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Forms of Collective Tendering

This week’s article is about Collective tendering. It highlights how business’s are expected to compete but choose to secretly conspire to lower prices in tendering process which is illegal under
20 Jun 2016 10:30
Forms of Collective Tendering
Collective Tendering

This week’s article is about Collective tendering. It highlights how business’s are expected to compete but choose to secretly conspire to lower prices in tendering process which is illegal under Commerce Commission Decree(2010).

 

What is Collective Tendering?

Collective tendering (or Bid rigging) under the Commerce Commission Decree 2010 (CCD2010) is referred to businesses that are expected to compete but choose to either collude or secretly conspire to raise or lower prices in a tender bidding process.

Public and private organizations often rely upon a competitive bidding process to achieve better value for money.

Low prices or better products are desirable because they result in resources either being saved or freed up for use on other goods and services.

Having a genuine competitive tender process can achieve lower prices or better quality and promote business innovation.

Bid rigging can be particularly harmful if it affects public supply of goods and services. Such act of illegal collective planning feeds from purchasers and taxpayers, weaken public confidence in the competitive process, and lower the benefits of a competitive marketplace.

 

Forms of Collective Tendering

Bid-rigging conspiracies can take many forms, all of which has the potential to obstruct the efforts of crucial purchasers like national and local governments to obtain goods and services at the lowest possible price. In such conspiracies, often competitors agree in advance on who will submit the winning bid on a contract to be awarded through a competitive bidding process. A common objective of a bid-rigging conspiracy is to increase the amount of the winning bid to increase the chances of winning the tender. In turn, such schemes often include arrangements to share the benefit amongst the conspirators.

For example, some of the conspirators may receive subcontracts or supply contracts from the winning colleague as their share of the illegally obtained winnings.

Even though bid-rigging schemes can be implemented in a variety of ways, they typically have one or more common strategies. Some bid rigging schemes are as follows:

 

  • Cover Bidding: This is the most common form of bid-rigging schemes practiced today.

It occurs when individuals or firms agree to submit bids in at least one of the following ways:

o             a competitor agrees to submit a bid that is higher than the bid of the designated winner,

o             a competitor submits a bid that is known to be too high to be accepted, or

o             a competitor submits a bid that contains special terms that are known to be unacceptable to the purchaser. Cover bidding is designed to give the appearance of genuine competition to cover for the designated winner.

  • Bid Suppression: These schemes involve agreements among competitors in which one or more companies agree not to bid or to withdraw a previously submitted bid so that the designated winner’s bid will be accepted. In essence, this means that a company does not submit a bid for final consideration.
  • Bid Rotation: In bid-rotation schemes, conspiring firms continue to bid, but they agree to take turns being the winning (i.e., lowest qualifying) bidder.

The way in which bid-rotation agreements are implemented can vary. For example, conspirators might choose to allocate approximately equal monetary values from a certain group of contracts to each firm or to allocate volumes that correspond to the size of each company.

 

  • Market Allocation: Competitors carve up the market and agree to allocate customers or certain geographic areas to each firm.

The other members will not competitively bid on contracts offered by a certain class of potential customers which are allocated to a specific firm.

In return, that competitor will not competitively bid to a designated group of customers allocated to other firms in the agreement.

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