Bid Rigging and Collusion in
Government Contracts.
Avon Thompson, CPPO, CPPB, MPA
Procurement Manager, GDEcD
Quote of the Day
“There is no kind of dishonesty into which
otherwise good people more easily and
frequently fall than that of defrauding the
government.”
Benjamin Franklin
Agenda & Discussion
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History of Collusion.
What is Collusion & Bid Rigging?
Types of Collusion.
Detection of Collusion & Bid Rigging.
What can be Done?
Referencing and Sourcing.
History of Collusion
 The Sherman Act enacted in 1890, prohibits
contracts and conspiracies in restraint of
trade, conspiracies to monopolize trade, and
attempts to monopolize. The Act makes illegal
price fixing, bid rigging, territorial market
allocation and boycotts, and some types of
tying arrangements or any other
anticompetitive activity.
Sherman Act Penalties
 Fine up to
$10,000,000 for
corporations.
 Fine up to $350,000
and/or 3 years in
prison for individuals.
 Responsible for
restitution to victims.
 Possible civil suits for
up to 3x the amount of
damages suffered.
The Clayton Antitrust Act
 The Clayton Antitrust Act of 1914 prohibits
price discrimination and also precludes tying
arrangements, certain mergers, and
interlocking directorates between competing
companies. It also prohibits certain exclusive
deals and refusals to deal where their effect
would be to substantially lessen competition or
monopolize interstate commerce.
The Robinson Patman Price
Discrimination Act
 The Robinson Patman Price Discrimination
Act of 1936 deals with price discrimination.
It grew out of practices in which chain
stores were allowed to purchase goods at
lower prices than other retailers.
History of Collusion and Legal Means
 The Federal
Antitrust Division
(of the DOJ) has
successfully prosecuted
regional, national, and
international
conspiracies affecting
procurement practices.
What is Collusion?
 Collusion by
definition is an
illegal, secret
agreement between
two or more parties
for a fraudulent or
wrongful purpose.
Price Fixing
 Price Fixing is an
agreement among
competitors to raise, fix,
or otherwise maintain
the price at which their
goods or services are
sold. This does not
mean that competitors
agree to charge the
same price. And not all
competitors have to be
amongst the conspiracy.
Examples of Price Fixing
Establishing or adhering to price discounts.
Holding prices firm.
Eliminating or reducing discounts.
Adopting a standard formula for computing
prices.
 Maintaining a certain price differential
between different types, sizes, or quantities of
products.
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Examples of Price Fixing
 Adhering to a minimum fee or price schedule.
 Fixing credit terms.
 Not advertising prices.
Bid Rigging
 Bid Rigging occurs when conspiring
competitors agree in advance as to who will
win the bid for a contract, with the contract
being let through the normal competitive
bidding process.
Bid Rigging
 Bid Rigging typically is one of 4 forms.
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Bid Suppression.
Complementary Bidding.
Bid Rotation.
Subcontracting.
Bid Suppression
 When one or more contractors, who typically
would be expected to bid, agree to refrain from
bidding or withdraw a previously submitted
bid so that another contractors bid will be
accepted.
Complementary Bidding
 This is a form of bidding, where similar to Bid
Suppression there is a predetermined winning
contractor, but in this case, the competing
contractors submit bids that are too high or
where they violate special terms of the
contract and are therefore not accepted.
Bid Rotation
 All conspirators take turns being the winning
bidder. The terms of the rotation may vary
depending on agreement.
 “Defies the law of chance”
Subcontracting
 This occurs when one party gets awarded a
contract and then awards subcontracts to the
conspiracy members in exchange for not
submitting a winning bid.
Market Division
 When competitors
allocate certain
customers,
products, or
territories amongst
themselves.
 (X, can sell to Y, as
long as they don’t
sell to Z)
Detecting Collusion
 Collusion is difficult to detect as it is done in
secrecy.
 Indicators of collusion:
 Suspicious bidding patterns.
 Suspicious pricing patterns.
 Suspicious statements or behaviors.
Suspicious Bids
 The same competitor always wins the contract,
especially when there are the same
competitors placing bids.
 The same competitors submit bids and they
seem to take turns winning.
 Some bids are unnecessarily higher.
 Fewer than normal number of competitive
bids.
Suspicious Bids
 A company appears to bid substantially higher
on some bids than others, with no apparent
reason.
 Bid prices drop when a new or infrequent
bidder submits a bid.
 Successful bidder subcontracts work, to
competitors that submitted unsuccessful bids.
Suspicious Bids
 A company withdraws its successful bid
and subsequently is subcontracted by
the winning bidder.
Suspicious Prices
 Identical prices may indicate a price-fixing
conspiracy, when:
 Prices stay identical for long periods of time.
 Prices previously were different.
 Price increases do not appear to be relative to
increased costs.
Suspicious Prices
 When discounts are eliminated, especially
when they historically have been given.
 Vendors charge higher prices to local
customers than to distant customers. (This
indicates possible local price fixing).
Suspicious Statements/Behaviors
 Irregularities in bids indicate that both parties
combined efforts on bids.
 Similar handwriting, type, or stationary.
 Bid documents contain last minute price
alterations.
 White out or physical alterations.
 One person submits bid for two parties.
 Submitting a bid when they are incapable of
performing the contract.
Suspicious Statements/Behaviors
 A company brings multiple bids to an opening
and submits a particular bid based on who else
is submitting bids.
 A bidder, or person, makes a suspicious
statement indicating some acknowledgement
of a conspiracy.
Suspicious Statements/Behaviors
 While these are indicators of possible
collusion, they are not proof of collusion. They
may choose to do certain things for their own
business use, and only does it become illegal if
and when an agreement is made between
competitors.
What can be done?
 Computer system to detect collusion.
 Strengthen estimating techniques.
 States should conduct periodic Antitrust Audit
to look for evidence of Collusion and/or Bid
Rigging.
 Engineers estimate must remain confidential.
 States should continue to find improved
methods of cost estimation.
What can be done?
 Bidders list must be confidential on project by
project basis.
 Bid depositories must be located on State
Property.
 Department should continue to encourage
competitive bidding and more responsive bids.
 Advertise pre-bid conferences.
 Increase number of pre-qualified bidders.
 Structuring of contracts.
What can be done?
 Ensure purchasing department employees are
familiar with indicators of bid rigging.
 Know and understand the dynamics of the
markets in which you make purchases.
 Ask questions:
 If the bids or prices don’t make sense, ask why
this is. You may find a reasonable explanation
or your suspicions may be increased.
What can be done?
 The most important part of a fraud investigation
is documentation. It is vital that the Agency be
proactive in its approach. Information should be
collected on an on-going basis and should be
dynamic in nature. The day that a contractor is
suspected of collusive activity is not the day to
begin gathering information; the Agency should
already have an extensive amount of information
about, and related to, that (and every) contractor
and their bidding, contracting, financial, and
professional history.
What can be done?
 If inappropriate activity is suspected, contact:
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Supervisor.
Division Engineer.
Chief Engineer’s Office.
Antitrust Unit (in-house).
Attorney General’s Office.
USDOT.
New Case Unit of Department of Justice, Antitrust
Division.
Example of Bid Rigging
Important Case
Case involving the office of Mental
Retardation and Developmental Disabilities
and New York Developmental Disabilities
Services Office (DDSO) - (2007) for the
State of New York.
Resources
 Antitrust Organization
http://www.antitrust.org/
 Excluded Parties List http://www.epls.gov/
 Department of Justice http://www.usdoj.gov/
 FHWA Notices
http://www.fhwa.dot.gov/legsregs/directives/
notices.htm
Resources
 USAID: Office of the Inspector General
http://www.usaid.gov.oig/pressreleases.htm
 USAID: Office of the Inspector General “Office
of the Inspector General Investigations: Fraud
Indicators”
http://www.usaid.gov/oig/hotline/fraudaware
ness_handbook_052201.PDF
Resources
 FHWA Contract Administration Core
Curriculum Participants Manual and
Reference Guide
http://www.fhwa.dot.gov/infrastructure/prog
admin/contracts/coretoc.htm
References
 Price Fixing & Bid Rigging – They Happen:
What they are and what to look for; An
antitrust primer for procurement
professionals. Department of Justice
 The Ethics of Preparing, Awarding and
Administering Department of Transportation
Contracts. North Carolina DOT. Steven D.
DeWitt, PE
 FHWA Contract Administration Core
Curriculum Participant’s Manual and
Reference Guide