While some bid-rigging schemes are orchestrated by organized crime, most involve apparently legitimate business.
Indeed, many businesses do not seem to understand the practice is illegal. After the U.K Office of Fair Trading (OFT) alleged bid-rigging by 112 U.K. construction companies, the industry responded by creating the “Rebuilding Trust.”
The move was intended “to restore client’s faith in the construction industry after the OFT investigation into 112 companies accused of bid-rigging.”
The goal of the trust was “to show the world that construction is cleaning up its act,” in relation to schemes the OFT estimated had cost British taxpayers more than the Canadian dollar equivalent of $580 million at the time of this report.
The trust had proposed a formal code of conduct, but after a process of consultation with construction companies it was reported “some people feel a code of conduct as originally suggested could be too much too soon and that, in the first instance, a series of pledges would be the optimum next step. We have come up with pledges for both contractors and clients and consultants to sign up to so the industry can show it is united in addressing the problems the OFT’s report has so clearly identified.”
When the report was issued, a $500 million misappropriation of public funds was equal to the approximate cost of two new hospitals. Such a mute response reflects the fact those involved in bid-rigging are people who simply do not have a heart.
There is good reason to fear bid-rigging in the public procurement field is not only pervasive, but that it is costing the public billions.
While the United States the Antitrust Division has pursued the problem of price-fixing vigorously, in Canada the corresponding efforts have been far more limited in scope and smaller in scale.
Moreover, even in the United States, recovery of the damages suffered by the public sector has been far from exemplary. Even the criminal fines imposed for bid-rigging appear ridiculously low in comparison to the damage caused.
Although prosecution in Canada is isolated – fines imposed in Canada compare to those imposed in America (in contrast, European fines tend to be much lower). The United States Sentencing Commission’s Sentencing Guidelines direct that:
“In selecting a fine for an organization within the guidelines fine range, the court should consider both the gain to the organization from the offense and the loss caused by the organization.
It is estimated that the average gain from price-fixing is 10 per cent of the selling price. The loss from price-fixing exceeds the gain because, among other things, injury is inflicted upon consumers who are unable of for other reasons do not buy the product at the higher prices.
“Because the loss from price-fixing exceeds the gain, subsection (d)(1) provides that 20 per cent of the volume of affected commerce is to be used in lieu of the pecuniary loss under 8C2.4(a)(3). The purpose for specifying a per cent of the volume of commerce is to avoid the time and expense that would be required for the court to determine the actual loss. In cases in which the actual monopoly overcharge appears to be either substantially more or substantially less than 10 per cent, this factor should be considered in setting the fine within the guideline fine range.”
This entire premise of this approach to the fixing of an appropriate fine appears to be at variance with reality. An earlier study of U.S horizontal collusion cases, inquiring into the degree of overcharging resulting from cartelization (bid-rigging being one specific form of cartelization), showed an average median cost of 21 per cent and an average mean overcharge of 30 per cent.
Outside the United States, 62 decisions of various competition commissions (including the Canadian Competition Bureau) indicated median average overcharges of 29 per cent and a mean of 49 per cent.
