Bid rigging (also known as collusive tendering) occurs when competing economic operators reach an agreement illegally to alter the conditions of the procurement procedure by raising the prices or lowering the quality of goods or services, or to predetermine who will be the winner.
Bid rigging (also known as collusive tendering) occurs when competing economic operators reach an agreement illegally to alter the conditions of the procurement procedure by raising the prices or lowering the quality of goods or services, or to predetermine who will be the winner. This anti-competitive behaviour distorts the normal market conditions and prevents public organisations to achieve the most economically advantageous tender. [1] Such agreements to influence the outcome of the procedure might assume various forms, as follows:
- Bid rotation: Conspiring economic operators decide in advance who will win a bidding process and take turns to be contractor. This can be done, for instance, by agreeing on the lowest price or allocating volumes corresponding to the size of each company.
- Bid suppression: In this case, one or more companies agree to refrain from participating in a procurement procedure or withdraw a previously submitted bid, so that a particular company wins it.
- Complementary bidding (also known as courtesy bidding, cover bidding, token bidding, or symbolic bidding): It is the practice by which one or more companies submit uncompetitive or irregular bids so as not to be selected but still giving the impression of genuine competition in the market. This is normally followed by monetary payments of the designated “winner” to the designated “losers”, as a sort of compensation payment.
- Subcontracting non-winning bidders: The winning bidder subcontracts part of the contract to conspiring economic operators as a mechanism to distribute the additional benefits of the scheme and ensuring the acquiescence of the involved parties.
- Market allocation: Companies carve up the market and decide who will compete for certain customers or operate in certain geographical locations. In this way each company will have its own “fief” and will not submit bids in another competitor’s area.
Public procurement markets have been identified as particularly prone to this type of collusion.[2] One of the reasons is that OECD countries spend on average 12% of their GDP on public purchases, which makes it very appealing for economic operators. Furthermore, the volume and frequency of procurement procedures, along with the weak incentives of contracting authorities to be vigilant for cartel activity, facilitates the creation of bid rigging schemes.[3] Given that public procurement strongly relies on competitive markets,[4] the effects of anti-competitive behaviours undermine the efficiency of public spending and might discourage honest economic operators from submitting their bids or investing in innovative solutions to meet the needs of the public sector. According to the OECD, the elimination of bid rigging could help reduce procurement prices by 20% or more.[5] The recent European Commission’s Notice on tools to fight collusion in public procurement estimates that collusion increases the price to be paid by public buyers up to 60% compared to what they would pay under normal market conditions.[6]
Avoiding bid rigging is essential to make the most efficient use of public funds. Contracting authorities are in a strong position to identify and deter collusive practices based on several indicia, such as similar bids with identical prices, bids that include the same mistakes or typographical errors, deserted procedures in markets where the offer is relatively big, or higher prices than expected, among many others. In order to help them to ensure a fair level of competition, the OECD and EC have issued different official documents with guidance and best practices:
- OECD Guidelines for Fighting Bid Rigging in Public Procurement.[7]
- Recommendation of the OECD Council on Fighting Bid Rigging in Public Procurement.[8]
- OECD Report on implementing the OECD Recommendation from 2012 – published in 2016.[9]
- European Commission’s Notice on tools to fight collusion in public procurement and on guidance on how to apply the related exclusion ground.[10]
1. OECD Guidelines for Fighting Bid Rigging in Public Procurement
Since bid rigging is an illegal practice in all OECD member countries and it negatively impacts the outcomes of public procurement, in 2009 this organisation launched a document to support government decisions to fight collusion when conducting award procedures. To achieve this objective, the guidelines include two checklists with practical advice and tips, as discussed here below.
- Checklist for Designing the Public Procurement Process to Reduce the Risks of Bid Rigging
The first checklist is divided into six categories and gives public buyers advice on how to structure their tenders to foster genuine competition. The first recommendation is for the public buyer to be informed about the relevant market before designing the tender to elude asymmetry of information and detect suspicious behaviours. The next point is to design the tendering to maximise participation, in order to foster real competition. In this vein, the document highlights the importance of avoiding disproportionate requirements that may reduce the number of qualified bidders, including large warranties and limits to foreign participation, but also high preparatory costs. Likewise, it is advisable to avoid long periods of time between qualification and award (for instance, in restricted procedures) as it can enable collusive behaviour. Procurement requirements must be clear but not predictable and contracting authorities must take measures to prevent potential bidders from participating in irregular gatherings that may lead to collusive agreements.[11]
On the other hand, the 2014 Public Procurement Directives allow public buyers to ask the bidders “to indicate in its tender any share of the contract it may intend to subcontract to third parties and any proposed subcontractors”.[12] A proper use of this possibility can be a way to avoid the collusive practice of subcontracting the designated “loser” bidder by the designated “winner” bidder. Moreover, the European Single Procurement Document (ESPD[13]) allows public buyers to check if a contractor is planning to bid together with others, and if so, if any of the participants are under any voluntary or mandatory exclusion grounds.[14]
Evaluation and award criteria should not deter potential bidders from participating in the procurement procedure. In case that the contracting authority has suspicious of collusive behaviour, the award procedure could be held up or terminated. The personnel in charge of the procedure should be trained to detect bid rigging and be aware of the different tools at hand to tackle this issue. The document also highlights the relevance of mechanisms for companies to complain about anti-competitive practices, such as whistle-blower systems to collect information from companies and their employees. The information collected over the years gives an accurate picture of potential competition issues.
- Checklist for Detecting Bid Rigging in Public Procurement
The second checklist points out indicia of collusive behaviour and gives a list of non-exclusive examples, such as:
- Patterns in bidding submission - geographic allocation of winning tenders; certain companies always submit bids but never win, always submit the lowest tender or withdraw from bidding, unsuccessful bidders are repeatedly subcontracted, etc.
- Signs in the offers - identical mistakes, identical spelling errors and/or miscalculations, use of same formats and fonts, several offers are missing key elements or are very vague, etc.
- Evidence related to pricing - large difference between the winning bid and other bids’ prices; in similar contracts, a bidder offers very different prices, prices radically change once a newcomer enters the market, etc.
- Suspicious statements – references to “industry suggested prices”, “standard market prices” or “industry price schedules” in order to justify their prices, clarifications that a firm does not operate in a certain area, etc.
- Untrustworthy behaviour – an indicium would be that several competitors ask the same questions/requests or regular meetings between competitors prior to the award of the contract.
It is worth noting that the mentioned factors are just indications of potential collusive behaviour, not proof of it. The public buyer should pay attention if these signs are taking place repeatedly over time, gathering all relevant documentation and, if the evidence is clear, contacting the relevant competition authority and set in motion the legal remedies available.
2. Recommendation of the OECD Council on Fighting Bid Rigging in Public Procurement
This 2012 Recommendation of the Council encourages governments to strive for public procurement procedures that promote competition and reduce the risk of bid rigging. In particular, the Council recommends Members to:
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- Assess the various features of their public procurement laws and practices and their impact on the likelihood of collusion between bidders, as they should strive for public procurement tenders designed to promote more effective competition and reduce the risk of bid rigging while ensuring overall value for money.
- Ensure that public procurement officials are aware of signs, suspicious behaviour, and unusual bidding patterns, in order to be investigated by the responsible public agencies.
- Encourage public procurement officials to follow the OECD Guidelines for Fighting Bid Rigging in Public Procurement of 2009.
- Develop tools to assess, measure, and monitor the impact on competition of public procurement laws and regulations.
3.Procurement OECD Report on implementing the OECD Recommendation from 2012
However, some challenges have not been addressed yet due to the difficulties in striking a balance between the necessary transparency in pre-tender dialogue with suppliers and the requirement to reduce the opportunities for bidders to meet, for example. Although public procurement officials in charge of specific tenders are the best placed to detect bid rigging, they may lack sufficient experience to detect it and knowledge on the steps to take or may lack the incentives to do so, as their evaluation is not dependent on the number of uncompetitive misbehaviours they find, but on their ability to prepare, implement and award a contract. Detecting collusive behaviour can be a burden that makes them miss their procurement targets and incur delays and can be better placed on supervisory bodies.
Linked to this, official and unofficial communication channels between competition and public procurement authorities are missing in some Members and Partners. If they are present, officials are, in certain cases, unclear on when it is reasonable to share information and which information to share. Subsequently, easy and known communication channels between competition authorities and public purchasers should be implemented, as they can be of great help when detecting and reporting bid rigging situations. Additionally, it should be clarified who, how and what should be communicated. Lastly, the adoption of tools to measure and monitor the impact of public procurement laws and regulations on competition shall be fostered.
4. European Commission’s Notice on tools to fight collusion in public procurement and on guidance on how to apply the related exclusion ground
Following the trend of the previous documents, on 18 March 2021, the European Commission published a Notice that clarifies the concept of bid rigging and explains its undermining effects on public procurement.[17] Although the 2014 Public Procurement Directives allow the Member States and public buyers to exclude competitors “where the contracting authority has sufficiently plausible indications to conclude that the economic operator has entered into agreements with other economic operators aimed at distorting competition”, detecting and assessing cases of collusion still poses a challenge.[18] Collusive behaviour tends to be secretive, and its detection is based on indicia. Furthermore, as stated before, procurement officers may be aware of bid rigging cases, but may not have the knowledge, tools, and/or incentives to put an end to it. We should bear in mind that collusion and corruption are different but may come together, making the matter more complex.
Based on the responses of 21 Members States to a set of 10 questions the Commission put forward in February 2019, the notice details the tools announced in the 2017 Communication ‘Making public procurement work in and for Europe’ to assist Public Buyers in the Member States to fight collusion[19] with the aim of (i) supporting Member States and contracting authorities in building capacity to address the problem and (ii) fostering cooperation between national central procurement and competition authorities. To that end, the Notice includes concise, user-friendly guidance explaining how to apply the exclusion of economic operators from a public tender based on collusion grounds, as described in Article 57(4)(d) of the Directive 2014/24/EU.[20] It also suggests a set of measures to prevent collusive practices, as well as complementary measures such as data analysis and training of procurement officers.
The EC recognises the relevant role of the principle of proportionality when applying the collusion-related exclusion ground. Contracting authorities should observe this principle when deciding about the exclusion of economic operators and even after that moment if the economic operator proves the adoption of self-cleaning measures to remedy the situation. It states that companies can be excluded on these grounds in the following situations:
- Where they have reached an agreement with other economic operators aimed at distorting competition. The national law could include not only agreements but also decisions by associations of undertakings and concerted practices. Alternatively, these latter could fall under grave professional misconduct, leading to exclusion on the grounds of Article 57(4)(c) of the Directive.[21]
- Based on “sufficiently plausible indications” of such an agreement.[22] It is a non-mandatory exclusion ground, and it is based on sufficient indicia, which gives the contracting authority a wide margin to exclude (or to keep) a particular economic operator.[23] In any case, an economic operator falling under this exclusion ground should have the chance to prove its reliability by showing evidence of “self-cleaning” measures and the contracting authority will have to act in a proportionate manner when assessing if the justification provided is sufficient to allow the tenderer to participate in the award procedure.[24] Moreover, the contracting authority should document each and every one of its decisions as to whether or not to exclude the economic operator.
The notice gives a non-exhaustive list of examples of what the indicia can be. For instance, national legislation demanding the exclusion be based on a decision of a competition authority or a court judgment confirming would limit the leeway given by the European legislator to the contracting authorities. Likewise, a previous decision of another contracting authority to exclude an economic operator based on collusion rounds can serve as an indicator of collusion, but it does not necessarily mean that the economic operator is currently colluding and should be excluded from the specific award criteria. When it comes to consortia and subcontracting, contracting authorities should aim to strike a balance between the right of economic operators to decide how to tender and the potential threats to competition. For example, by checking if the contractor could have easily implemented the contract on his own.
In its Annex, the Notice describes in detail tips and good practices to counter collusion effectively and advises public procurer officers on how to minimise the risk of collusion in public procurement, as well as detecting and tackling bid rigging when it happens. The advice is threefold:
- How to design award procedures in a way that would deter collusion between tenderers: Striving for high participation by reducing the administrative burden and the requirements for the economic operators; researching and knowing the market; avoiding predictability in the launching of award procedures, as well as preparing the award procedures with sufficient time and ensuring that everybody knows the risk of collusion and the remedies/sanctions.
- How to detect potential collusion when evaluating tenders: Examining the tenders received in detail to check for collusion indicia or obtaining information about the intention of subcontracting and with whom and analysing consortia, for example.
- How to react to cases of suspected collusion: Excluding the economic operator engaged in collusion if it is proportionate, there are sufficient indicators, and the candidate has been allowed to prove its reliability. In addition, the contracting authority should contact the national competition authority to receive support and inform about the suspected case.
5. Conclusions
The concern of international and European bodies about bid rigging and other collusive practices on public procurement procedures is not new. On the contrary, several documents and guidance have been approved to help procurement officers to fight against those practices, as stated above. The recent Notice of the European Commission in this regard constituted a step further in this path and it is welcome since it remembers contracting authorities about the need to be vigilant and take action to avoid any distortion of competition. Nevertheless, we believe that the Notice alone is not enough to change the public procurement market dynamics and that the Member States should adopt further measures to eradicate bid rigging. In this regard, it can be claimed that practical results will only happen if procurement officers are properly trained and have consistent and reliable data.
Data analysis is crucial to identify anti-competitive practices in award procedures more easily. It facilitates comprehensive research of the market, which is essential to detect anomalies in prices and other aspects of the bids. As suggested by the European Commission, it is advisable to create national and international databases with available information on the economic operators who were involved in collusion in the past. Given that nowadays a massive amount of data (structured and unstructured) is generated every minute from various sources and through different channels[25], the Member States should consider deploying Artificial Intelligence (AI) solutions to collect and analyse data available on electronic procurement databases, such as algorithms or Machine Learning. These tools are extremely useful to find similarities and inconsistencies in the offers, even by comparing them with the bids submitted in previous award procedures in the same or analogous markets.
A clear example of the use of big data and Machine Learning to detect bid rigging in public procurement markets is the programme ‘Screening for Cartels’, implemented by the UK’s Competition and Markets Authority in 2017. The software aims to help public buyers screen their tender data for signs of collusion, by using algorithms to spot unusual bidder behaviour and pricing patterns that may indicate anti-competitive practices.[26] However, concerns that insufficient relevant data was available to make it work effectively led to a premature withdrawn of this tool. Therefore, Member States must ensure the existence of a solid and reliable data architecture that enables the use of AI-based solutions to detect competition distortions on public procurement procedures. Once this is done, contracting authorities could rely on digital technologies as an assistant to promote the fairness of the procurement.
Until then, contracting authorities should make a special effort in training the staff and motivate them to improve their skills and gain expertise. This factor is crucial to understand when and how bid rigging happens, and which is the most appropriate way to deal with it. An effective application of the European Commission´s recommendations will be subject to procurement officers’ capacity to observe indicia of collusion and willingness to remedy it.
[1] W. KENTON, Bid Rigging. Apr 30, 2020
[2] Collusion is a recurring phenomenon in public procurement markets (including in key economic sectors, such as construction, IT or health). Notice EC, p. 4
[3] Jones (2021) “Combatting Corruption and Collusion in UK Public Procurement: Proposal for Post-Brexit Reform”. The Modern Law Review, 00(0), pp. 1-41, at 5.
[4] Sanchez-Graells (2012) “Prevention and Deterrence of Bid Rigging: A Look from the New EU Directive on Public Procurement”. In G. Racca & C. Yukins (eds), Integrity and Efficiency in Sustainable Public Contracts, Brussels: Bruylant, 2014, p. 10. http://dx.doi.org/10.2139/ssrn.2053414
[6] Notice EC, p. 4
[7] OECD (2009) Guidelines for Fighting Bid Rigging in Public Procurement. Helping governments to obtain best value for money.
[8] As Approved by Council on 17 July 2012 [C(2012)115 ˗ C(2012)115/CORR1 and C/M(2012)9, item 137].
[9] OECD (2016) Fighting bid rigging in public procurement: Report on implementing the OECD Recommendation.
[10] (2021/C 91/01).
[11] The guidelines give a perfect example on page 7: “if the bidders need to do a site inspection, avoid gathering the bidders in the same facility at the same time”. It is highly advisable to schedule separate meetings with each potential candidate.
[12] Article 71.2. of Directive 2014/24/EU.
[13] See article 59 od Directive 2014/24/EU for an in-depth description.
[14] Particularly relevant for the scope of this article:
“Article 57. 4: 4. Contracting authorities may exclude or may be required by Member States to exclude from participation in a procurement procedure any economic operator in any of the following situations: (c) where the contracting authority can demonstrate by appropriate means that the economic operator is guilty of grave professional misconduct, which renders its integrity questionable; (d) where the contracting authority has sufficiently plausible indications to conclude that the economic operator has entered into agreements with other economic operators aimed at distorting competition;”
[15] OECD Members, Romania (only non-Member already adhered to the Recommendation), and all the Participants in the Competition Committee.
[16] OECD (2015) Government at a glance 2015. Paris: OECD Publishing. http://dx.doi.org/10.1787/gov_glance-2015-en
[17] See page 3 of the notice: “collusion between economic operators is addressed in Article 101 of the Treaty on the Functioning of the European Union (TFEU)”.
[18] See article 57.4.d) of Directive 2014/24/EU. Until the adoption of the 2014 Public Procurement Directives, collusive practices in public procurement were primarily dealt from the perspective of competition law.
[19] COM(2017)572).
[20] Art. 57(4)(d) Directive 2014/24/EU: “Contracting authorities may exclude or may be required by Member States to exclude from participation in a procurement procedure any economic operator in any of the following situations: (d) where the contracting authority has sufficiently plausible indications to conclude that the economic operator has entered into agreements with other economic operators aimed at distorting competition”
[21] “4. Contracting authorities may exclude or may be required by Member States to exclude from participation in a procurement procedure any economic operator in any of the following situations: (c) where the contracting authority can demonstrate by appropriate means that the economic operator is guilty of grave professional misconduct, which renders its integrity questionable.”
[22] Which is the main difference with the exclusion ground based on grave professional misconduct, which demands proof.
[23] That said, Member States may make it mandatory when transposing the Directives and clarify the conditions to implement it.
[24] Member States should encourage contracting authorities to treat economic operators who participate in leniency programmes in a proportionate manner when assessing the ‘self-cleaning’ measures they have adopted to guarantee their reliability and integrity.
[25] UN Global Pulse (2012) Big Data for Development: Challenges and Opportunities. White Paper, May 2012, pp. 8-9.
[26] Competition and Markets Authority (2017) Guidance: Screening for cartels: tool for procurers, 13 July 2017. Available online: https://www.gov.uk/government/publications/screening-for-cartels-tool-for-procurers. See also the press release ’CMA launches digital tool to fight bid-rigging', 15 December 2017, available online: https://www.gov.uk/government/news/cma-launches-digital-tool-to-fight-bid-rigging
