There are multiple warning signs that can help identify the risk of fraud, corruption, collusion or coercion in procurement. If you spot any of these warning signs (also known as “red flags”) in a World Bank Group (WBG) funded project, there may be reason for concern. For complaints related to possible fraud or corruption on WBG-funded projects please contact the Integrity Vice Presidency (INT) using the online form provided on the WBG public website: https://www.worldbank.org/integrity 1. COMPLAINTS 4.  BIDDING PATTERNS Complaints may come from A group of companies working together to rig bids is different sources, but the sometimes referred to as a “collusive ring”. Collusive World Bank Group (WBG) rings can preselect (or “designate”) a winner, and the takes all complaints seriously. whole bidding process is made to look competitive by the Bidders, Bank staff, Project companies secretly cooperating. The designated winner officials or disgruntled employees of winning might prepare the bids of the other bidders in the collusive ring, and even companies may lodge complaints which can dictate the prices they will bid. In other cases, the designated winner might help prevent and identify fraud and corruption. use fake companies, or its own subsidiaries or affiliates, to submit bids that For example, a complaint might be related will lose in the evaluation process. Collusion can significantly inflate costs to procurement, such as narrow technical above reasonable estimates and if left unchallenged it can undermine specifications that only one bidder can meet, competition and disrupt whole markets. potentially indicative of bid rigging or collusion. • Companies might not want to waste a lot of time preparing bids that will lose, so a lot of copying often happens and a close review of bid documents can often reveal unlikely similarities between bids, such 2.  MANY SMALL as identical formatting or identical grammatical and spelling mistakes. In CONTRACTS some cases, the same people might appear in key positions in competing bids. Sometimes large bidding packages are split up to • Other examples of warning signs can include unusual similarities among enable many small local firms bid estimates (for example competing bids differ by an exact percentage); to compete for contracts. unexplained inflated bid prices, (i.e. total bid price or components of the However, sometimes contract splitting is done bid seem unjustifiably higher than the cost estimate); a large proportion to avoid competition from larger firms, thereby of identical unit prices for the same items included in bids submitted by creating opportunities for fraud, corruption or different bidders; or unusually large last-minute discounts. collusion, because the smaller packages do not • Some signs of abuse can only be spotted across several bids, for usually justify a high level of scrutiny. Whatever example: when a losing bidder(s) becomes a subcontractor to its the purpose, multiple smaller packages can create “competitor(s)” or when there is an apparent “rotation” of winning bidders, a lot more administrative work and can put serious where firms in a collusive ring take turns in winning contracts. strain on a project. 3. OVERPRICING 5.  SUSPICIOUS BIDDERS Investigations have shown that the money A fake or “shell” company is a company that used for bribes often comes from overpricing exists in name only and usually has no formal of contracts through quite simple frauds, so registration number, no substantial assets, no ensuring value for money can help reduce permanent business facilities or employees. integrity risks. For example: Some investigations have found fake firms • An international contractor hires a local agent to assist with that were set up by project personnel. marketing, but the agent uses the fees to pay bribes on • Many fake companies can be identified through simple behalf of the firm. checks such as searching for a company website, checking • Office equipment is ordered at a price that seems for the company name in the telephone directory or checking reasonable, but the seller provides substandard or used the legal existence through corporate registries. equipment and the illicit profit is used to bribe project • If no information can be found on a company in these personnel. searches, then something is probably wrong. • The rent of the project office is very expensive, but some • Prospective employers should carry out specific reference of the rent is channeled back to high level officials for checks with entities that have been listed as previous employers: preferential treatment to an associated firm. call them and follow up with an email where appropriate. 6.  VIABLE BIDS REJECTED 9.  “BAIT AND SWITCH” When bids are rejected without good Bidding processes can take a long time to reasons, this can indicate that someone is complete, and a firm might have to make trying to rig the bidding process. A company changes to its staff, equipment or facilities might be bribing an official to put pressure in the interim. Sometimes, however, a firm on the Bid Evaluation Committee to alter might enter a bid under false pretenses, the scoring or find excuses for bid rejection. Sometimes the promising things that it knows it cannot deliver. This is fraud. pressure is from a higher ranking official, on behalf of a friend or For example, a consultancy firm might promise a certain team relative. knowing that those people will not really be available to carry out the contract. This kind of fraud, often referred to as “bait Value for money is important and the lowest bids are not always and switch”, may occur soon after contract signing suggesting the best, so it is important that all bids are evaluated carefully that the intent to substitute was known beforehand. The client and fairly. No viable bid should be rejected from a bidding often feels obliged to continue the contract, especially if a rebid process without good reason nor should less technically or reselection would be subject to high level reviews or take a qualified bids be accepted or weaknesses in less qualified long time. bids be overlooked. MANY AWARDS TO ONE 7.  UNCLEAR OR SUBVERTED 10.  COMPANY PROCESSES There can be something seriously wrong Except in emergency situations, bidding when a company wins many contracts processes should follow planned, or pre- unless it has some very clear market agreed steps. Extremely fast or slow advantage. This could be a problem of weak processes in one or more of these steps can competition, or perhaps the client prefers one company over indicate wrongdoing. Examples of serious warning signs might the others because of previous experience, but such situations include a long or intentional delay in the evaluation of the bids, need to be very closely reviewed—especially if there is a or where overall delays are so extreme that bid guarantees request for an exception to the approved procurement plan to need to be extended multiple times. For government teams, it allow that single bidder to gain multiple contracts within one is good practice to have the steps of the procurement process project. If the bidding process seems repeatedly skewed carefully defined in terms of number of days for each, as well towards one company or the same bidder loses repeatedly, as clear allocations of roles and responsibilities, so that routine this could be due to fraud, corruption, collusion or even checks can be made as the process progresses. coercion. CHANGES IN CONTRACT 8.  POOR QUALITY OF WORKS 11.  TERMS AND VALUE OR SERVICES Significant changes to a contract can be All contracts need to avoid creating undue justified post award, but these changes risks such as those related to health, safety always require careful review. Aspects that and environmental damage. These types can be abused might include: amount or of risks often emerge in situations affected type of services; contract value; number of units for a specific by fraud, corruption, collusion or coercion. Investigations have component or aspect, and; increased unit costs. In some cases, provided many instances of such risks linked to poor quality the price increases without real justification. In other cases, resulting from fraud and corruption, e.g. when a contractor pays the cost stays the same, but the agreed quality or quantity of bribes to win a contract, and then tries to recover the costs outputs is lowered. In one scheme an element is dropped on by delivering lower-quality than specified in the terms of the which the winning bidder had bid much lower than others, contract. knowing well in advance that the element would ultimately not have to be provided. All too often a Good contract management is essential to mitigate the risk “change order” or “variation order” or of fraud and corruption. From contract award to completion, “contract amendment” or “addendum” it is important to have effective monitoring in place, with is just considered as normal practice appropriate checks on quality and quantity. Determining the and not scrutinized. This can right award decision also needs to be cognizant of abnormally result in inefficiencies as well low pricing, where a bid price is so low that it is questionable as opportunities for fraud or whether the contractor or supplier can deliver the contract for corruption. Be particularly the price quoted. In such situations, contractors may seek to cut concerned where a single costs, health, safety, environmental and/or quality standards, or contract attracts multiple make claims to recover their costs and profit margins. The Bank unplanned changes or has issued guidance on identifying and dealing with abnormally extensions. low bids available at www.worldbank.org/procurement WARNING SIGNS OF FRAUD AND CORRUPTION IN PROCUREMENT This brochure is designed for task teams and other practitioners working on development projects to help them identify the most common warning signs or “red flags” of fraud and corruption in procurement: COMPLAINTS MANY AWARDS TO ONE COMPANY MANY SMALL CONTRACTS CHANGES IN CONTRACT TERMS AND VALUE OVERPRICING “BAIT AND SWITCH” BIDDING PATTERNS UNCLEAR OR SUBVERTED PROCESSES SUSPICIOUS BIDDERS POOR QUALITY OF WORKS OR SERVICES VIABLE BIDS REJECTED To report possible fraud or corruption issues related to the World Bank Group, please use the Online Integrity Complaint Form: https://www.worldbank.org/fraudandcorruption This brochure was prepared by the Integrity Vice Presidency (INT). With special thanks to Enzo De Laurentiis, Chief Procurement Officer (OPCS) and Anna L. Wielogorska, Lead Procurement Specialist (EFI). Their contributions were fundamental in the preparation of this brochure.