LG CNS Bid Rigging: Three Bidders, One Script

LG CNS bid rigging offers a useful lesson in what happens when corporate ingenuity gets its hands on a safeguard. A data-centre tender needed at least three bidders. According to South Korea’s competition regulator, LG CNS recruited the other two, prepared their pricing paperwork and wrote one rival’s proposal. Why leave competition to chance when you can do the bloody thing yourself? Cummins showcases this customer through the language of reliability. The procurement record supplies a less flattering demonstration of how to secure an outcome.

Twenty-Seven Megawatts Of Confidence

Cummins’s case study describes twelve diesel generator sets supplying 27 megawatts of standby capacity at LG CNS’s Busan Global Data Center. It says the system can take the load within ten seconds of a power failure. Extra generating capacity provides redundancy, while inspections and maintenance support the promise of continuity. Under the heading “Only the best for the best”, the machinery gleams and every contingency appears to have a responsible adult assigned to it.

The same case study celebrates “A relationship of trust and confidence”. Lovely. In the Generator Files, those words invite a look beyond the equipment brochure. The bid-rigging case concerns a separate project: LG Uplus’s Pyeongchon data centre, where LG CNS sought a building-systems contract. The connection is the company Cummins chose to showcase. At Pyeongchon, the regulator found that its approach to competitive uncertainty included arranging the opposition.

LG CNS Bid Rigging And The Three-Bidder Rule

LG Uplus issued the tender in January 2015. The process required at least three participating companies to remain valid. However, LG CNS wanted both to win and to avoid a failed tender. According to the Korea Fair Trade Commission, it asked GS Neotek and Siemens’s Korean company to participate as cover bidders. Both agreed to help it secure the contract.

Then came the administrative craftsmanship. LG CNS wrote Siemens’s proposal so that it could pass the qualification assessment. It also prepared the schedules containing both rivals’ bid prices and sent them over. As a result, the supposed competitors could submit the figures that LG CNS had supplied. The company bidding to win had become the opposition’s fucking stationery department, furnishing the very paperwork that made the contest look populated.

That is why the three-bidder requirement matters. A rule designed to require several participants became a headcount the intended winner could organise. There were different company names on the documents, but the bids followed an agreed arrangement. Competition had acquired the appearance of a crowded room while losing the inconvenience of independent minds. The regulator’s September 2019 announcement set out how the trick worked.

Iris Recognition For The Visitors

The contract’s contents make this particular shitshow unusually instructive. The KFTC’s original release lists CCTV, access controls, integrated monitoring and rack-power monitoring among the works. Access controls included iris recognition and card authentication. In other words, the project envisaged technology that could scrutinise a visitor’s eye before granting access. Meanwhile, its tender admitted competitors whose intended role was to help another bidder win.

There is a black little comedy in that contrast. The building specifications treated identity and authorisation as serious engineering problems. Yet the procurement arrangement reduced competitive independence to paperwork that the intended winner could help manufacture. You can specify sophisticated checks at the door and still make a bollocks of the decision that selects the contractor. The regulator’s account shows how procedural detail can survive while its purpose disappears.

The Supporting Cast Expected A Subcontract

GS Neotek had an incentive to join the production. The KFTC says LG CNS promised it approximately ₩1.5 billion in subcontract work if LG CNS won. After the cover bidders submitted their agreed prices, LG CNS secured the contract for ₩3.131 billion, excluding VAT. However, the award came in below the amount LG CNS had expected. The regulator says it consequently allocated no work to GS Neotek.

Edaily subsequently reported that GS Neotek disclosed the arrangement through the regulator’s leniency system. So the promised supporting role produced no subcontract, and the regulator acquired an account of the performance. The farce had developed a contractual grievance of its own. Even the pretend competition could not rely on getting the work it expected from helping the winner. There is something exquisitely grubby about a scheme that manages to disappoint its own accomplice.

LG CNS Bid Rigging Had An Earlier Run

This was familiar territory for LG CNS and GS Neotek. In April 2010, the KFTC announced penalties over a Seoul road traffic-management tender issued the previous year. It found that GS Neotek had agreed to act as a cover bidder so LG CNS could win. Moreover, LG CNS helped it prepare tender documents. Investigators examined striking similarities in the submissions, emails between the companies and evidence from design contractors. In July 2013, South Korea’s Supreme Court upheld LG CNS’s ₩1.716 billion penalty, according to contemporary court reporting.

Another case concerned a transport-card terminal-management tender issued in 2013. In March 2018, the KFTC reported that LG CNS had asked ATEC T& to submit a weak technical proposal and a similar bid price. Technical quality accounted for 90 per cent of the score; price supplied the remaining ten. Although ATEC T& did not submit the weak proposal requested, it bid high, and LG CNS won. Christ, even a competition weighted overwhelmingly towards technical merit apparently left too much room for someone else’s commercial judgement.

The Penalties Need Their Full Record

For Pyeongchon, the KFTC announced ₩149 million in penalties across the three companies in September 2019. That included ₩75 million for LG CNS. However, LG CNS’s 2020 annual report expressly records exemption from that penalty and the associated disposition. It records the same outcome for the ₩173 million assessment in the transport-card case. Those announced figures therefore do not establish amounts LG CNS actually paid. The filing records the exemptions alongside descriptions of the underlying collusive conduct.

The most damning part of LG CNS bid rigging remains the mechanism. Three participants satisfied a formal requirement while their arrangement stripped the bids of the independence the process needed. Moreover, the winner’s own work helped carry that arrangement through the paperwork. A chest-thumping total would distract from the more useful question: what protects a purchasing decision when the supposed alternatives have already agreed who should get it? The Pyeongchon record gives that question teeth.

LG CNS Bid Rigging And The Policy That Forbids It

Today, LG CNS’s published Fair Trade Policy expressly prohibits bid rigging. Its examples include predetermining the winner and “copying or submitting the details of bid on behalf of other bidders”. The current governance page also describes annual cartel-prevention pledges, training and reporting requirements for contact with competitors. These are substantive commitments against which the company can be judged. They also describe, with uncomfortable precision, the kinds of conduct this history makes impossible to dismiss as abstract risks.

The hard part begins when those promises meet a contract worth winning. Pyeongchon had a participation rule, qualification checks and submitted prices. Yet the arrangement passed through those formal stages. Consequently, the test of the present commitments is what happens before the paperwork reaches the committee. A pledge needs to stop the bastard writing the rival’s bid before his contribution becomes another apparently respectable document in the file.

Three Bidders Can Still Be A Monologue

The LG CNS bid rigging record exposes a weakness that glossy language about trust cannot repair. A procurement process can look busy, documented and reassuring while the companies inside it have already agreed the result. At Pyeongchon, the intended winner even supplied material that helped the others participate. The safeguards remained visible; their substance had slipped out through the service entrance. What a wretched little achievement: turning a competitive tender into a ventriloquist act with corporate letterheads.

Cummins’s Busan showcase sells confidence in a system built to keep working when the normal supply fails. Meanwhile, the Pyeongchon record shows how LG CNS pursued certainty in a contest that required independent bidders. The servers had backup. The bidders had a script. And the customer brochure’s warm language about trust deserves to sit beside the cold administrative detail of who wrote whose bid.

Lee Thompson – Founder, The Cummins Accountability Project

Customer Corner – The Generator Files : LG CNS – The Servers Had Backup. The Bidders Had A Script.