Public Procurement and Competition

Government is the largest buyer in India, and bid rigging in public tenders is the commonest cartel case the Commission decides. The reason is structural. Public procurement is transparent by design, repeated at regular intervals, conducted on standard terms and often confined to a small number of qualified suppliers, and every one of those features that makes procurement accountable also makes collusion easier to organise and to police. Section 3(3)(d) treats bid rigging as presumptively harmful, and Section 49 gives the Commission the means to address the tender design that invites it.

1. Why Tenders Attract Cartels

1. Transparency. The identity of bidders and the winning price are published, so a member that departs from the arrangement is detected at once. Detection is what makes a cartel stable, and a procurement system that publishes outcomes supplies it free.
2. Repetition. Tenders for the same requirement recur annually or quarterly, which permits a rotation arrangement in which each member is compensated in a later round for losing in this one.
3. Standardisation. A common specification removes the differences between suppliers, so the only variable is price, which is the easiest thing to agree on.
4. Few qualified bidders. Pre-qualification criteria reduce the field, and a small field is easy to coordinate.
5. A predictable buyer. Estimates, past rates and reserve prices are often known, which gives the cartel the figure to bid around.

2. The Statutory 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 such an agreement is presumed to have an appreciable adverse effect on competition. The Explanation defines bid rigging as any agreement between enterprises engaged in identical or similar production or trading of goods or provision of services which has the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process for bidding.

Three features of the definition are worth noting. It is framed by effect on the bidding process, so the arrangement need not fix a price. It covers indirect results, so a mechanism that produces the effect without any express agreement on bids is included. And after the amendment of 2023 a party not in the same trade may be presumed to be part of such an agreement where it actively participates in furthering it, which brings in the consultant, the association or the intermediary that coordinates the bidders.

3. The Techniques

• Cover or complementary bidding. The designated loser submits a bid that is deliberately too high, or carries conditions it knows are unacceptable, so that the designated winner appears to have prevailed in a genuine contest. This is the commonest form because it preserves the appearance of competition.
• Bid rotation. The members take turns to win, the others covering each time, so that over a series of tenders each obtains a share of the business.
• Bid suppression. A member agrees not to bid, or withdraws a bid already submitted, so that the field is reduced.
• Market or geographic allocation. The members divide the country or the class of buyers between them, and each bids only for tenders in its own territory or from its own customers. This form is difficult to detect because within each tender there is no apparent pattern.
• Subcontracting and compensation. The losers are given subcontracts by the winner, or a share of the margin. This is how the gain is distributed and is frequently the best evidence of the arrangement, since there is no commercial reason for a defeated competitor to be employed on the contract.

4. Detection

The Commission and procuring authorities look for patterns rather than for documents, and the indicators fall into three groups.

1. In the bids themselves. Identical rates, including identical arithmetical errors or identical formatting; bids that differ by a constant amount or percentage; bids far above the estimate from bidders who later accept subcontracts; conditions attached by some bidders that make their bids non-responsive; and bids submitted by the same person or from the same address or internet connection.
2. In the pattern across tenders. Winners rotating in an orderly sequence; the same bidder always winning in a particular region or from a particular buyer; a bidder that never wins yet continues to bid; and prices that fall sharply when a new bidder enters and rise again when it leaves.
3. In conduct. Meetings of a trade association shortly before the closing date; common agents or consultants preparing the bids; withdrawal of a bid followed by a subcontract; and statements by bidders about who is entitled to the tender.

5. Trade Associations

Section 3(3) applies expressly to a practice carried on or a decision taken by an association of enterprises or persons, and associations are central to tender cartels for an obvious reason: they provide a lawful occasion for competitors to meet. The conduct that crosses the line includes a resolution fixing rates or a minimum price for tenders, the circulation of rate lists or of information about intended bids, a decision allocating tenders or territories among members, a direction to members not to bid for a particular buyer, and disciplinary action against a member who bid below the agreed level. The association is liable along with the members who implemented the decision, and its office bearers may be proceeded against under Section 48.

6. What Procuring Authorities Can Do

• Widen the field. Avoid pre-qualification criteria that are stricter than the work requires, since every restriction on eligibility reduces the number of bidders and makes coordination easier.
• Do not disclose the estimate. A published estimate or a well-known reserve price gives the cartel its target.
• Vary the pattern. Change the timing, the size and the packaging of tenders, so that rotation is harder to organise. Splitting a requirement into predictable equal lots is an invitation to allocate them.
• Require a certificate of independent bid determination. A declaration that the bid was prepared without consultation with competitors gives a basis for action if it proves false, and attracts the penalty provisions for false statements.
• Control subcontracting. Require disclosure and approval of subcontracts, since compensation through subcontracts is how cartel gains are shared.
• Report suspicious patterns. A procuring authority may make a reference to the Commission under Section 19(1)(b), and much of the Commission's procurement work originates that way.

This is the field in which advocacy under Section 49 matters most, because the conduct is a response to the way tenders are designed. The Commission has issued guidance for procuring authorities, and the Department of Expenditure has issued its own instructions encouraging competitive tender design; neither can be enforced against a bidder, but both reduce the occasions on which collusion pays.

7. Related Topics and Provisions