Bid-rigging: Stealing from everyone’s pockets

What happens if we uncover that two companies have pre-arranged the price at which they will offer their products in a public procurement tender? Or if they agree to split the price differences, where one company acts as a cover for the other? What if they decide one company will refrain from bidding but will later act as a subcontractor for the winner?

Bid rigging in public procurement is a form of cartel agreement and represents a serious violation of competition law that is difficult to detect and prosecute. In its “Guidelines for combating bid rigging in public procurement procedures”[1], the Commission for Protection of Competition (CPC) defines bid rigging as “private restrictions on competition (that) … are present whenever companies, expected to compete for the award of a specific contract, agree to offer higher prices or lower quality of goods or services subject to the public procurement, to limit their supply, or to allocate contracts among themselves, thereby preventing, restricting, or distorting competition during the procurement process.”

Bid rigging is illegal and is sanctioned as a violation of competition law. Specifically, it is considered cartel behavior under the Competition Protection Act. The CPC guidelines identify the following forms of bid rigging:

cover bids – agreements where predetermined winning bids are submitted alongside deliberately uncompetitive ones to create the illusion of competition.
bid abstention – agreements where certain participants refrain from bidding in exchange for other compensations, such as future contracts.
bid rotation – an an agreement among participants to take turns winning a specific group of public procurement contracts, for each individual procedure, they prearrange who will submit the winning bid and who will submit “cover bids.”
subcontracting agreements – competitors agree not to bid or to submit losing bids in exchange for subcontracting work from the winner.
market allocation – agreements to avoid bidding on tenders in specific geographic regions or from specific clients.

In theory and practice, however, there are cases where bid rigging schemes are carried out with the direct involvement of (connected to a bidder or corrupt) public officials from the contracting authorities.

The Competition Protection Commission (CPC) rarely addresses this type of manipulation in public procurement, either due to its low frequency or difficulties in detecting it. Over the past few years, several such cases have been investigated, including:

Wholesale trade of flowers, ornamental plants, and planting materials[2]:
Following a signal from the Gabrovo Municipality, the CPC initiated proceedings against two companies and their shared consultant for forming a cartel to manipulate 22 public procurement contracts for the supply of flowers and ornamental plants. The Commission found a competition law violation, specifically the allocation of contracts, and fined the cartel participants. The proceedings took slightly over three years to conclude.
Integrated urban transport in Veliko Tarnovo Municipality: Construction of a pedestrian overpass on “Magistralna” street [3]:
The managing authority of the “Regions in Growth” operational program signalled the CPC about a suspected cartel between two construction companies participating in the procurement. The authority noted that the two companies used the same design team, submitted proposals with identical technical formats, and listed the same suppliers and material manufacturers. The CPC launched an investigation into the two companies on October 26, 2023. A final decision is still pending.
Supply of army footwear[4]:
In 2020, the Minister of Defense reported a suspected cartel involving several companies in the procurement for army footwear. The signal highlighted that the test results for the models, as recorded in the evaluation protocols, had close values and were conducted by the same conformity assessment bodies at the same time. Visual inspections of the samples submitted by the two participants revealed that they were completely identical. On March 24, 2022, the CPC initiated proceedings against all companies involved in the agreement, but a final decision has not yet been issued.
Energy efficiency and renovation of multifamily residential buildings in Zlatograd[5]:
The CPC received a signal from the Deputy Minister of Regional Development and Public Works, who had been informed by the managing authority of the “Regions in Growth” program. Two of the companies’ offers were identical, submitted by the same individual within a three-minute interval, and contained the same errors. The CPC initiated an investigation into potential violations on September 30, 2021, but no final decision has yet been made.
Energy efficiency and renovation of multifamily residential buildings in Targovishte[6]:
Similar to the Zlatograd case, the mayor of Targovishte Municipality reported suspected cartel activities to the CPC in 2016. The investigation revealed that companies had coordinated their bid prices and allocated projects among themselves. The scope of the investigation was later expanded, uncovering that the collusion extended beyond the specific procurement to other projects funded through the National Energy Efficiency Program. On July 22, 2021, the CPC ruled that the companies had indeed violated competition law and imposed fines on them.

The cases presented show that, although rare and slow, the CPC pursues bid-rigging schemes. What measures should be taken to improve the process of identifying and penalizing the guilty parties?

Firstly, as the CPC has acknowledged, training public procurement authorities to detect and expose the harm caused by bid-rigging is of great importance. The OECD project “Fighting bid rigging in public procurement,” in which the CPC is involved, appears to address these core weaknesses. While the Commission’s guidelines are commendable as academic documents, they largely shift the burden of detecting bid-rigging onto procurement authorities, relegating the potential role of the CPC in this process to the background.

This role could include the creation of an anonymous reporting system that allows for timely investigations of complaints. Active research into and analysis of public procurement practices is also crucial. This could be accomplished using modern technical methods for processing large datasets and information repositories, including artificial intelligence-based approaches. Modern technology makes this feasible, leaving only the organizational capacity in question.

Why not also consider introducing criminal liability for fraud and manipulation of tenders of significant scale—similar to the practices in some European countries?

[1] Adopted by CPC Decision No. 972 of 19 November 2020.

[2] https://reg.cpc.bg/Decision.aspx?DecID=300069070

[3] https://reg.cpc.bg/Dossier.aspx?DossID=300059949

[4] https://reg.cpc.bg/Dossier.aspx?DossID=300057776

[5] https://reg.cpc.bg/Dossier.aspx?DossID=300057297

[6] https://reg.cpc.bg/Dossier.aspx?DossID=300049102

“This article was created as part of the initiative ‘Monitoring the Activities of the CPC in Protecting Free Competition,’ funded by the European Union and the Open Society Institute – Sofia (OSI-Sofia) Foundation. The views and opinions expressed are solely those of the author(s) and do not necessarily reflect those of the European Union, the European Education and Culture Executive Agency (EACEA), or OSI-Sofia. Neither the European Union, EACEA, nor OSI-Sofia can be held responsible for them.”