Avoiding collusion in construction: advice for project directors and managers
Published 26 February 2020
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What you should be alert to
Bid rigging is when suppliers illegally agree amongst themselves who’s going to win a particular bid. They do this to avoid competing to make customers the best offer, at the lowest price.
These agreements can take several forms, such as:
- bid rotation – firms agree to take it in turns to submit the lowest bid
- bid suppression – one or more firms agree not to bid, or to withdraw their bids
- cover pricing – bidders arrange for one or more of them to submit an artificially high bid, distorting the procurer’s impression of the competitive price
Bid rigging is a type of illegal cartel activity. As well as bid rigging, business cartels can also involve other illegal practices such as sharing commercially sensitive information, fixing prices (keeping them artificially high) and dividing up markets with competitors.
Why construction directors, managers and suppliers should care
Bid rigging is illegal and there can be significant financial and personal consequences for breaking the law.
Bid rigging can inflate prices by as much as 30% and reduce quality of service, innovation and productivity. It’s an unfair practice where the end-customer can be tricked into thinking they have been offered a competitive price. In the case of public sector projects, it is the taxpayer who loses out if the bidding process includes artificially inflated bids.
Consequences of breaking the law:
- businesses can be fined up to 10% of their annual worldwide turnover
- company directors can be disqualified from acting as directors or being involved in the management of a company
- in the most serious cases, individuals can face criminal prosecution, resulting in personal fines and even prison
- reputational impact can be negative and long lasting and can potentially harm your chances of winning future contracts, and put you at risk of claims for damages from affected customers
What you can do
Construction suppliers
- ensure you and your employees are clear on competition law and what practices break the rules – directors should lead by example and provide staff training
- have a good internal reporting process in place, so people feel they can speak up if they witness illegal behaviour
- never agree to bid rigging, price fixing, market sharing or sharing competitively sensitive commercial information with rivals
- if you are approached to get involved in anti-competitive behaviour you should clearly and immediately reject the approach, report the incident internally, seek independent legal advice and report to the CMA
Construction project directors & managers
- make clear to suppliers that you are on the lookout for signs of bid rigging, price fixing or market sharing and advise you will bring any suspicions to the CMA’s attention
- we recommend including a link to our ‘Cheating or Competing?’ campaign page and reporting message in your bid documents
- don’t take shortcuts by asking a regular supplier to source the competing bids for a project – this may put you at risk of facilitating anti-competitive conduct
- make any bid qualifications as broad as possible so that they can be met by the widest range of suppliers
- shop around for suppliers when inviting bids
- ask for bids to be broken down into as much detail as possible
- keep records of bids for comparison purposes
- insist that main contractors assign subcontracts through a competitive process
- seek information from bidders about their associated companies and subsidiaries
- obtain a signed declaration of non-collusion from each bidder and make this a term of the contract
- do not arrange meetings to bring together rivals to discuss a tender where you intend to appoint one supplier
- in the case of joint tenders and integrated procurement bids – set clear ground rules at the start of meetings where competing suppliers are present
Construction case studies
Still not sure what anti-competitive behaviour looks like? Visit our construction cartel case studies to learn more about cases we’ve taken action on, and the implications of breaking competition law.
Reporting anti-competitive behaviour
If you think you have been involved in a business cartel, report it to us. You may benefit from immunity from fines and prosecution, especially if you report before others do.
If you think you’ve witnessed others breaking the law and you report it to us, you may qualify for a financial reward.
To learn more and for information on how to report anti-competitive behaviour to us, visit our Cheating or Competing campaigns page.
Always seek independent legal advice if you think you may have broken the law.