During the first half of 2022 The Commission for Protection of Competition of the Republic of Serbia ("Commission") has been very proactive with respect to prevention of competition infringements. As a result of these efforts, in May the Commission also adopted a new Instruction for detecting bid rigging in public procurement procedures ("Instruction") thereby updating the older version of the Instruction from 2011.
The Instruction aims to prevent bid rigging by helping market participants recognize bid rigging, encouraging market participants to report potential bid rigging and advising market participants on how to reduce the risk of bid rigging in public procurement procedures. The Instruction relies heavily on the ОECD’s Guidelines for fighting bid rigging in public procurement.
Bid rigging is one of the most flagrant violations of competition law which occurs when competing market participants secretly and jointly coordinate their actions in public procurement procedures. It can take different forms, most commonly manifesting in an agreement of the bidders on who would be the tender winner. Bid rigging deals however do not have to be made in a specific form to represent competition infringements – bid rigging may stem from an oral agreement, from informal contacts or information exchange between competitors too.
To achieve their plans, bidders may agree to take turns in submitting the lowest bid, they may choose participants who will not submit the bid at all or will intentionally submit an uncompetitive bid, etc. The effects of bid rigging are harmful both to the contracting entity and to final consumers as they result in higher prices and lower quality of products or services. Rigging of bids is also detrimental to the public budget and in turn harms all taxpayers.
Sanctions for bid rigging can be very radical. Competition law rules allow for fines in the amount of up to 10% of the total annual revenue the infringing party generated in Serbia, as well as a prohibition to participate in public procurements for two years. Bid rigging is also a criminal offence.
Bid rigging is very high on the Commission’s list of enforcement priorities. Together with resale price maintenance cases, bid rigging is the most common type of restrictive agreement investigated by the Commission. Complaints that trigger the opening of investigations by the Commissions often come directly from the contracting entities that are, by the looks of it, well equipped to recognize the rigging, especially when it takes some of the less sophisticated forms.
One of the Commission’s most notable bid rigging case involved eight participants, including Konica Minolta and Birotehnika and lead to fines of a total of around EUR 500,000, ranging from 3.21% to 7.55% of the annual turnover of the parties. The parties coordinated their participation in public and private procurement procedures for office equipment and provision of office machine repairs with the goal of Konica Minolta’s equipment always winning the bid. To do this, they typically used the bid suppression strategy whereby some of the parties refrained from bidding or withdrew their bids to make Konica Minolta’s bid the winning one. This case was triggered by the first leniency application in a cartel case – the bid rigging scheme was made known to the Commission by Birotehnika for which Birotehnika received a full immunity from the fine.
With the improved Instruction, an uptick of bid rigging related complaints and investigations could be expected in the upcoming period.
Strategies for bid rigging are numerous and are often developed in a subtle way to make the contracting entities believe that it is really purchasing the products/services at the lowest price. These strategies usually also uncover the motives behind the competitors’ willingness to take part in bid rigging – they involve mechanisms which guarantee that non-winning bidders also profit from the scheme. For example, competitors who agree not to bid or to submit a losing bid may be selected as the winning bidder’s subcontractor, splitting the profit made from the selected bid.
Some of the most common techniques of bid rigging are the following:
During the previous years, the Commission has concluded that certain industries are more likely to be exposed to bid rigging due to their characteristics. Having this in mind, contracting entities active on markets with the following features should be wary of an increased risk of potential bid rigging:
The aforementioned indicators serve only as a first step in helping identify potential bid rigging. Therefore, in the Instruction the Commission has also listed concrete practices which represent signs of probable bid rigging. These practices have to do with (1) unusual activities during a public procurement, (2) suspicious documents, (3) suspicious prices, (4) suspicious statements and (5) suspicious behaviour. The Commission has instructed contracting entities to notify the Commission whenever they notice the following odd patterns.
In addition to this, identical prices are especially alarming in the following cases:
In order to promote fruitful and competition-oriented public procurement, the Instruction also contains a number of Commission’s suggestions aimed at contracting entities for designing public procurement procedures that alleviate the risk of bid rigging. The most important and interesting ones are listed below.
First and foremost, contracting entities should be well informed on the types of products/services available on the relevant market and potential suppliers (ie, bidders) before designing public procurement procedures. They should be familiar with prices and recent changes of prices, characteristics of the market, previous similar public procurements, etc.
Contracting entities should tend to organize the tender in a way that attracts as much bidders as possible. Small number of bidders means that there is a higher chance of competitors making a bid-rigging deal. To make this happen, they should not set up strict limitations and requirements for taking part in the tender. Instead, they should lower the costs of bid preparation and, if possible, let smaller companies compete for some parts of the contract too.
Contracting entities should explain in detail what they aim to get from the public procurement and should define the conditions and requirements for participation as clearly as possible. The reason is that the Commission concluded that detailed requirements and explanations make public procurements seem more legitimate and attractive to potential bidders.
The criteria for evaluating and awarding the contract should also be defined in a clear and careful way. This has a positive effect on intensity and efficiency of competition and it attracts credible bidders.
Contracting entities should also aim to reduce communication among bidders. In this respect, they should have meetings with potential bidders separately and use electronic bidding instead of in-person bid submission. When publishing tender results, contracting entities should carefully consider which information is published and should avoid disclosing competitively sensitive information as this can aid the conclusion of bid-rigging agreements in the future. In addition, contracting entities should be wary when engaging consultants to conduct a public procurement procedure, as they may have established working relationships with some of the other bidders.
Last but not the least, contracting entities should raise awareness among employees about the risks of bid rigging. This can be done by implementing a regular training program on bid rigging and cartel detection, appointing a person responsible for receiving complaints regarding public procurement procedures, establishing internal procedures that encourage or require officials to report suspicious statements and behaviour to the Commission, etc.
The Instruction’s primary function is to assist contracting entities recognize bid rigging and flag any suspicious behaviour to the Commission, but bidders should also pay careful attention to them.
Companies that take part in public tenders should be wary of the types of behaviour and practices that may be suspicious to contracting entities and should aim to avoid them as even the behaviour that is in essence benign can prima facie raise concerns and lead to scrutiny of the authorities. This is especially important in case of contacts with other bidders or discussions on bid related information.
Companies can also use the Instruction to educate their employees and encourage them to learn more about the risks of bid rigging, its typical forms, indicators, etc, as part of internal compliance processes.