What is Bid Rigging?
Bid rigging is a form of market manipulation that disrupts free and open market competition. The act of bid rigging involves businesses acquiring contracts, tenders or deals by illegal collusion. The ‘bid’ refers to a company ‘offer’ on some contract or tender. In other words, bid rigging refers to competitive businesses conspiring together to decide who will ‘win’ the contract. As the competitive businesses conspire together, instead of compete against one another, bid rigging prevents fair competition. Therefore, it is a form of conspiracy between businesses that destroys healthy market competition. Generally, this type of behaviour occurs when business cartels are formed.
Is it illegal?
In short – yes.
This type of conduct violates competition laws and in particular, antitrust laws. Bid rigging is deemed one of the some serious forms of antitrust infringement. Antitrust laws protect competition by facilitating a free and open competitive market. Click here to learn more about anti-competitive behaviour.
How does it occur?
It occurs when two or more competitors contract together, or coordinate together, in order to ‘rig’ who will be successful in some tender. On this basis, each competitor will make their bid accordingly. The act of bid rigging usually involves some businesses or ‘bidders’ taking turns on who will ‘win’ a tender. It can also involve some competitors agreeing not to bid at all in order for one competitor to win the tender.
Different types of Bid Rigging
Some examples of different types of bid rigging include:
Cover Bidding:
A cover bid occurs when some competitive business agrees that they will submit a non-competitive bid on a contract. This non-competitive bid is either too high for the buyer to accept or the bid contains unreasonable terms. The aim this type of bid is to give the appear of genuine competition.
Bid Suppression:
Bid suppression occurs when one competitive business agrees that they will suppress or withhold from making a bid, or withdraw a previously made bid. It therefore has the intent of allowing a pre-agreed competitor to win the contract or tender.
Market Sharing:
Market sharing occurs when a competitive business agrees to place bids only in certain geographic locations or only to certain public organisations. This results in competitors attempting to hold ‘monopolies’ and reduce competition in specific markets.
Bid Rotation:
Just as the name suggests, a bid rotation is a form of bid rigging that occurs when competitors agree that they will take turns at winning contracts or tenders.
Non-Conforming Bids:
This type of bid is similar to ‘cover bidding’. It occurs when competitors deliberately include unacceptable or unreasonable terms and conditions in their bids in order to deter the buyer from accepting their bid. This is turns increases the appeal of the ‘winning’ bidder or competition.
Impact of Bid Rigging
Big rigging can have detrimental impacts on market competition. It impacts both businesses and consumers alike and results in one “winning” business obtaining some contract at a super uncompetitive price. It has detrimental impacts on all non-rigging businesses whom end up paying higher prices or receiving lower quality for goods or services subject to big rigging. If you suspect that bid rigging is taking place, it is always best to speak to a professional and make contact with the Australian Competition and Consumer Commission.
Key Takeaways
Bid rigging is a form of anti-competitive behaviour that refers to the manipulation of the market. It refers to competitive businesses conspiring together to determine how each business will respond to the bid on a contract instead of actually competing fairly. This is an illegal act that violates the free and open market. Furthermore, it can have detrimental affects on businesses and consumers asprices skyrocket and the quality of products and services diminish.
