Guide on cartels in public bidding

Sep 09, 2021

Cade recently released a Guide on cartels in public bidding, aiming to assist public contracting agents to avoid cartels practice in public bids, as well as to contribute in the identification of possible signs of collusion between competitors. According to the Guide, cartels in public bidding are agreements between competitors that aim to violate the competitive nature of public purchases, by means of price-fixing, market division, and prior result definitions.

The Guide mentions the most common strategies, such as coverage and suppression of proposals, market division, rotation between companies in the position of bids’ winners, blocking in on-site biddings and subcontracting.

The Publication covers markets’ characteristics that can contribute to cartels, such as the existence of few players, goods and services with little differentiation, the existence of barriers to entry and of contractual ties or family relationships between competitors’ companies. Also addresses aspects of the very nature of the public bidding procedures that facilitate collusion, such as transparency, which ends up revealing information, like prices charged by competitors value and content of the proposals. Another element is the predictability of public purchases, since, often, the bidding entity has a constant plan of demands, which facilitates an eventual division of the market between competing companies.

Elements and characteristics indicating the existence of collusion could be identified in the proposal phases, in the behavior of companies during the bidding process, and even in the results of the bids. Among them, proposals from different companies with similar formatting or wording; identical authentication or postage stamps; identical typing or calculation errors; proposals sent from the same e-mail or IP address, or from the same addresses and with the same contact details or representative; or even proposals that have the same prices, but different from the reference value.

In the behavior of companies, similar prices in percentual or absolute terms proposed by different companies; uniform increase in competitors’ prices, without a corresponding increase in costs; significant and unjustified variation in the price of proposals from the same company, in different bids; unjustified withdrawal of suppliers from submitting documents or proposals; presentation of proposals that would hardly be able to win; subcontracting bidders who lost bids by the winning bidders; hiring the same consulting or accounting firm, by competing companies, to assist in the preparation of proposals; references to industry guidelines such as suggested prices or price lists prepared by unions or associations; companies that complain about new entrants.

Concerning bids’ results, a small group of companies alternates as winners in the bids of the same public entity, or even the same company wins the bids of a certain public entity; the winning proposals present a geographic distribution pattern; sudden and unjustified decrease in the number of bidders; and sudden price alignment between competitors.

Among the recommendations, it is worth highlighting giving preference to the disclosure of reference values ​​after the end of the competitive phase of the public bidding process, avoiding creating opportunities for potential bidders to meet, creating incentives for new companies to participate in the competitions, avoiding including qualification requirements in the notice unnecessary and restrictive, carefully use of qualification certificates that require participation in previous public bids, control and monitor subcontracting, and reduce costs for preparing proposals and participating in public bids.

The investigation of cartel cases involving public bids by Cade has become increasingly common and involves the most diverse markets, such as contracting of public works and medical orthotics and prostheses. Companies convicted of this type of practice may face various cumulative sanctions, such as the payment of high fines and the impossibility of contracting with the public administration.

The Guide is available here.