Bid rigging, also referred to as collusive tendering, occurs when two or more competitors agree they will not compete genuinely with each other for tenders, allowing one of the cartel members to ‘win’ the tender. Participants in a bid rigging cartel may take turns to be the ‘winner’ by agreeing about the way they submit tenders, including some competitors agreeing not to tender.
Bid rigging can take a variety of forms. They include:
- cover bidding - where competitors choose a winner and everyone but the winner deliberately bids above an agreed amount to establish the illusion that the winner’s quote is competitive
- bid suppression - where a business agrees not to tender to ensure that the pre-agreed participant will win the contract
- bid withdrawal - where a business withdraws its winning bid so that an agreed competitor will be successful instead
- bid rotation - where competitors agree to take turns at winning business, while monitoring their market shares to ensure they all have a predetermined slice of the pie
- non-conforming bids - where businesses deliberately include terms and conditions that they know will not be acceptable to the client.
Some signs of possible bid rigging include:
- suppliers appear to be taking turns at winning tenders or sharing the contracts by value
- regular suppliers decline to tender for no obvious reason
- bidders appear to deliberately include unacceptable terms in their tenders
- bidders sometimes bid low and sometimes high on what appears to be the same type of supply
- you become aware that bidders meet before the close of tender, without you being present
- the winning firm regularly subcontracts to competitors that submitted higher tenders
- one firm of professional advisers represents several of the businesses submitting tenders.
Bid rigging leads to uncompetitive tender processes that can result in organisations paying higher prices or receiving lower quality goods or services. Businesses that are the victims of bid rigging can pass on extra costs or reduced quality to consumers and other businesses in the supply chain.
If a government agency pays an inflated price for services provided by tender, these additional costs or reduced quality are eventually passed on to taxpayers.