Bid-rigging 'cartel' may be hitting UK industry and taxpayers for millions, warns CMA

Warnings of collusion echo recent Memset concerns over "broken" government Digital Marketplace

Contract bid-rigging is costing taxpayers millions, the Competition and Markets Authority (CMA) has warned.

In an open letter to the government sent earlier this week, the CMA alleges bid-rigging is leading to customers being over-charged by as much as 20 per cent, and is costing UK taxpayers "millions of pounds".

It also points out that contract law offers no protection against these practices.

In reaction to the letter, procurement and contract lawyer Louise McKee of Pinsent Masons stated that "no contract is protected against the risk of bid-rigging, whether it concerns contracts in the construction market or services sectors".

"The CMA's interest in this area will help support contracting bodies against attempts by suppliers to control the market," said McKee, speaking to Pinsent Masons' Out-law.com.

"The CMA has powers to take enforcement action against those engaging in bid-rigging, so its campaign should serve as a warning to those 'gaming the system', as the CMA has put it, that their illegal activities are likely to be spotted and punished," he added.

John Kirkpatrick, senior director of advocacy at the CMA, stated in the letter:

"Where businesses compete to win contracts, purchasers get fair prices, good service and choice, including more innovative products or services.

"However, if companies collude when bidding for contracts, purchasers end up spending more than necessary."

Kate Craig-Wood, founder of cloud hosting firm Memset, said last week that the government's Digital Marketplace is "broken", criticising "the hideousness of old boys' networks and closed procurement systems" as a behaviour pattern holding back the vision of a transparent, free market in which SME suppliers can stand up next to large, often incumbent, vendors.

"Most buyers only go there once they have already worked out what they want to buy and from whom," said Craig-Wood.

Kirkpatrick's letter flags up a number of bid-rigging tactics, which include 'bid rotation', where suppliers agree to take turns supplying the most attractive bids, and 'cover pricing', where companies agree to overinflate their prices to deliberately place themselves outside a realistic bid in order to give way to a rival.

With 'bid suppression', companies may sometimes agree not to submit bid at all, according to Kirkpatrick, in exchange for payment from rival companies.