Bid rigging
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Bid rigging is an illegal agreement between two or more competitors. It is a form of collusion, which is illegal in most countries. It is a form of price fixing and market allocation, and it involves an agreement in which one party of a group of bidders will be designated to win the bid. It is often practised where contracts are determined by a call for bids, for example in the case of government construction contracts.
There are some very common bid-rigging practices:
- Subcontract bid-rigging occurs where some of the conspirators agree not to submit bids, or to submit cover bids that are intended not to be successful, on the condition that some parts of the successful bidder's contract will be subcontracted to them. In this way, they "share the spoils" among themselves.
- Bid suppression occurs where some of the conspirators agree not to submit a bid so that another conspirator can successfully win the contract.
- Complementary bidding, also known as cover bidding or courtesy bidding, occurs where some of the bidders bid an amount knowing that it is too high or contains conditions that they know to be unacceptable to the agency calling for the bids.
- Bid rotation occurs where the bidders take turns being the designated successful bidder, for example, each conspirator is designated to be the successful bidder on certain contracts, with conspirators designated to win other contracts. This is a form of market allocation, where the conspirators allocate or apportion markets, products, customers or geographic territories among themselves, so that each will get a "fair share" of the total business, without having to truly compete with the others for that business.
These forms of bid-rigging are not mutually exclusive of one another, and two or more of these practices could occur at the same time. For example, if one member of the bidding ring is designated to win a particular contract, that bidder's conspirators could avoid winning either by not bidding ("bid suppression"), or by submitting a high bid ("cover bidding").
Bid-rigging is a form of fraud, and almost always results in economic harm to the agency which is seeking the bids, and to the public, who ultimately bear the costs as taxpayers or consumers.
In the United States, bid-rigging is a criminal offence under section 1 of the Sherman Act. In Canada, it is a criminal offence under section 47 of the Competition Act. In the UK, individuals can be prosecuted criminally under the Enterprise Act. In Japan it is a violation of both the Anti-Monopoly Law as well as Public Law, but is rampant nationwide in construction and engineering works.
(Japanese bid rigging) or prearranged business agreement in which contractors privately form an agreement in advance on bid prices, etc. is still a habitual practice of the Japanese construction industry, although it is both a violation of Japanese criminal law and the Japan Anti-Monopoly Law. It has been shown by a number of academic studies both in Japan and in the USA to be a system which considerably inflates the cost of construction projects, and in the Japanese public sector, considerably wasteful of annual tax money amounting to billions of Japanese Yen. The US Government, specifically the United States Trade Representative Office and Department of Commerce, made fierce efforts in the late 1980s and early 1990s to urge the Japanese government to scrap "dango" as a de-facto non-tariff barrier to foreign firms in the Japanese construction market. Despite years of negotiations, including promises by the Japanese government in the S.I.I. (Structural Impediment Initiative) trade talks, the practice was never stamped out and continued to flourish. In 2006 alone, the governors of Wakayama and Miyazaki Prefectures, and former governor of Fukushima Prefecture in Japan were all nabbed or forced to resign due to nefarious connections to the Japanese construction industry involving"bid rigging instigated by government agencies."
