The email that Leandro A. sent to an employee on December 15, 2009 is surprising for its clarity: no slang and no attempt to hide what he wants done. Leandro, a director from the consultancy firm 97S&F, is asking for help to win a contract with the City Hall in Bilbao, northern Spain. “We need to do three different proposals so that they give it to us,” he writes. “We have to do our one nicely and well… And another two to cover us. We’ll use [consultancy firm] Deloitte and another company. First do the hours document in a proposal format. Then you have to come up with two losing proposals, I think I’m being clear.”
Leandro couldn’t have been clearer. The employee, who complies with the instructions with similar diligence, later writes to a colleague from Regio, another consultancy firm. “We will send the proposals with the minimal content to protect the corporate reputation, because for the negotiated contracts we have to present proposals that are a bit of a joke.”
The CNMC watchdog has proposed sanctions totaling €47 million for a total of 22 consultancies for “very serious” infractions
These and thousands of other emails form part of an investigation by Spain’s National Commission of Markets and Competition (CNMC) watchdog, which has discovered that for at least a decade, a group of consultancy firms has been working like a cartel to share out the allocation of public contracts, leaving other competitors in the cold.
Although they were active in the scheme, 97S&F is at the back of the line in the sector, and as such is facing small fines for its actions. Three of the big firms, however, are a step from having to pay multi-million sums for anti-competitive practices: Deloitte (€17.2 million), PwC (€10.4 million) and KPMG (€10.2 million). The CNMC has proposed sanctions totaling €47 million to 22 consultancies for “very serious” infractions. The proposals by the watchdog, which can be appealed by the firms in question, also include their being banned from working for Spain’s public administrations, but does not specify for how long this would be.
The companies were doing each other mutual favors by presenting simulated offers that allowed them to secure public contracts without having to worry about their rivals. As well as “manipulating bids on a regular basis over an extended period of time,” they managed to “maintain prices high in an anti-competitive way.”
The expression “a covering offer,” an open secret in the consultancy world, is the most repeated in the emails, and holds the key to the way the fraudulent scheme worked. The companies offered or requested false proposals from friendly competitors in order to win smaller public contracts or those negotiated without publicity, and where more than one offer was necessary.
The company that was vying for the tender “offered to prepare its competitors’ offer,” with the other firm “merely having to stamp it and add their letterhead before sending it” to the council or government in question, according to the report produced by the CNMC and to which EL PAÍS has had access. The fictitious offers were, in general, “more simple” than the winning ones, and had to come with a higher price.
This “chain of favors” began at least in 2008 and did not end until 2018, when the first inspections were carried out. Company directors had begun to notice that someone was breathing down their necks and took measures accordingly: they changed the names of files, they used Gmail accounts rather than their corporate emails, and so on. Once again, Leandro A. put it better than anyone in another email, sent in 2014: “I’ve been looking at the proposal, and as it stands, I’m not going to send it,” he wrote. “It needs to look like we are really going for the tender. From now on, the covers have to be done very well, as if we were out to win.”
For now, prison does not await, but the directors will be facing the payment of significant fines when the ruling is finalized
The report states that the directors were “conscious of the illegality” of their practices. Among the evidence for this are explicit mails such as one sent from a partner from Hidra to Regio in October 2016, about a contract with the Balearic Islands’ government. In this case, Hidra was taking the role of unwanted guest. “Hey, tell me about this, they’ve invited me to the Balearics and this looks like it could be something to do with you. Illuminate me, master and commander! You’ll have to come and find me in the clink later on.” For now, prison does not await, but the directors will be facing the payment of significant fines when the ruling is finalized.
The CNMC detected two schemes that were operating parallel to one another. One, in the “north” of Spain, which included tenders in the Basque Country, Cantabria, Navarra, La Rioja, Asturias, Galicia and Castilla y León. The investigation of this branch includes PwC and Deloitte. Another of the companies, Red2Red, boasted of its authority in an email. “Respect the small domain of Cantabria, which is ours,” the message stated. The heads of PA Consulting broke their silence in order to reduce the size of the fines they are facing and admitted that the cover offers were a well-known and “habitual practice” in the sector.
The second network operated throughout Spain. Other companies, which have also been sanctioned, took part in both schemes on a “sporadic” basis. The system was “permeable” and the choice of one company or another depended sometimes on the personal relationships of the directors, or the strategic (and physical) proximity of the companies.
The manipulation of the tenders got to the point where one company, Uliker, requested support for a contract that it had already won ahead of time. “Good day Xavier, how are you? [...] I was calling you because I wanted to request a cover offer from you. It’s for a negotiated procedure that we’re already working on,” wrote a director from PA Consulting, which had already offered itself as support for KPMG in Asturias. The reciprocal favors were working, and PA called on KPMG for its assistance in March 2018 for a tender in Bizkaia. For its part, PwC requested help from the cartel to access tenders from the Justice Ministry and the CGPJ legal watchdog.
The companies respond
“The facts to which the CNMC file refer to took place before 2018 and were isolated episodes of malpractice in some minor offers (€60,000) with the administration in the Basque Country on the part of a small group of consultants,” said a Deloitte spokesperson in response to the revelations above published by EL PAÍS last week. The employees, the spokesperson continued, “immediately ceased working” in the firm once their conduct became known.
KMPG, another consultancy that is in the CNMC’s sights, denies involvement. “In relation to the proposal for sanctions by CNMC that affects KPMG Asesores S.L. we understand that it does not include elements that prove the involvement of the firm in the anticompetitive networks that were investigated,” the firm told EL PAÍS. “KPMG stands by its unwavering commitment to legality and free competition, which is why it has scrupulously observed and continues to observe all of the rules that must be applied.”
English version by Simon Hunter.