Bid rigging is a form of fraud in which a commercial
contractIn law, a contract is a binding legal agreement that is enforceable in a court of law. That is to say, a contract is an exchange of promises for the breach of which the law will provide a remedy....
is promised to one party even though for the sake of appearance several other parties also present a bid. This form of
collusionCollusion is an agreement, usually secretive, which occurs between two or more persons 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 . It is an...
is illegal in most countries. It is a form of
price fixingPrice fixing is an agreement between business competitors to sell the same product or service at the same price. Historically, such a group of businesses in price fixing was referred to as a combination....
and market allocation, often practised 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.
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.
Bid rigging is a form of fraud in which a commercial
contractIn law, a contract is a binding legal agreement that is enforceable in a court of law. That is to say, a contract is an exchange of promises for the breach of which the law will provide a remedy....
is promised to one party even though for the sake of appearance several other parties also present a bid. This form of
collusionCollusion is an agreement, usually secretive, which occurs between two or more persons 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 . It is an...
is illegal in most countries. It is a form of
price fixingPrice fixing is an agreement between business competitors to sell the same product or service at the same price. Historically, such a group of businesses in price fixing was referred to as a combination....
and market allocation, often practised 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").
North America
In the United States, bid-rigging is a criminal offence under section 1 of the Sherman Act. In Canada, it is a criminal offence under section 47 of the Competition Act. In the UK, individuals can be prosecuted criminally under the Enterprise Act.
Japan
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" (a Japanese term for bid-rigging, named after a
type of dumplingis a Japanese dumpling made from mochiko , related to mochi. It is often served with green tea.Dango are eaten year-round, but the different varieties are traditionally eaten in given seasons. Three to four dango are often served on a skewer...
) 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 the then governor of
Miyazaki Prefectureis a prefecture of Japan located on the island of Kyūshū. The capital is the city of Miyazaki.- History :Historically, after the Meiji Restoration, Hyūga Province was renamed Miyazaki Prefecture. See Abolition of the han system article for detailed discussion....
, resigned over a series of bid-rigging alegations 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.