is a form of fraud in which a commercial contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
is promised to one party even though for the sake of appearance several other parties also present a bid. This form of collusion
Collusion is an agreement between two or more persons, sometimes illegal and therefore secretive, to limit open competition by deceiving, misleading, or defrauding others of their legal rights, or to obtain an objective forbidden by law typically by defrauding or gaining an unfair advantage...
is illegal in most countries. It is a form of price fixing
Price fixing is an agreement between participants on the same side in a market to buy or sell a product, service, or commodity only at a fixed price, or maintain the market conditions such that the price is maintained at a given level by controlling supply and demand...
and market allocation, often practiced where contracts are determined by a call for bids, for example in the case of government construction contracts.
Bid rigging almost always results in economic harm to the agency which is seeking the bids, and to the public, who ultimately bear the costs as taxpayers or consumers.
Types of Bid Rigging
There are some very common bid rigging practices:
- Subcontract bid rigging occurs where some of the conspirators agree not to submit bids, or to submit cover bids that are intended not to be successful, on the condition that some parts of the successful bidder's contract will be subcontracted to them. In this way, they "share the spoils" among themselves.
- Bid suppression occurs where some of the conspirators agree not to submit a bid so that another conspirator can successfully win the contract.
- Complementary bidding, also known as cover bidding or courtesy bidding, occurs where some of the bidders bid an amount knowing that it is too high or contains conditions that they know to be unacceptable to the agency calling for the bids.
- Bid rotation occurs where the bidders take turns being the designated successful bidder, for example, each conspirator is designated to be the successful bidder on certain contracts, with conspirators designated to win other contracts. This is a form of market allocation, where the conspirators allocate or apportion markets, products, customers or geographic territories among themselves, so that each will get a "fair share" of the total business, without having to truly compete with the others for that business.
These forms of bid rigging are not mutually exclusive of one another, and two or more of these practices could occur at the same time. For example, if one member of the bidding ring is designated to win a particular contract, that bidder's conspirators could avoid winning either by not bidding ("bid suppression"), or by submitting a high bid ("cover bidding").
In the United States, bid rigging is a criminal offense under Section 1 of the Sherman Act. In Canada, it is a criminal offense under Section 47 of the Competition Act
The Competition Act is a Canadian federal law governing most business conduct.The Act contains both criminal and civil provisions aimed at preventing anti-competitive practices in the marketplace....
In the United Kingdom, individuals can be prosecuted criminally under the Enterprise Act 2002
The Enterprise Act 2002 is an Act of the Parliament of the United Kingdom which made major changes to UK competition law with respect to mergers and also changed the law governing insolvency bankruptcy.-Structure:*Part 1 The Office of Fair Trading...
Although both a violation of Japanese criminal law and the Japan Anti-Monopoly Law, bid rigging is still a habitual practice of the Japanese construction industry. It has been shown by a number of academic studies both in Japan and in the USA to be a system which considerably inflates the cost of construction projects, and in the Japanese public sector, considerably wasteful of annual tax money amounting to billions of Japanese yen. The US Government, specifically the United States Trade Representative Office and Department of Commerce, made fierce efforts in the late 1980s and early 1990s to urge the Japanese government to scrap "Dango" as a de facto non-tariff barrier to foreign firms in the Japanese construction market. Despite years of negotiations, including promises by the Japanese government in the S.I.I. (Structural Impediment Initiative) trade talks, the practice was never fully stamped out and continued to flourish.
In 2006, Tadahiro Ando
was the Governor of Miyazaki Prefecture from 2003 to 2006. In 2009, Ando was convicted of bribe-taking and bid-rigging which were offences that he had committed earlier when he was governor.- References :...
the then governor of Miyazaki Prefecture
is a prefecture of Japan located on the island of Kyushu. The capital is the city of Miyazaki.- History :Historically, after the Meiji Restoration, Hyūga Province was renamed Miyazaki Prefecture....
, resigned over a series of bid rigging allegations and was subsequently sentenced to over three years in jail
As of 2008 thirteen lawsuits were still pending over 1990s' bid rigging for local government contracts to supply incinerator plants.