Collusive tendering or bid rigging is an illegal activity by which bidders create the illusion of competition while secretly agreeing among themselves which of them will win the tender. By choosing the best price, the purchasers, who are frequently national and local governments, are forced to pay more than they would otherwise pay in conditions of fair competition. Bid rigging is one of the most severe competition law infringements which causes damage to taxpayers given that public procurement participates to a substantial extent in the economy of each country. It typically accounts for 12% of the gross domestic product, which indicates that bid rigging can have a significant impact on the state’s economy. In addition, in a procurement market affected by bid rigging, law-abiding undertakings are often discouraged from participating in public procurement procedures or investing in public sector projects. This is particularly detrimental to small and medium-sized enterprises as undertakings that are just developing their business. Recognizing the necessity to further raise the level of awareness among undertakings in terms of business compliance with current regulations, the Serbian National Competition Authority (“NCA“) adopted new Guidelines for detecting bid rigging in the public procurement procedure (“Guidelines“) on May 18, 2022. The Guidelines were adopted 11 years after the last amendment to the Guidelines on this topic and they should guide undertakings on rigged bids in public procurement procedures. The NCA stated that the reason for the adoption of the Guidelines was that the Public Procurement Act (“PPA”) and the Criminal Code (“CC“) had been amended. The aim of adopting the Guidelines is to prevent and thwart the implementation of “rigged or falsified offers” as the most difficult forms of cartels.
Due to numerous negative effects and significant outflow of budget funds because of bid rigging, every country strives to act preventively, but also repressively on this phenomenon. The Serbian Competition Act considers bid rigging as a restrictive agreement for which the NCA may impose a fine of up to 10% of the participants’ total annual income. Also, the NCA may impose a fine prohibiting participation in the public procurement procedure for up to two years according to the PPA. It is worth noting that bid rigging is a subject of criminal protection as well. Namely, the CC provides two criminal offenses (i) Abuse Concerning Public Procurement and (ii) Conclusion of a Restrictive Agreement, both punishable by imprisonment from six months to five years.
Despite the existence of adequate legal protection in domestic legislation, illegal agreements between undertakings are exceedingly difficult to detect, as they are generally conducted in a very careful and sophisticated manner. Undertakings who participate in bid rigging, make higher profits without much difficulty, and therefore make special efforts to maintain the secrecy of such agreements.
Participants can agree to implement different strategies. It is common to apply one strategy, but the application of several complementary strategies is also possible as different strategies are not mutually exclusive.
The following behaviours are the most typical in practice:
Although bid rigging schemes may occur in any economic sector, there are some sectors in which it is more likely to occur due to features of the industry or the product involved.
The most frequent indicators of bid rigging are:
The public procurement procedure itself requires certain activities to reduce the risk of bid rigging. First, it is very important to collect information on the types of products/services on the market as well as on the purchasers of these products, i.e., the providers of these services. The collection of information needs to be done in a timely manner before initiating the public procurement procedure.
The next activity that needs to be conducted is to design the public procurement procedure in such a way as to increase the number of potential reliable bidders. It should be emphasized that there are several factors that should be considered to achieve the goal of strengthening competition, which is given in more detail in the Guidelines.
In addition to the above activities, it is important to clearly define the criteria and conditions of the public procurement procedure, all to avoid predictability. Conditions should be comprehensive, but not discriminatory. The clearer the conditions, the easier it will be for potential bidders to understand them and thus submit bids with more confidence.
Authors: Milica Novaković, Vuk Leković, Vasilije Bošković, Nikola Ivković
