bid rigging

This is when companies agree the outcome of a tender process amongst themselves either by deciding in advance which company will bid, who will bid the best price or what the tender price should be. Bid-rigging is strictly prohibited under competition law.

+ bid-rigging

Bid-rigging usually involves competitors collaborating in some way to restrict competition in response to a tender, regardless of whether the tender is issued by a public authority or a private entity. It is universally viewed as one of the worst “hard-core” cartel-type offences alongside price-fixing, output restrictions and market allocation, and is often a combination of these practices.

Bid-rigging can involve any of the following elements of horizontal collusion, all of which are prohibited:

• Complementary bidding or cover pricing. Complementary bidding occurs when competing bidders agree to submit token bids that are either too high, do not meet the criteria of the tender, or contain particular conditions that are unacceptable to the buyer, and are consequently almost certain to be excluded from the tender. The aim is to create the appearance of competitive bidding taking place while, in reality, the competing bidders have agreed which company will make the “winning” bid, usually at an inflated price.

• Bid rotation. Bid rotation, often combined with complementary bidding, is the phenomenon of competing bidders taking turns at being the “winning” bidder. The rotation may be based on different criteria such as size of the project, size of each participant, geographic location of projects, or simply a chronological order.

• Bid suppression. Bid suppression occurs when one or more competitors, who would normally be expected to bid, agree not to submit a bid or to withdraw an existing bid to ensure that the predetermined bidder “wins”.

• Subcontracting (risk-sharing agreements). Subcontracting arrangements are an integral part of many bid-rigging schemes. The successful bidder agrees to subcontract parts of the assignment to the other companies involved to compensate them for “losing”. In some cases, compensation takes the more direct form of payments.

In contrast, subcontracting, consortia or other co-operative arrangements between competitors will usually be unobjectionable where the participants do not have the capacity to execute an order individually or, by combining their resources, are able to make a more competitive offer. To avoid suspicion, companies entering into such agreements should consider creating a contemporaneous record of why they believe their co-operation to be the most effective way of competing. The French Competition Council (Conseil de la Concurrence), for instance, takes the view that the absence of economic and technical necessity for competitors to bid jointly may give rise to a presumption, but does not constitute proof, of the existence of an anti-competitive agreement (Décisions du Conseil de la Concurrence, Nos 04-D-20 and 04-D-50).

In addition to horizontal collusion, perhaps less obviously, bid-rigging can also occur in the following contexts:

• Vertical co-ordination. Discussions between a manufacturer and its downstream distributors or installers on who will supply a given customer in response to a tender are likely to be problematic.

• Intra-group co-ordination. Bid-rigging can also arise where a corporate group owns a number of competing brands. In such circumstances, the group is entitled to decide that one of its businesses will respond to a tender and not the other. However, if the brands are run as separate businesses and more than one offer is submitted, each of the businesses must act independently of the other. Any exchange of information or co-ordination on pricing and other terms and conditions will amount to unlawful horizontal collusion. The fact that the tender issuer is aware that both brands belong to the same corporate group will not be a defence.