Tender Rigging: Fighting an Unfortunately Common Practice

Theoretically, the construction tendering process gives the group funding a project a way to hire work for the best price. Comparing different tenders allows them to see how much different companies would charge. This way, the owner can choose the contractor who can provide the type and quality of work they need for the most competitive price. 

Unfortunately, though, the construction industry has a widespread issue that compromises the process: tender rigging. 

To start, a tender rigging definition: Tender rigging occurs when some or all of the tenderers collude to influence who gets awarded the project contract and/or at what price point.

Tender rigging construction projects is against the law. Because stakeholders have so much to manage during the tendering process, though, they often miss the signs. As a result, rigging still takes place in the construction industry today. 

Laws Against Tender Rigging

In Canada, the Competition Act, first enacted in 1885, serves to prohibit activities that undermine fair business competition. It is explicitly for tender agreements between competitors to limit competition, including the rigging of tenders for construction and other projects.

Tender rigging or bid rigging is considered a criminal offence in Canada under the Competition Act. The Competition Bureau—an independent law enforcement agency—investigates and prosecutes suspected cases of anti-competitive practices, including tender rigging. If found guilty, individuals may face severe penalties, including fines at the discretion of the courts, and imprisonment for up to 14 years. Companies involved in tender rigging may also be fined, and any contracts awarded through such unlawful practices may be voided.

Additionally, provinces have their own legislation to combat anti-competitive behaviour. In Ontario, for example, the Broader Public Sector (BPS) Procurement Directive mandates strict rules around transparency and competition in the tendering process. Offenders may face both federal and provincial penalties, which can include administrative sanctions such as being barred from tendering on future public contracts.

Types of Tender Rigging

A tender rigging definition can extend to multiple activities that tenderers undertake throughout the procurement process to influence who gets awarded the contract. Many of those activities fall into specific rigging categories.

• ---

  Complementary/Cover Tendering

  With this type of tendering, a tenderer submits a proposal that they don’t expect to be accepted in an effort to make the desired tenderer’s tender look better. The price in the cover tender may be overly high or the tender may not meet some of the term requirements, for example. 

• ---

  Phantom Tendering
  

  This practice informs competitors of a potential tender number in an effort to encourage them to alter their tender. The supposed tender (i.e., the phantom tender) never actually materializes, though.  

• ---

  Tender Suppression

  This type of rigging means either not submitting a tender at all or withdrawing one that’s already been submitted in an effort to limit competition for the desired tenderer. 

• ---

  Non-Conforming Tendering

  With this kind of tender rigging, the tenderer intentionally formats their tender so that it doesn’t meet some of the specifications, standards or other requirements of the project. This means their tender will be disqualified, increasing the odds of the desired tenderer being chosen. 

Oftentimes, these rigging tactics are used in tender rotation, during which at least two competitors work together.

With tender rotation, the goal is to cycle who wins the contract between each colluding party.

So if Contractor A, Contractor B and Contractor C agree to tender rotations, B and C might submit falsified tenders (e.g., ones with overly high numbers) to ensure A gets awarded the contract on this project. Next time, A and C might skew their tenders so that B gets the award. On the third project, A and B would modify their tenders in an effort to ensure C gets the contract. 

In other instances, the competitors won’t decide to rotate but will instead carve out their own market or customer allocation. Say competitors have agreed to give Contractor A certain postal codes in one metropolitan area, for example.

If an invitation to tender goes out for a project in that postal code, Contractors B and C may submit complementary tenders or no tenders at all in an effort to ensure Contractor A gets the project. 

Cui bono — who benefits from tender rigging?

Because tender rigging construction projects means breaking the law, parties only choose to do it when they expect benefits. 

In many cases, tender rigging helps colluding competitors maintain a steady flow of work. They may believe that tender rotation will enable them to keep their teams employed with more consistency than competitive tendering would.

Plus, tender rigging often allows contractors to pad their margins. In a tender rotation scheme, for example, all of the contractors can inflate their prices knowing that they’ll still beat their “competitors” if it’s their turn to win the contract. 

It’s not uncommon for other perks to be layered on, too. If a construction manager (CM) is privy to the tender rigging, they may see an upside. The contractor who gets awarded the contract often owes them a favour, which could take the form of gifts, services rendered or allowances on future projects. Or they may ask the contractor to submit a sham tender on a future project so they can meet the required number of tenders for consideration. 

General contractors (GCs) may also loop subcontractors into their tender rigging, offering potential benefits to both parties (at the cost of breaking the law). 

If that GC has a relationship with all major electrical contractors in the area, for example, they may be able to guarantee a certain amount of work to them through tender rotation. The GC will likely expect a favour in return, though. They may require the electrical contractor to come in at a certain number, allowing them to build a bigger profit margin for their GC firm.  

Ultimately, plenty of people stand to benefit from tender rigging construction projects. And this illegal practice hurts one party most: the project owner. As the ones funding the project, they’re the ones to suffer when the tendering process isn’t fair. Tender rigging prevents them from being able to find the best work at the best price. 

This gets especially problematic on public projects when the taxpayers’ dollars fund the work. 

Warning Signs of Tender Rigging

Because tender rigging is widespread, project owners, project managers and construction managers should be on the lookout for it. Some indicators of tender rigging construction projects include:

• Identical tenders 
• Tenders that read very similarly except for a few key lines
• Tenders that have a notable deviation from expected project costs (especially if all of the submitted tenders fall into a similar range)
• Tenderers that plan to subcontract some or all of the work out to other tenderers 
• No tender arriving on a tender day, despite one being promised upon receipt of the tender package
• Tenders from competitors arriving from the same fax number, in envelopes of the same style, or with the same handwriting
• Errors replicated across tenders (e.g., the same spelling error in several competitors’ tenders)

It also helps to look for patterns. Do the same companies seem to win contracts? Does a GC firm rotate through a list of subcontractors? Could you draw out the “territories” of different contractors on a map based on past work? 

Unfortunately, contractors aren’t the only ones engaged in tender rigging behaviours. When another party (e.g., a CM) is involved by levelling the tenders and making a recommendation on them, owners and their teams should look for potential signs of rigging. Those include:

• Added lines in tender levelling documents that make tenders look artificially high or low
• Recommendations for awarding the contract that aren’t in line with the lowest tenderer 
• Unexplained fees or line items, especially ones that aren’t readily called out in tender levelling documents

The Competition Bureau offers tips to further help here. 

Mitigating Tender Rigging

In addition to watching out for the above warning signs, people involved in the tendering process can take further steps to limit their risk of tender rigging. Those include:

• Using a sealed tendering process
• Increasing the number of tenders required (the higher the number, the harder it is for all “competitors” to collude) 
• Auditing submitted tenders 
• Including a non-collusion affidavit that contractors have to sign as part of the tender documents
• Limiting communication between tenderers (e.g., scheduling separate tender walks with each tender individually)
• Training teams that will be reviewing tenders on the signs of tender rigging
• Maintaining procurement records from previous projects and comparing tenders against them, especially when numbers seem anomalous
• Asking tenderers to justify the prices they submitted when they don’t seem in line with market standard

It also behooves project owners, construction managers and their teams to listen to reports of tender rigging. It can be tempting to dismiss contractors who claim they lost a contract because of tender rigging, assuming they’re disgruntled over the loss of business. But contractors who step forward risk getting blackballed, so few will do so without reason.  

When it comes to tender rigging mitigation efforts, technology can also be a huge help. Tender levelling software makes it easier to call out discrepancies and identify line items that impact the overall tender but might otherwise get lost in the shuffle. 

And as artificial intelligence (AI) advances, this should only get easier. Running an AI-supported check for any anomalies can pinpoint issues human eyes might slide right past. 

Reporting Suspected Tender Rigging

If tender rigging is suspected on a project, the Competition Bureau Canada can step in and investigate. To initiate an investigation, a person needs to submit:

• The name of any parties involved (companies and individuals)
• How those parties may have violated federal antitrust laws 
• Examples of that violation
• The product or service impacted by the violation
• The major competitors selling that product or service
• An explanation of their role in the situation
• A list of others being affected and the way in which they’re being affected

People can call this information to the Competition Bureau Canada’s Federal Contracting Fraud Tip at 1-800-348-5358. Alternatively, a document hitting all of these points can be submitted to the Competition Bureau via an online anonymous form with all the required information, or mail the information to the following address: 

Competition Bureau Canada
Place du Portage I
50 Victoria Street, Room C-114
Gatineau, Quebec K1A 0C9
Canada

Once a complaint is submitted, the Competition Bureau creates a record and assigns it to a staff member for review. Complaints are kept confidential. The Information Centre has more information about initiating an investigation into antitrust violations, including tender rigging.

Written by