By TIFFANY COUCH
BridgeTower Media Newswires
PORTLAND, OR — Bid rigging is a fraudulent scheme in which competing parties collude to corrupt procurement procedures.
The practice perverts a system designed to award contracts to the best and most qualified subcontractors, and disrupts free-market competition because rigged prices are often higher than what they would have been had bidding been done in a transparent and fair way. Plus, the resulting product is often substandard.
The construction industry is especially susceptible to bid-rigging scams. Why? For the simple reason that it’s common practice for public and even some private owners of construction project to issue open bids to solicit qualified proposals. Bid rigging is a form of collusion, and it’s illegal. Vendors who corrupt the bidding process can be criminally prosecuted and receive fines and jail time.
Bid rigging can take many forms, but one of the most common is known as bid rotation. In this scheme, competitors conspire to take turns submitting low bids, allowing a predetermined bidder to win the contract while the “losers” serve as subcontractors.
Another common bid-rigging scheme is bid suppression. In this, a group of subcontractors will agree that one or more companies should “sit out” the bid process, thereby narrowing the pool of proposals and forcing a general contractor or procurement team to award a project to a bidder with prices that are usually higher than they would have been had competition been given free rein.
There are several tell-tale signs of bid rigging. They include:
- repeated awards of projects to the same company,
- subcontracts given by the winning bidder to the losing companies,
- final products and work quality that is inferior to what was proposed,
- responses to a particular proposal from fewer bidders than is usual,
- an absence of proposals from highly qualified firms, and
- complaints from other bidders about the fairness of the process.
Subcontractor collusion is not only illegal, but also harmful to the economy and the industry. Bid rigging and other forms of corruption, such as bribery, kickbacks and payoffs, typically lead to higher prices, inferior construction, poor job performance and a setting in which “playing by the rules” equates to losing money and jobs.
The only way to deter bid rigging and other forms of antitrust violations is to establish strict procurement procedures that establish less-than-favorable conditions for anticompetitive behavior. Consider the following 10 preventative steps:
- Broaden your list of bidders to increase the competition for a particular job. Solicit bids from as many suppliers as is reasonable. The more submissions there are, the slimmer the chances there will be collusive bidding.
- Require all bid packets to include a signed non-collusion affidavit acknowledging a supplier has not colluded with other companies and understands the penalties for violating antitrust laws.
- Make sure your procurement team is familiar with the signs of bid rigging.
- Keep accurate records for all bidders, submissions and awards. If collusion is suspected, you’ll have to review your procurement history and system to find any anomalies or suspect bidding patterns.
- Ask questions. If a bid seems oddly high or questionably low, seek clarification and justification from the company that submitted it.
- To be in the best position possible to spot unusual bidding activity, stay informed of current market conditions and the cost of similar projects.
- Keep your procurement system confidential. Do not disclose who the participating bidders are or what projects they’ve bid on.
- Retain the right to reject any bids if the system appears to have been corrupted.
- Ensure your bid documents are clear, concise and specific about the requirements of a given project.
- Report unethical bid practices to the appropriate authorities.
It’s also important to note that noncompetitive forms of cooperation necessarily constitute bid rigging. It’s perfectly legal, for instance, for two or more bidders to pool their resources to submit a joint proposal.
By knowing how to recognize the tell-tale of subcontractor collusion and establishing strict safegards, procurement officials can help detect and deter bid-rigging schemes.
Tiffany Couch is chief executive and founder of Acuity Forensics – a forensic accounting firm in Vancouver, Washington. She is also the author of “The Thief in Your Company” – a book that explores how fraud harms organizations. Call her at 360-573-5158 or write to her at firstname.lastname@example.org.