CASE EXAMPLES OF CORRUPTION, BID RIGGING AND FRAUD

Click on the links below to see case examples drawn from actual investigations:

Corruption Case Examples

Bid Rigging Case Examples

Fraud Case Examples

CORRUPTION CASE EXAMPLES

Bribes and kickbacks

West Africa , Nutrition Project

In a US$25 million West African nutrition project, project officials approved multiple sole source training contracts to local firms in exchange for kickbacks of 12½% of the contract values. Most of the consulting firms were shell companies, operated by friends and relatives of the project officials, set up shortly before the project began to execute the kickback scheme. The training fees were grossly inflated, as were the number of contracts awarded.  Much of the training, which was intended t improve the nutritional habits of young mothers and their children, was never delivered.

The investigation disclosed that the same officials took bribes on another project in exchange for contract awards, and, in at least one instance, an agreement not to cancel another consulting firm’s training contract after it breached the contract terms. Among other breaches, the firm prepared and distributed its training materials in a language that none in the country understood.

South Asia , Health Project

Senior officials of two state-owned Procurement Agencies, hired to manage the procurement in several health sector projects, demanded kickbacks from bidders in exchange for contract awards, favorable inspection reports; and processing of the contractors’ invoices.  The procurement officials shared the kickbacks with government and ministry officials.

As usual in such schemes, the procurement agencies manipulated the bidding process to exclude other qualified bidders through a variety of means, including disqualification of the lowest qualified bidders for contrived and trivial reasons.

Latin America , Microenterprise Road Maintenance Project

Project officials extorted bribes and kickback from twenty-six microenterprises involved in a US$35 million road maintenance project. Employees of the enterprises, which were allocated US$2.5 million to help clean the roads, reported that project officials demanded personal “loans” that were not repaid and kickbacks to process contract payments. Several of the enterprises had to contribute to the purchase of an SUV for the personal use of the Project Director.

The officials deliberately inflated the price of the road contracts 15% t67% and reduced the duration of certain contracts from twelve to eight months, without reducing the contract amounts, in order to fund the kickbacks. The bribes were disguised on the enterprise’s books as loans or dividends to enterprise members.

Hidden interests

West Africa , Road Project

The Director of a road rehabilitation project instructed an international firm competing for the construction supervision contract to include a certain local subcontractor in its proposal, and to allocate 10% of its bid price to it. The subcontractor was to provide labor to assist in land surveys. The project official assured the international firm that it would win the contract if it agreed to use the specified contractor.

The international firm complied, won the contract, and was only mildly surprised to discover that the local subcontractor was owned by the Project Director. It was more disturbed, however, to learn that the sub-contractor’s employees, for which they were paying exorbitant fees, were fulltime project staff.  The subcontractor provided no actual services and the employees received only their project salaries.

Central Asia , Various Projects

Similarly to the West African case above , in at least two cases in Central Asia, local project and government officials set up side companies that “employed” (without paying) the salaried staff they supervised. The officials then recommended or insisted that international firms hire the companies as subcontractors for 10% of the contract value.

In other cases in the region local project staff purchased project vehicles, computers and office equipment through front companies they controlled and resold them to the project at several times their actual value. In one case, the project officials purchased printers for their retail price of US$400 and resold them to the project for US$8,000.  In another case the officials delivered used and inoperable computers and vehicles.

BID RIGGING CASE EXAMPLES

Collusive bidding by contractors

South Asia , Road Projects

In several cases across South Asia groups of local construction companies colluded with Transport Ministry and project officials trig the award of road construction contracts.  The project officials deliberately failed to announce or publicize requests for bids in a timely manner, refused to sell bid documents to outside companies, or found trivial or invented reasons to disqualify outside companies that submitted bids.  Ministry officials designated the winning bidder, or “champion,” before the requests for bids were even announced.  The winner was often a shell company in which the Ministry official held an interest. The shell company would subcontract all of the work to smaller firms, or losing bidders, at far lower prices. The designated losing bidders submitted complementary bids – deliberately higher priced or non-responsive bids – that allowed the winner to inflate its prices sufficiently to pay off the government and project officials and the losing bidders.

The schemes were detected when it was noted that all of the bid securities submitted by the different bidders were purchased at the same bank on the same day. That was because the designated winner was to asked to purchase all of the securities and to distribute them to the other bidders. Other indicators included losing bids that were an exact percentage apart, because they were all generated by the winning bidder by multiplying its winning bid. There was also a pattern of the winning bids falling just under the threshold of acceptable bids, with the losers being over the thresholds.

Unbalanced bidding, change order abuse

Central Asia , Agricultural Testing Laboratory

A “representative” (bagman) of a Project Implementation Unit told an international bidder for a US $25 million agricultural testing laboratory that it would win the contract if it hired the representative as a “consultant” to help prepare its bid. The rep said his consulting fee would be 20% of the contract value, which he said he would share with project officials to ensure the win.

The bidder was intrigued, but was troubled by the size of the bribe request; more specifically, it wondered how it could afford to pay a 20% commission and still be lowest qualified bidder. The rep replied that the project would drop certain line items that called for expensive humidity and temperature control equipment after the contract award, allowing the bidder to "low ball” this item in its bid, be the overall low bidder, and still have sufficient funds to pay the bribe. Additional contract amendments would be processed as necessary to further inflate the contract price.

The bidder agreed, but was disappointed when it lost the contract after the representative negotiated a similar but more lucrative deal with another bidder.

FRAUD CASE EXAMPLES

Failure to meet contract specifications

West Africa, Urban Road Project

The contract specifications for this road project called for an urban asphalt road in the capital city that would handle substantial vehicle and truck traffic and which would last for ten years.  The picture below was taken only thirteen months after completion. The contractor paid substantial bribes to local project officials and inspectors in order to avoid complying with contract specifications.  More specifically, among other things, the contractor deliberately failed to provide adequate drainage, lay the proper foundation materials, or do adequate compaction.

False, inflated or duplicate invoices

Indonesia , Water and Sanitation Project

In a water and sanitation project in Indonesia , a consulting firm agreed to pay a 7% kickback in exchange for a contract award. To generate funds for the bribe, the firm inflated the claims it submitted to the project to reimburse it for the purchase of computers and office equipment.  For example, the firm paid the equivalent of US $500 for several used laptop computers, but billed the project US $1500 for each, and used the difference to fund the bribes.  On several occasions the firm claimed reimbursement for computers and equipment it never purchased.

To support its claims, the company submitted inflated receipts from the computer and equipment suppliers, or forged fictitious receipts from non existent suppliers.  Unfortunately, such practices are common in development projects.