New York State Attorney General’s Office Antitrust Bureau NYS Attorney General’s Office Antitrust Bureau May 21-22, 2008 2008 State Purchasing Forum BID-RIGGING New York State Attorney General’s Office Antitrust Bureau

The Value of Competition Lower prices Improved quality More choices for buyers

The Antitrust Laws Federal Law – Section 1 of the Sherman Act, 15 U.S.C. § 1, “Every contract, combination in the form of a trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States or with foreign nations, is hereby declared to be illegal. State Law – NY General Business Law § 340 (1), “Every contract, agreement, arrangement or combination whereby: Competition or the free exercise of any activity in the conduct of any business, trade or commerce or in the furnishing of any service in this state is or may be restrained…is hereby declared to be against public policy, illegal and void.”

Horizontal Restraints of Trade Agreements among competitors to restrain competition. Price-fixing among competitors and bid rigging are examples of horizontal restraints of trade. Per se illegal - illegal on its face, without inquiry into motives, justifications or reasonableness.

What is Bid-Rigging? Price-fixing – pure and simple. Any agreement between potential and actual bidders that affects, limits or avoids competition.

Forms of Bid Rigging Bid suppression Complementary bidding – also known as “cover” or “courtesy” bidding Market division or allocation agreements

Ex-Marsh Officials Guilty of Bid-Rigging

School Consultant Gets 7½ Years For Bid-Rigging

Steps to Prevent Bid-Rigging 1. Insist on compliance with bidding procedures 2. Expand your list of bidders 3. Know your bidders

Steps to Prevent Bid-Rigging 4. Prepare clear specifications a) Do not tailor specifications to one particular product or supplier. b) Do not use specifications copied from a manufacturer’s literature. c) Do not use brand names in specifications unless it’s for descriptive purposes and you add “or equivalent.”

Steps to Prevent Bid-Rigging 5. Increase Bidder Uncertainty a) Do not publish detailed contract or project estimates. Consider: Not publishing a vendor list before letting Eliminating pre-bid conferences b) Move to an electronic bidding process.

Steps to Prevent Bid-Rigging 6. Be Proactive a) Collect and maintain a comprehensive set of bid data, and utilize a structured bid analysis methodology. b) Perform, repeat, and update your bid analysis studies periodically. c) Evaluate changing your practices to encourage more competition.

Detecting Bid-Rigging RED FLAGS Qualified bidders fail to bid. A particular contractor always, or frequently, wins in a specific geographic market. Joint venture bids are submitted when participants could have bid on their own. Losing bidders or non-bidders get subcontract work from the winning bidder.

Detecting Bid-Rigging RED FLAGS (continued) Specific contractors always bid against each other, never bid against each other, or always bid for specific customers. Various irregularities in the bidding process. Conduct represents an unexplained deviation from traditional business patterns.

Detecting Bid-Rigging RED FLAGS (continued) Parallel conduct by competitors. Plus factors: - opportunity for collusion - similarity of language, terms and conditions - no economic justification for conduct - raising prices during a time of surplus or overcapacity

Market Characteristics and Collusive Activity Concentrated Market Homogeneous product or service Demand is relatively insensitive to price

Conclusion Communicate with other procurement officials around the State. Report suspicious conduct to the Attorney General’s Antitrust Bureau.

Questions? Contact: Jay L. Himes, Bureau Chief James Yoon, AAG New York State Attorney General’s Office Antitrust Bureau 120 Broadway, Suite 26C New York, NY 10271 (212) 416-8262 (212) 416-6015 (fax) Jay.Himes@oag.state.ny.us James.Yoon@oag.state.ny.us