Bid manipulation is when a company promises a contract to a specific vendor outside of the formal bidding process. This is considered fraud and is illegal. In a normal bidding process, a company sends a request for quotation to several suppliers, and the chosen supplier is based on price, reputation, financial stability, experience, and completion time. Bid manipulation can occur due to personal relationships with the supplier or receiving bribes. It can result in less skilled or expensive companies getting the project and damaging relationships with vendors. Bid manipulation is illegal and can result in criminal charges, fines, and prison sentences.
Bid manipulation occurs when a company requesting bids for a project promises the contract to a particular vendor outside of the formal bidding process. This practice is considered fraud and is therefore illegal in most places. It can also open those involved to civil proceedings.
In a normal bidding process, a business or organization has a project that requires one or more external vendors to complete. The company sends a request for quotation to several supplier companies. The suppliers interested in the project return their offers and the requesting company chooses the one it deems more convenient. This decision can be based solely on price, but can also take into consideration other factors, such as the reputation, financial stability and experience of the chosen supplier. The decision may also take into consideration the amount of time each vendor can complete the work.
In auction rigging, this normal process seems to occur. In reality, however, the decision maker at the applicant company has already promised a specific supplier that he would be awarded the project, regardless of the actual outcome of the tender. In cases where the lowest bid is always the accepted one, the party bidding on the design can tell their preferred party how much they have to bid to win.
There can be a variety of motivations behind bid manipulation. In some cases, the party bidding on the project has a personal relationship with the supplier, or may even have a personal interest in the supplier’s company, such as joint ownership of the business. In other cases, the individual manipulating the process may receive a payment, called a bribe, from the successful seller. This payment can involve large sums of money or it can be as simple as tickets to a favorite sporting event.
Bid manipulation is almost always bad for the company bidding on the project for the bid. It often results in a company that has less skill or experience, or is more expensive, getting the project from more qualified suppliers. It can waste company money, and it can also damage relationships with vendors that the company may need in the future.
In most cases, bidding manipulation is illegal, particularly when it occurs within a government context. It is prohibited by laws such as the Sherman Act in the United States and the Competition Act in Canada. Participants may be subject to criminal charges, including fraud, conspiracy and collusion. A conviction can result in large fines and lengthy prison sentences. An individual who rigs bids without his company’s knowledge may also be sued for damages by his employer.
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