Bid Rigging and Legitimate Joint Bidding Compared

Two or more firms submitting a single bid may be doing one of two opposite things. They may be combining capacities neither possesses alone, in which case the joint bid adds a competitor to the tender that would not otherwise have been there. Or they may be firms each capable of bidding alone, agreeing not to compete, in which case the joint bid removes a competitor. The first is lawful and often procompetitive; the second is bid rigging under Section 3(3)(d) and carries the presumption of appreciable adverse effect.

1. The Provision

Section 3(3)(d) applies to an agreement between enterprises engaged in identical or similar trade which directly or indirectly results in bid rigging or collusive bidding, and the Explanation defines bid rigging as any agreement which has the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process for bidding. The test is effect on the bidding process, not the form the arrangement takes, which is why a consortium is examined by what it does to the contest rather than by its label.

2. The Distinction

3. The Techniques That Constitute Rigging

• Cover or complementary bidding. A designated loser bids too high, or attaches conditions it knows are unacceptable, so that the designated winner appears to have prevailed.
• Bid rotation. The members take turns to win across a series of tenders.
• Bid suppression. A firm agrees not to bid or withdraws a bid already submitted.
• Market or customer allocation. The parties divide territories or buyers and each bids only in its own area.
• Compensation through subcontracts. The losers receive subcontracts from the winner, which is how the gain is shared and is often the clearest evidence of the arrangement, since there is no commercial reason to employ a defeated competitor.

4. Testing a Consortium

1. Could each party have bid alone? This is the primary question. If each satisfied the qualification criteria and had the capacity to perform, the joint bid requires justification.
2. Was the arrangement disclosed? A consortium declared in the bid is being offered to the buyer for acceptance; an undisclosed understanding is being concealed from it.
3. Is it limited to the tender? An arrangement that also regulates the parties' conduct in other tenders, or in the market generally, goes beyond what the joint bid requires.
4. What information passed? Exchange confined to the preparation of the joint bid is necessary; exchange of the parties' costs or intended prices for other work is not.
5. Does it recur? A single consortium for a project beyond the reach of either party is different from a standing arrangement under which the same firms always bid together and never against each other.

5. Related Topics and Provisions