It’s common practice for most public and some private companies to issue bids with the intent that local subcontractors and vendors will assemble their most competitive proposal to compete for a specific piece of a project. In theory, competitive bidding promotes a fair, equitable and transparent environment that awards the project to the most innovative and cost-efficient bidder. However, this natural form of competition is breached when one or more bidders find opportunities to disregard the intent of a bid process in exchange for personal gain.

Bid rigging is a form of collusion, an anti-competitive practice that results in higher-than-justifiable proposal costs. Perpetrators who ruin the bidding process by engaging in bid rigging can be criminally prosecuted, including fines and jail time.

Here are three bid rigging schemes common to the construction industry.

Bid Rotation
Colluding bidders take turns winning the work. In this scheme, two or more bidders participate in the bid process, knowing that one (or more) will submit an intentionally high bid, guaranteeing the winning bid to the low bidder. These bidders take turns submitting the high or the low bids. Such a scheme makes it appear that legitimate bidding is taking place, but often results in the procuring company paying more for the project, since the low bid has been artificially set by the colluding bidders.

Bid Suppression
A group of subcontractors covertly agree that select companies will “sit out” of the bidding process, thereby narrowing the number of competitive bids the general contractor has to choose from, often increasing the price of the project.

Complementary Bidding
Some of the contractors submit bids that are either inflated or include conditions that either disqualify them or render their proposal incomplete. This practice creates the illusion of genuinely competitive bidding; but, in reality, the number of complete bids is altered by this practice—and thus artificially inflates the price paid by the procuring company.

Some of the red flags of bid rigging schemes include:

• repeated projects awarded to the same entity;
• the entity who wins the project subcontracts with the losers of the bid;
• quality of the work performed or goods delivered are subpar; and
• complaints about the process from other bidders.

In addition to being fraudulent, bid rigging damages the industry and the economy. These types of schemes often lead to higher prices, as the bid issuers end up paying more for the services or goods than they would in a fair marketplace. These increased costs are then passed on to consumers who must absorb the expense. Additionally, bid rigging discourages qualified bidders from participating, narrowing the pool of proposers and reducing the diversity of applicants.

Taking control of the procurement process is key to reducing the likelihood of bid rigging. Here are ten steps to take when issuing a call for proposals.

1. Establish the bid pool. Expand the criteria and make the bid requirements more inclusive to maximize the number of potential bidders.
2. Keep a pulse on suppliers’ costs and current market conditions.
3. Do not ask bidders to qualify on an initial bid to have access to subsequent ones.
4. Keep the bidding process confidential. Do not share who bid or what they bid for.
5. Require potential subcontractors to disclose pricing.
6. Avoid preferential treatment for any suppliers.
7. Ask questions if prices or proposals look suspiciously low or high.
8. Do not split the contract between two proposers with identical bids.
9. Provide staff training on how to recognize bid rigging.
10. Report antitrust violations, which include bid rigging, to the appropriate state or federal authority.

By understanding the signs of potentially fraudulent bids and taking proactive steps to thwart their likelihood, construction executives can deter this illegal practice.