Monday, August 5, 2013

What is Bid Rigging?

Many public agencies require that bidders submit, as part of their bid a signed "Non-Collusion Affidavit" or "Non-Collusion Declaration."  Sometimes it is a separate form and sometimes it is part of the bid form.

Features of Non-Collusion language:  Here are some of the key elements and statements that bidders are frequently asked to agree to as part of signing a Non-Collusion Affidavit:
  • No action in restraint of competitive bidding:  Bidder has not, directly or indirectly, colluded, conspired, connived, or agreed, entered into or offered to enter into any combination, collusion, or agreement to receive or pay, or otherwise taken any action:
    • In restraint of free, competitive bidding.
    • To fix the bid price of any other bidder
    • To fix any overhead, profit or cost element of the bid price
  • No solicitation of sham bids:  Bidder has not induced or solicited any other bidder to put in a false or sham bid.
  • Genuine bid:  Bidder agrees that their bid is genuine and not collusive or sham.
How does Bid Rigging work?  When a bidder signs a Non-Collusion Affidavit, they are agreeing they are not participating in any form of bid rigging.  Here are five different pictures of what bid rigging looks like in practice:
  • Bid price sharing:  Bidder A shares its proposed bid price, so that Bidder B can submit a higher price to ensure that Bidder A is the low bidder and is awarded the contract.
  • Bid suppression:  Bidder A agrees to suppress its bid and not bid so that Bidder B can be awarded the contract.
  • Bid rotation:  Bidder A and Bidder B both bid but take turns to submit the lowest priced bid to be awarded the contract.
  • Bid withdrawal:  Bidder A withdraws its bid to leave Bidder B as the only bidder.
  • Non-conforming bids:  Bidder A deliberately submits a bid that does not comply with the bid documents so that Bidder B can be awarded the contract.
In each of the scenarios described above, the losing bidder may be awarded a subcontract by the successful bidder, or it may receive a financial payment from the successful bidder.

More information:  I am indebted to Shila Dorai Raj, CEO of the Malaysia Competition Commission, for the description of the different bid rigging scenarios that I've adapted and noted above.  Click here to read her article on "Zero Tolerance for Bid Rigging."

Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC


Anonymous said...

Really interesting post, Mike. Have you followed any of the shenanigans happening here in Australia with IBM and a major State Government contract that went "bad"? Sessions for probity practitioners and bidders alike...

Mike Purdy said...

Thanks, Peter, for your comments on the IBM contract in Australia that has had significant cost overruns. It points out the need for careful procurement and contracting management.