What is procurement fraud?
In general terms, procurement is the process of acquiring goods or services in order to satisfy the needs of a person, group or organisation. It can range from purchasing small products such as stationary through to specialist goods such as defence equipment.
In the UK, policies and standards for public sector procurement exist in order to promote fair, open and transparent competition for business.
Procurement fraud refers to unlawful activity that occurs through the procurement cycle including the sourcing, letting of contracts and contract management phases. It is a deliberate deception intended to influence the procurement cycle in order to make a financial gain or cause a loss.
Procurement fraud, and other related criminal activity that occurs in connection with the local authority supply chain, is estimated to cost local government around £876 million every year, which makes it the largest single area of financial loss to fraud in local government. It occurs throughout the procurement cycle, but is more evident in the contract management phase.
An offence can be committed by those both inside or outside an organisation, including contractors or sub-contractors external to the organisation, as well as staff within the organisation. The nature of procurement fraud differs depending on which stage of the procurement lifecycle it occurs in.
Pre-contract award phase
Fraud within the pre-contract stage involves activity such as collusion and corruption which can be difficult to detect. A few examples of how procurement fraud can take place during the pre-contract stage include:
- Price fixing - whereby suppliers collude to fix the prices they will charge
- Market sharing - suppliers colluding to divide up markets between them
- Bid rigging - suppliers colluding to ensure a particular bidder wins the contract e.g. all agreeing the bids that will be submitted.
- Cover pricing - where high bids, which are not intended to be successful are made in order to make the favoured bid more attractive. Cover pricing may include ‘compensation payments’ to the bidders who do not win.
- Bid suppression - where one or several bidders withdraw their bid
- Bid rotation - suppliers taking it in turns to submit the lowest price when bidding.
Despite the fact the policies and guidelines which were specifically designed to ensure fair competition in the pre-contract award phase, the increasing amount of policies has made it harder for compliance within this phase. This has led to situations where shortcuts have been taken, meaning fraud controls have been bypassed.
Post contract award phase
Fraud in the post-contract stage tends to occur within contract management, including through the following methods:
- Bribery for awarding a contract - a bribe (‘kickback’) is given to a council employee or councillor to secure the award of a contract
- Bribery for disclosing confidential information - a bribe is given to a council employee or councillor to secure the disclosure of confidential and commercially sensitive information, such as the content of competing bids.
- Overcharging - overbilling in relation to the goods and services that have been delivered, including unjustified expenses claimed by consultants
- Duplicate payments - the council charges twice for the same goods or services
A key differentiation between the examples in the pre-contract award and post-contract award is that the post-contract examples have more of an ability to be detected after they take place due to public bodies mainly using electronic payment systems. These payments can usually be tracked and audited, meaning it is more likely that any fraud that occurs will be detected and action will be taken.
The offences
The two main offences individuals are charged with are Fraud by False Representation (Section 2 of the Fraud Act 2006) and Fraud by Abuse of Position (Section 4 of the Fraud Act 2006).
When two or more individuals are alleged to be involved in the alleged fraud, those individuals will typically be charged with a conspiracy to defraud.
Can I go to prison if convicted of procurement fraud?
The maximum penalty if you are convicted is a ten years custodial sentence.
If you are convicted, there is a real possibility that you will be given a custodial sentence given that an inherent ingredient of the offence is an abuse of position of power or trust which is an aggravating factor in any fraud or conspiracy to commit fraud offence.
A variety of other factors are taken into consideration when determining the sentence to be imposed, such as your alleged role in the offending, the value of the fraud and the overall impact the offending has had on the complainant. Relevant personal factors such as your criminal record and level of remorse are also taken into account.
Therefore, it is incredibly important that you are represented at court and that the sentencing judge is directed to each of the relevant mitigating factors in order to ensure you do not receive a sentence which is excessive for the conduct itself.
How Stephensons can help
If you have been charged with an offence, your case will be handled by one of the partners or senior associate solicitors in our specialist criminal defence team. Our team is recommended in tier one of the Legal 500 and will provide you with clear advice and expert representation throughout the course of the proceedings. We appreciate that this will be a difficult time for you and your family and we will ensure that you are fully supported throughout this process.
If you require immediate representation we have expert police station representatives available 24 hours a day all year round. If you require emergency assistance outside of normal working hours, please contact 07836 574 607.
Otherwise, please contact the office on 0161 696 6188 or complete an online enquiry form and a member of the team will contact you as soon as possible.
