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Commerce Commission raises awareness on bid rigging

13 September 2010

The Commerce Commission has produced guidelines to assist purchasers to recognise and combat bid rigging.

Bid rigging is a form of cartel conduct and, as such, is prohibited by the Commerce Act 1986.  Ultimately, of course, it is the purchaser who decides who will win the contract, but competitors can collude to make it much more likely (in some cases virtually certain) that the bidder they select among themselves will be the successful bidder.  This is particularly so in the current environment where lowest price tends to determine selection. 

Thus, for example, a group of potential bidders might agree in advance that:

  • all will submit significantly higher prices than the pre-selected successful bidder (in full knowledge of each other’s pricing)

  • all except one will submit other terms known to be unpalatable to the purchaser, and

  • one or more will withdraw from the tendering process – or not participate at all.

Cartels are notoriously difficult to detect (as the behaviour tends to be secret) so the guidelines attempt to shine a light into the dark corners and highlight activities that may (or may not) indicate that bid rigging has taken place.  The guidelines are careful to emphasise that the suspicious “signs” are not evidence of collusion and that there may be legitimate business reasons for the conduct in question.

The guidelines are largely a matter of common sense and draw extensively on OECD guidelines published in March 2009.

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