Understanding the elements of a submission agreement
The Federal Cartel Office (FCO) has identified several key indicators of bid-rigging in public tenders, aiming to protect the integrity of public procurement. These indicators, recognized in competition policy enforcement, typically include:
- Unusual bidding patterns, such as a rotation of winning bids among a small group of competitors.
- Identical or suspiciously close bid prices, indicating coordination rather than genuine competition.
- Repeated participation of the same companies with no real competition, often showing collusive behavior.
- Bids submitted at unrealistic prices to allow a pre-determined winner.
- Tender specifications favoring a particular bidder, suggesting manipulation in the process.
- Communication or evidence of coordination between bidders, like sharing bid information or agreements not to compete.
In 2011 and 2012, the FCO uncovered a "firefighting cartel" involving leading German fire truck manufacturers. These manufacturers agreed among themselves to allocate sales shares in municipal tenders for firefighting vehicles. When the cartel was exposed, the companies had to pay millions in fines and compensate the affected municipalities.
The FCO benefits from the cooperation of tendering authorities, as they can claim damages from the cartelists if the cartel is exposed. The Cartel Office's checklist includes indicators of potential collusion, such as striking similarities in bidders' offers. The Cartel Watchdogs advise paying attention to bid patterns that may indicate market division, especially in markets with few providers.
Sham bids should be cautiously evaluated, especially if documents are superficially worked on or required information from the client is missing. Anomalies in offer prices among bidders can indicate collusion, such as identical unit prices, inflated lump-sum prices, or identical final prices for "losers." If a bidder knows the offers of others, it could be a sign of an agreement or illegal information exchange.
The purpose of these agreements is usually to fix customer allocation and prevent price and discount competition. Submission fraudsters and cartelists face severe penalties, including imprisonment of up to five years or a fine, according to Section 298 of the Criminal Code.
The FCO estimates that bid-rigging causes annual damage of several billion euros in public construction projects. The FCO has created a checklist to help employees of tendering authorities better recognize collusion among bidders. The Belgian Competition Authority's recent efforts echo the FCO’s approach, emphasizing the development of detection mechanisms to identify bid-rigging more swiftly.
For more information, you can contact Wolfgang Leja at w.leja@our website. The Staatsanzeiger Tender Blog also provides more information on the topic.
[1] European Commission. (2019). Enforcement priorities for 2019: fighting cartels, enhancing the Single Market and ensuring fair competition. Retrieved from https://ec.europa.eu/competition/publications/enforcement_priorities_2019_en.pdf
[2] European Commission. (2019). Factsheet: detecting cartels in public procurement. Retrieved from https://ec.europa.eu/competition/publications/factsheets/en/2019_factsheet_cartels_public_procurement.pdf
- In the finance sector, the Federal Cartel Office (FCO) emphasizes the importance of monitoring business activities related to public tenders, as bid-rigging can cause annual damage of several billion euros in public construction projects.
- The finance industry must be aware of the indicators of collusion in public tenders, such as identical bid prices, repeated participation of the same companies, and evidence of communication between bidders, as these practices can lead to severe penalties and fines. Companies should also be wary of sham bids, as these can suggest illegal information exchange or market division.
