Detecting bid rigging in public auctions for procuring infrastructure projects: formulating the reference scenario for decision-making

Abstract

Bid rigging is a fraudulent scheme in procurement auctions resulting in non-competitive bids awarded at prices above the competitive market. Bid rigging is a global problem that wastes public agencies’ resources and taxpayers’ money. While various methods and tools have been developed to detect bid rigging, it remains challenging for public agencies to identify what a competitive baseline auction looks like in the absence of collusion. Such a baseline is commonly known as a reference scenario, which involves analyzing the behavior of honest bids in previous auctions to determine if future bids could be collusive. Research on formulating reliable reference scenarios for bid rigging detection in the auctions of infrastructure projects has received limited attention. Hence, our paper analyses the key criteria required to develop a reference scenario for public agencies to detect bid rigging during an auction. Drawing on data from Brazilian public procurement and oversight agencies, a procedure for composing robust reference scenarios for detecting bid rigging in infrastructure first-priced auctions is presented and discussed. We then test our procedure’s generalizability using data from four countries (Australia, Brazil, Spain, and the United States) in two auction formats (i.e., capped and uncapped). A better understanding of the reference scenario formulation will allow public officials to increase the likelihood of detecting bid rigging when it exists and avoid flagging it as such when no collusive practices are involved.

Keywords:

• Bid rigging
• collusion
• infrastructure
• procurement
• reference scenario

Acknowledgments

The authors would like to thank the Editor, Dr. Florence Phua, and Associate Editor, Professor Islam El-adaway, and the four anonymous referees for their constructive and insightful comments on an earlier version of this manuscript.

Disclosure statement

The authors report that there are no competing interests to declare.

Data availability statement

All data and examples supporting this study’s findings are available in the attached supplementary file and from the corresponding author upon request.