Definition and Legal Framework of Bid Rigging Agreements
Bid rigging agreements refer to coordinated arrangements between bidders in the context of public tenders with the goal of impairing or eliminating fair and free competition. These practices, also known as ‘bidder cartels’, are considered serious violations of competition law under German, European, and international antitrust and procurement law. Bid rigging agreements can take various forms and are subject to significant sanctions.
Manifestations and Objectives of Bid Rigging Agreements
Forms of Bid Rigging Agreements
In the context of procurement procedures, bid rigging agreements refer to various collusive arrangements among participants in the tender process. The main forms include:
- Price agreements: Agreement on a joint bid price or on the lowest and highest prices.
- Award agreements: Arrangements determining who will receive the contract award, while other participants submit ‘sham bids’.
- Regional cartels: Allocation of territories in which no cross-bidding is undertaken.
- Consortium agreements: Joint submission of bids by several companies with prior agreement on the division of the contract.
Objective of the Agreements
The main objective of bid rigging agreements is to influence the outcome of tenders in regard to price, contract award, or economic conditions to the benefit of the participants and to the detriment of the awarding authority or the general public.
Legal Classification and Regulation
Bid Rigging Agreements under German Law
In Germany, bid rigging agreements are explicitly punishable under Section 298 of the German Criminal Code (StGB). According to Section 298 (1) StGB, anyone who makes an agreement during tenders or other procedures for the award of contracts with the aim of damaging the economic decision-making process of the awarding authority is criminally liable.
Elements of Offense (§ 298 StGB):
- Tender: Public or restricted procedures for the award of supply, construction, or service contracts.
- Collusion: Agreement among multiple bidders prior to the submission of offers.
- Purpose: Influencing competition to the detriment of the awarding authority.
Assessment under Antitrust Law
In addition to criminal law, the Act against Restraints of Competition (GWB), in particular Section 1 in conjunction with Section 81 GWB, prohibits anti-competitive agreements that restrict free competition in procurement procedures. Bid rigging agreements are considered particularly grave infringements (so-called ‘hardcore cartels’), for which substantial fines may be imposed.
European and International Law
At the European level, bid rigging agreements are prohibited under Article 101 of the Treaty on the Functioning of the European Union (TFEU). EU procurement directives also provide for explicit measures to prevent and sanction bid cartels. Internationally, there are numerous agreements and conventions (e.g., OECD, UNCITRAL) containing similar provisions.
Detection, Consequences, and Sanctions
Investigation Mechanisms
Bid rigging agreements are typically uncovered by:
- Voluntary disclosures by participants (leniency policy)
- Tips from contracting authorities or competitors
- Investigations by antitrust authorities and public prosecutors
Investigative authorities use various tools such as searches, analysis of digital communications, and witness statements.
Criminal Consequences
Convictions under Section 298 StGB may result in prison sentences of up to five years or fines. Attempted offenses are also punishable.
Antitrust Sanctions
In addition, significant fines under the GWB can be imposed. The amount depends on the turnover of the involved company, the extent of the damage, and the responsibility of those involved.
Civil Law Consequences
Bid rigging agreements can lead to claims for damages under Section 33a GWB. Public contracting authorities or competitors often demand compensation for damages resulting from inflated bid prices.
Impact on the Procurement Procedure
A company involved in bid rigging agreements can be excluded from public procurement procedures according to Section 124 (1) No. 4 of the Act against Restraints of Competition (GWB). This legal consequence may remain effective for years.
Prevention and Compliance
Measures of Contracting Authorities
Contracting authorities are obliged to examine signs of anti-competitive agreements and to document any indications of suspicion. Awareness-raising, training, and electronic procurement processes are tools for fraud prevention.
Internal Compliance in Companies
Companies often implement internal control mechanisms to ensure compliance with antitrust regulations. Training sessions and regular monitoring of procurement practices are common measures.
Case Law and Practical Examples
Significant Decisions
Case law regularly addresses bid rigging agreements. The highest courts have repeatedly emphasized that even the attempt or participation in unlawful agreements is punishable by fines and criminal sanctions. Notable cases from the construction, IT, and procurement sectors illustrate the rigidity of sanctions.
Bibliography and Further Resources
- Act against Restraints of Competition (GWB)
- Criminal Code (StGB), especially Section 298
- Treaty on the Functioning of the European Union (TFEU), Article 101
- Practical guides of the Federal Cartel Office
Summary
Bid rigging agreements constitute a serious violation of competition and criminal law. They harm competition, lead to increased prices, and undermine the economic decision-making freedom of public authorities. The multitude of legal provisions at German, European, and international levels emphasizes the importance of effective law enforcement, the scope of sanctions, and the significance of compliance measures to prevent such practices.
Frequently Asked Questions
Which legal regulations prohibit bid rigging agreements?
Bid rigging agreements, i.e., anticompetitive collusion in connection with tenders, are clearly prohibited in Germany by the Act against Restraints of Competition (GWB). In particular, Section 1 GWB prohibits all agreements between undertakings, decisions by associations of undertakings, and concerted practices that have as their object or effect the prevention, restriction, or distortion of competition. Specifically for public procurement procedures, Section 298 of the Criminal Code (StGB) applies: it makes bid rigging agreements a criminal offense. This provision is primarily aimed at the so-called ‘bid-rigging cartel’, in which several providers, for example, agree on prices or the submission of sham bids in public tenders in order to circumvent competition. Violations can result not only in substantial fines and claims for damages but also criminal penalties, such as imprisonment or fines. In addition, companies are at risk of cartel investigation proceedings by the Federal Cartel Office, whose enforcement powers have been strengthened in recent years.
Which specific conduct falls under the prohibition of bid rigging agreements?
The prohibition covers a wide range of anticompetitive practices in the context of tenders. This includes, among other things, agreements on prices (‘price agreements’), the deliberate non-submission of bids (‘agreements on bidding abstention’), the determination of which company should be awarded a particular contract, as well as mutual submission of sham or ‘cover bids’. Also included are agreements on the division of markets, territories, or customer groups in connection with tenders. The exchange of sensitive information about future bidding conduct or calculations also qualifies as a practice similar to bid rigging and thus constitutes a violation of antitrust law. The crucial factor is always whether competition conditions are influenced to the detriment of the awarding authority or other market participants.
What penalties and sanctions can be imposed for violations of the prohibition on bid rigging agreements?
In addition to antitrust fines, which may be imposed by the Federal Cartel Office against involved companies and are often calculated based on the company’s turnover, there are also criminal consequences. According to Section 298 StGB, imprisonment of up to five years or a fine may be imposed. In severe cases, particularly where significant harm occurs or bidders systematically collude, the punishment may be even harsher. On the civil law side, harmed public authorities or competitors may assert claims for damages. Furthermore, exclusion from future public contracts is possible under Section 124 of the Act against Restraints of Competition (GWB). For managing directors and those responsible within the companies involved, this can also have professional consequences and cause long-lasting damage to business reputation.
How are bid rigging agreements detected and prosecuted by authorities?
Detection typically takes place through actions by the Federal Cartel Office, which can conduct its own investigations as well as follow up on tips. Typical investigative tools include court-ordered searches, analysis of email communications, bid letters, and business documents, as well as conducting witness interviews. Of particular importance is the leniency program: companies or individuals who are the first to disclose a bid rigging agreement and cooperate fully in the investigation may be granted immunity or at least significant sentence reductions. During investigations, the Federal Cartel Office often works together with public prosecutors to prosecute both civil and criminal offenses. Close cooperation with other European competition authorities also enables the cross-border prosecution of cartel agreements.
What defense options are available in cases of suspected bid rigging agreements?
Affected companies and individuals have the right to contest allegations of bid rigging and to defend themselves in administrative proceedings or criminal trials. This includes the opportunity to review the investigation files, file motions for evidence, and name witnesses. The defense may, in particular, aim to demonstrate an absence of anticompetitive effects or argue that there was no coordinated behavior. The absence of an objective agreement or mere coordination on non-competition-relevant aspects may also, depending on the case, be used in one’s favor. Within the leniency program, active cooperation with investigative authorities may in individual cases lead to the termination of proceedings or a significant reduction in penalties.
How can a company effectively protect itself against the risks of bid rigging agreements?
Effective compliance programs are crucial as a preventive measure to minimize the risks of bid rigging. Companies should especially provide employee training, establish codes of conduct and reporting channels (whistleblower systems), and regularly review and update internal control mechanisms. Additionally, it is advisable to clearly document all tender and bidding processes in order to be able to act traceably and transparently if necessary. Clear instructions should be available for employees on how to proceed in the event of contact by competitors. External audits or antitrust reviews by specialized law firms also serve to identify risks at an early stage and to manage them proactively.
What is the significance of bid rigging agreements in relation to claims for damages?
Besides fines and criminal penalties, the assertion of claims for damages is gaining increasing importance. According to the case law of the Federal Court of Justice and the EU Antitrust Damages Directive (Directive 2014/104/EU), which was implemented in Germany, inter alia, through the ‘Act Amending the Act against Restraints of Competition’, injured parties—especially public contracting authorities and competitors—can assert civil law claims for damage caused by bid rigging agreements. It is presumed that cartel violations generally lead to damage. As a result, injured parties now have improved chances of compensation, since the burden of proving the existence of damage has been eased. Courts may also estimate the amount of damage. For companies, this means that antitrust infringements may result not only in fines but in lengthy and costly civil disputes.
