Bid-rigging happens when suppliers collude during a tender process, to protect their profit margins at your expense.
What is worrying for procurement professionals is that cartels have rigged public bids all over the world, from Canada to Germany to Japan. So is the fact that over 40 per cent of UK businesses don’t know bid-rigging is illegal.
There are many types of bid-rigging to look out for. Suppliers could take it in turns to submit the lowest bid, which is known as bid rotation. A supplier could agree – or get forced into not submitting a bid. This is called bid suppression. Or a supplier could agree to submit an artificially high bid. This is cover pricing and creates a distorted idea of a ‘fair’ price. All of these practices are illegal.
It might seem counter-intuitive to deliberately set out to lose a bid. But there are many ways of making up for such a ‘loss’. The successful bidder could, for example, subcontract to their ‘competitor’ at a later date. Both benefit from the higher price – the real loser is the buyer.
Research shows cartels inflate prices by 10-20 per cent on average. In individual cases, the figure can be significantly higher – sometimes up to 70 per cent. So how can procurement professionals protect themselves and their companies?
Be vigilant. Bid-rigging is more likely where the product is standardised and simple and in markets with a small number of suppliers and customers. It may also be more likely where businesses face reductions in profitability due to falling demand and there is a lack of entry into the market. Preferred suppliers lists, where suppliers feel they need to bid to stay on lists, can also be problematic.
Bids received at the same time, likely bidders failing to submit a bid, suppliers suddenly dropping out or prices that seem much higher than underlying costs could all be signs of bid-rigging.
There are ways to prevent it from happening. When going out to tender, for example, make a point of informing your suppliers you are aware of competition law. Keep records of the entire tender process. Consider requiring bidders to sign non-collusion clauses. Avoid obligatory bids, but seek objective justification for any failure to bid. And look at our bid-rigging advice for public sector procurers.
The practice is harmful and affects not just you but other businesses, consumers and the economy. That is why it is illegal.
It’s important to ensure you are getting a fair price for your contract – and that your suppliers are getting a level playing field.
The CMA works to promote competition and enforces competition law. If you think bid-rigging is happening, call 0800 085 1664 or 020 3738 6888.
☛ John Kirkpatrick is Director of policy at the UK’s Competition & Markets Authority