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What is bid-rigging? Why is it illegal?

On Behalf of | Aug 22, 2023 | Government Contracts

A competitive market is necessary for a healthy economy, but a practice called “bid-rigging” can undermine the free market.

Companies in certain industries, including government suppliers and construction, generally vie for contracts, by submitting bids on each job. The competition encourages each company to offer the best possible price. Bid-rigging occurs when multiple companies in a given industry secretly collaborate to thwart this competitive process.

The collaborators decide, in advance, who will offer the lowest bid (and what that bid will be). This drives up the price for that project and others to come – resulting in higher profits for the companies over time. It also puts a bigger financial burden on taxpayers and certain consumers.

The Sherman Antitrust Act of 1890 made bid-rigging a felony-level crime

Because bid-rigging artificially inflates the prices of goods and services, stifles progress by removing the incentive for companies to innovate and generally erodes trust in the market, ultimately harming the public good, it’s illegal in most of the world – including the United States.

When your company is suspected of bid-rigging, you can expect an aggressive investigation – and you need to explore all possible defenses. Some of those may include:

  • A lack of evidence: Prosecutors sometimes leap to conclusions based on pretty thin material. If there’s insufficient proof of collusion between your company and others, the allegations may not hold up.
  • Legitimacy: Sometimes bids from several companies are very similar because they’re all responding to unusual or changing market conditions and there are cost structures they need to follow. Industry experts may also be able to show that the bidding patterns shown by your company and others have legitimate causes.
  • Records and expert witnesses: It may be possible to overcome allegations if you can show exactly how your company’s bidding decisions were made, independent of any other bidders.

Bid-rigging is a serious offense, so seeking legal guidance at the first sign of an investigation is wise.