BID-RIGGING OR COLLUSIVE BIDDING UNDER THE COMPETITION ACT
The Competition Act, 2002 (‘Act’), ‘bid rigging’ has been defined in the Explanation to Section 3(3) as:
“an agreement, between enterprises or persons referred to in sub-section 3 engaged in identical or similar production or trading of goods or provision of services, which has the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process for bidding.”
Section 3(1) of the Act prohibits and Section 3(2) of the Act makes void all agreements by enterprises or persons in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services which cause or are likely to cause appreciable adverse effect on competition within India. Further, Section 3(3)(d) of the Act uses both expressions viz., ‘bid-rigging’ and ‘collusive bidding’. Both these terms are normally used interchangeably to describe many forms of illegal anti-competition bidding. However, common thread running through these activities is that they involve some kind of agreement or informal arrangement among bidders, which limits competition.
The Act, treats agreement between bidders which result into bid rigging on presumptive rule approach, meaning thereby that once the essential ingredients constituting bid rigging are established there is no further need to launch into an elaborate enquiry to find out impact of such conduct on the market and adverse effect on competition is presumed. In that situation, the burden shifts on the contravening parties to rebut the presumption by showing that their conduct does not result into ‘appreciable adverse effect’ on competition in India.
Collusive bidding or bid rigging may be of different kinds, for instance-
- agreements to submit identical bids;
- agreements as to who shall submit the lowest bid;
- agreements for the submission of cover bids (voluntary inflated bids);
- agreements not to bid against each other, agreements on common norms to calculate prices or terms of bids;
- agreements to squeeze out outside bidders;
- agreements designating bid winners in advance on a rotational basis, or on a geographical or customer allocation basis.
It is to be noted that an ‘agreement’ between ‘competing bidders’ is a sine qua non for establishing contravention of Section 3 of the Act. The term ‘agreement’ has been defined in Section 2(b) as-
“agreement includes any arrangement or understanding or action in concert, –
(i) whether or not, such arrangement or understanding or action is formal or in writing; or
(ii) whether or not, such arrangement or understanding or action is intended to be enforceable by legal proceedings.”
Thus, it is evident that in order to find contravention of Section 3 of the Act, the law does not demand direct evidence of such ‘agreement’ in all cases, and in absence of such direct evidence, existence of circumstantial evidence would suffice to give rise to an inference of an ‘agreement’.
Since, the effective enforcement of the Act, the Competition Commission of India (“CCI”) has decided several cases specifically involving bid-rigging or collusive bidding. In the following paragraphs, we have culled out different factors, based on analysis of these cases, which weigh in the mind of CCI while deciding whether a case for ‘bid-rigging’ or ‘collusive bidding’ has been effectively made out.
- Market Conditions: Significant changes in demand or supply conditions tend to destabilize ongoing bid-rigging agreements but a constant, predictable flow of demand from the public sector tends to increase of collusion. This is a facilitating factor as the suppliers have time and opportunity to work out an arrangement.
- Small number of suppliers: Bid rigging or for that matter any collusive action is more likely to occur in a concentrated market where only a small number of companies supply the goods or services. Also, this situation may arise where a few companies (supplier/service provider) are owned by the same group.
- Few new entrants: When firms are reluctant to enter a market because it is costly, difficult or slow to enter, the existing firms in that market are protected from the competitive pressure of potential new entrants. Chances of collusion are directly proportional to the likelihood of potential entry in any given market.
- Identical products: When the products offered by the companies are identical or very similar, it is easier for them to reach an agreement on a common price structure.
- Repetitive Bidding: Procurement of similar products on a recurring basis increases the chances of collusion. If bidding takes place at frequent intervals, it helps the bidders to allocate contracts among themselves.
- Active Trade Association: Often, competitors meet in a meeting organized under the banner of a trade association and discuss bids/tenders. However, the mere fact that certain parties to the investigation by the CCI are not parties to the trade association is not by itself sufficient to conclude that non-members cannot collude with members of the trade association. Further, common agents to such bidders (members or non-members), clearly support inference of collusive bidding.
- No significant technological changes: Standardized products facilitate firms into reaching an agreement and maintain the agreement over a period of time.
- Few or no substitutes: If there are no or few substitutable products or services available for the product or service that is being purchased, firms intending to rig bids feel more secure, knowing that the purchaser has few, if any, good alternatives and thus their efforts to raise prices are more likely to be successful.
- Meeting of bidders: The fact that most bidders are members of trade association, bidders meet in and around the date of issuance of the tender document, competitors meet in social events to discuss tenders/bids, can also be a strong evidence of collusive bidding or bid rigging.
- Appointment of common agents This is also one of the prime considerations for deciding whether a case for ‘bid-rigging’ is made out.
- Identical bids despite varying cost: Bidders, despite being located in different places and having varied manufacturing and other ancillary (transportation, freight, etc.) costs quote identical rates across the length and breadth of the country, is a definite sign of collusive bidding or bid rigging. In order to come to this definite conclusion, a bid by each bidder in light of its manufacturing and other ancillary (transportation, freight, etc.) costs has to be compared and analysed. Further, submission of identical bids, clearly indicate meeting of minds among bidders, and consequently, mere non-independent action, in the absence of corroborative evidence (like agreement/discussion on bid/tender terms, etc.) to indicate a meeting of minds cannot be held to be collusive behavior.
- Absence of business justification: Further, bids have to be analysed from an economic stand point of the each bidder and an analysis has to be carried out to find out whether there can be any economic/business justification for presenting bids. If, in the presence of varied and wide range of input costs, bids are identical or very similar, it clearly indicates that the bidders have acted in a collusive manner.
- Supply at higher cost: If the tender under investigation is substantially higher than the previous tenders, it can only suggest that there has been definite coordinated behavior among the bidders.
- Escalation of Cost: Bidders, in the absence of specific guidelines, escalate the cost the components to be supplied, thereby hiking the cost of the project. This escalation of cost is considered to be a manifestation of bid rigging.
- Deliberate submission of losing bid: Often, bidders tailor bids in a manner so as to suit the final bidder which the colluding parties want to win. This is done so that the entire bidding process may not be rescinded or to give semblance of a general competitive bidding process to the contract. Such bids are generally in the nature of token bids, either with a view to occasion a sub-contractorship by the winning bidder or to allocate bids under a mutual understanding to share the profit earned jointly out of the contract. Absence of competitive bidding prices or huge difference in the bid rates are indicators of disinterest of other colluding firms in competing for the bid. Such bids are also called ‘complementary’, ‘cover’ or ‘courtesy’ bids.
- Common Errors / Commonality of Mistake: If there is meeting of mind among the bidders, commonality of mistakes or same typographical error by all of them in the bidding documents can be an important indication of rigging the bid.
- Mutual business dealings or nexus between the colluding parties: In a recent case (Case No. 43 of 2010) DG looked into the Profit and Loss Accounts and Balance Sheets of the parties and also numerous financial and business transaction between them as an indication to whether or not there was meeting of mind.
- Collective Actions: Such actions can be for example, collective stoppage of supply or threat to stop supply, similar content of letters of communication, collective boycott of Electronic Reverse Auctions.
Author: Vivek Kumar Verma | Image from here
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 Case No. 3 of 2011, In re: suo-motu case against LPG cylinder manufacturers; Case No. 15 of 2010, Jupiter Gaming Solutions Private Limited v. Government of Goa and Anr.
 Case No. 3 of 2011, In re: suo-motu case against LPG cylinder manufacturers at p. 87
 Ibid. at p. 71, 87
 Ibid. at p. 71
 Ibid. at p. 71-80
 Ibid. at p. 89
 Case No. 15 of 2010, Jupiter Gaming Solutions Private Limited v. Government of Goa and Anr. P. 23 Para 56
 Supra 2 at p. 82-83
 Ibid. at p. 84
 Case No. 43 of 2010 against PES Installations Pvt. Ltd., MDD Medical Systems Pvt Ltd., Medical Products Services, at p.15-16, para 6.26, 6.58, 6.59
 Ibid. at para 6.50
 Ibid. at para 6.53
 Ibid. at para 6.57
 Ibid. at para 6.28. 6.29. 6.30, 6.35, 6.46
 Case No. 06/2011, Para 8.32, 8.34
What are the penalties for being involved in bid rigging exercise because some companies mistakenly or deliberately participate in that case.