A new system of indicators detects and prevents possible collusion in the awarding of city contracts

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Researchers at UdeM’s School of Criminology have perfected a method to detect irregularities in how contracts are handed out.

A system of statistical indicators developed by researchers under the direction of Professor Carlo Morselli now makes it possible to detect when bidders for city construction contracts are colluding.

By combining public requests for proposals (RFP) with analysis of social-media accounts maintained by firms in the construction industry, researchers can verify the market share of bidding companies and discern structures of collusion activities in the networks that exist between those companies.

Morselli, who teaches at UdeM's School of Criminology, revealed the discovery at a conference held to reveal the preliminary findings of research based on data drawn from 15,000 bids and contracts awarded in 100 Quebec municipalities between 2002 to 2013.

Analyzing the metrics

“These data were then combined using various metrics that provide information about the structure of the networks through which the companies interact,” explained, Morselli, who is also director of the International Centre for Comparative Criminology (ICCC).

Basing his research on this same analytical system, one of Morselli's doctoral students, Maxime Reeves-Latour, wrote his thesis on collusion cases in the City of Laval between 1965 to 2013.

"On the one hand, to keep the bid-rigging system up and running while minimizing the risk of detection, the parties to these agreements often resorted to soft bids to give the impression of free competition,” Reeves-Latour wrote in a report submitted to the ICCC.

“On the other hand, to make sure that the same group of firms enjoyed a stable and regular supply of contracts, the participants had to communicate with each other while preventing firms outside the cartel from bidding,” he continued.

The presence of cheating appears in the statistical indicators system “when a core of firms awarded contracts is able to maintain a regular and stable flow of contracts over the years.”

Laval: An illuminating case

While researching the City of Laval, Reeves-Latour put these collusion detection methods to the test, poring over nearly 150,000 pages of minutes generated by the City’s executive committee since the founding of Laval in 1965 right up until 2013.

Based on the types of contracts awarded, the number and names of bidding parties, the amount of each proposal filed, and the name of the winning firm, he developed a coefficient of variation that measures the distribution of bids between the matrix core and its periphery.

In real terms, the higher the coefficient of variation on the matrix, the closer it is to the “closed” market and, theoretically, to the risk of collusion. Those firms closest to the core obtain and share contracts, while those on the periphery rarely manage to submit a proposal.

The result: Reeves-Latour revealed that contracting for streetlighting “seems to be the most vulnerable to collusion agreements in the history of Laval. Moreover, the dominance of a small group of firms can be traced back to the founding of the municipality and observed until the mid-2000s,” he reported.

In fact, the data indicates that between 1982 and 1988 – immediately following the election of Claude Lefebvre’s Parti PRO des Lavallois – the lighting market became completely closed to all but four companies closely connected to the ruling political party. These companies distributed all the contracts awarded by the City of Laval among themselves “using a near-perfect rotation system.”

“Mr. Reeves-Latour has lifted the veil on the cartel of privileged groups and the mayor’s role, because the data makes it possible to see who has been at the core of the network and who has been on the periphery for the last 40 years,” Morselli said.

In addition, the professor believes that by extending this detection system to other major sectors involved in municipal public-works projects like sidewalk paving, aqueducts and sewer systems, “it would be possible to spot the risk of collusion over many years.”

Sharing the system with municipalities

In the research project, which was financed by Canada’s Social Sciences and Humanities Research Council, Morselli and his team focused their analysis on public RFPs issued from 2002 to 2013.

Over 39 municipalities with populations of 20,000 or more have agreed to participate in the study. As a result, researchers have been able to study 6,017 RFPs that garnered proposals from 1,124 companies for sidewalk paving, aqueducts and sewer systems.

“Our next goal is to transfer our intelligence-gathering to the authorities, including the Government of Quebec, to create a system of bid and contract verification that might include all municipalities in order to unmask collusion,” Morselli said.

The research program covers a massive amount of public information “that has been largely ignored by the province’s administrative and regulatory actors for a very long time,” the professor added.

“Impunity results from a lack of monitoring and a complex body of laws and guidelines that have nurtured criminal opportunities over the decades. You have to go back 40 years to understand how several players have profited from systemic negligence to create a deviant environment that, ultimately, was revealed only a few years ago."