"Bid-rigging" – also known as collusive tendering – is regarded as among the most serious infringements of competition and antitrust law by competition authorities and courts worldwide. In the past few months alone, action has been taken against bid-rigging in Australia, Canada, the Czech Republic, Italy, South Africa and the United Kingdom.
Indeed, the only successful criminal prosecution ever to have been made under Britain's criminal cartel offence related to bid-rigging1. The bid-rigging in that case related to the supply of "marine hoses", which are used in the oil sector for transporting oil between tankers at sea and storage facilities.
What is bid-rigging? And what is so bad about it? The answer to these questions reveals something fundamental about the essence of competition law, and its primary concerns.
Bid-rigging arises where a customer, procuring goods or services, proposes to award the contract for those goods or services on a basis of a competitive tender. The competitive tender might be necessitated by laws requiring competitive tendering (e.g. the European Union's legislation on public procurement), or simply motivated by the desire of the customer to obtain the best value for money. Contracts typically put out for competitive tender include building works, especially on significant civil engineering projects, outsourced IT services, catering, cleaning, and so on. Customers are typically large organisations – and are often central or local governmental bodies, for whom the competitive tender is run to ensure that tax payers enjoy the best value for money.
Bid-rigging arises when some or all of the bidders in a competitive tender attempt to frustrate the purpose of the competitive tender by limiting the degree of competition in it. They might, for example, agree between themselves not to submit tenders below a certain price; or inform each other of the prices at which they intend to submit tenders; or engage in "market sharing" by agreeing which of them will submit "winning" (i.e. competitively-priced) tenders for particular contracts, so that the range of contracts over a period is effectively carved up between them.
Recent action against bid-rigging
It is indicative of the seriousness with which bid-rigging is viewed under competition law that, even in the past few months alone, there have been cases of action being taken against bid-rigging by authorities and courts across the world.
- Czech Republic: The regional court of Brno issued a judgment upholding fines that had been imposed by the Czech Competition Authority on five companies who had participated in a bid-rigging arrangement. The total fines amounted to 4.9 million Czech koruna (about £160,000, or €190,000, or US $250,000). The five companies had coordinated their conduct in public tenders for contracts to be awarded by the Czech defence ministry, by agreeing on the bidding price that they each offered.
- South Africa: 15 major construction companies were investigated by South Africa's Competition Commission for collusive tendering. In settlement agreements before the Competition Tribunal, the 15 companies admitted their illegal conduct, and agreed to pay substantial fines – for example, Basil Read agreed to pay a fine of 94 million rand (about £6 million, or US $9.3 million, or €7 million). That is by no means the end of the companies' exposure: there have been numerous indications from customers, including governmental bodies, that they intend to pursue civil damages against the companies concerned.
- Italy: In June 2013, Italy's competition authority launched an investigation against six companies active in the sewage disposal sector in northern Italy. The authority alleges that the companies engaged in bid-rigging by agreeing not to compete for various tender procedures in sewage disposal, allocating between themselves tenders in the Lombardy and Piedmont regions of northern Italy by way of (i) agreeing to abstain from taking part in specific tenders, (ii) submitting identical economic bids in tenders and (iii) competitors submitting joint tenders2.
- Canada: In July 2013, Canada's Competition Bureau announced that the Japanese bearings manufacturer, JTEKT, had pleaded guilty to two counts of bid-rigging under Canada's Competition Act. The evidence showed that JTEKT secretly conspired with another Japanese bearings manufacturer to submit bids or tenders in response to requests by the car manufacturer Toyota for quotations for the supply of wheel hub unit bearings for cars. JTEKT was fined Can $5 million by the Superior Court of Québec3(about US $4.9 million, or £3.1 million, or €3.6 million).
- United Kingdom: In July 2013, the OFT (Office of Fair Trading, the UK's principal competition enforcement authority) announced that it had sent a "Statement of Objections" – i.e. a provisional infringement finding – to four suppliers of access control and alarm systems for retirement homes. The allegation is that one of the companies entered into separate bid-rigging arrangements with each of the others, allegedly sharing confidential pricing information with the aim that they would submit higher bids4.
- Australia: In April 2013, the Australian Federal Court awarded damages of Aus $22.4 million (about £12.9 million, or US $20.3 million, or €15.2 million) for the victims of bid-rigging, in the Bradken case5. What marks the case out is that the collusive bidding related not to the supply of goods or services – but, rather, to a competitive bid for the acquisition of a company. Even in this context, bid-rigging is, it appears, regarded extremely seriously. (The case is considered in more detail elsewhere in this issue – see the article on "Competition in the market for corporate control".)
So why the concern about bid-rigging?
When the European Commission investigated the bid-rigging arrangements in the "marine hoses" sector (see above), its decision finding that five companies in the sector had infringed EU competition law, and imposing on them a total of €131.5 million in fines (about £110 million or US $175 million), contained the following explanation of why the bid-rigging was restrictive of competition and, therefore, illegal:
But that – it is respectfully suggested – is not the heart of the matter. For if the competitors had formed a consortium or a joint venture and had jointly bid for the relevant contracts, openly and with the knowledge of the customers conducting the competitive tenders, that would still have involved "eliminating the risks involved in uncoordinated bidding", but it would not have been regarded as such a serious infringement, and possibly would not have been considered to be an infringement at all; such open consortium joint bids by competitors can be exempted from the prohibition on anti-competitive agreements. As one of the leading text books on EU competition law notes:
This point – whether the cooperation was done "openly" or secretly, and whether it was made known to the customer or concealed from the customer – is the essence of the matter. Indeed, more generally this is a distinction that reveals much about the concerns of competition and antitrust law – and, in practical terms, highlights some of the areas of greatest risk. Where cooperation between competitors is concealed from the customer, and/or is secret, the risks are greater and the cooperation is more likely to be viewed as a serious infringement of competition law (or as any kind of infringement). This is true of competitors cooperating in tenders – whether through secret bid-rigging or open joint bidding – but it is true in other contexts too:
- Mergers, joint ventures and cooperatives entered into between competitors that are publicly known are not treated as among the most serious infringements, and may be authorised or exempted under competition law (in the case of mergers, often following a process of notification to competition authorities).
- By contrast, cooperation between competitors that is concealed from customers is generally regarded as a serious infringement (a cartel) and as meriting the most serious penalties.
As between these two cases, the effects of the collusion – in terms of "eliminating the risks involved in uncoordinated" conduct on the market – are not substantially different, but the key difference is concealment. The infringement is most serious when the customer is kept in the dark – that is, where the customer is deceived into believing that the providers are competing against each other, when in fact they are colluding.
Strikingly, it is this element – of concealment or deception or conspiracy – that was highlighted in the classic statement about the effects of collusion between competitors by Adam Smith, the father of modern economics, in The Wealth of Nations (1776):
Reflected in new UK criminal cartel legislation
This distinction – between public cooperation and concealed cooperation – has been enshrined most recently in new UK legislation on Britain's criminal offence for cartels. The cartel offence is the only UK legal provision under which anti-competitive conduct that can attract criminal penalties: fines and/or imprisonment for individuals directly involved. The UK's Enterprise Act 2002 first introduced this criminal offence, and specified that the criminal penalties applied to price fixing, output limitation, market sharing and bid-rigging arrangements where the individual acts "dishonestly"9. The "dishonesty" concept aimed at capturing the notion of concealment or conspiracy.
However, after a decade's experience with the legislation, during which very few prosecutions have been attempted, the UK authorities have now formed the view that "dishonesty" was too difficult and nebulous a concept to apply in this context. The legislation has therefore been amended. The "dishonesty" criterion has been removed. In its place, the new Enterprise and Regulatory Reform Act 2013 (which, for this purpose, will come into force in spring 2014) provides that an individual has a complete defence to the cartel offence if, at the time of making the collusive arrangements, the individual
It is also a defence if the collusive arrangements have been disclosed to the customers or the competition authority. It is the secrecy that makes the collusive arrangements criminal in the UK, while disclosure removes criminal liability.
Here, again, is the key point: it is concealment from the customer that makes collusion between competitors particularly offensive (and, in the UK, liable to criminal penalties). That explains the concern with bid-rigging in competitive tenders when it is concealed from the customers (as opposed to joint bidding that is disclosed); it explains what is particularly problematic about secret cartels as opposed to open cooperation; and it explains the UK's new approach to criminalisation of anti-competitive arrangements.
- Professional rules – how safe from competition law in the EU? Antitrust cases in Portugal, Italy and the Czech Republic show that professional rules can be challenged under EU competition law
- Technology: Mobile telecoms M&A – more cases, and more clarity, in Europe
- Technology: Lessons from the ebooks case
- Transport: US antitrust intervention in American Airlines / US Airways aviation merger continues trend of more active merger control policy
- Mergers and acquisitions: How "foreign-to-foreign" mergers can still be blocked by the UK authorities
- Making the merger control process clearer
- Resale price maintenance: Crackdown in East Asia
- Competition in the market for corporate control
- In brief: Legal changes around the competition world
1UK Office of Fair Trading press release
72/08, "Three imprisoned in first OFT criminal prosecution for
bid rigging", June 11, 2008.
2Italian Competition Authority, Case I765, decision of June 11, 2013.
3Canadian Competition Bureau announcement of July 12, 2013.
4UK Office of Fair Trading press release 50/13, "OFT issues Statement of Objections to certain access control and alarm systems companies", July 5, 2013.
5Norcast v Bradken (no 2)  FCA 235.
6European Commission decision, Case COMP/39406 Marine Hoses, January 28, 2009, paragraph 277.
7Bellamy & Child, European Union Law of Competition, seventh edition, edited by Vivien Rose and David Bayley, Oxford University Press, 2013, paragraph 5.092.
8Adam Smith, The Wealth of Nations, Book I, Chapter 10, Part II.
9UK Enterprise Act 2002 section 188.
10UK Enterprise and Regulatory Reform Act 2013 section 47, introducing a new section 188B into the Enterprise Act 2002.
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