Bid Rigging

In an ideal free market system, open competition among suppliers ensures that the consumer receives the best quality products for the lowest possible prices. One of America’s most important pieces of economic legislation is the Sherman Antitrust Act. Enacted in 1890, the Sherman Act prevents dishonest pricing and preserves the competitiveness of the free market system. Specifically, this Act prohibits any agreement among competitors to fix prices, rig bids, or engage in other anticompetitive activity^[1].

One form of collusion prohibited by the Sherman Antitrust Act is bid rigging. When business contracts are awarded by soliciting competitive bids, competitors can utilize bid rigging to artificially raise prices^[2]. Bid rigging is most common in markets where there are few sellers, the product produced by competitors is homogeneous, frequent purchases allow competing vendors to become familiar with one another, and/or bidders are congregated in the same building or town. While bid rigging is often difficult to detect, there are certain patterns that can indicate its existence. Suspicious patterns include the same company consistently winning a procurement, the same companies taking turns being the successful bidder, and fewer than the normal number of competitors submitting bids^[3].

Bid rigging, along with other forms of collusion, is a serious crime that can potentially cost companies millions of dollars in fines or land individuals in jail. Persons engaged in colluding may not understand the illegality of their conduct. They may believe it to be an accepted industry practice, or they may believe no harm is occurring. Therefore, companies engaged in procurement bidding must put in place compliance procedures designed to prevent bid rigging and other types of fraud. If bid rigging is suspected, a company must take immediate steps to address the potential legal consequences.

Employers with concerns about bid rigging should contact James Hundley at 703-883-0204.

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[1] See 15 U.S.C. §§ 1 through 38 which prohibit monopolies and combinations in restraint of trade.

[2] “Bid Rigging” Federal Trade Commission. http://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/dealings-competitors/bid-rigging

[3] “Price Fixing, Bid Rigging, and Market Allocation Scheme: What They Are and What to Look For.” Pg. 3-5. http://www.justice.gov/atr/public/guidelines/211578.pdf