The US government often accepts bids for the procurement of goods and services. When competitors commit the crime of bid rigging, they agree among themselves in advance which competitor will put forward the winning bid on the government contract.

By conspiring, bid riggers keep prices up and ensure that each competitor gets his crack at a government contract. It isn't necessary that all competitors are involved in the conspiracy. But if enough are, it can influence a government decision maker who will be likely to ignore or be skeptical about lower-priced bids if the majority submits higher price points.

Consequences for Riggers

Bid rigging violates federal law (i.e., the Sherman Act) and may carry fines for corporations up to $10 million. For individuals the penalty is up to $350,000, a 3-year prison term, or both, if the violation was committed before 22 June 2004.

If the violation was committed before this date, the maximum fine for corporations is $100 million. For individuals, it's $1 million and a maximum 10-year sentence.

In some cases, maximum fines are raised above Sherman Act limits to TWO TIMES the loss/gain involved. Penalty enhancers, include mail/wire law violations, false statements offenses, etc., which make the perpetrator subject to fines and sentencing for these other crimes.

Aside from criminal penalties, a bid rigger also faces potential civil recovery by victims who may get up to THRICE the amount of original damages suffered.

On top of it all is the damage to a firm's reputation, as in the case insurance giant Marsh & McLennan.

Beleaguered by bid rigging allegations, the firm had to change its leadership and sell off assets (like its $25-million Falcon jet) to cover losses. And, as if to distance itself from the excesses of the past, it even turned its ousted CEO's posh executive suite into a conference room.

Four Types of Bid Rigging

Virtually all types of bid rigging tactics involve an arrangement among several or all bidders to predetermine the winning bid and eliminate competition. Four of the most common types of bid rigging plans are

1. Cover Bidding. Also called complementary bidding, this is the most common form of bid rigging. Riggers agree to make bids priced too highly (hence the word "cover") to be chosen or that contain unacceptable terms to the purchaser. These cover bids make it seem that real competitive bidding is going on when, in fact, they conceal secretly puffed up pricing.

2. Bid Suppression involves refraining from bidding or withdrawing one's bid to cause a predetermined competing bid to be accepted.

3. Bid Rotation. Bidders conspire to take turns in submitting the lowest bid.

4. Subcontracting. Competitors who submit intentionally losing bids or suppress their bids receive, in exchange for their collusion, subcontracts from the winning bidder.

These tactics are usually difficult to uncover since collusion is done in secret. Out of the four tactics, however, subcontracting is the easiest to detect.