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What is Bid Rigging?
Bid rigging is a form of collusion in which bidders on a contract decide who should be successful in the tender, and then draft their bids accordingly. Bid rigging is a form of market manipulation and can have significant antitrust implications.
What is an Example of Bid Rigging?
Big rigging can manifest itself in several ways. A few common examples include:
- Bid suppression: One or more of the colluding parties will respond with “no-bid” so the winning bid can be awarded to another bidder by default.
- Bid rotation: Colluding parties take turns at being the winning bidder in a particular market or area.
- Complementary bidding: One or more parties will submit a non-competitive bid (intentionally overpriced), to ensure that another organization will win.
- Phantom bidding: Artificially inflating what legitimate buyers will pay by employing fake bidders who have no intention of winning but can push the price up with their bids.
How Do You Prove Bid Rigging?
The United States Department of Justice provides many recommendations for preventing and detecting bid-rigging. Some behaviors to be on the lookout for include:
- Multiple bids are received from multiple companies but in lump sum format
- The value of bids come in significantly above the estimated cost or the market rate
- The winning bidder uses other bidders (who bid and lost on the job) as subcontractors
How to Prevent Bid Rigging?
For those involved in the procurement process, there are many steps that can be taken to help prevent bid rigging:
- Ensure a diverse bidding pool. During the early stages of the process, create bidding requirements that create a more diverse pool of bidders. This can also include getting to know the local and adjacent markets to better understand the players involved.
- Allow for diversity. Allow bids to include substitute products, as well as requiring bidders to divulge any communications with other bidders.
- Be smart during the awarding process. This can include avoiding splitting contracts among multiple bidders as well as asking questions when bids do not make sense or deviate from others.
- Educate your team. Continually train the procurement team on bid rigging concepts and detection tactics.