Bid Rigging – can you spot it?
The Competition and Markets Authority (CMA) has recently published guidance on bid rigging and business cartels in the construction industry.
The guidance aims to assist project managers and businesses alike in spotting practices which could be regarded as collusion or illegal bid rigging during procurement processes and provides practical tips on how to discourage such practices during a tender process.
Bid rigging practices to look out for include:
- bid rotation – suppliers agree to take it in turns to submit the lowest bid
- bid suppression – one or more suppliers agree not to bid, or to withdraw their bids
- cover pricing – bidders arrange for one or more of them to submit an artificially high bid, distorting the procurer’s impression of the competitive price
- price fixing
- agreeing to share the market in a particular way – for example agreeing not to bid in a particular territory or sector
- sharing commercially sensitive pricing information between competitors
Whilst traditionally, procuring organisations will include a standard form “Certificate of Non-Collusion” in their tender documents, more practical tips for project managers in the CMA guidance include:
- make clear to suppliers that you are on the lookout for signs of bid rigging, price fixing or market sharing and advise you will bring any suspicions to the CMA’s attention
- make any bid qualifications as broad as possible so that they can be met by the widest range of suppliers
- shop around for suppliers when inviting bids
- ask for bids to be broken down into as much detail as possible
- keep records of bids for comparison purposes
- insist that main contractors assign subcontracts through a competitive process
- seek information from bidders about their associated companies and subsidiaries
- obtain a signed declaration of non-collusion from each bidder and make this a term of the contract
- do not arrange meetings to bring together rivals to discuss a tender where you intend to appoint one supplier
- in the case of joint tenders and integrated procurement bids – set clear ground rules at the start of meetings where competing suppliers are present
For suppliers bidding for construction contracts the practical recommendations include:
- ensure you and your employees are clear on competition law and what practices break the rules – directors should lead by example and provide staff training
- have a good internal reporting process in place, so people feel they can speak up if they witness illegal behaviour
- never agree to bid rigging, price fixing, market sharing or sharing competitively sensitive commercial information with rivals
- if you are approached to get involved in anti-competitive behaviour you should clearly and immediately reject the approach, report the incident internally, seek independent legal advice and report to the CMA
The consequences of bid rigging and a breach of competition law can be fatal to a business. Fines can be up to 10% of worldwide turnover; company directors can be disqualified from acting as directors or being involved in the management of a company and in the most serious cases, individuals can face criminal prosecution, resulting in personal fines and even prison. The reputational impact can be negative and long lasting, harms the chances of winning future contracts and puts you at risk of claims for damages from affected customers.
For practical procurement and construction advice, or to discuss any of the issues covered in this briefing, please contact Alison Walton on 0191 211 7850 or email [email protected].