National | BY THE NUMBERS

Law of probability proves bid-rigging is rife

by Mayumi Negishi

The bid-rigging took place at breakfast, recalls the son of a former official at the Tokyo Metropolitan Government’s Port and Harbor Bureau.

For two decades from the late 1960s, construction company staff would stop by, explaining why they needed a public works contract.

“People say bid-rigging is anticompetitive, but that’s not true. The competition took place in our sitting room,” said the official’s son, declining to be named.

The builders explained their strengths, and after the official helped fine-tune budgetary restraints and politicians’ requests, he would inform the companies what bid to make to get the contract they wanted.

In fiscal 2003, the Fair Trade Commission charged 376 construction companies with bid-rigging, collecting 3.83 billion yen in penalties. But usually it’s only the small fry that get caught, say both academics and construction company managers.

“They get caught because they leave proof they talked,” said Yoshitsugu Kanemoto, an economics professor at the University of Tokyo’s graduate school.

Big contractors only need to make a dozen phone calls to decide who will get which contract. Small companies need documents to coordinate bids among hundreds of competitors.

The bulk of those caught are small and midsize companies, with 300 or fewer employees.

“We’re all in this together,” said a former president of a Nagoya building contractor that closed shop in February, six months after it and 105 other housing companies admitted they had been predetermining the contracts each builder would get since 1999.

“If there was a price war, we’d all collapse,” he said.

A total 558,857 registered builders crowd the construction market.

The government decided earlier this month to raise the penalty for bid-rigging by 70 percent. But it’s going to be tough to uproot such a long-established practice of evenly distributing opportunity, the son of the former Tokyo official said.

“You only get caught if you coordinate bids without going through the right contractors, politicians and government officials,” he said.

How common are rigged bids? No evidence exists, but in almost all contracts, the winning bidder clinched the deal within 5 percent of the maximum limit set by the government, according to Kanemoto.

“The probability of this happening, over and over, if market principles ruled? Virtually zero,” the professor said.

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