CMS Expert Guide: Right Bidding vs Bid Rigging

What is bid rigging and why is it an important issue?

Public procurement rules and their strict observance is of key importance to ensure good quality products and services to citizens on the best possible financial and service delivery terms. Citizens have every right to see public money spent in the most responsible, transparent and efficient way. An efficient competitive process in tenders is one that can lead to lower prices, higher quality and more innovation in the supply of goods and services in public procurement procedures.

The term “collusion” in public procurement (often also referred to as “collusive tendering” or “bid-rigging”) refers to illegal agreements between participants in tenders, with the aim of distorting competition in award procedures and of enabling a predetermined tenderer to secure a contract while creating the impression that the procedure is genuinely competitive. Often, the ulterior motive is to impose a high contract price that is not justified by market conditions. Bid rigging typically occurs when bidders agree to cooperate in tenders to the detriment of fair competition rules. For example, when bidders agree to take turns as the designated successful bidder (bid rotation); agree that one of them will refrain from submitting a bid, or will submit a bid under unacceptable terms (especially the price); agree to allocate the market based on geography, contracting authority or the subject of the procurement; or agree on compensation for the losing bidders (e.g. involving losing bidders as subcontractors).

What are the negative consequences of bid-rigging?

Under EU law, collusion between economic operators is addressed in Art. 101 of the Treaty on the Functioning of the European Union (TFEU), which explicitly prohibits agreements and concerted practices that have as their object or effect the prevention, restriction or distortion of competition in the internal market and that may affect trade between Member States. In the case of an established infringement of Art. 101 of the TFEU, the European Commission (EC) can sanction each infringer up to 10% of its group’s net turnover. Similar prohibitions as that of Art. 101 of the TFEU and similar sanctions also exist under the legislations of the EU Member States. 

In some EU Member States, public procurement cartels trigger criminal liability, including the risk of imprisonment. 

In all cases, bid rigging can be the reason for significant claims for private damages against the participants in the infringement, and it can cause a reduction in the value of these companies, disruption to their business, and damage their reputation. 

A recent “sanctioning” trend is that companies that participate in bid-rigging, as established by the competent authorities, can be banned from participating in current and future tenders. 

How can bid rigging be detected?

Identifying bid rigging is not easy. For example, there are forms of cooperation between potential bidders in tenders that are in fact legitimate. Collaboration based on sharing the work, whereby the parties work together in a complementary way (joining their financial, expert, technical or resource offer) to ensure a winning bid and compete together, would be lawful joint bidding. The risk of infringement arises if companies form a consortium without an objective economic justification, when they could have competed independently with a realistic chance of success.

Other reasons why identifying bid rigging is not easy include the fact that sometimes contracting authorities lack the necessary information, resources or experience to detect it; sometimes market participants are limited in number and thus viable proposals in tenders are limited, and bid-rigging is facilitated; sometimes collusion in public procurement is combined with corruption, such as bribing decision-makers in the contract authority.

The enforcement of public procurement and antitrust rules and sanctioning of infringers of these rules is therefore of utmost importance. Contracting authorities should lead the way in combatting bid rigging by organising and conducting procedures that make coordination between the participants as difficult as possible. The EC and national competition authorities are there to provide support, including by adopting relevant guidance that can help contractors combat bid rigging.

In 2021, the EC published a “Notice on tools to fight collusion in public procurement and on guidance on how to apply the related exclusion ground” (C (2021) 1631). The Notice contains guidance on how contracting authorities can detect unlawful collusion, and also focuses on the possibility to exclude bidders engaged in the manipulation of a tender and what options bidders have for “self-cleaning”. The Notice illustrates the EC’s determination to detect and prevent collusive behaviour during award procedures. The possibility of exclusion of bidders if there are sufficiently plausible indications of collusive behaviour therefore plays a major role.  Companies might not be excluded, however, if they can credibly demonstrate “self-cleaning”. Practical examples and guidance on the “sufficiently plausible indications of collusive behaviour” and the appropriate measures for “self-cleaning” should be provided by the national competition authorities as well, considering the specifics of the national legislation. 

The Dos and don’ts

Below are a few tips for permitted and prohibited practices for participants in public procurement tenders.

Disclaimer:
Although this resource may provide information concerning potential legal issues, it is not a substitute for legal advice from a qualified legal professional. This resource is not created nor designed to address the unique facts or circumstances that may arise in any specific instance. You should not rely on this content as a source of legal advice.

Find out more bid rigging regulation in other jurisdictions