The basics of bid rigging |22 September 2014

Bid rigging is recognised around the world as one of the most serious violations of competition law and as a result is often a key focus area for competition authorities around the world.

By the end of this article YOU as a business or a simple consumer will understand the meaning of bid rigging, why and how it affects competition.

It all starts with a bidding process whereby a government entity or a business seeks and receives quotations from various businesses for a particular project that is to be contracted. Usually the award of contract is based on quality and price considerations.  

Now, what is bid rigging and how does it occur?
First of all, bid rigging is an anti-competitive agreement between businesses or persons submitting bids to receive a contract. Bid rigging occurs when two or more persons enter into an agreement to submit a winning bid for a particular contract in a tender process.

By now maybe your knowledge of the topic has widen, but if it is still unclear of what we are talking about today let us look at the types of bid rigging and how they occur. There are four common types of bid rigging and they are Cover bidding, Bid suppression, Bid Rotation and Sub contracting.

Cover bidding also known as complementary bidding, occurs where some of the bidders agree to submit bids that are intended not to be successful, so that another conspirator or ‘partner in crime’ can win the contract.

Bid suppression is when bidders agree to either abstain from bidding or withdraw a bid. For example if there are three bidders in a tender process two or more bidders will remove their bid for no apparent reasons or will not bid at all so that one bidder wins the contract.

Another type of bid rigging is Bid Rotation which is a process whereby bidders take turns to submit a lower bid so that each bidder wins a bid in a rotation basis.

Subcontracting is when bidders submit bids that are not realistic such as bids that are too expensive, bidders not meeting requirements etc... and a bigger enterprise wins the bid and then sub-contracts that particular contract with the non-winning bidder.

I am sure by now you understand the term bid rigging and how it occurs. But you may be having questions about why it is illegal?

Well, this is where the Fair Competition Act 2009 (“FCA 2009’) comes in. Bid rigging is prohibited under section 27 of the FCA 2009.
It is a vast topic but things that each type of bid rigging have in common are that:

•    it eliminates competition among suppliers,
•    it causes wastage of resources precisely tax payers’ money from the government,
•    it increases prices, and
•    it harms the ability of other competitors to compete.

Whether it occurs at government level or in the private sector these increased costs are ultimately passed on to consumers.