How to Prevent Tender Conspiracy Especially in Government Procurement?

Danil Pratama

In order to ensure fair business competition, the implementation of Law Number 5 of 1999 on the Prohibition of Monopoly Practices and Unfair Business Competition (“Law 5/1999“) is expected to foster an honest and healthy business culture so that it can continue to encourage healthy and fair competition among business actors. One form of action that can result in unfair competition is tender conspiracy. Looking at the various practices of tender conspiracy that often occur and can certainly hinder the creation of fair business competition, this article will further discuss the methods of the procurement of goods and services, the types of tender conspiracy, how competition law plays a role in preventing tender conspiracy, and the necessary risk mitigation.

A. Procurement of Goods and Services

Procurement of goods and services is an activity in terms of obtaining certain goods and services. In this concept of procurement of goods and services, users try to obtain the goods/services needed by using certain methods and processes to reach agreements regarding the procurement process, specifications, prices, time, and other arrangements. In Indonesia, the concept or system regarding the government’s procurement of goods and services is regulated in Presidential Regulation Number 16 of 2018 on Procurement of Goods and Services (“PR 16/2018“).  One of the objectives of procurement of goods and services in this Presidential Regulation is to increase the role of national business actors (Article 4 letter d). Therefore, the Government is very dependent on Business Actors as Providers of Goods and Services to help national development projects.

The method of selecting Providers of Goods/Construction Works/Other Services is regulated in Article 38 of PR 16/2018, which consists of:

1.     E-purchasing;
2.     Direct Procurement;
3.     Direct Appointment;
4.     Quick Tenders; and
5.     Tender

 

The government is always careful in selecting providers to get the best quality of goods and services. On the other hand, Business Actors as Providers must also have qualified capabilities and provide goods or services with superior quality to be selected or appointed by the Government to work on national development projects.

Read More: What is Merger and Why Companies Do It?

B. Competition Law in the Context of the Procurement of Goods and Services

Healthy and fair competition is needed in achieving the principles of effective, efficient, transparent, open, competitive, fair, and accountable procurement of goods and services.   However, it turned out that the Indonesia Competition Commission (“Komisi Pengawas Persaingan Usaha “KPPU”) mandated by Law 5/1999 found several conspiracies that occurred in the process of government’s procurement of goods and services. Since its establishment in 2000, KPPU has decided 71 (seventy one) percent or 273 (two hundred seventy three) of all business competition cases filed as tender conspiracy cases. This is a serious concern for the government as the organizer to continue to improve the latest systems and infrastructure to get the maximum work results from the Provider.

Tender Conspiracy is regulated in Article 22 of Law 5/1999, which stipulates:

“Business actors are prohibited from conspiring with other parties to arrange and or determine the winner of the tender so that it can result in unfair business competition”.

 

However, this regulation has been amended by Constitutional Court Decision Number 85/PUU-XIV/2016, which states that the phrase “other parties” in Article 22 to Article 24 of Law 5/1999 must be interpreted as “parties related to other business actors”. So, Article 22 of Law 5/1999 stipulates:

“Business actors are prohibited from conspiring with other business actors and/or parties related to other business actors to regulate and or determine the winner of the tender so that it can result in unfair business competition”.

However, the change in the phrase “other parties” expands to matters that are not only related to business actors but also to anyone involved in the tender conspiracy.

C. Tender Conspiracy

Tender conspiracy, in the guidelines of Article 22 of Law 5/1999 by the KPPU, is divided into 3 (three) types as follows:

1. Horizontal Conspiracy

Horizontal conspiracy is a conspiracy that occurs between business actors or providers of goods and services and other business actors or providers of goods and services, where they work together to win a government project by ignoring the regulations of fair and healthy competition. This certainly causes losses for other business actors who actually have qualified competence to win the project healthily.

2.     Vertical Conspiracy

Vertical conspiracy occurs between a business actor or provider of goods and services and the tender or auction committee or users of goods and services or owners or employers.  The tender committee uses or abuses its authority to take advantage by cooperating with one of the participating business actors to win the government tender. This is certainly very unfortunate because the government represented by the tender committee should be fair and transparent to all parties participating in the tender for the good of the government in obtaining goods and services of the highest quality.

3.     Horizontal and Vertical Conspiracy

This type of conspiracy is a conspiracy that occurs between the tender or auction committee or users of goods and services or owners or employers and several business actors or providers of goods and services. This conspiracy is between several business actors participating in the tender and the tender committee so that from the start it is already known who the winner would be.  In general, this form of conspiracy can be referred to as a fictitious tendency where this tender is only a formality or administratively carried out behind a closed door.

Read More: Differences Between Merger and Acquisition

D. Risk Mitigation in the Procurement Process of Goods and Services

Both the Government as a Committee, and business actors as providers of goods and services need to anticipate this tender conspiracy because it can harm all parties both the government and business actors. The elements regulated in Article 22 of Law 5/1999 are clear: if it is proven that there is a tender conspiracy, the KPPU can impose administrative sanctions in the form of a minimum fine of 1 billion Rupiah on anyone involved in the tender conspiracy.

 

Therefore, here are several steps that need to be taken by the tender or auction committee or users of goods and services or owners or employers to achieve the set targets as follows:

1. Maintain integrity as a party appointed by the government in providing work to providers;
2. Make requirements that are comprehensive, which are not intentionally made to benefit certain parties;
3. Examine the documents of the tender participants carefully and thoroughly;
4. Ensure that bidders are not affiliated with each other; and
5. Conduct an honest and transparent tender process, from the announcement of the tender to the announcement of the winner.

On the other hand, business actors as providers of goods and services also need to pay attention to the following:

1. Fulfill the tender documents in accordance with the requirements made by the Committee;
2. Not coordinate or cooperate with the committee and/or other participants for the benefit of the tender winner;
3. Provide responses or objections if there are unfair or unreasonable requirements; and
4. Prioritize a fair and healthy competition manner during the tender process.

 

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ADCO Law as a Law Firm in Jakarta assists the clients to structure, organize and implement their business ventures and investments, including structuring, financing, and securing investments as well as establishing new foreign companies in Indonesia. 

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Disclaimer: This article has been prepared for scientific reading and marketing purposes only from ADCO Law. Accordingly, all the writings contained herein do not constitute the formal legal opinion of ADCO Law. Therefore, ADCO Law should be held harmless of and/or cannot be held responsible for anything performed by entities who use this writing outside the purposes of ADCO Law.