Bid-rigging in tenders or auctions
Tenders are designed for sellers to compete in offering the buyer the best value for money. Bid rigging occurs when competitors agree on how to quote for a tender. To support the cartel member that has been designated to ‘win’ the tender bid, other cartel members may refrain from bidding, withdraw their bid, or submit bids with higher prices or unacceptable terms. The cartel members may agree amongst themselves to take turns to be the designated ‘winner’ or to reward ‘supporters’ of the ‘winning’ bid, for example, by giving sub-contracts to them. As a result of bid rigging, the party inviting the tender is likely to pay more than it would if the tender were competitive. The same can be said for auctions.
Do you know?
On average, more than one bid-rigging conspiracy is uncovered every month by competition authorities around the world. Many others remain undiscovered. When bidders participate in anti-competitive agreements, a buyer may end up being overcharged, his business costs rise through no fault of his, and the organisation suffers as a result. Based on economic studies, these bid-rigging conspiracies cause prices to be raised by more than 30 per cent on average.
In Singapore, we have seen bid-rigging conspiracies affect government and private businesses.
(a) In 2008, six pest control companies were found by CCCS to have provided cover bids for one another for termite treatment projects, affecting Raffles Hotel, Alexandra Hospital, Temasek Junior College, a private school and two condominiums.
(b) In 2013, 12 motor vehicle traders were found by CCCS to have suppressed bids at public auctions of motor vehicles held by the Land Transport Authority, the National Environment Agency, the Singapore Civil Defence Force, Singapore Customs and the Singapore Police Force over a period of three years from January 2008 to March 2011.
(c) In 2017, three companies were fined by CCCS for their involvement in bid-rigging in the tenders for the provision of electrical services for the Formula 1 Singapore Grand Prix for 2015 to 2017 (“F1 Tender”) and asset tagging services for GEMS World Academy (Singapore) (“GEMS Tender”).
Bid-rigging consists of agreements among all or some of the bidders which predetermines the winners and limits or eliminates competition among the conspiring bidders. The main types of bid-rigging activities are:
Cover bidding is a common form of bid-rigging. Essentially, this happens when some or all of the companies who are tendering for a contract have already reached an agreement on who should win the contract. The designated winner may have told the designated losers how much it intends to bid, or how much the designated losers should bid. This way the designated losers are able to put in a token bid that is higher than the designated winner’s bid.
Sometimes, the losing companies will put in competitive bids, that might actually be lower than the designated winner’s bid, but the designated losers’ bid will be designed such that they get disqualified because they contain other non-price terms and conditions. The result is that the tender would still go to the designated winner, who would have the lowest acceptable bid.
Therefore, cover bidding gives the impression that there are competitive bids, when in reality, the designated winner faces no competition and is free to inflate his bid. Cover bidding will often occur in tenders where the customer requires multiple bids.
Bid-suppression schemes are the opposite of cover bidding. They occur when one or more competitors, who would otherwise be expected to bid or who have previously bid, agree to refrain from bidding or withdraw a previously submitted bid. Therefore, there are fewer bids, or only one bid, from which the procurement entity can choose, thus increasing the designated winner’s chances of winning.
In bid rotation schemes, all the cartel companies submit bids, but they take turns at being the lowest bidder and, therefore, the winner. These schemes are often quite sophisticated because the cartel companies have to try to ensure that they each receive an equivalent share of the contracts.
Market allocation involves agreements amongst cartel companies not to compete for certain customers or in certain geographic areas.
This occurred in the pest-control case, where there was an agreement amongst the companies that if one company was the term contractor for a customer for regular pest-control work, such as general pest eradication, then if the customer decided to place a tender for termite-treatment, the other companies would not try to win the tender from the company that had the term contract.