Copyright© 2006 by School Services of California, Inc.

                                      Volume 19                   For Publication Date: August 18, 2006             No. 18

Ask SSC . . .

What Is “Bid Rigging”? 

Q.                At one of our recent school board meetings, we had a member of the public make an accusation that “bid rigging” had occurred on one of our construction projects. I have heard the term “bid rigging” before and have a general idea of what it is. What is your definition of “bid rigging”?  

A.        School districts are required to follow state and federal laws and regulations related to the procurement of goods and services. One of the primary methods employed by school districts to procure goods and services is the use of competitive bids. The bid process is intended to ensure that the district receives the best goods and services at the lowest price.  

            The practice known as “bid rigging” cheats the district, but also is a violation of both state law and federal anti-trust law and is punishable by a fine, imprisonment, or both.  

            Bid rigging schemes typically fall into one of the following five categories: 

·                    Bid Suppression—Bid suppression occurs where companies that typically bid, or have bid in the past, agree with other bidders not to bid on a contract or project in order to facilitate the winning of the contract by a designated bidder. A variation of this method is where the winning bidder agrees to withdraw the bid so that the previously designated bidder wins.

·                    Complementary Bidding—Complementary bidding, which is also referred to as “cover” or “courtesy” bidding, is a process where companies agree to submit a bid that they know is too high to be accepted or contains unacceptable provisions. These bids are submitted to meet the minimum number of bids required and to give the appearance of genuine competitive bidding.

·                    Bid Rotation—Bid rotation occurs when competitors submit bids with the low bidder predetermined for each contract, and the winning (low) bid is rotated between the companies bidding. In this way, the companies take turns getting contracts.

·                    Market Division—Market division occurs where competitors agree that each company will always submit the low bid for a specific type of contract. The market may be divided based on geography, type of contract, size of contract, or specific customer.

·                    Subcontracting—Subcontracting is often used in bid rigging conspiracies to reward conspiring companies. That is, co-conspirators are rewarded for participating in the bid rigging by getting work as subcontractors on the contract.

            Bid rigging cheats the district out of resources that rightfully should be used to provide services to its students. Therefore, diligence in monitoring procurement contracts is an essential part of sound financial management for every school district.

—Michele Huntoon and John Gray