Collusion

 

Collusion occurs where two or more parties co-operate to deceive another party.  These arrangements are often described as a “cartel”, “anti-trust” or “anti-competitive” offence.  It usually occurs in a tender situation.  The client which is calling for bids will be unaware of the collusion between the bidders.  These arrangements normally result in the client paying more than it would have done had there been genuine competition.  These arrangements are a type of fraud, but many countries have criminalised these actions under a separate criminal category.

 

Examples:

 

• Bid-rigging:  Several contractors agree that they will each pretend to compete on all major tenders, but will agree in advance which of them should win each tender.  The contractor which is chosen by the other contractors to win a tender will then notify the others prior to tender submission of its tender price.  The other contractors will then tender at a higher price so as to ensure that the pre-selected contractor wins the tender.  The winning contractor would therefore be able to achieve a higher price than if there had been genuine competition for the project.  If sufficient projects are awarded, each contractor would have an opportunity to be awarded a project at a higher price.

 

• Price fixing:  Suppliers of materials bid against each other on projects, but agree that they will never drop below a pre-agreed price.

 

• Losers’ fee:  It is a condition (express or implied) of a tender that each unsuccessful tendering contractor will bear its own tender costs.  Prior to tender submission, several competing contractors agree that they will each include in their tender price an agreed additional sum of money representing the total estimated tender costs of all the competing contractors.  Whichever contractor is awarded the contract will then divide this sum of money between all the unsuccessful contractors who will thereby recover their tender costs.  The project owner believes that the losing contractors are bearing their own tender costs.  The project owner is therefore unknowingly paying more than it would have done had the unsuccessful contractors borne their own tender costs.

 

• Cover pricing:  Bidders which do not want to win the project (for example, if they have too much work on) may still bid, either to retain the impression of competition, or so as to stay on a government tender list.  However, they will be notified by the bidders who wish to win the contract of their price in advance of the tender, and will bid at a higher price so that they do not win the contract.  This may enable the winning contractor to achieve a higher price if there is no genuine competition.