Tenders and the prohibition on cartels
A tender is an invitation by a buyer to at least two companies to make a bid in order to carry out a contract. This may concern the provision of goods or the performance of services. The invitation to tender can be public but companies may also be asked to make a private bid.
Bid rigging means that two or more companies that participate in the tendering process coordinate their bids. As a result, there is less competition in the tendering process. In the end the buyer will pay a higher price and/or will be offered a lower quality. Big-rigging is one of the types of (hardcore) agreements which are always in violation of the prohibition on cartels of the National Ordinance on competition.
The most common forms of bid rigging are: bid suppression, complementary bidding, bid rotation and market sharing.
- Bid suppression: companies which normally would submit a bid, agree to refrain from bidding or withdraw their bid so that another competitor is assured of winning the contract. An example: “A storage facility calls two construction companies for a quotation for the construction of a new warehouse. The directors of the two construction companies call each other and agree behind the client’s back who will submit a bid. This is bid rigging and in breach of the prohibition on cartels.”
- Complementary bidding: companies deliberately submit a higher bid than the firm which “is allowed to win” the contract. Another way is to make the terms of the bid so unappealing for the buyer that this company certainly will not win. An example: “A manufacturer of office supplies receives a WhatsApp from a competitor who is also a participant in a public tendering process: ‘We are offering price X, will you offer a higher price? Then it is your turn the next time.’ This is bid rigging and in breach of the prohibition on cartels.
- Bid rotation or market sharing: companies agree whose turn it is to win the contract this time. The companies may also share the market among themselves, for example on the basis of the allocation of territories. An example: “Two large touring car companies agree that one of them will only respond to invitations to bid in the western part of Curaçao and the other will only respond to invitations to bid in the eastern part of Curaçao. This is bid rigging and in breach of the prohibition on cartels.”
Many tendering and procurement processes take place within the government. Bid rigging in public procurement processes is to the detriment of all residents of Curaçao because they eventually pay the bill via taxes.
When am I allowed to conclude a combination agreement?
A combination agreement is a verbal or written agreement between two or more independent companies, in which they (i) agree to collectively submit a bid on a certain tender and (ii) to arrange the joint performance of the contract.
If a company is unable to perform the contract independently, for example due to insufficient capacity or due to the lack of certain expertise, then it is permitted to submit the bid together with another potential bidder. However, if a company is able to perform the contract independently, it would, in principle, be in breach of the prohibition on cartels to submit a bid with a competitor.
An exemption to this applies when the benefits ensuing from the cooperation for the buyer outweigh the drawbacks of the restriction of competition. In such a situation it is wise to consult a specialist or contact the Fair Trade Authority Curaçao. An application for exemption from the prohibition on cartels may be possible.