Examples of Corruption in Procurement

The webpage “How Corruption Occurs” provides an overview, with some summary examples, of the circumstances in which corruption can take place throughout all phases of a project.

The section below is supplementary to the above webpage, and gives some more detailed examples, with explanation, of how corruption can take place during the procurement phase.

The examples below provide specific facts for ease of understanding, but the examples and explanation can be applied to numerous similar factual circumstances.

When in an example below it is commented that a criminal offence has been committed, this comment is based on the generally applicable principles explained in the webpage “What is Corruption” (which explains the different corruption offences which can occur, including bribery, extortion, fraud, cartels, abuse of office, embezzlement and money laundering).  However, in some countries the actual applicable law may result in a different outcome.

1.  Corrupt manipulation of pre-qualification


A project owner appoints an engineer to manage a pre-qualification for a project contract so as to obtain a short-list of five suitable contractors which can then submit tenders for the contract.  A contractor which wishes to be short-listed pays a cash bribe to the engineer to ensure that its main competitors are eliminated from the short-list on artificial grounds.  The engineer produces a short-list which contains the corrupt contractor, but not its main competitors.  The engineer falsely informs the project owner that it has selected the best five competitors.  The project owner relies on the engineer’s advice.  The contractor which bribed the engineer wins the project.


In relation to some contracts, the project owner may call for tenders from any organisation which wishes to participate.  However, in some cases, where there is a large number of competitors, this may result in such a large number of tenders being submitted that the project owner may have difficulty in evaluating them all.  Therefore, so as to prevent this happening, on some contracts the project owner may call for a pre-qualification exercise before asking for tenders.  Organisations which wish to tender to the project owner for a specific contract, or for any contract during a specified time period, will be asked to submit details of their technical, commercial and financial status.  This may include a list of their key employees and equipment, a list of projects they have completed, their health and safety, quality and integrity management programmes, and their financial accounts.  The project owner, or its consultant, will then evaluate the documents received, and select a short-list of organisations which they believe have appropriate resources and experience to undertake the project or range of projects.  These pre-selected contractors will then be asked to submit a formal tender for a specific project.  

While this may be a more efficient process for the project owner, it adds an additional corruption risk to the process, as a corrupt contractor and corrupt pre-qualification evaluator can arrange for the improper admission of an unqualified contractor to the approved list, or the improper exclusion of qualified contractors.

2.  Bribery through agent to obtain main contract award


A contractor which is tendering for a project is approached by an agent who claims that he will be able to assist the contractor to be awarded the project.  They agree that, if the contractor is awarded the project, the contractor will pay the agent a fee of $1 million (representing 5% of the contract price).  The agent is appointed under a formal agency agreement which states that the agent will carry out specified services.  However, the fee being paid to the agent is grossly in excess of the market value of the legitimate services which the agent actually provides.  The agent intends to pay part of the fee to a representative of the project owner to ensure that the contractor is awarded the contract.  Although the contractor does not actually know that the agent will use the fee for that purpose, the contractor intends and thinks it likely that this will be the case due to the nature of the approach, the nature of the market in which the project is located, and the significant disparity between the value of the legitimate services to be carried out by the agent and the amount of the fee.  The contractor is awarded the contract.  The contractor pays the agent the fee.  The agent pays the representative of the project owner a bribe out of the fee.  The cost of the fee (and therefore of the bribe) is included by the contractor in the contract price.  The project owner therefore pays more than it would have done had there not been a bribe, and the contract is not awarded to the best evaluated contractor, but to one which paid a bribe. 


The above example illustrates what has historically been one of the most common methods of paying a bribe in relation to major projects.  It provides a method which avoids direct contact or payment between the bribe payer and bribe recipient.  As in most cases agents perform a legitimate, ethical and valuable commercial service to organisations, it can accordingly be difficult to distinguish corrupt agents from ethical agents, and to identify whether the agent intends to act, or has acted, corruptly.  This difficulty is compounded by the fact that many commercial agents work on a success fee basis (i.e. they are only paid a fee if a contract is awarded in consequence of their services).  A legitimate agent may need to undertake extensive work in order to help an organisation be awarded a contract.  It may need to widely market the organisation’s products, participate in tenders and contract negotiations, and support the delivery of the organisation’s goods.  And if the contract is not awarded to the company appointing the agent, the agent will have performed many of these services without compensation.  An illegitimate agent on the other hand may need only to have direct contact with corrupt personnel working for the relevant government or project owner, and may not need to undertake any services whatsoever other than to agree and process the bribe.  In some cases, an agent may perform a combination of legitimate and illegitimate services.  The success fee basis makes it difficult to relate the value of the fee to the value of legitimate services carried out.

If it is established that the agent has actually paid a bribe to a project owner representative or government official in order to ensure that an organisation wins a contract, then the organisation which appointed the agent and won the contract will normally be liable for the corrupt actions of the agent if it can be shown that the organisation appointed the agent with the purpose of it paying a bribe, or knew or suspected that the agent would pay a bribe but did not take reasonable steps to prevent this from occurring. 

Judges in a prosecution may be able to infer knowledge and therefore guilt. They may determine that the circumstances of the appointment are such that the organisation must have known that a bribe would be paid.  For example, the judge is likely to examine whether the agent’s fee was reasonable and proportionate to the legitimate services and risk undertaken by the agent.  If the fee is very high, and the level of services and risk is very low, and a bribe was actually paid by the agent out of this surplus, then the judge may infer that the organisation must have known – why else would it pay such a high fee for so little legitimate work and risk?  While a success fee based on a percentage value of the contract can make this inference based on value difficult, it is not impossible.  For example, knowledge and guilt may be inferred if a $1 million success fee is agreed in circumstances where it is obvious that the agent will be providing very few legitimate services in return, and it is therefore obvious that the fee is grossly excessive.

Using an agent as a conduit for a bribe is not the only method.  Bribes can be concealed in, and paid out of, the contract prices of sub-contractors, suppliers, consultants and joint venture partners.  See Concealing Corruption.

3.  Corrupt Manipulation of design


A project owner appoints an architect to design a project.  One of the competing contractors which is tendering for a project contract bribes the architect to provide a design with which only that contractor can fully comply.  The bribe is the promise by the contractor of significant future work for the architect.  The architect provides an appropriate design. The contractor submits a price that is higher than it would have been had there been a genuine competitive tender, and higher than several of the other tenderers.  The architect recommends to the project owner that the relevant design was in the project owner’s best interests and that the compliant contractor should be appointed, even though its tender is not the cheapest, as only it fully complies with the tender design.  In fact, to the knowledge of the architect, one of the cheaper tenderers bidding to an alternative design would have adequately suited the project owner’s needs.  The project owner follows the architect’s advice and awards the contract to the compliant contractor. 


This form of corruption can be difficult to prove, as there is often a large degree of subjectivity in design.  The architect may claim that he genuinely believed that the design was in the project owner’s best interest, and it may be difficult to disprove this, or to prove corrupt intent, unless the actual bribe can be uncovered and proven.  An oral agreement to provide future work in return for the corrupt design would be difficult to prove. 

In some cases, the corrupt design may be a difficult design with which to comply, requiring a high degree of skill or the possession of proprietary methods.

In other cases, the corrupt design may be the specification of a particular type of equipment (e.g. air conditioning equipment manufactured by a specific manufacturer), or equipment with a specified input or output with which only one manufacturer can comply.

This example overlaps with corruption in the design phase, in that this corruption initially takes place in the design phase, and then is completed in the procurement phase.

4.  Cartel:  Price fixing


A group of contractors which routinely compete in the same market secretly agree to share the market between them.  They will each apparently compete on all major tenders, but will in advance secretly agree which of them should win each tender.  The contractor which is chosen by the other contractors to win a tender will then notify the others prior to tender submission as to its tender price.  The other contractors will then tender at a higher price so as to ensure that the pre-selected contractor wins the tender.  The winning contractor would therefore be able to achieve a higher price than if there had been genuine competition for the contract.  If sufficient contracts are awarded, each contractor would have an opportunity to be awarded a contract at a higher price.  This arrangement is kept confidential from the project owners on respective projects who believe that the tenders are taking place in genuine open competition, and that they are achieving the best available price. 


This is an example of a cartel arrangement.  They are also sometimes called competition offences or anti-trust offences.  In some countries these types of arrangements are made illegal by specific anti-cartel laws.  In other countries they may be dealt with under fraud laws (as the competitors are defrauding the project owner by pretending that they are in competition, whereas in fact they are colluding with the outcome that the project owners therefore pay more for their projects than they would have done had there been genuine competition).

Cartels are very difficult to identify if they are successfully kept secret by the participants. The project owner may believe that prices are unusually high, but it may be difficult to prove that this is because of a cartel rather than due to market conditions. 

Due to the difficulty in identifying cartels and the damage they cause, some countries offer full immunity to the first participant in a cartel to report the cartel to the authorities.  A condition of immunity will be that the reporting participant must fully cooperate in the investigation and give evidence against the other participants.  The other participants will then be heavily fined if found guilty, and may be banned from public sector contracts for a specified period.  

5.  Cartel:  Loser’s fee


It is a condition (express or implied) of a tender that each unsuccessful tendering contractor will bear its own tender costs.  Prior to tender submission, the competing contractors secretly agree that they will each include in their tender price an agreed additional sum of money representing the total estimated tender costs of all the competing contractors.  Whichever contractor is awarded the contract will then divide this sum of money between all the unsuccessful contractors which will thereby recover their tender costs.  This arrangement is not disclosed to the project owner.  The project owner believes that the losing contractors are bearing their own tender costs.  The project owner is therefore unknowingly paying more than it would have done had the unsuccessful contractors borne their own tender costs.


This is an alternative type of cartel arrangement to the one described in example 4 above.  In this case, the competitors are genuinely competing against each other, but the price will be increased by the addition in each competitor’s price of the losers fee.  As with example 4 above, some countries laws may criminalise this type of conduct through specific anti-cartel laws, and other countries may treat it as a fraud office (as the competitors are representing to the project owner that they are paying their own tender costs, when this is not in fact the case). 

6.  Obtaining a tender only for the purpose of price comparison


A project owner intends to place a contract with a contractor which it frequently uses.  It wishes to ensure that the price obtained from the contractor is a market price.  It therefore requests tenders from two other contractors.  It leads these contractors to believe that they have a chance of winning the project.  However, the project owner always intends to award the contract to its favoured contractor.  The price of one of the other bidding contractors is the lowest.  The project owner discloses this lowest price to its favoured contractor and requires it to match the price.  The favoured contractor does so and is awarded the contract.  The other contractors therefore waste their tender costs.


This type of conduct can be common in private sector projects, where the private sector project owner has a strong relationship with a particular contractor, and wishes to continue to use that contractor, but fears that the contractor will abuse this relationship by overpricing.  The project owner is therefore intentionally using the other two contractors solely for the purposes of beating down the price of its favoured contractor.  It never intended to allow either of the other two contractors to win the tender.

This type of conduct is fraudulent, as the project owner is leading the other two contractors to believe that they may have a chance of winning, and is leading them as a result to incur costs in submitting a tender.  The project owner’s purpose in doing this is to save itself money by reducing the price of its favoured contractor.  Therefore, all the elements of fraudulent conduct are present, even though many would regard this as sensible business practice rather than as a crime.

To avoid this conduct being fraudulent, the project owner would either have to inform the other two contractors that they had no chance of winning (which then of course would mean that they would not submit a tender), or must genuinely intend to award the contract to the best evaluated tender on an objective basis (i.e. it must not give the preferred contractor the chance to drop its price to match the lowest).

7.  Using entertainment as a bribe during sub-contract procurement


A procurement manager of a contractor is managing a competitive tender between sub-contractors.  One of the sub-contractors offers a fully paid three day visit to a Formula One Grand Prix to the procurement manager if the procurement manager awards the contract to the sub-contractor.  The procurement manager does award the contract to the sub-contractor, and subsequently attends the Grand Prix at the sub-contractor’s expense.


Entertainment is frequently used for corrupt reasons.  While the payment by one organisation of entertainment to the personnel of another organisation is not necessary corrupt, it will be treated as corrupt if the purpose of the entertainment is to influence the recipient to act improperly.

In the above example, it is highly likely that the entertainment would be treated by the courts as a bribe.  The entertainment was expensive and extravagant, was offered in circumstances where the recipient was responsible for making a decision in relation to a contract award to the payer, and the trip was linked to the contract being awarded to the sub-contractor.

Even if both parties denied that there was any such link, and claimed that the award was not designed to influence the manager, and did not influence the manager, the court is unlikely to accept this explanation.  The Court is likely to infer that the only rational explanation for such generosity by the subcontractor in these circumstances was a corrupt explanation. 

See Gifts, Hospitality, Entertainment, Donations and Other Benefits for further explanation of the circumstances in which these matters are likely to be treated as corrupt.

8.  Submission of false quotation


A procurement manager of a contractor is required to organise the hire of cranes for one of the contractor’s projects.  Crane hire companies are at that time giving discounts of approximately 25% off their published hire prices for long-term hires.  The procurement manager and two friends set up a company (‘Craneco’) which is registered in the names of the two friends.  Half the shares in Craneco are secretly held as nominee for the procurement manager.  Craneco obtains a quote including discount from a crane hire company.  The procurement manager obtains the published rate sheets (excluding discounts) from two other crane companies.  Craneco supplies a written quote to the contractor to supply the cranes at a rate slightly lower than the published rates of the two other crane companies, but at a higher rate than the rate quoted to Craneco.  The procurement manager uses the two rate sheets (excluding discounts) and the quote from Craneco as three competitive quotes, and awards the contract for the supply of cranes to Craneco.  These documents are placed on the procurement file, creating the false impression that there has been genuine competitive pricing, and that the hire contract has been awarded to the cheapest supplier.  Craneco makes a profit.  The procurement manager does not disclose to the contractor his interest in Craneco.  The contractor pays more for the hire than it would have done if the contract had been awarded, including discount, to one of the other crane hire companies.


The award by procurement managers of contracts to organisations in which they have a personal interest is one of the most common forms of corruption in procurement.  This type of conduct would be both:

  • an abuse of office by the procurement manager (who should be placing contracts on an objective basis in the best interests of his employer, rather than to connected organisations in his own best interest); and
  • fraud by the procurement manager (as he is falsely representing to his employer, the contractor, that there has been a genuine competitive process, with the award to Craneco being the best objective outcome for the contractor).

The risk of corruption is significantly increased in cases where the procurement manager can both select the organisations which can submit offers, and select the winning offer.

The situation where a manager has a personal interest in an organisation which is doing business with the manager’s employer is known as a conflict of interest (as the duty of the manager to act objectively in the employer’s best interest conflicts with the natural subjective desire of the manager to act in his own best interests).

Updated on 14th May 2024