Collusion in the Dutch construction industry: An industrial organization perspective

Abstract

Several investigations by parliament, cabinet, justice and antitrust authorities have shown a widespread use of cartels and structural bid rigging within the Dutch construction industry. The reputation of the Dutch construction industry has been dented with both the general public and clients. As a response, the Netherlands' parliamentary inquiry Committee on Construction Fraud adopted the guiding principle of ‘competition is good’ and urged the restoration of the proper functioning of the market. The proposed default approach to public sector procurement is design–bid–build with public tendering and selection of the lowest price. A concise overview of the investigations is provided, relating the collusions and their persistence to emerging insights from the field of industrial organization theory into underlying factors and causes. A tougher public sector procurement policy and the continued reliance on lowest bid prices may not contribute to the reform of the Dutch construction industry as intended. One-dimensional, price-oriented competition only provides a static, project-based efficiency. However, it neither addresses a number of organizational issues nor resolves the underlying pressures leading to collusion. An alternative approach allowing for a balance of competition and collaboration with a wider number of selection criteria variables would create a more dynamic, iterative competitive process over a longer timeframe and would develop an innovative, efficient and profitable industry. Although the inquiry committee acknowledges these new methods of procurement, it is expected that the overriding ambition to restore proper market function (through increased competition) will steer towards the more traditional procurement approaches.