Specialist Outlook

Bid-rigging: what do (and should) you know?

14 January 2015

Lindsay Draffan, a competition lawyer in the Corporate Commercial team at law firm Hempsons advises on bid rigging in the charity sector

You see a tender opportunity advertised and you fit the bill - another organisation approaches you and suggests a joint tender. It sounds good but they make it clear it is designed to push out a competitor. Or they suggest you don’t bid on this occasion on the understanding that they will not bid the next time around or in another area. It sounds a little underhand but is there a problem? Bid-rigging is generally understood by those in commerce to be ‘underhand’ but it is perhaps not widely realised that it is an offence under UK competition law, punishable by civil fines based on annual turnover and director disqualifications. Where the cartel offence is also in play, a criminal investigation can also result in fines on individuals and imprisonment.

If you think that competition law doesn’t apply to charities then think again. This may sound strange - charities have a predominantly social purpose and are non-profit making so why should they be caught by an area of law which relates to commercial business? Well, competition law endeavours to ensure a level playing field for all those who are involved in offering goods and services on a particular market, profit-making or otherwise. So, like it or not, charities are active players in the offering of goods and services to end consumers and must comply with competition law. Competition law covers a wide range of strands from the rules on reviewing mergers and market structures to the carving up of markets (such as bid-rigging) and abusing a dominant position.

The Competition and Markets Authority (CMA), the UK’s national competition enforcement authority, has made clear since its creation in April 2014 that one of its priorities is the application of its competition law powers tools to the public sector where charities are seeking opportunities. In November 2014, the CMA advised public sector procurers (such as local authorities and health care commissioners) to be alive to the possibility of bid-rigging in tenders and to report any suspicious activity to the CMA.  As charities are now increasingly au-fait with tendering (including partnering with another organisation(s) to best meet tender specifications and maximise the chance of success), you need to understand what bid-rigging can comprise. Your understanding will enable you to use competition law as both a sword and a shield from anti-competitive practices.

The bid-rigging offence falls under the Competition Act 1998, which implements European competition law in the UK. Bid-rigging is prevalent where there have been changes in market conditions, for example, where a new business enters a sector; in sectors where ‘everyone knows each other’; and in public procurement processes (tick the boxes please). Examples of bid-rigging are bid rotation – where organisations take it in turns to submit the lowest bid; bid suppression – where one or more firms agree not to bid; and cover pricing – where bidders arrange for one or more of them to submit an artificially high bid.

These practices are all illegal. Where proven, competition authorities can levy fines of up to 10% of annual turnover in the affected market. And prior to that, suspected organisations can be subject to lengthy, resource-intensive investigations and reputational damage.  If there is adequate suspicion to launch a criminal investigation for the cartel offence, directors of organisations can be at risk of personal unlimited fines and up to 5 years’ imprisonment. Quite Draconian for a seemingly innocuous business arrangement.

So now you know. Educate yourselves with regard to competition law. It’s as much part of your commercial armoury as your understanding of the perils of corruption and bribery. You can act in conjunction with other organisations on an objective basis and your decision-making should be (demonstrably) independent. Similarly, don’t be afraid to raise competition law arguments when you believe you have been unfairly disadvantaged or excluded from a tender process. Seek legal advice as to the strength of your position. Competition law is there to ensure efficient competitors can offer a broad selection of goods and services to users for appropriate recompense. Public interest and common good? Sounds like charity.


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Lindsay Draffan

Lindsay Draffan is a competition lawyer in the Corporate Commercial team at Hempsons.

Lindsay advises on the full range of competition law issues affecting the health and social care sector – from the merger implications of service reconfiguration to the application of the EU State aid rules to funding for a social enterprise providing community care.

Lindsay’s experience in this specialist area is diverse, working for private and public sector clients within international competition law practices in the City of London and as a senior legal adviser to a regulatory authority. She is particularly familiar with the development of policy and the inner workings of Government and the competition authorities.

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