Summer Food Bid Rigging

Introduction

In bid rigging, companies collude in an auction in order to rig the results of an expected outcome in a certain bid. In the summer food bid rigging case, the Justice department charged several food vendors for colluding to bid rig supplies of worth US $ 210 Million; these were contracts to supply food for the city schools. The vendors had artificially inflated the prices by around ten percent; this was about US $ 21 million.

While a total of thirteen vendors had been charged, six agreed to plead guilty and cooperate with the investigators; the vendors had actually agreed to submit some falsified statements. This was done with the purpose of stifling the competition that would otherwise be staged by a fair bidding (Slade, 1987).

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The prosecution said that this bidding would deny the procurement of a better deal with a fair price. The rationale of the behaviour of bid rigging is that as oligopolistic group profit, maximization is of key importance. As a result of this, in order to get an incentive, they collude together to increase the profit margin (Stigler, 1964).

Ethics

In the public sector, the question of ethics is a core value in administration. Ethics places both a moral and legal duty to the public administrators to carryout their functions with due diligence. Ethics requires that accountability and transparency be upheld every time the public administrators are on duty.

It forms a basis upon which the public can scrutinize the actions committed by the administrators. Ethical issues normally address the province of public administrators as public servants. It provides a benchmark upon which the actions of public administrators are supposed to work.

The focal point of ethics in public administration normally lies upon the rationale and models that an administration may use in making decisions (Hausman & Ruud, 1987). Public administrators normally make their decisions in accordance with a process that has four distinct levels (Cooper, 1990). The levels normally come out differently in decision making as they are influenced by different views.

The Expressive Level where the decision maker responds to a certain situation with unreflective expressions of emotions that neither needs a reply nor attempt to be persuasive. The Level of Moral Rules: the responsive in this level are based upon the morals that we have acquired from morals that we have obtained through interaction from our social life and family.

The Level of Ethical Analysis: this depends on certain level of ethical benchmark that exists which should be used when making a decision (Hendricks & Porter, 1989). This forms more or less of the code of action that is to be taken by the decision makers. The benchmark against bid rigging is the antitrust law which express forbids this.

The post ethical level is the fourth level; this level involves questions that are surrounding the rationale for certain human actions. This level also includes philosophical examination of the importance and relevance of ethical standards to an individual.

Accountability

The public officers were supposed to be accountable to the public. This is because as public administrators they are public servants (Comanor & Schankerman, 1976). The morality that stems from ethics also demands that the public service should be transparent for the best interest of the public (Douglas & Michael, 1990). It is the duty of officers to make sure that the awarding of the contract goes to the lowest valued bidder but with the highest quality.

Prevention

Prevention of bid rigging can be done through prequalifying the suppliers who wish to bid in the supply of the commodity. The state agency should first gather all the necessary information from the bidding companies (Porter & Zona, 1993).

This information shall be comprised of information such as the previous biddings by the same suppliers for similar supplies (Milgrom & Weber, 1982). This shall make it possible for the government agencies to detect any irregularity and whether there exists any rigging in the bidding. The information that is relevant in this case shall include:

The identities of the executive officers and the firms the work in.
Declaration statement of whether any of the executive officers is affiliated or associated with other officers from other bidders in any other manner other that of business purposes.
A cursory description of the firm’s assets and their capability to deliver
A brief history of the bidder’s prior bidding and capability to deliver.

Historical context

All unfair trade practises and those trade practises that have been forbidden by the anti-trust laws were committed in this case (Loftus, 2010). These practises include price fixing, bid rigging among others; it should be noted that bid rigging activity has been there since time immemorial. There is the highway construction bid rigging concerned bidding on the construction tender. The case was later on decided and the constructor was acquitted. The acquittal does not mean that the bid rig was fair.

References

Comanor, W.S. & Schankerman, M. (1976). “Identical Bids and Cartel Behaviour.” Bell Journal of Economics 7: 281-286.

Cooper, T. L. (1990). The responsible administrator: An approach to ethics for the administrative role, Third edition. San Francisco, CA: Jossey-Bass, Inc. Publishers.

Douglas, B. & Michael, D. (1990) “Multimarket Contact and Collusive Behaviour.” RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 1-26

Hausman, J. A, & Ruud, P. A. (1987) “Specifying and Testing Econometric Models for Rank-Ordered Data.” Journal of Econometrics 34: 83-104.

Hendricks, K & Porter, H. (1989). “Collusion in Auctions.” Annales d’Economie et de Statistique 15/16 217-230.

Loftus T (2010). Unresolved Legal Issues Remain In Bid-Rigging Case. Retrieved on 7th March 2011 from: http://www.courier-journal.com/article/20100131/NEWS01/1310327/Unresolved-legal-issues-remain-bid-rigging-case

Milgrom, P. R & Weber, R. J, (1982). “A Theory of Auctions and Competitive bidding.” Econometrical, Econometric Society, vol. 50(5), pp: 1089-1122

Porter, R. H & Zona, J D, (1993). “Detection of Bid Rigging in Procurement Auctions.” Journal of Political Economy, University Of Chicago Press, vol. 101(3) pages 518-538

Slade, M. E., (1987). “Interfirm Rivalry In A Repeated Game: An Empirical Test Of Tacit Collusion.” Journal Of Industrial Economics, Wiley Blackwell vol 35(4) pgs 499-516

Stigler, G.J. (1964). A theory of oligopoly. The Journal of Political Economy, 72, 44– 61