Bid rigging is a widely known term across the world. Bidding, as a practice, is intended to enable the procurement of goods or services on the most favourable terms and conditions. Invitation of bids is resorted to both by Government (and Government entities) and private bodies (companies, corporations, etc.). But the objective of securing the most favourable prices and conditions may be negated if the prospective bidders collude or act in concert. Such collusive bidding called “bid rigging” contravenes the very purpose of inviting tenders and is inherently anticompetitive. If bid rigging takes place in Government tenders, it is likely to have severe adverse effects on its purchases and on cost effectiveness of public spending and wastes public resources. It is therefore important that the procurement process is highly competitive and not affected by practices such as collusion, bid rigging, fraud and corruption. All over the world, bid rigging or collusive bidding is treated with severity in the law as reflected by the presumptive approach.
Collusive bidding or bid rigging may occur in various ways by which firms coordinate their bids on procurement or project contracts. Origin of bid rigging is as old as system of procurement. However, an apt codification on the same may be the Sherman Act, 1890 of the United States, which is considered the first codified law to look into agreements leading to bid rigging. Governments are most often the target of bid rigging. Bid rigging is one of the most widely prosecuted forms of collusion. Bid rigging may take various forms such as bid suppression, complimentary bidding, bid rotation, and sub contracting etc.
In India, the Competition Act, 2002 specifically prohibits collusive bidding (direct or indirect) under Section 3 (3) d. It is one of the four horizontal agreements that shall to be presumed to have appreciable adverse effect on competition (AAEC). The explanation to sub-section (3) of Section 3, of the Competition Act, 2002 defines “bid rigging” as “any agreement, between enterprises or persons referred to in sub-section (3) engaged in identical or similar production or trading of goods or provision of services, which has the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process for bidding.”
Reducing collusion in public procurement requires strict enforcement of competition laws and the education of public procurement agencies at all levels of government to help them design efficient procurement processes and detect collusion.
- Competition Commission of India, Advocacy Booklet Series 4, Provision relating to Bid Rigging, March 2011