“Expanding sound companies’ chances of winning contracts”... Public Procurement Service rolls out fourth measure to curb indiscriminate bidding

[Financial News] Sweeping measures will be introduced to prevent paper companies with no actual ability to fulfill contracts and brokers from bidding indiscriminately in the public procurement market. Moving away from an approach that relied on penalties after problems occurred, the new system will screen out bad actors before they can enter the market.
The PPS said it would begin rolling out its measures to curb indiscriminate bidding in goods procurement on the 16th of next month to protect legitimate chances of winning contracts for responsible companies and create a fair competitive environment.
Since 2021, the PPS has introduced three rounds of improvements, including a shift to manufacturing-based bidding and a new requirement for direct contract fulfillment. However, limitations in preventing broker involvement and in taking action after the fact meant it could not fundamentally stop unqualified firms from submitting bids blindly. In response, it drew up a fourth set of measures this January and completed follow-up procedures, including building the necessary systems.
Since August, the PPS has designated items at risk of indiscriminate bidding and imposed bid bonds. As a result, the average number of firms bidding per contract plunged by 83.9%, from 355 to 57, while the average rank of winning bids improved from 41st to 1.5th, showing tangible results.
Starting on the 16th of next month, the PPS plans to use company registration and contract information, among other data, to screen out firms suspected of being paper companies and require them to pay bid bonds. Also, starting next year, firms that register more than 500 “Other Supply Item Names” will be required to submit a credit-rating certificate valid for one year.
Penalties for firms that repeatedly withdraw from reviews will also be strengthened. Firms that fail to submit review documents or withdraw from a review without a valid reason will be barred from bidding by the end of this year. The threshold for repeated withdrawals that triggers a bid bond will also be lowered from five to two or more, with the change taking effect in January next year.
PPS Commissioner Baek Seung-bo said, “We will build a fair procurement ecosystem by blocking indiscriminate bids from firms that cannot fulfill contracts, so that well-run companies have the opportunity to win contracts.”
Meanwhile, the public procurement market for goods has long been plagued by so-called lottery-style bidding, based on the notion that luck counts for seven-tenths and skill for three-tenths. Firms mobilize hundreds of shell companies or nominee companies to submit bids, then, if they win, hand the contract over to a broker or the actual manufacturer in exchange for a fee. As a result, honest small and medium-sized businesses with the necessary facilities and staff not only miss out on opportunities to win contracts, but the practice has also drawn continued criticism for leading to abandoned contracts or lower quality after an award, delaying public agencies’ projects and wasting administrative resources.
[email protected] Kim Won-jun Reporter