Governance of Bid-rigging in the Bidding Dong-sheng Ni , Xiao-wei Guan

Governance of Bid-rigging in the Bidding
Dong-sheng Ni1, Xiao-wei Guan2
School of Business, BeijingWuziUniversity, Beijing, China
Business management, Beijing Wuzi University, Beijing, China
Abstract-This paper builds the motivation - behavioral
model of bid-rigging to explore the reasons of bid-rigging.
There are mainly four factors – therevenues,
costs,psychodynamic and opportunity of bid-rigging
effecting the motivation which lead to the action. This paper
analyzes the four factors and gives the corresponding
Keywords - Bid-rigging, costs, motivation, opportunity,
psychodynamic, revenues
I. The concept of bid-rigging
In order to be the successful bidder, Bidders either
collude with each other, damaging the interests of project
owners, or Bidders collude with tenders, agency or
evaluation experts, damagingthe interests of other bidders
or the project owners (in essence, national interests). It is
a commonillegally means and behaviors to attempt to be
the successful bidder in the field of bidding [1].
and external environment of stability requirements and
become the sources of the organism activities. Needs
generate an internal driving force and are kinds of internal
stimuli. Incentivesare the external factor of driving the
organism to produce certain behaviors.
The motivation has three functions as follows: Firstly,
the activation function; it can stimulate the organism to
carry out an activity; the organism with some motivation
is very sensitive to certain stimuli, especially for those
closely related to the stimulus and motivation. Thereby it
stimulates the organism to produce a reaction or an
activity. Secondly, guide function; it is guided by certain
goals, so the behavior of the organism will point to its
target in the role of motivation. Thirdly, enhancements,
after the organism carry out an activity, it can maintain
and adjust the intensity and duration of activities .When
the activities point to the target, the motivation of the
organismto be strengthened, and thus the organism will
II. The reasons of Bid-rigging
The reasons of bid-rigging are multiple and
complex.In this paper, because analysis of bid-rigging can
be traced back to the bid-rigging behavior motivation
which are internal incentives of the behavior .This
papernot only considers the intrinsic psychological factors,
but also considers the impact of external factors onthe
motivation of bid-rigging.
A. The motivation of the bid-rigging
So-called "motivation" is to promote the
individualengaging in certain activities, to make the
activities toward the target directionsand the cause of
action to achieve a certain purpose. The motivation is the
individual's internal psychological processes; the behavior
is the outward manifestation of the inner psychological
processes, so the motivation is the direct reason of the
Needsare the internal condition and incentivesare the
external cause in stimulating motivation.
Needsare the unbalanced state of the organic body. They
result in the performance of organisms on the internal
Fig. 1The relationshipbetween
motivation andbehaviors
continue to the activities; On the contrary, when the
activities deviate from the target, the motivation of the
organismis not strengthened, and the positivityof the
individual to continue its activities would be reduced, or
even lead to complete cease of activities.
Opportunity to
of bid-rigging
The motivation
of bid-rigging
The behavior of bid-rigging
Fig. 2 bid-rigging motivation - behavioral model
This article get:“Operation of the business and enterprise
service innovation”piatform support for Beijing Municipal
Commission of Education ; Supported by Beijing Natural
Science Foundation(9123026)
The motivation of bid-rigging is thereason of
bid-rigging and promotes bidders to implement the
behavior. Needs of certain inner causes and external
incentives are important driving forces of bid-rigging.
On the basis of previous research, this paper
buildsbid-rigging motivation - behavioral model [3]to
analyze the factors affecting bidders’ motivation. There
are mainly four factors as shown in Fig.2.
B. bid-rigging motivation - behavioral model
When bidders decide to select the normal bidding or
bid-rigging, they will consider and contrast the costs and
benefits, and then make the appropriate selection. Specific
as shown in Fig 3[4]: The bidders’ decisions diagram.
T—the revenues of being the successful bidder
C—the preparation costs of normal bidding
△C—the implementation costs of bid-rigging
C1—the loss of the punishment being investigated in the
failure of bid-rigging
△C1—the loss of the punishment being investigated in
the successful of bid-rigging - C1
W1—theprobability of winning in normal bidding
W2— the probability of winning in bid-rigging
P—the probability of being investigated after the
successful of the bid-rigging
P1— the probability of being investigated after the failure
of bid-rigging
R1— the revenues of normal bidding
R2— the revenues of bid-rigging
1. The revenues of bid-rigging
Bidders win the bid and gainthe corresponding
benefits by certain means, expressed as T in Fig.3.
Thebidders carry out the bid-rigging in order to increase
Normal bidding
W1 successful
W2 Successful
Not be
P Be
P1 Be
Not be
Fig 3: The bidder's decision diagram.
probability of being the successful bidder so that they
canraise theirbenefits,but they must pay the additional
cost.The revenues of bid-rigging are difference between
the revenues of being the successful bidder and the related
costs to rig-bidding.
2. Thecosts of bid-rigging
There are three kinds of costs in Fig. 3; C is the
prepared costs of normal bidding, as long as bidders take
part in the bidding, this part of the costs will occur. In
order to ensure the smooth progress of bid-rigging,
bidders need to pay additional costs △ C,that is the
implementation costs of bid-rigging .In general, △ C is
much higher than C. Implementing bid-rigging may be
investigated, if a bidder won the bid and were being
investigated ,he would suffer to punishment loss
composed of two parts (C1 + △ C1); if the bidder did
not win the bid, the punishment loss is smaller, containing
only C1 .Hence, (C1 + △C1) is the risk costs of bidders
bearing the mental stress and material losses after they
carrying out bid-rigging .All in all, the costs of
bid-rigging is both the implementation costs and the risk
costs of bid-rigging [5].When the costs of
bid-riggingincrease, the benefits relatively reduce.
When bidders decide to select the normal bidding or
bid-rigging, they will consider the costs and benefits,
specific as follows.By the bidder decision diagram shows:
R1=W1*(T-C) + (1-W1)*(-C)
R2=(1-W2)*[P1*(-C-△C-C1)+(1-P1)*( -C-△C)]+
W2*[P*(-C-△C-C1-△C1)+(1-P)*( T-C-△C)]
= W1*T-C-[ W2*(T-PT-PC1-P△C1)-P1*(1+C1)-(C+
=(W1-W2)*T+W2(PT+PC1+P △ C1)+P1*(1+C1)+
When R1 <0 and R2 <0, the bidders’ benefits are less
than zero .Thatmeans bidders no matter what choice
facing with a loss, so bidders do not join in the bidding.
When R1 <0 and R2> 0, the bidder to select the
normal bidding ,their income is less than zero, and to
choose bid-rigging can get positive income, then he may
choose bid-rigging.
When R1> 0 and R2, <0, the bidder choosing normal
bidding will gain income, and selecting bid-rigging will
gain loss, so he will choose normal bidding.
From R1 = W1 * TC, we can see, when W1 <C / T,
the bidders do not choose to participate in normal bidding.
In practice, the successful bidder gains T is much larger,
while the preparation costs of the normal bidding is
relatively smaller, so when they think the slim hope of the
successful to normal bidding, they will not take part in
bidding or select bid-rigging.
When R1> 0 and R2> 0, a bidder choosing to normal
bidding or bid-rigging will receive revenues. Due to the
"economic man" assumption of rationality, bidders will
choose the larger income items. If △ R <0, the bidders
will choose bid-rigging; if △ R> 0, they will choose
normal bidding.
However, in reality the bidders’ rationality is limited,
and people in determining the income aretend to avoid
risk and in determining the loss is inclined to risk. When
R1> 0, this can be regarded as that bid revenuesare
determined and the risks of bid-rigging are larger. At this
point, the bidder chooses to avoid risk. If the difference
between R1 and R2 is not large, and△ R <0, the bidders
will still choose normal bidding.
In order to make bidders greater possibility to choose
normal bidding ,it needs try to make △ R> 0 or close to
0. △R=(W1-W2)*T+W2*(PT+PC1+P△
Drawn on W1 partial derivatives:
= 𝑇 > 0.
Showing that, increasing the probability of being the
successful bidder to normal bidding will help to curb
Drawn on W2 partial derivatives:
= PT + PC1 + P △ C1-T
Showing that, the results cannot be judged for
positive or negative,there being many factors impacting
on bid-rigging. In order to curb bid-rigging, it is useful to
minimize the probability of the successful bid-rigging.
This meansincreasing the probability of being
investigated after the successful of bid-rigging and the
loss of the punishment being investigated in the
successful of bid-rigging.
Drawn on P partial derivatives:
= 𝑊2 ∗ 𝑇 + 𝑊2 ∗△ 𝐶1 > 0.
We can see, the greater probably bidders are
investigated after the success of bid-rigging, the smaller
possibly they choose bid-rigging.
Drawn on P1 partial derivatives:
= 1 + C1 > 0.
We can see,the greater probably bidders are
investigated after the failure of bid-rigging, the smaller
possibly they choose bid-rigging.Therefore, in practice,
oncethe traces of the implementation of bid-rigging are
found, it should conduct further investigations.
Drawn on C1 and △C1 partial derivatives:
= 𝑊2𝑃 + 𝑃1 > 0 ;
= 𝑊2𝑃 > 0.
We can see,the greater loss of the punishment
bidders are investigated in bid-rigging, the smaller
possibly they choose bid-rigging. Therefore, bidders
found bid-rigging should be severely punished.
Drawn on△C partial derivatives:
= 1 > 0.We can see, the greater implementation
costs of bid-rigging, the smaller possibly they choose
bid-rigging.Therefore, increasing the implementation
costs of bid-rigging is help for decreasing bid-rigging[6].
3. Psychodynamic of bid-rigging
Bid-rigging is a kind of groups’ behavior. So-called
“groups”arethe crowds of some common activities which
istwo or morepersons to achieve common goals in a
certain way. From the definition of bid-rigging, it is easy
to see the bid-rigging crowds in line with the concept of
groups, and thus the bid-rigging groups with the general
characteristics, as follows:
(1) Herd behaviors under groups’ awareness and
Once thebid-rigging groups are formed, the members
of the groups will produce psychological awareness of
group and voluntary action in accordance with the will of
the groups. The awareness ,on one hand ,enable the
individual to reduce the loss of their analytical skills and
understanding; on the other hand, it greatly enhances the
cohesion of the groups, so that groups’ members in a fun,
understanding, values and behaviors produce more and
more unified thinking.Invisible psychological pressure to
the members of the groups, it may impel them
abandoningtheir original understanding and obeying the
groups’ behaviors.
(2) Sympathetic effects of emotional
Sympathetic effect of groups’ emotions is the
transfer of emotions, cross contamination and mutual
influence change the nature of the acts. If bid-rigging
groups are together, a bidder proposed the idea of
bid-rigging, it stirs up the impulse of another, and this
impulse will stimulate the desire of the thirdresult in
further promoting bid-rigging.
(3) Guilt proliferation flu
Guilt proliferation flu is a kind of psychological
feeling brought by many people in bid-rigging groups
sharing the common consequences so that unnecessary to
assume full responsibility. Psychology tends to make the
collusive tendering process. The individual does not bear
a deep sense of guilt, and relieve their inner self-blame.
That means reduce the cost of spirit.
(4) The regression of self-consciousness
Most people in groups often lose self-consciousness.
It is different between in groups and alone in a person's
behavior. Commonly, the greater probably the members
ofgroupslack self-consciousness, the more possibly they
lack sense of responsibility and have greater destructive
4. The opportunity to bid-rigging
The external incentive of bid-rigging motivation is
the conditions in enticing bidders not being found to
complete bid-rigging.
(1) Bidding Law legal system is not perfect
At present, related to the relevant provisions of the
bidding include the "Tendering" "Government
Procurement Law", "Construction Law", the "auction",
"Contract Law", "not anti-competition law" and many
other National bidding and local normative documents[8].
But due to the different introduction’s time and
background of relevant legal and regulatory documents,
the relevant provisions are different and even conflicting.
The provisions of the bid-rigging tend to principles in the
relevant laws and regulations and some concepts are
vague, that means produce loopholes in operation and
provide a platform for some lawbreakers [9].
(2) Supervision system is not perfect
The responsibility of investigating and dealing with
bid-rigging is related to the various departments including
the Business Sector, the Judiciary and Administrative
Departments of various industries, which make their
management practices to different policies.The difference
of relevant provisions, law enforcement scale and
intensity in different department makes the system of
supervision disharmony. What’s more, means of market
surveillance is relatively backward. Although around have
built bidding trading centers or trading center of public
resources and some major projects are also included in the
unified trading in the market, oversight means remains to
be further improved[10][11].
(3) Market credit system is not perfect
Credit is the cornerstone of the market economy. On
one hand, China is in the initial stage of the socialist
market economy. People in their daily lives succumb
easily to "power" and "relationship";On the other hand,
China has not established a unified information platform
and query systemof bidding, so that some speculators in a
place illegal conversion positions again illegal, and not
easy to find. Thus it is difficult to form a situation of "one
illegal, nationwide (all province) limited ".This means the
probability of being successful bidder to normal bidding
is small, but the risk of bid-rigging is small [11].
Ⅲ. Governance of Bid-rigging
From the above all,we learn that the benefits ,costs,
psychodynamic of bid-rigging and the opportunity to
bid-rigging four aspects together effecting the motivation
of bid-rigging, which eventually lead to bid-rigging acts.
For effective management bid-rigging, we can consider
how to reduce the impetus for the motivation of
bid-rigging from the four aspects to reduce bid-rigging.
A. Balance the benefits and costs of bidders
From the above benefits and costs analysis of
bid-rigging we learn that when bidders believe normal
bidding can get income ,they would consider select
normal bidding, but it largely dependson the probability
of winning in normal bidding. Bidders selecting normal
bidding can gain income, only when bid-rigging income
is much larger than former, they will choose it. Therefore,
it is wise to reduce the income of bid-rigging and increase
the costs of bid-rigging byreducing the probability of
successful bid-rigging, increasing the costs of bid-rigging,
raising the probability of being investigated after
bid-rigging and rising up the loss of punishment being
investigated after bid-rigging.
B. Reduce psychological dynamics
The behavior of bid-rigging is a king of groups’
behavior being promoted by the psychological dynamics
of their groups. It is useful to reduce the power of groups’
psychology role for cutting back the probability of
bid-rigging by reducing the bid-rigging groups’
opportunities to contact, shaping just social cultures and
increasing the number of the bidders.
C. Reduce opportunities
It is important to decrease the opportunity to
bid-rigging for cutting back the probability of bid-rigging
by improving the legal system, Supervision system and
Market credit system.
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