On 20 June 2016, the Competition and Markets Authority (‘CMA’) issued new guidance aimed at procurement professionals on how to detect, deter and prevent bid rigging.
In its letter, the CMA reminds buyers and suppliers that bid rigging is a form of cartel and is therefore a breach of competition rules. Bid rigging creates the illusion of competition whilst driving the price of goods and services up, resulting in purchasers spending more than they would otherwise have spent. The CMA highlights the fact that any business can be the target of bid rigging activities, and in particular public sector bodies, such as schools and hospitals, which are required to conduct formal public procurement tender processes.
The CMA also emphasises that bid rigging can result in very large fines, damage to reputation and in some cases prison sentences.
The open letter of June 2016 describes the three most common forms of bid rigging:
- Bid rotation: where competitors agree to take it in turns to have the most attractive bid, thereby ensuring that each competitor is awarded a contract in turn and eliminating price competition;
- Cover pricing: where competitors that do not actually intend to compete for a contract submit bids at a highly inflated price so that the winning tender appears to be much better value than it actually is; and
- Bid suppression: where competitors accept not to bid for a contract in exchange for some form of financial incentive from the winning bidder, thereby ensuring that the firm benefitting from that arrangement wins the work at an inflated price.
This guidance is a further example of the CMA’s policy of publishing simple, business-friendly guidance highlighting common competition law concerns.
Bid rigging practices have been identified in a number of the CMA’s antitrust investigations, most recently involving suppliers of galvanised steel tanks used for water storage in schools, hospitals and other commercial and public buildings. In that case, five suppliers admitted to having agreed with each other to share the market between them, to fix prices and to rig bids for contracts over a seven-year period. Following the CMA’s investigation, the companies agreed to pay fines totalling Â£2.6 million. In parallel proceedings, the CMA also brought criminal cartel prosecutions against a number of the directors, one of whom received a six-month prison sentence.
The CMA is concerned that such practices may be a feature across a number of industries. The guidance seeks to emphasise the specific issues with bid rigging and the importance of ensuring compliance. This includes highlighting financial rewards available to those who report cartel activity and the CMA’s leniency policy, which also encourages both companies and individuals to report and admit to cartel behaviour in exchange for full or partial immunity.