Bid Rigging in Procurement: The Red Flags Hiding in Your Tender File

Most owner-managed businesses believe they are protected because the purchase policy says three quotations. The file looks correct. Three names, three prices, lowest one wins, comparative statement signed. But if those three vendors spoke to each other before quoting, the process protected nothing. It simply documented a price that had already been decided without you.

What bid rigging actually is

Bid rigging is not a grey area. Section 3(3)(d) of the Competition Act, 2002 treats bid rigging and collusive bidding as agreements presumed to have an appreciable adverse effect on competition. The burden of proving otherwise sits on the colluding parties, not on the complainant. Penalties under Section 27 can run to 10 per cent of average turnover, and after the Competition (Amendment) Act, 2023 and the CCI penalty guidelines of March 2024, that turnover can extend to global turnover.

It usually takes one of four shapes. Cover bidding, where losing vendors submit deliberately high quotes to make the winner look competitive. Bid rotation, where the same group takes turns winning. Bid suppression, where a vendor agrees not to quote at all. And market allocation, where vendors carve up regions or categories between themselves.

The red flags sitting in your own records

None of this is invisible. It shows up as a pattern across tenders, never in one file. Look for these:

• The same three or four names appear in every enquiry for a category, and the winner rotates in a predictable order.

• Losing quotes arrive on the same day, in the same format, with identical terms, identical typing errors, or sequential quotation numbers across supposedly unrelated vendors.

• Losing bids sit a suspiciously round distance above the winner, eight or ten per cent, tender after tender.

• A bidder withdraws and then reappears as a subcontractor to the winner.

• Two or more bidders share an address, a phone number, an email domain, a bank account or a common director. This is testable against your vendor master and MCA records.

• The winning price rises in a year when the underlying commodity price fell.

Where your own process invites it

Collusion is easier when the buyer makes it easy. Common self-inflicted weaknesses include publishing the internal estimate in the tender document, running frequent small tenders of similar value that are simple to rotate, and letting the buyer alone decide who is invited to quote. If one person picks all three bidders, that person, not the market, is setting your price. An approved vendor list that has not been refreshed in five years does the same thing more slowly.

Two habits do further damage: letting quotations reach the buyer's personal mailbox before opening, and negotiating only with the lowest bidder while revealing rival prices, which teaches the market what to quote next time.

What a promoter should actually ask for

• A vendor concentration report by category: spend share and, separately, how many times the same combination of bidders has appeared over 24 months.

• The L1 to L2 price gap by category over the last two years. A gap that stays narrow and stable is not natural competition.

• The name of whoever prepared the bidder list for the last five tenders above your delegation of authority threshold, and the basis on which it was drawn.

• Independent price benchmarking for your top ten bought-out items, against a published index or landed import cost.

• Annual non-collusion and conflict of interest declarations from both buyers and vendors. The value is not the paper; it is that a false declaration has consequences.

The bottom line

Three quotations are a document, not a control. Bid rigging is detected in patterns across time, not in any single comparative statement, so the testing has to be done on data rather than files. Keep your estimate confidential, refresh and expand bidder lists, and separate the person who invites quotes from the person who evaluates them. Where the pattern is credible, the law treats it as a presumed contravention, and the buyer is the injured party.

By CA Dhruv Seth, Seth & Associates, Chartered Accountants, Lucknow

This article is for general information and does not constitute audit, legal or tax advice. Regulations change; please verify the current position or speak to a qualified adviser before acting.