This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
Canada’s Competition Act establishes a number of “Offences in Relation to Competition”, including “bid-rigging” and “conspiracy.” As the Canadian Competition Bureau states:
Bid-rigging is a serious crime that undermines competitive markets and has serious negative economic consequences for businesses and for the public, which cost tax payers millions of dollars annually. It is a form of conspiracy that occurs when bidders secretly agree not to compete or to submit bids that have been pre-arranged among themselves. Firms and individuals convicted of bid-rigging face fines at the discretion of the court and imprisonment for up to five years.
As detailed on its website (see, www.competitionbureau.gc.ca), the Competition Bureau has successfully conducted many prosecutions that have led to multi-million-dollar fines and even jail sentences. Prior conspiracies have impacted many significant construction projects, including Pearson International Airport, the Toronto Skydome Hotel, and BCE Place, along with a broad range of industries and goods and services, including re-enforcement cable, flour milling, electrical contractors, timber, paper, compressed gas, concrete, fax paper, ambulance operators, pharmacies, waste disposal, snow removal, bulk vitamins, and notary services.
Types of Bid-Rigging
In April 2008, the Competition Bureau launched a free online Bid-Rigging Prevention Tool that identifies the following common forms of bid-rigging:
- cover bidding, where the same or related companies submit fake bids to create the appearance of competition to disguise the fact that a fix is in place;
- bid suppression, where competitors agree to withhold their bids to allow a pre-selected competitor to win uncontested;
- bid rotation, where competitors agree to take turns submitting the best bid; and
- market division, where competitors agree to divide up the market to avoid competing head-to-head.
Risk Factors and Telltale Signs
The following list, which was derived from the Canadian federal government’s Supply Manual and from the Canadian Competition Bureau’s Bid-Rigging Prevention Tool, summarizes the top five telltale indicators of potential bid-rigging and price-fixing conspiracies:
Standard Buys from Limited Supplier Pools: Industries with standard goods or services that remain relatively unchanged over time and are supplied by a limited supplier pool with few new entrants are particularly susceptible to bid-rigging and price-fixing conspiracies.
Active Associations Promoting Fixed Pricing: The presence of an active trade association, coupled with supplier references to “standard industry pricing,” can be a telltale sign that the fix is in on pricing.
Evidence of Common Authorship: The use of identical wording to describe non-standard items, the presence of identical irregularities or idiosyncrasies in bid documents, or the indication that suppliers are aware of competitor pricing can all be a warning sign of an unnaturally cozy relationship between supposed competitors.
Suspicious Bidding Behaviour: Multiple bids submitted in the same package or at the same time, instances where regular bidders fail to participate for no apparent reason, situations where a typically unsuccessful bidder repeatedly wins a particular category of contract, situations where the same winning bidder repeatedly awards subcontracts to its competitors, award patterns that suggests a pre-determined rotation of successful bids, or other indicators that reflect a pre-determined market division amongst a group of suppliers are all signs of possible bid-rigging.
Suspicious Pricing Patterns: Pricing that is consistently higher than prevailing industry rates, unexplained sudden price escalations, pronounced gaps between winning bids and other bids, identical bids from losing bidders, and identical transportation costs from local and remote suppliers are all examples of suspicious pricing patterns that could suggest the presence of a price-fixing conspiracy aimed at stifling competition and inflating costs.
Buyers Beware
As the Competition Bureau notes, buyers can play a major role in combating bid-rigging. If you suspect the presence of bid-rigging or price-fixing, the Bureau advises against confronting the suspected participants directly. Instead, purchasing institutions should make a thorough written record of all relevant details, contact their legal advisors, and contact the Competition Bureau. Proper training and increased buyer vigilance can help assist in law enforcement efforts and significantly reduce the anti-competitive practices that undermine open competition and, unnecessarily, cost institutions, consumers, and taxpayers millions of dollars a year.
