Collusion between public procurers and suppliers in the context of japan’s public procurement: The role of the risks of “unsuccessful procurement”
| DOI | https://doi.org/10.1108/JOPP-16-03-2016-B003 |
| Date | 01 March 2016 |
| Pages | 291-311 |
| Published date | 01 March 2016 |
| Author | Satoru Tanaka,Shuya Hayashi |
| Subject Matter | Public policy & environmental management,Politics,Public adminstration & management,Government,Economics,Public Finance/economics,Texation/public revenue |
JOURNAL OF PUBLIC PROCUREMENT, VOLUME 16, ISSUE 3, 291-311 FALL 2016
COLLUSION BETWEEN PUBLIC PROCURERS AND SUPPLIERS
IN THE CONTEXT OF JAPAN’S PUBLIC PROCUREMENT:
THE ROLE OF THE RISKS OF “UNSUCCESSFUL PROCUREMENT”
Satoru Tanaka and Shuya Hayashi*
ABSTRACT. This paper examines the economic forces which may lead
to government-assisted or -facilitated bid-rigging (kansei-dango) in
public procurement in Japan, and considers their implications. A public
official may often worry about situations where his/her procurement
project will not be successfully implemented. Based on a simplified
theoretical treatment and on case studies of kansei-dango, it is argued
that the desire to avert the risk of unsuccessful procurement resulting
from the “experience goods” status of procured goods and/or services
may be one reason for bid-rigging. Based on this understanding of
kansei-dango, we discuss some implications for policies to restrain this
type of corruption.
INTRODUCTION
Generally, in Japan, project tenders are submitted by national,
local, and regional government bodies as well as other public
organizations to determine contractors and contract prices through
free and fair competition. Voluntary restriction of competition by
prearrangement among bidders, or so-called bid-rigging, erodes the
integrity of the entire bidding system and violates the Japanese Anti-
Monopoly Act (hereinafter AMA).1
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Satoru Tanaka, Ph.D., is a Professor, Kobe City University of Foreign Studies.
His teaching and research interests are in industrial organization and public
procurement. Shuya Hayashi, L.L.D., is a Professor, Nagoya University
Graduate School of Law. His research interests are in law and policy of
competition, telecommunications/media, and public procurement.
Copyright © 2016 by Pracademics Press
292 TANAKA & HAYASHI
National and local government officials have sometimes been
found to be involved as participants in bid-rigging.2 For example, a
government official in charge of the bidding process may call a meeting
with representatives from the business sector in order to provide yearly
targets of order volume allocated to each enterprise. This officer may
instruct business entities to coordinate in achieving such targets. In
addition, in response to requests from businesses entrepreneurs, the
official may designate the winner of the bidding by suggesting a
prospective name or even leaking the planned ceiling price, which is
generally considered confidential and not to be disclosed. In Japan,
such bid-rigging is generally called kansei-dango (government-assisted
or -facilitated bid-rigging). Other interventions seen in cases of kansei-
dango include explicit directions for rigging from officials to bidders,
expression of intention regarding bid winners, and others.
In order to design an efficient public procurement system that
promotes market competition among suppliers and does not rely on
kansei-dango, it is essential to understand the reasons why Japanese
bureaucrats collude with suppliers. On the basis of an examination of
the testimony of corrupt officials in some cases of kansei-dango, the
Japan Fair Trade Commission (JFTC) suggests that public officials who
commit illegal actions may be motivated to do so for the following
reasons (JFTC, 2015, p. 68):
1. Bureaucrats are often interested in the growth of a regional
economy. In order to attain this goal, it may be necessary to
improve the ability of the suppliers located within the region. Thus,
bureaucrats may need to be in favor of them.
2. In order to maintain the quality of procured goods, bureaucrats
may wish to delegate their procurement to the suppliers with good
reputation.
3. In actual procurement, public officials may request the successful
bidder to conduct extra operations, for example, in the case of the
occurrence of an unexpected phenomenon or emergency.
Bureaucrats may favor the firm which has met their request
satisfactorily in the past.
4. Corrupt officials may respond positively to the potential supplier’s
approach in order to make collusion easier.
5. In practice, the details of public procurement rules are frequently
revised. In order to avoid the confusion from revised rules,
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