Bid-rigging: detecting, preventing and reporting

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Bid‑rigging

Bid‑rigging refers to a tainted tendering process that often results in higher prices and lower quality goods and services.

Bid‑rigging is a conspiracy among potential suppliers that occurs when there is a call for tenders to fulfill a contract.

Common forms of bid‑rigging:

  • Cover bidding — competitors agree upfront on who will win. Losing bidders tweak their submission to ensure it’s less attractive than the winner’s.
  • Bid suppression — a competitor agrees not to bid or to withdraw a bid so a specific bidder is most likely to win.
  • Bid rotation — competitors agree to take turns at winning bids.
  • Market division — competitors agree to divide territory, customers or product markets among themselves instead of competing.

Knowing and recognizing the red flags is especially important when tenders involve:

  • Products that cannot be easily distinguished from competing products from different suppliers
  • Goods/services that have not seen significant technological advances/changes
  • Products with few or no close substitutes
  • A small number of suppliers or customers
  • Supplier base with few new entrants
  • Circumstances facilitating meetings among bidders (site visits, associations meetings)

Recognize it

Recognizing the signs of possible bid‑rigging is key to deterring it.

Those who handle procurement processes should be on the lookout for warning signs or “red flags.”

Recognize the warning signs

Observed during the call for bids

  • Suppliers’ bids are received together
  • Suppliers meet before they submit tenders and procurement officials are not present
  • Suppliers who normally tender fail to do so
  • Only one bidder contacts wholesalers for necessary pricing information

Observed on the bids

  • Identical irregularities or errors in the bids
  • Identical bid amounts
  • Bids come from the same place (from the same fax number or email address)
  • Use of the same terminology when explaining price increases
  • References to "industry suggested prices" or "industry price schedules"
  • Bids from local companies involve similar transportation costs as distant (or remote) bidders
  • Significant change from past price levels occurs after bid from new or infrequent supplier, suggesting bid rigging in previous tender processes
  • The range of quoted prices has moved suddenly among all of the bidders

Observed after the call for bids

  • Same supplier is often the successful bidder
  • Winning bidder does not accept the contract
  • Winning bidder subcontracts work to unsuccessful bidders
  • Significant difference between price of winning bid and other bids
  • A bidder seems to have knowledge of its competitor’s confidential bid
  • Pattern suggesting rotation of successful bids among several suppliers

Bid rigging is not illegal when the tendering authority has been informed of the arrangement before or at the time the bids are submitted. This may occur, for example, when two companies get together in a joint venture to submit a bid on a specific project. The companies need to expressly advise the tendering authority of the existence of this joint venture.

Prevent it

Those who handle procurement processes can take steps to reduce the likelihood of wrongdoing.

Establishing Bidding Pool

  • Maximize the pool of potential bidders by making the bidding requirements more inclusive
  • Get to know suppliers and their market prices
  • Be aware of price changes in the suppliers’ inputs
  • Know suppliers’ prices in other markets or jurisdictions
  • Avoid asking bidders to qualify for a first bid to have access to other ones
  • Keep bids confidential: don’t disclose who or on what basis they have been invited to submit a bid

Drafting Tender Specifications

  • Require disclosure regarding potential subcontractors and their pricing
  • Use a "Certificate of Independent Bid Determination" requiring disclosure of any communications and arrangements with other bidders
  • Allow for substitute products whenever possible focus on end use
  • Avoid preferential treatment for a certain class of suppliers, such as local suppliers
  • Avoid predictability—consider aggregating or disaggregating contracts

Awarding Contracts

  • Avoid splitting contracts between suppliers with identical bids
  • Establish a complaint mechanism for suppliers to voice competition concerns
  • Ask questions if prices or bids don't seem to make sense

Training and Auditing for those who handle procurement processes

  • Ensure regular staff training on bid‑rigging recognition
  • Call the Bureau for bid‑rigging, awareness and prevention training (1‑800‑348‑5358)
  • Review tender history and results periodically, especially in susceptible industries
  • Conduct interviews with:
    • vendors who no longer offer supply.
    • unsuccessful vendors.

Take action

Anyone involved in a tendering process who suspects bid‑rigging can take action to stop it

The law

Penalties for Bid‑Rigging

  • No limit on fines—at the discretion of the court
  • Jail term up to 14 years for individuals
  • Those convicted will have a criminal record that will be registered with the Canadian Police Information Centre (CPIP)
  • Victims have a right to sue perpetrators, recover damages

Conspiracy is a crime under s. 45 of the Competition Act

Under the conspiracy provision, it is illegal for competitors or potential competitors to conspire, agree or arrange to:

  • Fix or control prices,
  • Allocate markets or customers, or
  • Restrict the production or supply of a product.

Bid‑rigging is a criminal offence under s. 47 of the Competition Act

Under the bid‑rigging provision, it is a criminal offence for two or more bidders to:

  • Agree that one party will refrain from bidding,
  • Withdraw a submitted bid, or
  • Agree among themselves on bids submitted.
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