It is essential that a free market economy fosters a competitive environment amongst companies to ensure innovation, low prices, high quality, and combats monopolisation of the market by large corporations.
Bid rigging is a form of cartel conduct – an intentional and illegal undermining of anti-competition laws which involves companies attempting to gain an unfair advantage over their competition. Bid rigging is a serious criminal offence which can have serious implications for businesses, taxpayers, consumers, and society.
What is Bid Rigging?
Bid rigging occurs when two or more businesses attempt to flout antitrust laws and competitive bidding obligations by colluding to determine the winning bidder of a tender. By not soliciting competitive bids and engaging in bid rigging schemes, these companies are engaging in criminal cartel conduct which carries severe penalties.
Bid rigging occurs whilst maintaining the illusion that the two businesses are genuinely competing. This is usually done with the understanding that the winning bidder will reciprocate the bid rigging scheme.
The reason businesses participate in bid rigging is to drive prices up so the customer ends up overpaying and they can take turns enhancing their profit, whilst also increasing the perceived market value of their company and work. The very definition of bid rigging implies that it is to be competitive, and that it should bring about competitors’ lowest prices in order to win the job, so if the companies competing are working together, they can manipulate this process for their own gain.
Bid Rigging Examples
Bid rigging is a serious white collar crime and can carry serious penalties. An example of bid rigging would be if three businesses decided to collude on a job worth a million dollars by all overbidding on the tender to drive the price up so that the winning bid (lowest) was well over the actual price of the job. By working together covertly, they would be able to fleece the customer out of more money than necessary, and take turns doing it to other customers going forward.
Types of Bid Rigging
Bid rigging is made possible due to competitors agreeing to the illegal practice of economic co-operation. However, this does not always look the same. There are many ways to fix prices, as are there many forms of bid rigging. The following are a number of different bid rigging schemes to be aware of:
Complementary bidding is a kind of market manipulation where colluding companies submit a non competitive bid in order to drive prices lower. These kinds of bid rigging conspiracies sometimes incorporate competing companies as subcontractors or form a joint venture to offer a single bid which is higher than they could individually.
Phantom bidding is another kind of bidding crime where fake bids are submitted by a bidding ring to procurement officials in order to drive up prices for goods or services.
Buyback bidding is a process in which a particular bidder will submit bids in order to prevent a tender being sold at too low of a price.
Cover bidding is a process where a competing party will deliberately bid above an agreed upon amount to ensure that the winning bidder’s bid appears to be competitive. This is a way for the cartel to avoid companies and law enforcement detecting bid rigging.
Bid suppression is where competitors deliberately do not bid on a tender in order for an agreed-upon co-conspirator to win the contract. Bid suppression occurs to ensure that the winning bidder succeeds.
Bid withdrawal involves the termination of a bid by a company and removal from the possibility of winning the bid. Within the context of bid rigging, bidders agree to drop out of the competitive bidding process in order for an agreed-upon company to win the bid.
Bid rotation is a form of market allocation in which two or more competitors agree to either withdraw from bidding, suppress bids, or place non competitive bids in order for a particular business to win, with the understanding that the losing bidders will win the next bids in the procurement process. Bid rotation is not always cyclical and easy to determine, as cartels can implement quite intricate rotations to attempt to avoid being uncovered by federal law enforcement agencies.
Non-conforming bids are a form of bid rigging where companies deliberately include conditions within business contracts to make the bid less appealing or unacceptable.
Bid Rigging Laws and the ACCC
The Australian Competition and Consumer Commission (ACCC) is the institution responsible for regulating, investigating, and enforcing contraventions of the Competition and Consumer Act 2010 (CCA) and the Australian Consumer Law (ACL).
Is Bid Rigging Illegal?
Bid rigging is a form of cartel conduct which is considered to be illegal. Antitrust and anti-competition laws have been around for a long time, although they have had to adapt over time. The landmark Sherman Antitrust Act of 1892 was a major law which passed in the U.S. which banned businesses from joining forces or colluding to monopolise the market through controlling and manipulating prices.
Why is Bid Rigging Illegal?
Bid rigging is illegal because it corrupts the competitive tender process which gives participating companies unfair advantages over their competition, results in organisations receiving higher prices on bids, as well as potentially being subjected to lower quality services or products. Bid rigging violates competitions and antitrust laws and goes completely against the philosophy of an open competitive market.
Bid rigging can negatively affect consumers and customers who have to fork out more money than the should due to , as well as taxpayers, whose taxes may go towards inflated construction projects for public services such as hospitals, public housing, and schools
What Laws Does Bid Rigging Violate?
Bid rigging violates antitrust and anti competitive laws. Specifically, bid rigging violates section 45 of the Competition and Consumer Act (s.45) which prohibits any arrangements which seek to undermine competition or promote market manipulation. It is imperative that businesses abide by the Australian Competition and Consumer Commission Guidelines which outline which conduct constitutes a violation of antitrust and anti competition laws, and proposes how violations will be investigated and legally handled.
Under section 155 of the ACCC guidelines, it is stated that the ACCC has the power to require a person to provide information, documents, and provide evidence under oath or affirmation. It is also a legal requirement for companies and individuals to comply with the ACCC, with serious penalties for non compliance.
Possible Penalties of Bid Rigging
Bid rigging falls under the legal category of cartel conduct, which is a white collar crime which covers any illegal coordination, cooperation, or anti-competitive behaviour amongst companies within the same market. Cartel conduct is a criminal offence which carries serious civil or criminal penalties for both individuals and corporations. While each sentence depends on the circumstances of the case, there are blanket penalties within the legislation which can be applied to either individuals or companies.
If an individual is found guilty of participating in cartel conduct they can face the following penalties:
- Up to ten years in jail
- Fines of up to $420,000 per cartel-related offence; or
- A pecuniary penalty of up to $500,000 per civil contravention
Corporations found guilty of the illegal act of cartel conduct face maximum fines for each cartel offence or civil contravention that is applicable. Fines will be the greater of the following:
- Three times the total value of benefits obtained by conspirators which are attributable to the offence or contravention
10% of the annual turnover of the company in the last year
Bid Rigging Examples
There have been many cases of bid rigging globally and internationally. Some of the most notable cases are the Marine Hose Cartel, which involved an international conglomeration consisting of companies in the USA, Europe, and Asia. In this case, corrupt officials of marine hose companies were ordered to pay over $8 million in damages for conspiring with competitors to alternate the winning of contracts and receive lower prices.
Other examples of bid rigging include the infamous case of four school bus companies which formed a cartel in Puerto Rico to manipulate the market for contracts from the local government. The Queensland fire protection cartel is another example of unscrupulous bid rigging where fire alarms and sprinkler companies conspired to rig contracts over the period of a decade and accumulating over $500 million.
Signs of Bid Rigging
There are several signs and suspicious bidding patterns that may indicate that companies may be involved in bid rigging and anti-competitive behaviour. According to the Australian Competition and Consumer Commission, signs of bid rigging include:
- Suppliers meet before tenders close
- Suppliers decline tenders for no reason
- Suppliers appear to take turns winning tenders
- Bidders conspicuously bid too low, too high, or include unacceptable terms
- Bidders subcontract to competitors who submit higher tenders
- Several of the businesses are represented by one firm of professional advisers
There are also markets which are more susceptible to bid rigging which include auctions, transportation services, government procurement projects, and construction. Certain risk factors for bid rigging include:
- Certain geographic locations
- Small number of suppliers/bidders
- Standardised/simple products i.e. products that do not change over time i.e. concrete, construction items, tools etc
Impacts of Bid Rigging
Bid rigging is strictly enforced because it can have terrible implications on businesses, taxpayers, and society at large. Market manipulation, price fixing, and bid rigging can lead to monopolisation of the market which can damage the ability for small businesses to compete in the market. Bid rigging also artificially increases prices and may also result in reduced quality in products and services. as well as decreased choice for consumers.
LY Lawyers and Cartel Offences
At LY Lawyers, we have a proven track record in defending cartel conduct charges such as bid rigging, including a successful result within the first sentencing proceedings for cartel offences in Australia.
We pride ourselves on our dedication to fighting hard to protect your rights. Whether you feel as though you have been misidentified for anti-competitive behaviour, or have been a victim of an unjust court decision regarding cartel conduct, we have the legal experience and expertise to help you find a solution that helps put things right. Contact us today on 1300 595 299 to organise a free consultation with a specialist lawyer.