This article was contributed by Daniel Bilbao, CEO and co-founder of Truora, an instant background check startup for Latin America.
I’ve always known there’s corruption in my country. I see it on the streets on a daily basis.
Perhaps my view is a little biased because, in my company, we literally work to reduce fraud. However, the things I see never cease to amaze me.
In this line of work, I have stumbled upon many creative ways that people “find angles and shortcuts” to get their slice of the pie.
These tactics cause outrage, sometimes laughter, or at worst: indifference. One thing is clear: these people are persevering, creative, resourceful (and corrupt, of course). They pursue what they want and they work hard to get it.
We call them theft entrepreneurs.
A couple of weeks ago, I was taught an excellent lesson by one of these theft entrepreneurs from the government sector. What started as an innocent conversation turned out to be a lesson in entrepreneurship. I want to share the conversation with you, since it struck me as amusing. If you know more stories like this, by all means, share them with me.
Context:
After leaving the airport in a Colombian city, I got in an Uber home. Julian (name changed for anonymity) was to be my driver. After greeting him, and chatting briefly about my company, I wanted to learn more about him and what he did for a living when he wasn’t working with Uber.
Daniel (Me): What do you do for a living? What’s your trade?
Julian: I work with tendering processes. That’s my trade. But, in the meantime, I’m working with Uber.
D: How so? Tendering?
J: I help assigning tenders.
D: I don’t follow. With the state? Or a private company?
J: Yes, with the state, in X province, a small one.
D: What do you do exactly? Evaluate proposals?
J: Yes, I make sure the contractor that was previously chosen ends up being awarded the contract.
D: Hold on. Did I get that right? Do you tamper with the process so the tendering goes to a specific person?
J: Yes, sir. Exactly. The mayor might say: “Julian, this contract must be awarded to contractor X” and I take care of it.
D: How many processes did you do?
J: All of them.
D: And the contract is always awarded to the contractor they choose?
J: Always.
D: Wait, hold on a second. I want to understand this: You’re telling me the mayor says: “This company must win” and you say: “Sure” and that’s what happens?
J: Yes, exactly. He says: “Julian, this one must be awarded to Dr. Schmith” and I take care of it.
D: I can’t believe it, that’s baffling. And what happens if they don’t win?
J: Well, I’d be fired, of course. A friend of mine was let go because of that.
D: What percentage of the government contracts go through you?
J: All of them, construction work, buildings: anything and everything.
D: How much is the province budget?
J: About 23 billion pesos, plus production. In total, 30 billion pesos (10 million USD) a year.
D: And 100% of them go through you and 100% of them are awarded to the person they say?
J: Yes, of course. I’m very good at my job.
D: Is it hard to assign the winner?
J: Oh, yes. Sometimes it’s very hard. In some large processes, thankfully, no more than three or two companies participate, so weeding them out is easy. But in some others, I have to really work hard to pull it off.
D: And how did you manage to go unnoticed? Isn’t that in Law 80? [Law for resource allocation in search of competitiveness in processes]
J: Yes, it’s in the law. But there are ways to go around. A call for tenders is assigned by a score system. We can post a premises visit as a part of the requirements. We can post that requirement on a Sunday at 6 AM on the billboard, but since no one sees it, no one shows up for the visit and that takes away some points from competitors.
D: But isn’t the financial matter more complex?
J: No, it’s not. It’s the same. We ask the selected contractor for their financial information and we search for ways to make them match the requirements. Like having more than 10 years’ experience or having worked with the State before. The last one is the best, since we can do three small contracts with them the first year so they have an edge in the second year.
D:Isn’t it suspicious that requirements are tailored for the contractor you assigned?
J: Of course, but that’s why we do it by steps so it looks crystal-clear. Let’s say I want some company to win. First, I ask them for their financial information, and if their net worth is $1.4 million and they have 8 years of experience, then I set the requirements to be $1.5M net worth and 10-years experience. That’s step one.
D: How do you get them to win?
J: In all procurement processes, the requirement sheet is open to commentary, so the selected company shares that the net worth limit is too high or the experience minimum leaves them out of the process, and we listen to them and make adjustments accordingly. That way we make it look like it’s a process where everyone is included.
D: Aren’t you afraid of going to jail?
J: No, because, if the procurement processes are done properly, everything is documented. As long as construction projects are finished, there is no problem at all.
D: No wonder so much money goes into construction here. In other words, you could build a 100M bridge for 500M?
J: Oh, no. I wish. There is an accountant who keeps the project utility around 30%. This person decides how much a project should cost. He checks into materials, building works and all that.
D: What do you mean by project utility?
J: Let’s say a construction project costs $70M, and we can set the budget up to $100M so we get $30M in utility. The winnings are split: $10M are for the mayor, $10M are for the contractor, and $10M are set aside to repay the debt.
D: Does the mayor always get a slice?
J: Yes, almost every time. Sometimes he prefers not to when the deal seems too shady. But he usually does.
D: How much do they pay you?
J: I make some decent cash, two million pesos (700 USD) and they also give me some more for each process. They once gave me three million pesos, but that just happens once per year.
D: Where does the $10M in debt come from?
J: Well, a businessman has to lend the money to the mayor so he gets elected, right? So the mayor has to repay him. This is a small province, so about half a billion pesos. And so, with the building works, the mayor repays him.
D: Winning the election costs only half a billion?
J: Yes, because it’s a small one. Bigger provinces are way more expensive: $2.4 billion, or even more.
D: Do you know if this works in the same way throughout the whole country?
J: In several small provinces, yes. I have some acquaintances and they do the same. Every province puts together their own system. For the bigger ones, I’m not sure. I guess they’ll be a lot more finicky. But I’m sure they find ways to tamper with requirement sheets.
D: How many people work with you in “tampering with requirement sheets”?
J: There are four people on my team, but I’m the one who does most of the heavy lifting.
D: If the process were not fixed, would the contracts still go to the chosen tenders??
J: Oh, no. Many, many times others would be awarded contracts. Most of that money would go to other people.
D: Why do they keep tendering if they never get awarded any contracts?
J: Because they think they could get awarded a contract at some point. But I see to it that they don’t. You have to do a good job.
D: How much money do you think the province would save if you could award contracts freely?
J: Probably the 30% difference that we get in project utilities. There are about 3 million dollars a year that go to the mayor, the businessman and the debt, of course. And the little bit they end up giving me for doing a good job.
D: That’s unbelievable. It’s a much better business for you than Uber.
J: Yes, of course. That’s why I want to go back into politics, to work in procurements again.
D: What do you mean by politics? Are you buying votes?
J: No, no. I introduced the candidate to the businessman. So he gives the candidate the half a billion pesos to win the election. That’s how I know exactly how much it costs.
D: Are you doing that work right now?
J: Yes, sir. I already introduced them to each other. They met and got along very well. If all goes well, they’ll make a deal this month. And if he wins the election, they’ll hire me as the accountant, since I’ve done pretty well before. And I introduced them to each other.
D: So Uber is temporary?
J: Yes, of course. Next year I’ll be working as the accountant again. This time, I’ll do an even better job, since the province is a little larger.
D: Thank you so much for your time, Julian. And the conversation. I learned a lot today.
J: Thank you for listening, I always wanted to be a teacher, and so I love teaching.
D: Well, I must confess, you gave me a lot to think about. Those tendering processes are a really complex matter. Anyhow, the more you know… This is my stop, thanks a lot.
J: Thanks to you, Daniel. Good luck with your company. I agree with what you said: corruption is some serious crap, you better not deal with the State, or at least not with my province. Because I’ll be there and you won’t win. Or, if you want, I can introduce you to the big boss.
D: Thank you, Julian, for the lesson and the offering. But I’ll have to decline. We’d rather continue the way we’ve been working this far. I wish you the best of luck, though I hope the other candidate wins the election.
J: No, please, don’t say that. Not even jokingly. I know we’re going to win. Take care, I’m at your service, in case you need anything.
Daniel Bilbao is the co-founder and CEO of Truora, a startup that combats fraud in Latin America through instant background checks. He worked in the investment bank in Wall Street, is a mentor and partner for various startups, and is also an active angel investor.
If you’d like to learn more about Daniel Bilbao, listen to Episode 80 of the Crossing Borders podcast.