No contract protected against the risk of bid-rigging, says expert

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Procurement professionals in all sectors need to be aware of the risk of bid-rigging of contracts they tender, a procurement law expert has said.

Louise McKee of Pinsent Masons, the law firm behind Out-Law.com, said a new awareness-raising campaign on bid-rigging practices launched by the Competition and Markets Authority (CMA) was welcome and would help uncover more of the illegal activity that some suppliers engage in.

"No contract is protected against the risk of bid-rigging, whether it concerns contracts in the construction market or services sectors," McKee said. "The CMA's interest in this area will help support contracting bodies against attempts by suppliers to control the market. The CMA has powers to take enforcement action against those engaging in bid-rigging so its campaign should serve as a warning to those 'gaming the system', as the CMA has put it, that their illegal activities are likely to be spotted and punished."

McKee was commenting after the CMA published an open letter (2-page/145KB PDF) to procurement and supply professionals urging them to report bid-rigging activity to it. It warned that bid-rigging can result in the cost of contracts increasing, to the detriment of the taxpayer where public funds are concerned.

"Where businesses compete to win contracts, purchasers get fair prices, good service and choice, including more innovative products or services," said John Kirkpatrick, the CMA's senior director of advocacy in the letter. "However, if companies collude when bidding for contracts, purchasers end up spending more than necessary."

"[Bid-rigging] is a particularly serious type of anti-competitive activity. It removes the incentive for companies to compete to win a contract, which in turn means purchasers do not get true value for money. Evidence suggests that cartels often result in overcharges of 10 per cent to 20 per cent (and more), costing taxpayers millions of pounds," he said.

In addition to its open letter, the CMA published a new bid-rigging e-learning tool and highlighted existing guidance in an effort to raise awareness and encourage reporting of the practice.

"It is important to be alert to those who may be trying to game the system, that you take simple steps to detect and deter wrongdoing and that you report it if you think something looks suspicious," Kirkpatrick said. "Only then can you be confident that you are getting the best deal and making the best use of limited resources."

The CMA said that bid-rigging can take a variety of forms, including where suppliers arrange between themselves to allow one another to make the most attractive bid for contracts on a rotation basis, or rival suppliers agree not to submit a competing bid for a contract in return for payment or access to parts of the work under sub-contracting agreements offered by the successful bidder.

The CMA also said that sometimes companies collude with rivals to "submit inflated prices for the job so that another (often pre-arranged) bid from another company looks much better value". That practice is known as cover pricing.

McKee said there are steps procurers can take to prevent the risks of anti-competitive behaviour.

“Procurers can look for suspicious bidding patterns and inform suppliers that they conduct such searches,” she said. “They can also consider requiring bidders to sign non-collusion clauses that give them the right to disqualify bidders where bid-rigging is identified, and procurers can also look to share their experiences with other public sector procurers to raise their awareness of common practices and help identify collusion.”

Copyright © 2016, Out-Law.com

Out-Law.com is part of international law firm Pinsent Masons.


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