01 December 2014
The Competition and Markets Authority (CMA) has issued guidance on how to spot and avoid bid-rigging in public sector procurement.
Bid-rigging is when suppliers agree to limit competition in the procurement process, thereby denying the customer a fair price. Bid-rigging agreements can take several forms, such as: bid rotation – where firms agree to take it in turns to submit the lowest bid; bid suppression – where one or more firms agree not to bid, or to withdraw their bids; and 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.
In order to reduce the risk of anti-competitive behaviour, the CMA states that companies and procurement professionals can look for suspicious bidding patterns, and inform suppliers that they will be looking.
Companies can consider requiring bidders to sign non-collusion clauses and/or certificates of independent bids. They can avoid tender list management that incentivises firms to bid even if they do not want the work, and they can share experience with other public sector procurers.
According to the CMA, suspicious bidding patterns include: bids received at the same time or containing similar or unusual wording; different bids with identical prices; bids containing less detail than expected; the likely bidder failing to submit a bid; the lowest bidder not taking the contract; bids that drop on the entry of a new or infrequent bidder; the successful bidder later subcontracting work to a supplier that submitted a higher bid; expected discounts suddenly vanishing or other last minute changes; suspiciously high bids without logical cost differences (for example, delivery distances); and a bidder that betrays discussions with others or has knowledge of previous bids.
Public sector procurers should care about bid-rigging because it can cost the taxpayer money, it can exclude potentially more efficient competitors from the bidding process and it may reduce suppliers’ incentives to improve quality or innovate, the CMA says.
Bid-rigging comes under the criminal cartel offence and applies where an individual agrees with one or more other persons to make or implement, or to cause to be made or implemented, arrangements that relate to at least two undertakings and are of a ‘relevant kind’.
Other relevant kinds of arrangements include price-fixing, market or customer sharing and agreements to restrict production or supply.
Someone convicted of the cartel offence may be subject to: up to 5 years’ imprisonment and/or an unlimited fine; director disqualification for a period of up to 15 years; and the confiscation of assets under the Proceeds of Crime Act 2002.
The criminal cartel offence sits alongside the prohibitions on anti-competitive agreements under EU and national competition law, which the CMA is also responsible for enforcing (along with the European Commission and the UK sector regulators).
By contrast to the cartel offence, the civil regime is directed at businesses (undertakings) the consequences of civil enforcement action are also significant: undertakings face penalties of up to 10% of their worldwide turnover; individuals may be subject to director disqualification for a period of up to 15 years; and an infringement decision will enable follow-on actions, and thus possible third party damages.