Bid rigging in the construction industry

Procurement in the construction industry has been rocked by a bid rigging scandal, with ten UK construction firms being fined almost £60m by the Competition and Markets Authority (CMA) for collusion.

The firms involved in the investigation were found to have colluded in order to win contracts, deceiving the customers that they were competitive when that was not the case.

Sadly, this isn’t the first time the CMA has taken action against bid rigging and other forms of anti-competitive behaviour in the sector, but the scale of this scandal is shocking and flags a need for the construction industry to improve its ethical standards.

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What is bid rigging?

Bid rigging is a form of anti-competitive behaviour where contracts or suppliers collude to manipulate the bidding process in order to increase the chances of winning the contract. It typically involves the submission of artificially high bids by some contractors, or the submission of intentionally low bids by others, in order to force the outcome of the tendering process.

Bid rigging can take many forms, such as:

• Bid suppression – where one or more supplier agrees not to submit a bid.
• Bid rotation – where contractors take it in turns to ‘win’ contracts.
• Bid allocation – where contractors divide contracts amongst themselves instead of competing fairly for them.

This unethical practice is detrimental to the construction industry as it can lead to inflated prices, lower quality work and reduced competition. It can also affect the wider economy, as it leads to higher costs for taxpayers and discourages other potential contractors, especially within the local SME sector, from participating in the tendering process.

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On this particular investigation, the CMA found that 19 contracts worth over £150m for demolition work in London, the Southeast and the Midlands were rigged over a five-year period, for organisations such as the Met Police Training College, Bow Street Magistrates Court, Selfridges (London) and Oxford University.

What’s more, five of the firms involved who acted as the ‘losers’ were set to be rewarded by the ‘winners’ by up to £500,000.

The CMA’s Executive Director for Enforcement stated:

“The construction sector is key to our country’s prosperity, so we want to see a competitive marketplace delivering value, innovation and quality. Today’s significant fines show that the CMA continues to crack down on illegal cartel* behaviour. It should serve as a clear warning: the CMA will not tolerate unlawful conduct that weakens competition and keeps prices up at the expense of businesses and taxpayers.”

*A cartel is when rival businesses agree to act together rather than competing. Specific examples of cartel behaviour include price fixing, market sharing and bid rigging.

What action can the construction industry take to avoid bid rigging in the future?

The construction industry needs to take responsibility for addressing the issue of bid rigging and other unethical practices. This requires a cultural shift, with companies needing to prioritise ethical behaviour and transparency over short-term gains. It also requires increased scrutiny from regulators like the CMA, to ensure that anti-competitive practices are identified and punished.

Ultimately, the construction industry has a vital role to play in delivering the infrastructure and buildings that are essential for society. But in order to do so effectively, it must first address the ethical challenges that may be holding it back. The recent fine imposed by the CMA should serve as a wake-up call for the industry and a reminder for organisations planning major construction projects, about the importance of fair and transparent competition.

How can you ensure your bids are not rigged in the future?

Want to make sure your organisation is not a victim of bid rigging in the future? Here are our top tips:

1. Develop clear and transparent tendering processes: Clearly outline the tender process and evaluation criteria in advance and make sure this is shares openly with all potential suppliers. Publish this information on your organisation’s website and make it readily available for any potential bidders.
2. Encourage open competition: Ask as many bidders as possible to participate in the tendering process. This can be done by widely publicising the tender and reaching out to a broad range of potential bidders.
3. Implement measures to detect and prevent bid rigging: You can use a range of tools and techniques to detect and prevent bid rigging, such as analysing bid patterns, conducting audits and spot checks, and asking bidders to disclose any relationships or conflict of interest. The Government provides some helpful tips on their Cheating or Competing
4. Monitor bidding behaviour: Pay close attention to the behaviour of bidders during the tender process. Look out for unusual patterns or trends, such as repeated bids from the same suppliers, or bids that are suspiciously low.
5. Ensure fair evaluation: Make sure the evaluation process is fair and transparent. Establish an independent evaluation panel if needed and ensure that evaluators have no conflicts of interest.
6. Provide anti-bribery or anti-corruption training: Make sure all employees involved in the process are aware of what to look out for, so that they can identify and report and suspicious activity.

If you have any new projects, or major once-in-a-lifetime construction procurements that need additional tendering resources or knowledge, eXceeding can help. Our team of construction-focused procurement can help you analyse the marketplace and select the right contractor, at the right cost, safe in the knowledge that you will not run the risk of bid rigging.

If you’d like to have a chat about your requirements, drop us an email, or give our team a call on 0330 088 1620.