What is Bid Rigging?
Bid rigging refers to an illegal scheme that eliminates competition in procurement auctions. A combination of corrupt officials and/or companies can manipulate markets in their favor by colluding in bid-rigging schemes.
During the Progressive Era, the government, in an effort to preserve the free market, passed the Sherman Antitrust Act of 1890. Bid rigging, along with other antitrust practices, became punishable by law. President Theodore Roosevelt furthered these anti-competitive measures hoping to end the budding corporatocracy.
Bid rigging often involves horizontal price fixing. Supposed industry competitors coordinate their bids in order for a predetermined bidder to receive the contract at a higher price than they probably would have received in a free market. For example, companies can take turns being the lowest bidder. All of them will, however, bid more than they would in a competitive situation to raise the price of the lowest bid.
Bid rigging allows its practitioners to illicitly maximize profits off of consumers and taxpayers who might have to bear the added costs.
Wehe, a team of researchers at Northeastern University, University of Massachusetts — Amherst and Stony Brook University, conducted a study on traffic shaping showing evidence that “nearly every US cellular ISP (CISP) throttles (i.e., sets a limit on available bandwidth)…for at least one streaming video provider.”
Is your internet service provider giving you the speeds you paid for? See what the ZT community has reported on the matter…
What Constitutes a Procurement Auction?
Procurement auctions, in short, are situations where any entity awards business contracts through soliciting competitive bids. This is what the government does to get contractors competing to provide the best services for the lowest prices. Bid rigging can also occur in automobile and real estate auctions, construction projects, and government procurement contracts.
When government officials get involved in a bid-rigging scheme, it can lead to pork barrel politics and earmarks (legislators securing funding for public (sometimes) pet projects that will benefit them and, possibly, a contractor).
Government and education agencies most commonly solicit competitive bids on contracts. Those two agencies are generally required to accept the lowest bid (intended to promote competition and reduce costs for consumers/taxpayers), making them particularly vulnerable to bid rigging schemes.
To give you an example provided by the Federal Trade Commission (FTC), let’s say a school advertises a contract for bus transportation. A group of school bus companies, then, decide to all offer their services under a single contract, at a high price. This arrangement does not involve collaborative efforts to optimize transportation or cut costs. The joint venture’s purpose, poorly concealed, boils down to the companies preventing competition, so they all can make more profit.
Types of Bid Rigging
Bid rigging, as you have probably realized, comes in varied forms. All are alike in that they involve an agreement between competitors to (1) designate a winner and (2) limit or eliminate competition. In reality, though, corrupt companies and government workers often mix and match a few strategies, hoping to elude procurement officials. Establishing a pattern, of course, would make sussing out a bid-rigging scheme easy.
Governmental Bid Rigging
Change order abuse
This type of bid rigging occurs when officials collude with contractors to increase the amount required to complete the project after a much lower bid has already been accepted.
Bidder exclusion
Essentially, bidder exclusion enables project officials to select the bid based on their own preferences, not by official standards or regulations. This form of bid rigging occurs in a handful of ways:
- Limiting advertising to preferred bidders or bidding markets to reduce the chance of bids from unwanted parties.
- Establishing unreasonable stipulations that only preferred bidders can meet.
- Bundling contracts
- Coercion, intimidation, or outright rejection of bids over insignificant concerns.
Purchase splitting
This tactic involves the reduction of the minimum bid amount. Contractors split up a large bid into two to come under the threshold and undercut their competition.
Leaking confidential information
The project official provides preferred bidders with confidential information that will help the latter win the contract.
Unbalanced bidding
- ‘Front loading’—Contractors submit artificially high item bids for the early phases of the project and artificially low line item bids for later phases. This increases the contractor’s cash flow.
- Quoting high prices on line items the contractor anticipates or knows (from colluding with the project officials) will need an eventual change order. In other words, contractors bump up the price of a line item that will likely require an increase in quantity or work and reduce the price of other line items in order to balance out the bid.
- Perhaps through a project informant, bidders can quote significantly lower prices on line items that aren’t actually needed in the project. This way the preferred bidder underbids their uninformed competition, who provide a reasonable estimate for goods that won’t be needed to complete the project.
Unjustified sole source awards
Bids chosen on criteria irrelevant to competitiveness (e.g. selecting a blatantly falsified bid).
Nitrofurantoin is an antibiotic used to treat urinary tract infections (UTIs). About 6 to 8 million Americans contract the infection per year. The drug appears on the World Health Organization’s List of Essential medicines, and has been on the market since 1953. According to a Financial Times report, pharmaceutical company Nostrum Laboratories increased the price of a bottle of the drug from $474.75 to $2,392. Join the Zero Theft Movement to find out if long-standing antibiotics are experiencing price hikes…
Cartel Bid Rigging
Complementary bidding
Complementary (also called cover, courtesy, token, or symbolic) bidding is the most common bid-rigging strategy. It occurs when companies intentionally submit bids that they know will get rejected. This can come in the form of bidding higher than what the designated winner will, bidding an exorbitant amount to get priced out, or including stipulations that the purchaser will definitely not accept.
Bid suppression
Bid suppression refers to when competitors will agree to refrain from bidding or rescind their previous bids. This strategy allows the designated winner to be accepted. Even if the winning bid wasn’t the lowest at first, the competitor can withdraw their submission in an attempt to conceal their bid-rigging efforts.
Bid rotation
Bid rotation occurs when colluding companies take turns being the winning bidder. They all bid as if they are competing, but the winner has already been decided.
Market Allocation
For this strategy, competitors divvy up the market and agree not to compete for certain demographics or in particular geographic areas. Market allocation leads to companies either not bidding whatsoever or submitting a complementary bid on a contract that comes from a group or location out of their agreed-upon customer base.
Subcontracting
Not exactly a bid-rigging strategy, subcontracting provides incentives for companies to collude. Competitors who agree to cover or suppress their bids might get a subcontract from the contract winner. That way all involved parties can illegally boost profits from a rigged price.
Bid Rigging Examples
Chicago Flooring Contractors
In 2019, a number of major flooring companies and their executives in the Chicago area came under investigation for creating and operating a long-standing monopoly.
According to JD Supra, the Department of Justice (DOJ) investigation identified “at least 15 instances of bid-rigging for certain jobs valued from $11,000 to more than $3.3 million. The contracts involved not only public schools but also hospitals, an electronics company, a professional services firm and a broadband provider.”
The DOJ announced that it had charged Michael P. Gannon, a former Vice President of Sales for one of these flooring contractors, with bid rigging. The agency’s press release states: “Gannon and his employer engaged in a conspiracy to suppress and eliminate competition in the commercial flooring market by agreeing with other individuals and companies to submit “comp,” or complementary, bids so that the designated company would win the bidding. According to the charge, Gannon and his co-conspirators rigged bids for commercial flooring services and products for almost a decade, from at least as early as 2009 until as late as June 22, 2017.”
You can take a look at some of the charges the DOJ levelled to other parties allegedly involved in the bid rigging scheme:
- Delmar E. Church Jr., the president of one of the Chicago flooring companies
- Carter Brett, an accounting executive for a large flooring manufacturer
- Vortex Commercial Flooring Inc.
The Buffalo Billion Scandal
From the Buffalo Billion website
The Buffalo Billion first got announced in 2012, during Governor Andrew Cuomo’s “State of the State” address. The project seeks to spur the economy of Buffalo, NY by investing $1 billion, garnered through tax breaks and state grants. However, the promising initiative came under fire when allegations of bid-rigging and corruption started to crop up.
The Construction Dive writes, “LPCiminelli [contracting firm] executives were charged in 2016 with allegedly paying bribes to state officials in order to win the construction contract for the $750 million Tesla solar panel factory…” Investigations into the bidding process ensued, leading to a string of high-profile guilty rulings in court.
Reuters reported on the most recent court verdict, in the case of ex-president of the State University of New York’s Polytechnic Institute Alain Kaloyeros. The news outlet writes, “[Federal prosecutors] said Kaloyeros worked to steer lucrative contracts to Buffalo-based developer LPCiminelli and Syracuse, New York-based COR Development CO…the two companies were hand-picked in advance, and public requests for bids were tailored for them.”
The report continues, stating: “Former LPCiminelli executive Louis Ciminelli and former COR executives Steven Aiello and Joseph Gerardi, who went to trial alongside Kaloyeros, were also convicted on Thursday of taking part in the scheme.”
This case amounts to one of a handful of government investigations (some ongoing) into the Buffalo Billion. Massive public projects tend to involve all kinds of corruption and wasteful spending, and we should treat them with healthy skepticism.
Is there wasteful spending in local government contracting? Procurement specialist Colin Cram estimated that the U.S.’s “public sector procurement spending by and within states amounts to some $1.5 trillion a year…[which is] around 70% of total U.S. public sector spend.” Has that money been, for the most part, spent efficiently? Find out what your fellow citizens have found…
The Cunningham Scandal
Critics of the many lucrative defense contracts have argued that they’re wasteful and involve profiteering.
But very few cases can match the magnitude of the Cunningham scandal. A story demonstrating the ‘unholy union’ between big businesses and rent-seeking officials, featuring alleged bid rigging, bribery, tax evasion, and all kinds of other white-collar crimes.
From Congress Bioguide
In 2006, former Congressman Randall “Duke” Cunningham was sentenced to “eight years and four months in jail for taking $2.4 million in homes, yachts and other bribes.” The DOJ issued a press release detailing the alleged scheme:
“The bribery, fraud, and tax evasion conspiracy described in the Information included: the purchase of Cunningham’s home in Del Mar, California, at an artificially inflated price by a defense contractor; the subsequent payoff of the mortgage on Cunningham’s new, multi-million dollar home in Rancho Santa Fe by another defense contractor; a $200,000 down payment by a third coconspirator to enable Cunningham to purchase a condominium in Arlington, Virginia; the payment of the capital gains tax by the purchaser of Cunningham’s Del Mar home; the purchase and maintenance by a defense contractor of a yacht (the “DukeStir”) and a Rolls Royce for Cunningham; as well as payments by a defense contractor for a graduation party for Cunningham’s daughter, jewelry, home furnishings, and travel and hotel expenses.”
Former President Donald Trump pardoned Cunninham in January 2021.
Bid Rigging, a Sign of a Rigged Economy?
Politicians and corporations, through a network involving bid rigging, influence peddling, and corporate crime, conspire to fix prices, taking away money from consumers/taxpayers. How can we trust those corrupt officials to choose the bidder who proposes the best plan, at the best price? We need our lawmakers acting based on what they truly believe to be in the public’s best interests, not what moneyed interests and self-interest calls for.
Regulatory capture often allows crony capitalists and corrupt officials to rip us off of trillions of dollars. Corporations who rig the economy hire lobbyists who then influence members of congress. This all leads to legislators and regulators prioritizing the interests of the industries they are meant to oversee over the good of the public. Corrupt businesses can then unethically but legally maximize profits, which then funnels back into their lobbying budget.
The rigged economy needs to be treated as a crime, otherwise we will continue to accept this injustice hurting many of our citizens.
ZTM wants to end corruption in politics and business to rid our economy of those rigging the economy. Restoring an ethical system will result in higher wages and better living conditions for all. We will get to actually enjoy the trickle down effect of the ever-increasing GDP, and with actual free markets secured, competition will ensure that we get the best services possible for the best prices.
The public has spoken! See how much the rigged economy is ripping off from you.
Explore the Problem Hierarchy
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Beyond bid rigging…
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We regularly publish educational articles on ZeroTheft.net. They teach you all about the rigged layer of the economy in short, digestible pieces.
Standard Disclaimer
The Zero Theft Movement does not have any interest in partisan politics/competition or attacking/defending one side. We seek to eradicate theft from the U.S economy. In other words, how the wealthy and powerful rig the system to steal money from us, the everyday citizen. We need to collectively fight against crony capitalism in order for us to all profit from an ethical economy.
Terms like ‘steal,’ ‘theft,’ and ‘crime’ will frequently appear throughout the article. Zero Theft will NOT adhere strictly to the legal definitions of these terms (since congress sells out). We have broadly and openly defined terms like ‘steal’ and ‘theft’ to refer to the rigged economy and other debated unethical acts that can cause citizens to lose out on money they deserve to keep.