Collusive tendering as a priority of public competition law enforcement
On 31 January 2017, the Belgian Competition Authority ("BCA") published a practical guide for buyers of public authorities on cartel behavior of bidders in public procurement (so-called "bid rigging" or "collusive tendering" practices). The BCA's accompanying press release states that fighting bid rigging in public procurement is one of the main priorities in its enforcement policy.
The guide provides examples of warning signs which might indicate potential collusive behavior of public procurement bidders. It also describes which market conditions might possibly facilitate bid rigging and gives practical tips and tricks to buyers on how to avoid potential collusion.
Bid rigging practices
The guide highlights different forms of collusive behavior in the framework of public procurement. Collusive bidders might engage in cover bidding (e.g. by submitting a bid with a higher price than the designated winner or including conditions in a bid of which the bidder knows that these will be unacceptable for the tendering authority), bid suppression (e.g. by agreeing not to bid for a tender or by withdrawing a submitted bid), bid rotation (e.g. by agreeing on who's turn it is to win the tender) or market allocation (e.g. by allocating a certain geographic area or certain customers to a member of the cartel).
In addition to a competition law infringement, bid rigging constitutes a criminal offence in Belgium (Article 314 of the Belgian Criminal Code).
Warning signs for the tendering authority
The BCA provides the buyers of the tendering authorities with examples of so-called "warning signs" which might indicate collusive behavior.
The guide contains:
- Warning signs regarding the bid (e.g. the winner of the tenders seems to rotate according to the nature of the work or mission, the bidders are always the same companies and the same companies seem to win/lose all the time; the winner subcontracts major parts of the awarded work to a losing bidder; the number of bidders is unusually low).
- Warning signs regarding the provided documents (e.g. the tender documents of different bidders contain the same spelling or calculation mistakes, the documents have the same lay-out, etc.).
- Warning signs regarding the price (e.g. prices of losing bids differ suspiciously from the winning bid; identical prices of different bidders; sudden and unexplainable price increases for similar work, etc.).
- Warning signs regarding statements made by bidders towards the tendering authority (e.g. references to sector prices; prices applied by a competitor or contacts with other bidders in the framework of the tender).
- Warning signs regarding behavior of the bidders (e.g. a bidder also submits the tendering documents of a competitor; bidders meet regularly before submitting their bids, etc.).
Market conditions facilitating collusive behavior
The guide indicates market conditions which might facilitate bid rigging and raise the risk of collusive behavior. The guide refers to markets with a small number of service providers, high entry barriers (less potential new competitors) and markets that are particularly hit by the economic crisis. Furthermore, bid rigging is easier when the concerned products or services offered by the different bidders are similar or simple, without equivalent alternative products and if the products or services are characterized by little innovation. Lastly, the BCA indicates that markets with a constant, repetitive and predictable demand from the public authorities also increase the risk of bid rigging in public procurement.
Practical tips and tricks for tendering authorities
The BCA provides the buyers of tendering authorities with certain practical tips and tricks to avoid collusive behavior between bidders.
- The BCA recommends the buyers to gather and keep up-to-date information regarding the market before launching a tender.
- Tendering authorities should try to maximize the potential participation to tenders. This can be achieved by e.g. not imposing unreasonable conditions that restrict the participation to tenders and therefore restrict competition, splitting up a tender in different parts so that more companies can participate, not always inviting the same companies for tenders, etc.
- The BCA also recommends to include anti-cartel clauses in the tendering documents, warning the bidders that suspicious conduct or indications of bid rigging will be reported to the BCA. In order to increase transparency, tendering authorities may also request the winner to disclose its subcontracting agreements, if the awarded work would be subcontracted.
- Tendering authorities should not disclose too much information to potential bidders as to which price the authority estimates to be reasonable or the foreseen budget.
- Avoid pre-bid information meetings, which allow potential bidders to collude. Prefer on-line information sharing (e-Procurement), with an online Q&A without disclosing the identity of the company filing the question.
- Tendering authorities should keep their records of tenders to increase the ability to compare future tender documents.
- Create awareness among officials responsible for public tendering of potential bid rigging
