Tag Archive for: NPI

In part 1, we started discussing the presentation from Zac Trotter of the US Department of Justice at the recent NPI conference in Atlanta. He’s an attorney who specializes in searching out, investigating and prosecuting cases of supplier collusion (what a fascinating job!)

We talked about the types of collusion in part 1, but here are Trotter’s thoughts on what makes a market, product or sector susceptible to collusion. These factors will increase the likelihood of such supplier behaviour.

  • Few sellers – that makes it easier for suppliers to get together and fix the market.
  • Limited number of qualified bidders – there may be markets with many suppliers but if only a few are qualified perhaps to bid for particular government work, that will make it easy for them to collude.
  • Difficult for new competitors to enter the market – new suppliers are less likely to be part of existing collusion and can break the stranglehold of the conspiracy.
  • Few substitute products – if buyers can’t easily switch, they may have to accept higher pricing or limited competition.
  • Standardized products – if the buyer is content with products from all the firms involved, it is easier for suppliers to rig bids or allocate business between them.
  • Repetitive or regularly scheduled purchases – again, this helps suppliers allocate work and plan an effective conspiracy.
  • Rush or emergency work – this type of work is likely to be awarded via a less rigorous procurement process, and it is also easier for a supplier to “no bid” without raising suspicions, which can help to allocate work around the colluding firms.

After we published part 1, there were some interesting comments on LinkedIn from readers. One suggested that detecting collusion might turn out to be a practical and productive use for AI. We might imagine how AI could analyse a large quantity of data around responses to tenders and look for evidence of suspiciously high bidding, bids with similar wording, or other suspicious patterns of behaviour from suppliers that might indicate potential collusion.

Clearly, you would need a lot of information available to be analysed – so maybe it is something that would apply more perhaps to a government that could interrogate tenders from many different buying organisations rather than it being feasible for an individual business. But an interesting thought.  

Finally, here is a short case study taken from the Bad Buying book, which illustrates the type of market that can be open to collusion and fraud of this nature. Incidentally, six years on from the European commission imposing fines, the truck cartel described here is still facing huge claims from buyers of trucks. Damages in the billions of euros are likely to be awarded when the case finally goes through the courts.

“Which markets are most vulnerable? It’s clear that it is easier to set up, control and sustain a cartel in markets with a relatively small number of players. But geography also comes into play here. The construction market in most countries includes many firms, yet that sector has seen cartels thrive on a limited geographical basis or in a specialist sub- market, where the number of players is smaller.

One cartel in a relatively tight market was formed by six huge European truck manufacturers. Daimler, MAN, Volvo / Renault, DAF, Iveco and Scania are facing billion-dollar damages claims from their customers, mainly logistics and transportation firms, for illegal price- fixing.

By April 2019 more than 7,000 transport companies from twenty-six countries had filed more than 300 claims in the German courts. That follows fines of €2.9 billion on four truck manufacturers imposed by the European Commission in 2016/17.  The Commission found that between 1997 and 2011 the truck manufacturers exchanged information about prices, price increases and when new emission technology would be launched. They also passed on associated costs to their customers”.

So don’t assume that your organisation could not possibly be experiencing supplier collusion – as Trotter said, it happens in a wide range of different industries, from manufacturing to financial services, from airlines to construction. Keep an eye out for suspicious supplier behaviour, in bidding (or not bidding), pricing or sub-contracting.  If you’re in the US, you have the Department of Justice to support you; the European Commission plays a role in the EU, and the Competition and Markets Authority is the body to speak to in the UK.