Competition Matters
Media > Newsletters > Competition Matters > April 2016 > Red Flag Series No. 3: Recognizing the Patterns that can Form if Vendors Collude

Competition Matters RSS feeds

Red Flag Series No. 3: Recognizing the Patterns that can Form if Vendors Collude

Recent articles in “Competition Matters” provided tips to public purchasers on spotting vendor collusion. Known as the “Red Flag” series, these articles explain the typical warning signs that accompany illegal activity in public bidding. This third installment focuses on patterns of activity that can result when vendors agree not to compete.
If vendors are bidding amounts or winning areas that seem illogical, this may signal a pattern of collusive behavior. These patterns would seem relatively easy to detect in theory but are often difficult to uncover because vendors can develop creative new ways to structure their illicit activities. Further, these agreements are almost always reached in secret and it can take several competitive bidding cycles to detect a pattern of behavior. By the time a public purchaser uncovers a pattern, the harm to the competitive process is already done. Colluding vendors might even change their scheme by the time a public purchaser uncovers the pattern, which underscores the difficulties of detecting patterns.
Still, there are many tips that public entities can use to detect patterns of collusive activity. Here are some examples of patterns to look for in the competitive bidding process:
  • Geographical patterns: Are the same vendors consistently winning the same geographical areas? Do vendors appear to be winning and/or bidding on either side of geographical borderlines that have no logical explanation? For example, if two vendors bid all the way up to a county line, but neither crosses over into the other’s county, you should take a closer look at this activity. These types of behavior can indicate “market allocation” – entities agreeing to divide markets by geographic location.
  • Bid rotation: In some cases, vendors rotate their bids and agree to take turns winning specific contracts. On the surface, having a different vendor win each year may seem competitive, but watch for situations where, despite a different bidder winning each year across a variety of contracts in a given geographical area, each vendor is actually winning these different contracts in succeeding years in some predictable order.
  • Equal value allocation: This more complicated pattern is even harder to detect. It involves a group of vendors agreeing about who will win which contracts in such a way that, when the total value of each vendor’s contracts is tallied, each vendor receives contracts that are roughly equal in value. In this situation, all bidding companies end up winning the same amount of work over a series of bids.
Keeping these patterns in mind when reviewing bid submissions can help uncover collusive practices that might otherwise go undetected. Reviewing year-by-year contract awards and comparing them to similar contracts awarded by nearby public entities can reveal the patterns that form when vendors allocate contracts instead of competing for them. Compare notes with government purchasing agents in nearby geographical areas, especially if bidding behavior seems unusual in any way.
Early collusion detection is vital to preserving the competitive process. We encourage all procurement officials to report suspicious patterns of bid activity through appropriate channels in their organization and to consider submitting a tip (confidential if you wish) on our Bid Rigging Web Tip form. The information you provide could uncover a more widespread problem and, when warranted, we may conduct an investigation.

If suspicions arise, please submit an online tip to the Ohio Attorney General’s Antitrust Bid Rigging Tip line or call us at 614-466-4328.