Example:

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.

Explanation:

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 power 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.