Bid rigging

Author of the article: Mgr. Filip Ondřej, ARROWS (office@arws.cz, +420 245 007 740)

Bid rigging or bid rigging in tenders is a serious distortion of competition. In this article, we will look at how bid rigging works, what practices are most commonly used, what impact bid rigging has on the market and public procurement, and how bid rigging can be sanctioned.

Cartel agreements

Cartels are defined as anti-competitive agreements. They take three forms, namely agreements between competitors, decisions by associations of competitors and concerted practices between competitors. Cartel agreements aim at distorting competition.

Bid rigging is therefore a form of cartel agreement, which is an agreement between competitors whereby bidders for a public contract who should compete for it in accordance with the competition rules collude on the outcome of the tender.

It is therefore a prohibited agreement to influence bids between tenderers for a public contract. This mechanism leads to rigged bids, which may result in disproportionate price increases and a reduction in the quality of the contract performance. The aim of bid rigging is to achieve more favourable conditions for the winner of the tender.

Bid rigging harms not only the contracting authority but also competition, involving elements of both price fixing and market sharing agreements.

Selected forms of bid rigging

Cover bidding - some competitors submit bids that are deliberately high or technically unsatisfactory in order to ensure that the winner wins. However, the lowest price in such a case may still be tens of percent higher than the real value of the contract. The contracting authority then logically chooses the apparently lowest, albeit still very high, price that is advantageous to the competitor.

Withdrawal from the procedure - some companies agree to withdraw their bids at the last minute (e.g. for capacity or other reasons), where the contract is then awarded to the second ranked competitor. This form may be combined with the submission of cover bids.

Bid damping - this is an agreement between competitors to have only a limited number of bidders participate in the competition. Other potential tenderers will not submit their bids or will withdraw their bids before the end of the tender procedure. This form is often supplemented by a system of rotation of the winning contractors, who divide the contracts for each contracting authority among themselves. If bidders do not rotate individual contracts, they may set up systems of mutual compensation or consideration for the award of a contract to a particular bidder.

Economic impact of bid rigging

It is estimated that bid rigging can increase the price of a contract by up to 50%. This type of illegal behaviour reduces the efficiency of markets, hinders innovation and creates an uneven playing field for new competitors wishing to enter the market.

Penalties for bid rigging

The right level of law. Bid rigging can be punishable by a fine of up to 10% of the annual net turnover of the entire business group to which the competitor belongs.

Civil law. All entities injured as a result of bid rigging, in particular contracting authorities, can claim damages in civil proceedings.

Criminal law. There may even be criminal offences: breach of competition rules, obtaining an advantage in the award of a public contract, bid rigging, subsidy fraud or damage to the EU's financial interests.

Leniency programme

An effective tool in the fight against bid rigging is the leniency programme, which allows companies that detect cartels and cooperate with the Competition Authority to obtain a reduction in fines or even escape sanctions altogether under certain conditions. This programme is key to incentivising cartel participants to abandon their illegal behaviour.

Bid rigging is a serious problem that undermines the principles of fair competition and harms contracting authorities. Detecting and preventing these practices is essential to maintain a competitive market environment.

You can learn about how bid rigging is detected and prevented, strategies and measures to prevent bid rigging, how to recognize bid rigging in practice, the criminal consequences of distortions of competition, and much more in expert articles, publications, lectures and seminars organized by Mgr. Antonín Hajdušek, LL.M., a lawyer specializing in public procurement and Mgr. Petr Hanzel, LL.M., attorney at law specializing in criminal law.