Tips to detect and prevent bid-rigging
CCCS has compiled the following checklist to assist procurement officers with better detecting and preventing anti-competitive activities in their procurement processes.
√ Tell-tale signs of collusion or bid-rigging
(1) Bid prices
You can detect tell-tale signs in prices as bidders in collusion often coordinate their prices. These include:
- significantly lower tender prices than those submitted in previous tender procedures;
- large price differences between the designated winning bidder and the other bidders;
- unexplained identical (or suspiciously similar) prices or terms among other bidders;
- significant increase in tender price from past bid submissions after a bid from a new or infrequent bidder; or
- a bidder submitting tenders that are significantly lower in some tender procedures than in others, without any obvious reason such as differences in business costs or location of unit.
The above could indicate that some bidders have submitted courtesy tenders. This practice, also known as “cover bidding”, means that two or more bidders agreed which one of the bidders is designated to win the contract, and the other bidders submit less favourable tenders just for the sake of appearance.
(2) Low number of tenders received
If inexplicably few bidders submitted tenders despite there being a large number of potential bidders, it may indicate the existence of a market-sharing cartel. The purpose of such a cartel is to avoid competition within, for example, certain geographic areas. In such cases, bidders may agree to abstain from submitting tenders within one area so that a certain other cartel member stands a higher chance of winning the contract.
(3) Patterns in Tender Submissions
You can keep a look out for bidding patterns to spot if they follow a certain regular trend over time. Such tell-tale patterns include:
- The same bidder often wins;
- Bidders take turns to win in a rotating pattern;
- Certain bidders always fail to win;
- Bidders withdraw bids with no clear reason; or
- Bidders making unnecessary joint bids.
We would recommend keeping a database of past and present bid results to assist in the detection of bidding patterns. Collusive schemes may only be revealed through an analysis of the results of tenders over a period of time.
(4) Bid Documents
Patterns arising from bid documents may suggest a bid-rigging cartel. Examples include:
- If the winning tender is the only one that has been compiled in a thorough and detailed way, while the others have been drawn up more carelessly; or
- Different bidders make identical mistakes on submitted bid documents such as same fax numbers, postmarks or similar typographical/calculation errors.
If there are similar oddities in several different tenders or in the questions that the bidders ask the contracting authority, indicating that bidders possess knowledge of competitors’ bids even before the tender has been awarded, this may suggest that the bidders have engaged in collusive behaviour.
√ Provision of training to staff
Training in the detection and deterrence of cartels for all staff involved in the procurement process will assist staff to design a tender process that is less susceptible to anti-competitive conduct. CCCS would be happy to discuss this with the procurement entities.
√ Limit communication among bidders
Avoid bringing potential bidders together or creating the opportunity for competing bidders to do so, e.g. limiting the number of physical site visits, and blind-copying all other participants in correspondence done through email. Be alert to any direct (e.g. common shareholding or common directorships) or indirect relationships (e.g. subcontracting relationships) between competing bidders which could provide opportunities to communicate on bid submissions.
√ An important note on bids submitted by related bidders
CCCS has received numerous queries and complaints regarding the situation where businesses which are related (for example by corporate ownership or common directors) submit separate bids for the same tender.
It is important to note that the Section 34 prohibition only applies to collusion between separate business entities. Therefore, it does not apply to any collusive conduct between businesses that constitute a Single Economic Entity (“SEE”). In other words, the businesses are so closely related, legally and/or economically, such that they do not operate as separate business entities. An obvious example of an SEE is that of a parent company and its wholly-owned subsidiary, regardless of whether they are separate legal entities.
Whether businesses actually form an SEE will depend on CCCS’s assessment based on the facts and circumstances of each case. Where CCCS finds that the businesses form an SEE, CCCS will not be able to investigate further.
Whilst the conduct of entities within an SEE falls outside the purview of the Section 34 prohibition, the procurement entities may wish to consider obtaining details of bidders, such as conducting ACRA business profile searches in the case of incorporated bidders or requesting from bidders a declaration on any relationships with other bidders to the tender. From the competition stand-point, this will enable procurement entities to determine whether bidders are related and that submitted bids are truly competitive, in order to obtain value for money from the tender.