Cover quoting is a fraudulent scheme that undermines competitive bidding for goods and services, not only in the public sector but also in the private sector. The consequences for entities are severe due to corruption, inflated costs, and increased fraud risks.

In the procurement process, the concept of competitive bidding is important. A buyer, such as a government department, should have an unwillingness to pay more than what is viewed as fair value. However, cover quoting undermines this process by reducing the competition and by making artificially inflated prices appear competitive or as fair value.

This scheme typically involves collusion between procurement officials and suppliers to inflate prices beyond fair value and eliminate genuine competition in the procurement process.

A typical example of cover quoting is where there is a manipulation of the ‘three quote’ system. This system entails that a government department should receive three quotes from three different or independent suppliers when procuring goods or services that are above a certain monetary threshold. Generally, they should award the contract to the most suitable bidder, often being the quote with the lowest price.

However, what sometimes occurs is that a procurement official asks for multiple quotations from a single supplier who in turn presents them as independent bids. This dishonest tactic ensures that one of the artificially inflated quotes appears as the lowest, which in turn guarantees profit for the supplier and potential financial kickbacks for a complicit official.

For example, a cover quoting scheme was recently uncovered when the Gauteng Department of Health wanted to procure several laptops and desktop computers. Three companies responded with quotations, and on the face of it, it seemed that these were independent submissions.

However, during an investigation into the procurement process, it came to light that when these three companies had bid for the contracts, it was found that a certain individual was the declared owner of one, the sole director of another, and the seemingly undeclared owner of the third.

Additionally, in another procurement contract, it was discovered that the Department was paying an estimated 300% more than the actual cost for certain containers. The investigation’s findings indicated that this remarkable increase in price was attributed to and utilised for financial kickbacks to complicit officials.

Consequently, this was seen to be a clear abuse of the ‘three quote’ system. The ‘three quote’ system aims to bring transparency, fairness, and equity to the procurement process. However, the prevalence of cover quoting, which is usually pre-meditated and intentional, undermines the procurement process and can result in inflated costs and corruption as seen above.

For more information on cover quoting or if you are seeking assistance in handling such matters within your organisation or department, please feel free to reach out to us at info@dmlforensics.co.za

Sources:

  • Guidelines for the Prevention of Cover Quoting, Kwazulu-Natal Provincial Government, 2007.
  • Cover quoting – manipulation of the procurement process, Eckhard Volker, 2004.
  • Gauteng Health Department’s procurement failures cleared the way for a ‘bid-rigging’ businessman, Amabhungane, Tebogo Tshwane, 23 Aug 2023.