The arrests last week of senior officials of the Defense Facilities Administration Agency (DFAA) confirmed that bid-rigging on public-works projects remains an entrenched practice in Japan. What happens, basically, is that a contract is awarded at a price higher than if it were put out to bid through fair competition. The successful bidder (or bidders) makes unfair gains at the expense of taxpayers’ money. Moreover, bid collusion at the initiative of bureaucrats undermines confidence in public administration. It is a foul crime that must be punished more severely.
Arrested last week were a technical councilor, his predecessor and an inspection officer at the DFAA. They are charged with obstructing competitive bidding, or colluding with bidders, on projects to install air-conditioning systems at a Ground Self-Defense Force hospital and a DFAA office in Tokyo. Prosecutors suspect that the trio repeatedly used their influence for the benefit of selected bidders — a practice known as kansei dango (bureaucrat-led prebidding collusion).
The technical councilor, the highest-ranking technocrat of the DFAA, is the third-highest official at that agency. His arrest suggests strongly that he and his predecessors have broken the law systemically over the years in return for favors from private contractors — a much more serious crime than lower-ranking officials’ embezzlement of taxpayer money for wining and dining expenses.
After the councilor was arrested, Mr. Fukushiro Nukaga, the director general of the Defense Agency, told reporters: “There is an urgent need for the (DFAA) to make a fresh start — it should even be dissolved if necessary.” He said an investigative committee would get to the bottom of the bid-rigging scandal.
The latest case of bid collusion is said to have been inspired by a desire to obtain private-sector posts for retired senior bureaucrats. Over the past decade, six former DFAA officials, including technical officials, have landed cushy jobs with manufacturers of air-conditioning systems, apparently exploiting loopholes in rules that prohibit ex-bureaucrats from joining related companies for at least two years after retirement.
The entry of retired bureaucrats into private companies with ties to public offices is known as amakudari (descent from heaven). One way to stamp out bid collusion is to eliminate this long-standing custom of “heavenly employment.” Recent cases of bid-rigging, involving other public offices as well, show that officials in charge often worked on would-be contractors to secure post-retirement posts.
Contributing to that custom is the fact that many ranking civil servants retire at a relatively young age, partly to make way for younger officials waiting in the wings. Therefore, in order to preclude amakudari, it is also necessary to create a new personnel system that lets older officials remain active until the mandatory retirement age. In the case of technical officials, opportunities for promotion should be broadened and exchange programs with civilian officials expanded.
Another factor contributing to collusive bidding is the “closed nature” of the DFAA. Some attribute kansei dango to the long-term business relationships that exist between technical officials and private companies. Confidentiality may be required on weapons contracts, such as those involving missiles, but air-conditioning systems — which use civilian technologies — have nothing to do with defense secrets. In principle, information on such nondefense contracts should be disclosed to improve the transparency of the organization.
The anticollusion law that took effect in January 2003 must be tightened. The ruling and opposition parties are preparing a revision bill that would enable the Fair Trade Commission to file criminal charges for a wider range of violations.
The latest bid-rigging scandal puts the Antimonopoly Law on the line. The updated law, which took effect last month, imposes lower surcharges on companies that report noncompliance to the FTC, while levying higher surcharges — 10 percent of sales (6 percent previously) — on large manufacturers that violate the law. The business community remains strongly opposed to these provisions, and this could be one reason why authorities in a position to award contracts appear reluctant to abolish the practice of collusive bidding.
Last Tuesday, prosecutors raided the head offices of two general construction contractors, raising the possibility of a wider scandal. There may also be a question of bribery. Prosecutors have already searched the office of a construction materials company headed by a former secretary to a Lower House member. Although he has denied involvement, the one-time political aide is suspected of acting as a mediator between manufacturers and the DFAA. Investigators must unravel the whole truth.