Bid Rigging: How to deal with it?
As procurement professionals, you must have faced challenges arising out of cartelization, collusive bidding, abuse of dominance and competitive neutrality. It is imperative that in a procurement role, one is sensitive to bid rigging practices as it can have a huge business and economic impact.
What is Bid Rigging?
A kind of fraud, bid rigging as per the competition law, means – any agreement between enterprises or persons 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. Simply put, it is a type of price fixing.
What are the types of Bid Rigging?
There are many shapes and forms to it. However, following are prevalent
Identical bidding: A situation wherein competitors agree to submit identical bids. This is generally used to maintain the prices at a certain level.
Sub-contracting: A typical scenario wherein the colluding competitors receive sub-contracts from successful bidders. In other words, the winner sub-contracts to pre-designated bidders in the competition.
Non-conforming bidding: At times, businesses deliberately introduce certain terms and conditions under the contract that may not be acceptable to the client.
Cover bidding: A case where competitors decide on who shall be submitting the lowest bid or inflated bids so that a pre-decided bidder wins the contract.
Bid Suppression: A scenario wherein competitors decide not to bid against each other and pull out.
Bid-withdrawal: A case where eventual winner withdraws the bid so as to ensure an agreed competitor wins the contract.
Bid Rotation: A very challenging scenario for buyers where the competitors mutually agree in designating bid winners in advance – on rotational or geographical basis. For instance each bidder is given a chance to win certain contracts on rotational basis.
What are the indicators of Bid Rigging?
As a buyer, one has to be cognizant of what is happening around in the procurement eco-system. One may take not of the following to sense if there is bid rigging involved.
- Small number of companies participating in the procurement
- Little or no entry
- Market conditions
- Industry associations
- Repetitive bidding
- Identical or simple products or services
- Few if any substitutes
- Little or no technological change
It is advisable that the bid seekers keep a close eye on bids that are received, documents that are shared by the bidders, eventual winners of the contracts and see if there is some pattern emerging. Staying sensitive to warning signals of bid rigging helps avoid economic and business losses.
Download our highly recommended guide – How to Deal With Bid Rigging