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Roads Sector Looks to Curb Fraud, Corruption and Collusion

June 1, 2011

  • The integrity of roads projects is a challenge for both developed and developing countries.
  • The most common forms of wrongdoing in the roads sector include collusion among bidding firms and fraud and corruption in contract execution.

June 1, 2011— According to a new World Bank report, “Curbing Fraud, Corruption and Collusion in the Roads Sector,” both developed and developing countries experience collusion and corruption in the roads sector, though the impact on the poor is most profound due to loss of economic and social opportunity.

The report draws on lessons from World Bank investigations in the roads sector and experiences of development partners and client countries, in addition to sharing tested practical advice relating to a range of preventive measures.  

“No country is immune,” said World Bank Integrity Vice President Leonard McCarthy.  “The World Bank relies on controls to reduce these forms of misconduct in its projects. We do so through procurement process reviews, financial audits, and field supervision, but we still need a stronger commitment from countries to ensure that no wrongdoing escapes the rule of law.  With this report we are hoping to spark a dialogue with development partners, contractors, client countries and our network of corruption hunters on ways to reduce fraud, corruption, and collusion in the roads sector.”

The report was prepared by the Bank’s Integrity Vice Presidency’s Preventive Services Unit, which offers advice and training to Bank staff and client countries on how to prevent fraud and corruption in development projects.

Most Common Problems: Collusion, Contract Fraud

The most common forms of wrongdoing in the roads sector are collusion among firms bidding on a project and fraud and corruption in the execution of the resulting contract.   As the report notes, chronic bid rigging on roads tenders is a sign the sector has been influenced by cartels.  

“Cartels are a common phenomenon that requires a collective global enforcement effort to dismantle,” said Integrity Vice Presidency Director of Strategy and Core Services Galina Mikhlin Oliver.

“When collusion or corruption is systemic, change requires breaking the cycle of resource abuse by bringing in someone from the outside, e.g. a prosecution authority, anticorruption agency, competition law authority, supreme audit institution, or, in the case of a local government, the national government.  If senior officials are involved, introducing an outsider can be particularly challenging,” she added.

Ten Indicators of Collusive Bidding

  1. Number of contract awards to a specific firm
  2. Project bid tabulations
  3. Firms that submitted a bid and later became a subcontractor on that project
  4. Rotation of firms being the lowest bidder
  5. A consistent percentage differential between firms' bids
  6. Specific percentage of available work in a geographic area to one firm or to several firms over a period of time
  7. A consistent percentage differential between the low bid and the engineer's estimate
  8. Location of the low bidder's firm versus location of the second and third lowest bidders' firms
  9. Variations in unit bid prices submitted by a bidder on different projects in the same setting
  10. Number of firms that requested bid packages versus the number actually submitting a bid

Procurement Evaluation Among Recommendations

Based on practical experience, the report recommends short-term measures, such as an independent procurement evaluator or technical auditor when corruption is deeply ingrained.  More drastic measures may also be required, and the report reviews three: the use of bid ceilings, competitive negotiation, and turning procurement over to an independent agent.

Another key recommendation is that a country should have laws penalizing bid rigging, market division, and other forms of collusive behavior, along with a commitment and capacity to enforce such laws.  Other steps will depend upon market conditions and other country-specific circumstances and risks.

“Not all corruption is systemic, and thus not all reforms require such significant steps,” said Richard Messick, senior operations specialist for the Integrity Vice Presidency and author of the report.  “In the World Bank-supported Bali Urban Infrastructure Project, a local bidding ring was defeated by circulating tender notices to firms in other provinces.  In the Philippines, civil society monitors have uncovered corrupt schemes in a variety of government contracts, and in the second phase of the National Road Improvement and Management Project, civil society groups will monitor all phases of the work.”

Report recommendations range from modest changes in procurement procedures to more fundamental shifts where corruption is particularly entrenched.  The report cautions that none of these measures is meant to be adopted without a close analysis of market conditions, strength of national institutions, degree of political commitment to reform and country-specific factors.