Bid Rigging

Tenders work only if each bidder prices independently. In bid rigging, competitors secretly coordinate. Common methods include cover bidding, where a firm submits a deliberately high or unacceptable offer to make the chosen winner look good; bid suppression, where some firms stay out; bid rotation, where firms take turns winning; and market allocation, where they split customers or regions. It is most damaging in public procurement, where it raises costs for taxpayers. Authorities look for warning signs such as the same few firms winning in turn, bids that fall sharply when an outsider enters, or losing bids containing the same mistakes. Bid rigging is a form of cartel conduct. Many countries treat it as a criminal offence. Convicted bidders can also lose the right to tender for public work, a penalty that may cost a contractor more than the fine.

Five contractors regularly bid for a city's road resurfacing contracts. Over three years each wins roughly one contract in five, and the losing bids are always about 10% above the winner's. An auditor notices the pattern, and the competition authority raids the offices and finds messages arranging the rotation.