Contract and
Procurement Fraud
Collusion Among Contractors
Introduction
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Collusion between competitors circumvents
competitive market forces.
Common forms of collusion between
competitors involve:
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Bid-rigging
Market allocation (market division)
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Bid-Rigging Schemes
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Limits competition where purchasers use
competitive procurement processes to obtain
goods or services
Key factor is an agreement among would-be
competitors not to compete while maintaining
the appearance of competition
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Bid-Rigging Schemes
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Three common methods:
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Complementary bidding
Bid rotation
Bid suppression
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Complementary Bidding
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Competitors submit token bids that are not
serious attempts to win
•
Bids that are too high to be accepted
• Bids that appear to be competitive in price but
deliberately fail to meet other requirements of the
tender
• Bids that contain special terms that will not be
acceptable to the buyer
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Bid Rotation
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Two or more contractors conspire to alternate
business on a rotating basis
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Exchange information to guarantee that each will win
a share of the purchasing entity’s business
May involve:
•
Subcontracts awarded to losing bidders
• Agreement to share a percentage of the winning
company’s profits
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Bid Suppression
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Designed to ensure that a particular
competitor’s bid will be accepted
Contractors agree that at least one will refrain
from bidding or withdraw a previously
submitted bid
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Market Division Schemes
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Competitors divide markets among
themselves and refrain from competing in
each other’s designated portion of the market
Markets generally divided according to:
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Geographic area
Customer
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Preventing Collusion Among Contractors
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Expand the list of bidders.
Educate purchasing employees.
Maintain procurement records.
Require a minimum number of bidders.
Do not allow subcontracting.
Impose a reserve price.
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Red Flags of Collusion Among Contractors
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Winning bid appears too high
Wide gap in range of bid prices
All contractors submit consistently high bids
Presence of egregious prices increases
Large, unexplainable price among bidders
Qualified contractors do not submit bids
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Red Flags of Collusion Among Contractors
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Low bidder withdraws and becomes a
subcontractor
Some bids fail to meet obvious requirements
Fewer competitors than normal submit bids
When a new contractor enters the competition,
the bid prices begin to fall
A rotational pattern to winning bidders
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Red Flags of Collusion Among Contractors
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Winning bidder subcontracts work to one or
more losing bidders or to non-bidders
More than one losing bidder submits identical
line item bids on non-standard line items
Competitors submit identical bids
Physical evidence of collusion in the bids
submitted
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Red Flags of Collusion Among Contractors
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The same competitors always bid against each
other
Unusual patterns when a contract is re-bid
The same contractor regularly wins contracts at
one organization, but does not win similar
contracts at other organizations
A pattern of the last party to bid winning the
contract
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Red Flags of Collusion Among Contractors
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Bids from contractors who are incapable of
successfully performing the contract
Competitors change prices in similar amounts
at about the same time
Patterns of social conduct by bidders or their
employees that suggest collusion
Statements by bidders or their employees
suggest the possibility of collusion
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Detecting Collusion Among Contractors
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Among most difficult schemes to detect
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Insiders are not involved
• Documentation is genuine
• Bidders are generally real entities
• Bids might appear fair and reasonable
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Detecting Collusion Among Contractors
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Examine procurement records for any red flags.
Determine if contract award prices are too high.
Search external records.
Perform background checks.
Compile a list of contractors that should have
been interested in bidding and compare it to the
actual bidders.
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Detecting Collusion Among Contractors
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Contact non-bidding contractors and ask them
why they did not bid.
Examine procurement history for pattern of bid
allocation or rotation.
Ask nonparticipating contractors, former
contractors, and procuring entity personnel
about:
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Any collusive agreements between other contractors
• The reasonableness of bids
• The presence of any other red flags
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