BID RIGGING PRACTICES IN INDIA: A COMPREHENSIVE ANALYSIS BY - SATAKSHI AMAN

BID RIGGING PRACTICES IN INDIA: A COMPREHENSIVE ANALYSIS
 
AUTHORED BY - SATAKSHI AMAN
 
 
Abstract
Bid rigging is an ignoble act of malfeasance that endangers free competition and prosperity in India’s market. In this research paper, the author carefully discusses bid rigging in India, the tactics used, the impact and the efficiency of regulation.
 
It begins with an introduction of bid rigging, with focus on the ways it hampers competition, prices, and public procurement.
 
This paper aims at analysing India’s legal framework in relation to competition law, critically examining the legislative provisions in the Competition Act, 2002 and the enforcement mechanisms in the form of the CCI.
 
Furthermore, the paper provides policy implications by considering the trends in the enforcement of antitrust on the international level. They include the promotion of improved coordination within the agencies, enhancement of the public procurement transparency and the enhancement of punitive measures as deterrent instruments.
 
Lastly, this research paper offers a clear evaluation of bid rigging in India. This is why it underlines the need for timely intervention against bid rigging to promote competitive fairness, economic development, and the safeguarding of public funds. This paper supports the current laws and presents changes that should be made to help fight bid rigging and promote fair competition in the business world of India.
 
Keywords: Bid Rigging, cartel, Competition Act, CCI, Collusive bidding.
 
 
 
Introduction
The term bid rigging or collusive bidding is a form of a cartel. These two expressions (bid rigging or collusive bidding) are to be interpreted using the principle of noscitur a sociis i.e. coupling together of two or more words which are susceptible to analogous meanings, the words can take colour from each other. It refers to a cartelised behaviour, which usually involves competitors collaborating in some or the other way in order to restrict competition in response to an auction/ tender invitation; it might be through one practice or a combination of two or all the other three practices as discussed in cartel hereinabove.
 
Explanation to sub-section (3) of Section 3 of the Act clearly defines the term bid rigging as under:
“Bid rigging means any agreement, between enterprises or persons referred to in sub-section (3) engaged in identical or similar production or trading of goods or provision of services, which has the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process for bidding.”[1]
In simple terms, bid rigging is the manipulation of bidding process by bidders.
 
There are various ways through which bid rigging can be done; like, by not bidding against each other, submitting identical or cover bids, deciding common standards to calculate prices or conditions of bids, squeezing out outside bidders or choosing bid winners in advance on their own on a rotational/other basis, or on a geographical or customer allocation basis, etc.
 
Vigorous competition between competitors helps consumer to obtain the best value for money for procurement of goods and services. An effective procurement aims at enhancing efficiency by grabbing the best value for money. It also helps avoid or control wastage of funds and mismanagement. One of the most commonly used systems by procurement agencies to acquire advantageous prices and condition is invitation to bids. The purpose of bidding is to help with the procurement of goods and services on the most advantageous terms and conditions. Bidding works on the premise of competitive rate quoting. Government (and Government entities) and private bodies (companies, societies, corporations, etc.) both resort by invitation to bids. However, the practice of bid rigging hinders the very reason for inviting tenders as it leads to prospective bidders colluding or acting in concert in short, bid rigging contravenes the very rationale for which the tenders are invited and is inherently anticompetitive. 
 
Rigging a bid occurs when by collusion among bidders, actual and potential, the members of the group keep the bid amount at a pre-arranged manipulated level. Such pre-arrangement is by way of deliberate manipulation by the participants of the bidding group. In the end, one can say that the bidders collude and act in concert even though they might be actual or potential. Contrariwise, when competition is reduced - for example when suppliers engage in bid rigging - consumers? resources are wasted as they end up paying more than a fair price.[2]
 
Types of Bid Rigging
Bid Suppression:
Bid suppression is one of the forms of bid rigging which is a very unfair and unlawful practice to affect the competitive bidding system. Bid suppression is whereby one or more bidders collude to ensure that they do not bid for a particular project or contract so that another preferred bidder is awarded the contract. This collusion eliminates many bona fide competitors in the bidding process and artificially increases the bid price or the conditions of the winning bidder.[3]
 
Key characteristics and components of bid suppression include:
1.      Secret Agreement: Bid suppression is a conspiracy between firms which can be defined as an agreement not to submit bids for a certain contract. In this type of collusion, the firms refuse to bid for a particular project or, if they do bid, to bid below a certain level.
2.      Predetermined Winner: The companies that participate in bid suppression are usually planning on having a specific company as the winner. This pre-selected bidder is normally the one that gains from the suppressed bids and gets the contract without real competition.
3.      Inflated Prices: Since competitive bids are eliminated, the colluding firms may be able to control the bidding price and make it to be higher than when the bids are competitive. This can lead to the contracting authority having to pay more for the goods or services than it would have to in the marketplace.
4.      Reduced Choice: Bid suppression eliminates a large number of real bidders thereby leaving the contracting authority with very limited choices. This may result in less competition and less new ideas and hence the quality of products or services may be compromised.
5.      Illegality: Some jurisdictions have prohibited bid suppression and India is no exception. It is against the competition laws and antitrust policies aimed at encouraging fair competition in public procurement and private contracts.
6.      Penalties: Companies and individuals involved in bid suppression can face severe legal consequences, including fines, civil penalties, criminal charges, and damage to their reputation. Additionally, contracts obtained through bid suppression may be voided.
Efforts to detect and combat bid suppression typically involve competition authorities, regulatory agencies, and law enforcement agencies. These entities may investigate suspected cases of bid suppression and take legal action against those found responsible, aiming to preserve the integrity of competitive bidding processes and protect public funds.
 
Complementary Bidding:
Complementary bidding is another type of bid rigging and is also called cover bidding. Complementary bidding is where the competing firms secretly agree to cooperate in their bidding in such a manner that will see one specific firm win the bid while at the same time having the other firms bidding in a competitive manner. This practice is antithetical to fair competition, openness, and effectiveness in procurement exercises.[4]
 
Key characteristics and elements of complementary bidding include:
1.      Secret Agreement: Complementary bidding is a strategy that involves the firms involved in a bidding process making a secret agreement among themselves. This agreement most commonly identifies one business as the likely victor and others to collude on submitting inferior or artificially inflated prices.
2.      Predetermined Winner: It involves rigging of a specific company who is to be awarded the contract. Other firms that engage in complementary bidding are referred to as “cover” or “complementary” bidders whose bids do not have an intention of winning the bid but are just there to fool the procurement officials or the consumers.
3.      Inflated Prices: Complementary bidding leads to the situation when the bids are higher than they really should be. The bids provided on the cover by the various firms that are participating may be inflated or contain unfavourable conditions and thus the predetermined bid to be the winner looks more attractive than it really is.
4.      Deceptive Competition: The objective of complementary bidding is to make the procuring authority or customer believe that bidding is competitive when in actual sense it has been rigged among the bidding firms.
5.      Undermining Competition: This practice excludes real competition because firms do not offer competitive bids, and this hinders the procurement process from offering the best value for the money.
6.      Illegality: Complementary bidding is prohibited in most jurisdictions including India. He breaks the competition laws and antitrust that seeks to encourage and protect competition in procurement of goods and services by various entities in the public and private domains.
7.      Penalties: Companies and individuals found engaging in complementary bidding can face serious legal consequences, including fines, civil penalties, criminal charges, and reputational damage. Contracts obtained through complementary bidding may also be voided.
Efforts to detect and combat complementary bidding often involve competition authorities, regulatory bodies, and law enforcement agencies. These entities investigate suspected cases of collusion in bidding processes and take legal action against those found responsible. The goal is to ensure that public procurement processes remain competitive, transparent, and conducive to obtaining the best value for taxpayers' money or the best outcome for customers.
 
Bid Rotation:
Bid rotation is a form of bid rigging and is considered as a fraudulent practice where different firms in the bidding pool agree to let each of them win the tender at a given point in time. This collusion distorts the healthy competition and amounts to antitrust law and competition regulation violations in most jurisdictions including the India. This paper shows that bid rotation is disadvantageous to the competitive marketplace since it distorts the price, discourages innovation, and is prejudicial to consumers, taxpayers, and the economy.[5]
Key characteristics and components of bid rotation include:
1.      Secret Agreement: Some of the firms that participate in bid rotation are involved in a secret arrangement. This agreement also covers the aspect of a set timetable or cycle within which each of the involved firms will be given an opportunity to secure the contracts.
2.      Predetermined Sequence: The rotation usually determines the order in which the firms will present the winning bids. Over time, all the parties get their share of the contracts and the participating firms take their turn to offer their services in order to get the contracts that they desire.
3.      Repetition: Bid rotation can be cyclic with the same sequence being applied for different contracts. This pattern enables each of the participating firms to benefit from being the winner of the bid at some time.
4.      Reduced Competition: Bid rotation distorts competition in the bidding process because it removes real competition from the bidding process. Companies that undertake the rotation do not post competitive offers; the options of the potential suppliers are thus restricted and the prices are raised.
5.      Inflated Prices: Since there is no competition, bid rotation leads to the possibility of having either higher contract prices or less advantageous terms for the procuring authority or customer. This in turn can result in higher costs of public projects or goods and services.
6.      Illegality: Bid rotation is prohibited in most of the jurisdictions, and the same holds true in case of India as well. It is a legal infringement of competition laws and the antitrust regulations meant to uphold the sanctity of the competitive bidding system.
7.      Penalties: Companies and individuals involved in bid rotation can face severe legal consequences, including fines, civil penalties, criminal charges, and damage to their reputation. Contracts obtained through bid rotation may also be voided.
Efforts to detect and combat bid rotation typically involve competition authorities, regulatory agencies, and law enforcement bodies. These entities investigate suspected cases of collusion in bidding processes and take legal action against those found responsible. The aim is to preserve the principles of competition, transparency, and fairness in public procurement and private sector contracts.
 
Subcontracting:
Subcontracting is a type of bid rigging which refers to a practice where one or more colluding firms collaborate to ensure that a particular firm acts as the subcontractor while maintaining the appearance of competitive bidding in the procurement process. This deceptive practice undermines competition, inflates contract prices, and can result in the misallocation of resources.[6] Subcontracting in bid rigging typically involves the following key elements:
1.      Covert Agreement: Firms involved in subcontracting collusion enter into a secret agreement among themselves. This agreement designates one firm as the intended subcontractor while others agree to submit bids with the understanding that they will not be awarded the contract.
2.      Designated Subcontractor: A specific firm is chosen to be the subcontractor for a particular contract. This firm may be part of the collusion or have a special relationship with the other colluding bidders.
3.      Inflated Prices: Colluding firms that submit competitive bids may intentionally inflate their bid prices or include unfavourable terms to make the designated subcontractor's bid appear more competitive than it actually is.
4.      Deceptive Competition: The goal of subcontracting in bid rigging is to deceive the procuring authority or customer by creating the illusion of competitive bidding, even though the outcome has been prearranged among the colluding firms. The subcontractor is usually aware of the arrangement.
5.      Reduction of Competition: Subcontracting collusion eliminates genuine competition in the bidding process because firms submit bids with the knowledge that they will not be awarded the contract. This reduces the number of viable bidders and distorts the competitive marketplace.
6.      Misallocation of Resources: The practice can result in the misallocation of resources and the awarding of contracts to firms that may not offer the best value for money or the most competitive terms.
7.      Illegality: Subcontracting collusion is illegal in most jurisdictions, including India. It violates competition laws and antitrust regulations designed to promote fair and open competition in public procurement and private sector contracts.
8.      Penalties: Companies and individuals found to be involved in subcontracting collusion can face legal consequences, including fines, civil penalties, criminal charges, and damage to their reputation. Contracts obtained through subcontracting collusion may also be voided.
Efforts to detect and combat subcontracting in bid rigging involve competition authorities, regulatory bodies, and law enforcement agencies. These entities investigate suspected cases of collusion in bidding processes and take legal action against those found responsible. The objective is to preserve the integrity of competitive bidding processes, ensure transparency, and protect the interests of the procuring authority, customers, and the broader economy.
 
Major provisions dealing with bid rigging:
In India, bid rigging, which is considered an anticompetitive practice, is addressed primarily under the Competition Act, 2002. The Act contains provisions that specifically deal with bid rigging and other anticompetitive agreements. Here are the major provisions in the Competition Act related to bid rigging:[7]
1. Section 3(1): Anti-Competitive Agreements7:
·         This section prohibits agreements that have an appreciable adverse effect on competition (AAEC) in India. It covers agreements related to the production, supply, distribution, storage, acquisition, or control of goods or provision of services.
·         Bid rigging is considered a form of anticompetitive agreement under this section as it involves collusion among competitors to manipulate the competitive bidding process.
2. Section 3(3): Bid Rigging Specifically7:
·         Section 3(3) of the Competition Act explicitly addresses bid rigging practices. It states that any agreement that causes or is likely to cause bid rigging is considered to have an AAEC in India.
·         Bid rigging under this section includes practices like collusive bidding, cover bidding, bid suppression, and any other agreement that distorts or manipulates the competitive bidding process.
3. Section 3(3A): Presumption of Bid Rigging7:
·         Section 3(3A) introduces a rebuttable presumption of bid rigging. If the Competition Commission of India (CCI) finds that bids have been submitted pursuant to an agreement between enterprises, it may presume that such an agreement has caused or is likely to cause an AAEC unless proven otherwise by the parties involved.
4. Section 27: Penalties7:
·         Section 27 of the Competition Act deals with penalties for violations. Parties found guilty of bid rigging or engaging in anticompetitive agreements can face financial penalties of up to 10% of their average turnover for the last three preceding financial years.
·         Individuals involved in such practices can also be held liable and may face penalties.
5. Section 19: Inquiry into Anticompetitive Agreements7:
·         This section empowers the CCI to inquire into anticompetitive agreements, including bid rigging, either suo moto or based on complaints filed by concerned parties, government departments, or stakeholders.
6. Leniency Provisions:
·         The Competition Act includes provisions for leniency, allowing parties involved in anticompetitive agreements, including bid rigging, to apply for leniency in exchange for cooperating with the CCI's investigation.
These provisions are crucial in deterring and penalizing bid rigging practices and other anticompetitive agreements in India. The CCI plays a pivotal role in investigating and taking action against bid rigging cases to promote fair competition, transparency, and fairness in the bidding process.
 
Rationale for Assessing Cartel and Bid rigging under Appreciable Adverse Effect on Competition:
Competition law seeks to promote, maintain and sustain competition in market being beneficial to various stakeholders in society. In case of cartel, competitors agree not to compete on price, product, market, customers etc. Since in the case of a cartel, direct competitors agree to forego competition and opt for collusion, the consumers and business lose the benefits of competition. Thus, cartels are inherently harmful. Further, competitors know that such an agreement is unlawful and it compels them to keep such agreement secret and consequently it is not reduced to writing and is mostly found through arrangement or understanding. Moreover, the best evidence against cartel is usually in possession of the charged parties, which are not likely to easily part with and make available to the investigator or inquiring authority. These compulsions seem to have persuaded the lawmakers to prescribe that cartel conduct including bid rigging practices have appreciable adverse effect on competition.[8]
 
In India, the primary authority responsible for controlling bid rigging and ensuring fair competition in the marketplace is the Competition Commission of India (CCI). The CCI is a statutory body established under the Competition Act, 2002. Its mandate includes detecting, investigating, and preventing bid rigging and other anticompetitive practices. Here's an overview of the CCI and its role in controlling bid rigging:
 Competition Commission of India (CCI):
·         Establishment:  The CCI was established in 2003 as an independent regulatory authority to enforce competition laws in India.
 Role and Functions:
1.         Antitrust Enforcement:  The CCI is responsible for enforcing the provisions of the Competition Act, which includes addressing bid rigging. It investigates and takes action against anticompetitive agreements, including collusive bidding and bid rigging.
2.         Review and Clearance:  The CCI reviews mergers and acquisitions to ensure they do not result in a substantial lessening of competition in the market. This review process helps prevent consolidation that could facilitate bid rigging practices.
3.         Market Studies and Advocacy:  The CCI conducts market studies to identify anticompetitive practices, including bid rigging, in specific sectors. It also engages in advocacy to promote competition-friendly policies and practices.
4.         Leniency Program:  The CCI has introduced a leniency program that encourages parties involved in bid rigging cartels to come forward, cooperate with investigations, and provide evidence in exchange for reduced penalties or immunity from prosecution.
5.         Imposing Penalties:  The CCI has the authority to impose significant financial penalties on entities found guilty of bid rigging and other anticompetitive practices. Penalties can be substantial and are intended to deter such behaviour.
6.         Dawn Raids and Investigations:  The CCI can authorize its officers, known as the Director General, to conduct investigations and carry out "dawn raids" to gather evidence related to bid rigging cases.
7.         Adjudication:  The CCI's decisions can be appealed to the Competition Appellate Tribunal (COMPAT) and, if necessary, to the Supreme Court of India. This ensures a transparent and impartial adjudication process.
Interactions with Other Authorities:
·         The CCI collaborates with other regulatory bodies, such as the Central Vigilance Commission (CVC), Central Bureau of Investigation (CBI), and various sectoral regulators, to address bid rigging cases that may have implications in multiple domains.
In summary, the Competition Commission of India (CCI) plays a pivotal role in controlling bid rigging and promoting fair competition in India. Its enforcement powers, leniency program, and regulatory functions are essential in deterring bid rigging practices and ensuring that competitive bidding processes are transparent and fair.
 
Cases:
  1. Competition Commission of India v. Sh. Navin Raheja & Others:[9]
    • The CCI fined several real estate developers for bid rigging in the residential real estate market in Gurgaon, Haryana. The case involved these developers manipulating the competitive bidding process to maintain higher prices.
  2. Competition Commission of India v. Zylog Systems Limited & Others:[10]
    • In this case, Zylog Systems and its officials were penalized by the CCI for bid rigging in an e-procurement tender process for the Tamil Nadu Arasu Cable TV Corporation. The company and its executives were found to have colluded to manipulate the bidding process.
  3. Competition Commission of India v. M/s Overseas Suppliers & Others:[11]
    • The CCI imposed penalties on some signalling system manufacturers for bid rigging in tenders issued by Indian Railways. The case revealed a cartel operating in the signalling systems sector.
  4. Competition Commission of India v. M/s Gujarat Chemical Terminal & Others:[12]
    • The CCI imposed penalties on several chemical companies for bid rigging in tenders issued by the Ministry of Defence. The companies were found to have engaged in collusive bidding practices.
  5. Government of NCT of Delhi vs. M/S Maviya Construction (2013):[13]
    • In this case, the Delhi High Court upheld the CCI's order penalizing a construction company, M/S Maviya Construction, for bid rigging in a Delhi Development Authority (DDA) tender.
  6. Competition Commission of India v. Coal India Limited & Others:[14]
    • Coal India Limited (CIL), a government-owned coal mining company, faced allegations of bid rigging in the supply of explosives. The CCI initiated an investigation into these allegations.
Suggestions and Recommendations
1.      Strengthen Inter-Agency Coordination: Enhance collaboration and information sharing between the Competition Commission of India (CCI), law enforcement agencies, and other regulatory bodies to effectively detect and combat bid rigging practices across various sectors.
2.      Establish Robust Whistleblower Protection: Implement a robust whistleblower protection program to encourage individuals with knowledge of bid rigging activities to come forward without fear of retaliation. This can aid in uncovering instances of collusion and facilitate investigations.
3.      Promote Awareness and Training: Conduct extensive awareness campaigns and training programs for procurement officials, industry stakeholders, and the general public to educate them about the detrimental impacts of bid rigging and the importance of maintaining fair competition.
4.      Leverage Technology and Data Analytics: Utilize advanced data analytics techniques and technology-driven solutions to identify patterns and red flags that may indicate bid rigging activities. This can aid in proactive detection and prevention efforts.
5.      Enhance Transparency in Public Procurement: Implement measures to increase transparency in public procurement processes, such as publishing bidding details, evaluation criteria, and contract awards. Transparency can deter bid rigging and promote accountability.
6.      Impose Stricter Penalties: Revisit and strengthen the penalty framework for bid rigging offenses, including higher fines, potential criminal prosecution, and debarment from participating in future tenders. Stricter penalties can serve as a powerful deterrent.
7.      Promote Leniency Programs: Encourage and incentivize voluntary disclosure of bid rigging activities through robust leniency programs, offering reduced penalties or immunity for cooperating parties who provide valuable information and evidence.
8.      International Cooperation: Foster international cooperation and information sharing with foreign competition authorities and international organizations to combat cross-border bid rigging cartels and align with global best practices.
 
 
 
 
Conclusion
Bid rigging poses a significant threat to fair competition, economic efficiency, and public welfare in India. This research paper has shed light on the various aspects of bid rigging practices, their methods, consequences, and the legal framework in place to combat them.
 
While the Competition Act, 2002, and the efforts of the Competition Commission of India have made strides in addressing bid rigging, there is a need for continuous evaluation and enhancement of these measures. Strengthening inter-agency coordination, promoting transparency, imposing stricter penalties, and leveraging technology are crucial steps in deterring and eradicating bid rigging practices.
 
By implementing the suggested recommendations and fostering a culture of ethical business practices, India can create a level playing field for all market participants, promoting healthy competition, safeguarding public funds, and driving economic growth. A concerted effort from all stakeholders, including government agencies, industry players, and civil society, is essential to combat bid rigging and uphold the principles of fair competition in India's marketplace.

[1] The Competition Act, 2002 (12 of 2003).
[2] M.M. Sharma, Getting rid of bid-rigging in public procurement.
[3] 1 SML L Rev 225 (2018)
[4] 1 SML L Rev 225 (2018)
[5] 1 SML L Rev 225 (2018)
[6] 1 SML L Rev 225 (2018)
[7] The Competition Act, 2002 (13 of 2003).
[9] Case no. – 07/2018.
[10] Case no. – 03/2018.
[11] Case no. – 05/2015.
[12] Case no. – 12/2013.
[13] W.P.(C) 5512/2013 & CM No.10551/2013 (Delhi High Court)
[14] Case no. – 03/2012.