Whenever business contracts are awarded by means of soliciting competitive bids, coordination among bidders undermines the bidding process and can be illegal. Bid rigging can take many forms, but one frequent form is when competitors agree in advance which firm will win the bid. For instance, competitors may agree to take turns being the low bidder, or sit out of a bidding round, or provide intentionally high bids to cover up a bid-rigging scheme. Other bid-rigging agreements involve subcontracting part of the main contract to the losing bidders, or forming a joint venture to submit a single bid. Individuals and companies that knowingly enter bid-rigging agreements are routinely investigated by the FBI and other federal law enforcement agencies and can be criminally prosecuted. Potential penalties include lengthy terms of imprisonment (up to ten years) and large fines (up to $1 million for individuals, $100 million for companies, or twice the gain or loss from the offense). Where appropriate, the FTC may also bring a civil enforcement action.
Example: Three school bus companies formed a joint venture to provide transportation services under a single contract with the school district. The joint venture did not involve any beneficial integration of operations that would save money. The FTC found that the joint venture mainly operated to prevent the bus companies from offering competing bids.
Example: A community college was expanding its campus over several years and awarded the construction work via multiple rounds of competitive bids. Three construction companies decided in advance that they would “take turns” winning the business and rotated which company submitted the lowest bid, with the other two companies submitting higher, intentionally losing bids. The Federal Bureau of Investigation investigated, and the Department of Justice prosecuted, this bid-rigging conspiracy.
Are you a procurement officer? The Department of Justice has developed a tip sheet to help you assess suspicious bidding behavior and determine when to notify the government.