If you own or manage a company that provides the same services as many other companies, how do you remain competitive?
How do you deal with your competitors?
At times you may wish or choose to collude with your competitors; to agree beforehand with them who will win a bid.
By doing so, you can save a lot of money in the long run. You don’t have to put your best foot forward. You just have to agree with the other companies to put in the specified bid and wait your turn to collect.
However, this practice is illegal, and it’s called bid rigging.
The U.S. government is cracking down on this practice in government contracts, outlawed by antitrust laws, after an incident in South Korea involving three companies who were providing fuel for the U.S. military in that country.
The U.S. government, the customer, was the victim. For that reason – consumers being the victims – bid rigging is considered one of the most severe antitrust violations.
In addition, the other reason is that practices like bid rigging erode the free market.
What Is Bid Rigging?
In its simplest form, bid rigging is the practice of competitors agreeing to choose a bid winner and others agree to submit non-competitive bids.
The reason this practice is illegal is that the price ends up being higher than if the companies competed for business. It ends up costing consumers and taxpayers more.
The Many Forms of Bid Rigging
According the U.S. Federal Trade Commission, bid rigging can take a number of different forms and generally fall into the following categories.
Companies can engage in rigging bids by taking turns being a low bidder. This is called bid rotation.
A company may also participate in this practice by not submitting a bid or by submitting a low bid in an attempt to manipulate the bidding process. This is called bid suppression.
Complementary bidding is when companies selected to “lose” the bid put in uncompetitive bids. It’s also called “courtesy bidding” or “cover bidding.”
There may be a conspiracy between two or more companies to use a competing company as a subcontractor when the other company wins the bid.
Companies may also form a joint venture to submit a single bid that would be higher than if they combined resources.
Phantom bidding happens in auctions when fake bids are submitted to drive up the bids.
Buyback bidding happens when a seller buys an auction item to prevent it from being sold at too low of a price.
You can find bid rigging in any place bids are made:
- auctions for homes or cars,
- in government procurement contracts,
- construction projects,
- or any business that enters a bidding process to make sales.
Penalties for Bid Rigging
Bid rigging is a felony in the United States under the Sherman Act. It can result in fines, jail time, or both.
Bid rigging is also subject to civil litigation. If you are caught, you can receive even more severe monetary liabilities.
Contact Michigan Antitrust Attorney, David J. Kramer
You can’t engage in bid rigging by accident. It’s a secret agreement between competing forces. It is a serious matter if you are facing charges. You need to contact an aggressive defense attorney right away.
David J. Kramer has been serving Michigan since 1992. His experience in both state and federal courts levels the playing field. Please reach out today.