A cartel is in many jurisdictions a specific criminal offence and can also give rise to a claim under civil law.  If it is not a specific offence, it will normally constitute fraud.

A cartel is where two or more organisations agree secretly to the prices at which they will sell their products, or as to which of them will win a contract.

The illegal agreement may be oral or written.

A cartel in the infrastructure sector normally constitutes all of:

• a breach of cartel law (if there is such a law)
• fraud on the project owner (as the bidders are fraudulently representing that they are bidding in competition, whereas they have secretly pre-agreed the winner)
• a breach of procurement law (in cases of a public sector project)
• a breach of bid conditions (which normally prohibit cartels).

Types of cartel

There are four main types of cartel relevant to the procurement phase of an infrastructure project:

• Bidding cartel:  The bidders agree in advance as to which of them will win the bid.  The winner as a result can submit a higher price.
• Loser’s fee:  The bidders bid competitively, but agree to include in all of their bids an additional amount.  The winner shares this additional amount between all the losers to compensate them for their bidding costs.
• Price fixing:  Suppliers (e.g. of concrete) agree that they will compete against each other, but will never drop below an agreed price per unit.
• Cover pricing:  A contractor is too busy to undertake a project, but must bid to stay on the relevant client’s future tender list.  It obtains a competitor’s price in advance and puts in a price higher than the competitor so as to lose.