Many public and private companies rely on competitive bidding for the best goods and services at the lowest rates; however competitive bidders have found a way to infiltrate this system to suppress the free market.  One way competitive bidders can beat the system is through bid rigging. This occurs when competitive bidders conspire with each other beforehand, on how and who will win the bid.  The concept of ‘bid rigging’ may award a bidder the contract, but it is an illegal business process and the colluding bidders could face serious criminal felony charges, if discovered. 

Common Types of Bid Rigging Schemes:

  • Bid Rotation: Taking turns being the lowest bidder
  • Bid Suppression: Refraining from a bidding round
  • Complementary Bidding: Offering unacceptable bids which are priced too high or have too many terms
  • Subcontracting: Subcontracting part of the contract to the losing bidders
  •  Joint Venture: Forming a joint venture to submit a single bid
  • Market Division:  Dividing markets among colluding competitors

Bid rigging is certainly not a new concept.  In fact, as early as 1890, the Sherman Act was created to make bid rigging illegal.  The Sherman Act “prohibits any agreement among competitors to fix prices, rig bids or engage in other anticompetitive activity”.[i]  According to the US Justice Department, “Violation of the Sherman Act is a felony punishable by a fine of up to $100 million for corporations and a fine of up to $1 million for an individual and/or a maximum 10 year imprisonment”.[ii]

Bid rigging has affected almost every industry and will continue to do so. But today, the wiser and more aware business leaders are to bid rigging schemes, the more likely they are to detect such schemes. 

Here are sample of actual bid rigging schemes:

  1. A recent conviction in June 2017 involved three men who were convicted of conspiracy for rigging bids at a real estate auction held in California to grab hundreds of foreclosed properties during the housing crisis.  They colluded with each other to suppress the bid prices on foreclosed homes and then held a private auction to decide who would get the foreclosed property.  They also paid off those who agreed not to compete with their bids. [iii] (Read full article through the link below)
  2. A conviction in 2016 involved a local development corporation in which four men beat the system by unlawfully diverting tens of millions of dollars of Monroe County contracts towards companies that they created.[iv] (Read full article through the link below)

To avoid these clever bid rigging schemes many business owners and senior leaders hire third-party advisors or certified fraud examiners to monitor the competitive bidding process for them which results in filtering the bids of possible fraudsters. 

Remember: Today’s fraudsters are wiser and are continually looking for new creative ways to ‘beat the free market system’. 

For more information on bid rigging and third-party monitoring, please call the Sobel & Co.’s Forensic Accounting and Litigation Support Team for more information 973-994-9494.