of ČEZ in order to enable smaller producers to success in public procurement too, enforce effective competition in form of auction mechanism and make the market transparent and more functional.
-main condition was that ČEZ would enable three independent entities access to its electricity production capacity in overall amount of 400 Mega Watts in year 2006 and 2007,
-there will be regular reports provided to the Office,
-the party to the proceeding was also imposed a condition to publish information on the possibilities to purchase electricity from the offered production capacity in the daily press immediately after the decision came into force,
-implementation of number of measures enabling free cross-border exchange of energy depending on the development of demand and supply in individual Central-Europe countries,
-elimination of administrative fees and abolishment of import licenses,
-ČEZ was allowed to set minimum price.


The part concerning the United Kingdom is divided into three part:
a) General points and issue of auctions and bidding process;
b) Office of Fair Trade (OFT)' experience of advocacy to government on the organization of auctions and procurement processes;
c) OFT's experience of enforcing the Competition Act in a number of cases involving collusive tendering;

a) This part describes an idealised bidding market which is composed by five features that are:

  1. "winner takes all" competition;
  2. "lumpiness" (each contest is large relative to a supplier's total supply);
  3. no lock-in (winning one auction provides advantages in other auctions);
  4. entry is easy;
  5. a bidding process is involved;

1st,2nd and 3rd criteria describe markets in which price competition might be expected to be fierce;
4th criteria might imply that a market is contestable;
5th is about price-setting mechanism;

b) OFT has been involved in supporting government in auction design and advising the public sector on procurement (ex: Airport slots, Public procurement )

c)Cases of contact between actual or potential bidders prior to the submission of tender bids. Bidders shared information that affected the bids that were subsequentely submitted and hence affected competition in the tenders;
Other issue is the "cover price". It is a price that one bidder receive from another (potential) bidder. The second bidder is not seeking to win the contract and enters a bid at or above the price they have been given in order to provide cover for the first bidder, who is submitting a lower bid that is intended to win the contract.


National Competition Authority, without specific guideline and power to design auction,has no experience in "Bidding Market" outside these fields of Construction,IT and Transportation sectors probably because of its strength on these dutch companies that could provide much more chances of breach of competition law than those of other countries.

They hold the principle that demand and supply can meet well only under ways of auction and tender.

Cases on Auction:
1. Housing Auction, which proved without evidence to do with infringement to law concerned.
2. 2 WLL, which have been auctioned even if there is only one bidder existing, KPN who is Dutch biggest operator in such field.
3. DTe who designs auction with capacity of electricity.

Cases on Tender:
1. 1200 fines imposed by NMa due to Bid Rigging.

Analysis of policy on Tender:
Tender procedure conducive to cartelization upon preference for lowest price in bid by government.

Corresponding Measures:
1. Joint Bidding on a policy of temporary alliance basis along wih mechanism of Inquiry of Exemption Effect in term of procompetitiveness and anticompetitive against other competitors in same fields.
2. DBFMO(Design Building Finance Maintain and Operate) based on both natures of broad and squential.


Federal government procurement is regulated by the Law of Public Sector Acquisitions, Leasing and Services (Acquisition Law or AL), its Regulations (ALR), and associated provisions under free trade agreements (FTAs).

The AL and its Regulations set out the following general auction rules:

• Lowest-price sealed-bid auctions. Bids are secret and contracts are awarded to the lowest bids.3

• Multiple provision. Contracts may be granted to two or more bidders if their bids do not differ by more than 5% with respect to the lowest bid. The winning bidder would be awarded a 50% share or more of the contract and the other participants would be granted shares previously specified in the auction rules

• Joint bids. Two or more persons or firms may offer joint bids without needing to incorporate into a single firm.

• Reference prices. Government entities may set a maximum price, as a reference for bidders to offer discount percentages.

• Prohibition of price bids below costs. Entities calling auctions must verify that prices offered are not below costs, and may dismiss tenders on insolvency grounds.

• Domestic auctions. Most public procurement contracts are reserved for Mexican nationals and goods with a minimum domestic content of 50 percent.

• International auctions. This type of auctions may only be called if: mandated under FTAs (except for reserves);4 domestic supply is not available in terms of quality, quantity or at convenient prices; no participants turned out or qualified in a previous domestic auction; and if it is so stated in foreign financing contracts granted to the federal government. In these auctions, economic proposals of domestic products are granted a 10% preferential margin, while bids of handicapped (or firms that employed them) are also favored.

The Federal Law of Economic Competition (FLEC) typifies bid rigging as a per se prohibited anticompetitive conduct. But the problem is that the Federal Competition Commission (CFC) have indentified two types of problems in investigating public procurement auctions. First, the AL facilitate the collusive conduct. Second, government entities tend to organize very frequent auctions to allocate small contracts instead of aggregating them into fewer auctions and larger contracts.

In the paper, the cases for health sector and radioelectric spectrum are studied.
In conclusion, the AL has to eliminate the rules that facilitate collusive agreement. The CFC is helping to achieve this objective.


Auctions are often used in markets where the market participants have different, and incomplete, information. The Commerce Commission has never provided advice or made public comments to promote better auction design.

In the paper is presented a case of merger evaluation in bidding markets:


In June 2005 the Commission received a notice seeking approval for the merger of two private
pathology businesses.
Historically, diagnostic pathology services in New Zealand were funded on a fee-per-test basis. Over time, this open-ended funding policy led to an escalation in healthcare costs to apparently unsustainable levels. The first DHB to adopt this new model proposed to allocate a fixed-term supply contract through a competitive tender process.

NZDG and Sonic submitted a joint bid to supply this DHB and were declared the winner of the tender subject to, among other conditions, Commission approval.
The Commission modified its standard analysis of existing competition and potential competition, and instead analyzed the nature of competition by identifying the likely potential bidders for future contracts, and the degree of constraint these bidders would offer in the factual and the counterfactual scenarios. In addition, the Commission defined the time dimension of the relevant markets according to the term of the procurement contracts (between three to ten years, depending on the DHB). This was a departure from the Commission.s usual approach to analyzing mergers, which involves assessing the impact on competition over a two year period.

The Commission found that NZDG and Sonic were the largest, most well-resourced, and experienced of the potential bidders in the market, and absent the proposed merger, would exert a significant degree of constraint on one another. In contrast, the remaining likely bidders would offer only a weak constraint.

The Commission came to the view that the proposed joint venture would have the effect of eliminating the strongest source of competition that would otherwise exist in the counterfactual.
The Commission also found evidence that the proposed joint venture might result in increased
coordination between NZDG and Sonic in other districts not relevant to the proposal.

5 cases —> Common Features:

- Four involved a single buyer a government agency or local authority body wishing to purchase a service. In five cases the supplier market was also highly concentrated.

- Two cases (or possibly as many as four, depending upon the outcome of investigations) involved tacit or explicit collusion (price or geographic) on bidding, sometimes by means of market sharing.
- Three cases involved proposed mergers of the two major private suppliers, in situations where existing competition would have been greatly reduced


- Competition in such markets occurs at the time of the bidding, and is for the market, rather than in the market.
- Winning bid prices tend on average to be lower when there are more bidders, and especially when going from one-bid to two-bid contracts. This raises doubts about the argument that market structure considerations do not matter for competition in bidding markets

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