Shedding Light on Bid Rigging Under Competition Act

14th February, 2024 - 10:08 am Categories: Competition Law News & Updates 0 Comments

Section 3(3) Of Competition Act, 2002

Sub-section 3 of Section 3 enumerates certain agreements which have an ipso facto appreciable adverse effect on competition. These are the agreements in the nature of horizontal agreements. Horizontal agreements are the agreements between two or more enterprises that are at the same level of the supply chain and, in the same market. It is presumed that horizontal agreements adversely impact free and fair competition in the market and therefore may have an appreciable adverse effect on competition. This is why all such agreements are void as per the Competition Act, 2002.

What is Bid Rigging?

Bid rigging is a form of horizontal agreement wherein independent bidders collude to adversely impact competition in a bidding process. It involves a group of firms that are otherwise competitors who conspire to manipulate the outcome of the bid.

According to the explanation of Section 3(3) of the Competition Act, 2002, ““bid rigging” means any agreement, between enterprises or persons referred to in sub-section (3) engaged in identical or similar production or trading of goods or provision of services, which has the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process for bidding.” Thus, the said explanation has defined bid rigging as any agreement that has the effect of eliminating or reducing competition for bids or manipulating the process of bidding.

What Is An Agreement Under Competition Act?

It is pertinent to understand that the definition of “agreement” under the Competition Act, 2002 has a very different meaning from the word “agreement” used in the Indian Contract Act, 1872. For the purposes of the Competition Act, an agreement includes any arrangement, understanding or concerted action entered into between parties. It may or may not be in writing. Even an understanding or action is covered within the ambit of the term agreement.

[Image Sources: Shutterstock]

Necessary Ingredients Of Bid Rigging

In general, bid rigging is difficult to detect but suspicious behaviour patterns give rise to suspicion of collusive bidding or bid rigging. In the case of Rajasthan Cylinders and Containers Limited v. Union of India and Another, the Apex Court observed that the necessary ingredients of bid-rigging are:

1. An agreement between competing bidders
2. Parties must be engaged in identical or similar production or trading of goods or services; and

• the agreement has the effect of eliminating or reducing competition, or adversely affects or manipulates the bidding process.

Fcators That Facilitate Bid Rigging

As per the standards set forth by the OECD, bid rigging can be enabled by the following factors:

1. There is a greater chance of bid rigging when a limited number of businesses offer a good or service.
2. When there are few businesses in a market that have recently entered or are expected to enter because it is expensive, difficult, or slow to enter, then those businesses are protected from the competitive pressure of potential new entrants. The protective barrier somewhat facilitates collusive acts.

• When the products or services that individuals or organisations sell are the same or very similar, it is easier for enterprises to choose a shared approach.

Categories of Bid Rigging

Bid Suppression: In order to ensure that the winning competitor’s bid is accepted, one or more competitors who would normally be expected to bid, or who have already bid, agree to either refrain from bidding or retract a previously submitted bid because of a side deal entered into between the competitors.

Multiple bidding: It happens when a bidder withdraws their earlier bid soon after submitting it or modifies their initial bid before submitting a new one. In such a case, a larger sum than the amount quoted in the previous bid is typically provided in the newly submitted bid.

Complementary Bidding: Also referred to as “cover” or “courtesy” bidding, complementary bidding happens when certain rivals consent to submit offers that are either too high to be approved or have unique conditions that the buyer will find unacceptable. These bids are only meant to look to be genuinely competitive; they are not meant to win the buyer’s acceptance.

In bid-rigging situations, complementary bidding is used to trick buyers by feigning competition in order to hide covertly high prices.

Bid Rotation: Each conspirator makes a bid, but they alternate in taking the lowest price. Competitors might, for instance, divide up contracts based on their respective sizes, giving each conspirator the same amount of money or awarding volumes based on the combined size of the conspirator companies. Strict bid rotation patterns violate the law of probability and imply conspiracy.

Subcontracting: The victorious low bidder frequently grants subcontracts or supply contracts to rivals who consent to not to bid or to submit a losing bid. In certain schemes, in exchange for a lucrative subcontract that shares the higher price earned unlawfully between them, a low bidder will consent to withdraw its bid in favor of the next lowest bidder.

Steps Undertaken By The Competition Commission Of India

The Commission may, in the exercise of its powers under Section 19, look into any suspected violation of Section 3(3), which prohibits bid rigging. After determining that there is a plausible case of bid rigging, the Commission shall direct the Director General to commence an investigation and submit a report.

Following the inquiry, the Commission may issue any or all of the following orders according to section 27 direct the parties to end the agreement and refrain from reentering into such an agreement; direct the appropriate enterprise to amend the agreement in question; instruct the relevant enterprises to follow any additional orders the Commission may issue and to pay any relevant costs; pass any additional orders or issue any additional directions as it may deem fit.

Penalty

Any penalty the Commission sees proper may be imposed. Individuals or businesses participating in bid-rigging or collusive bidding, may be penalised with up to 10% of their average turnover for the three previous financial years. In the event that a cartel entered into bid-rigging or collusive bidding as mentioned in section 3(3), the Commission may impose a penalty on each producer, seller, distributor, trader, or service provider involved in that cartel, up to three times their profit for each year the agreement is in effect, or 10% of their turnover, whichever is higher.

Author: Sonakshi Pandey, Symbiosis Law School, NOIDA, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney.

REFERENCES

1. https://uk.practicallaw.thomsonreuters.com/2-592-4806?transitionType=Default&contextData=(sc.Default)&firstPage=true
2. Ramappa, Competition Law In India, 3rd Edition
3. Excel Crop Care Ltd. v. CCI, (2017) 8 SCC 47
4. Rajasthan Cylinders & Containers Ltd. v. Union of India, (2020) 16 SCC 615
5. https://www.lakshmisri.com/insights/articles/bid-rigging-in-public-procurement-an-indian-perspective/?utm_source=mondaq&utm_medium=syndication&utm_term=Government-Public-Sector&utm_content=articleoriginal&utm_campaign=article
6. https://cag.gov.in/uploads/research_paper/RES-3-COLLUSIONS-05ebe256895d734-92064367.pdf
7. https://www.cci.gov.in/antitrust/

Author: Sonakshi Pandey, Symbiosis Law School, NOIDA