10. Wrong Practices in Contracting

Contractor secures contract, then seeks cheaper sub-contractors post-award.

Bid shopping refers to the practice where a contractor, after successfully winning a contract, looks for lower-priced subcontractors to carry out the work. This undermines the competitive bidding process because it was the original contractor's bid that was based on specific costs and credentials that supported their proposed price. The contractor's actions can lead to reduced quality or increased risk for the project as it may involve choosing subcontractors based solely on cost rather than merit.

Think of it like a student who wins a project based on a proposal that includes hiring a particular group of experts. Once the project is theirs, they decide to hire less experienced, cheaper students to do the work, thinking they can pocket the difference. This can lead to poor quality work and potential issues down the line.

Collusion to predetermine bid outcomes; undermines fairness.

Bid fixing occurs when multiple contractors collaborate to set the bid amounts before the actual bidding process occurs. They agree on who will submit winning bids, often at inflated prices, which eliminates genuine competition. This not only cheats clients of fair pricing but also compromises the quality of services as it reduces incentives for contractors to perform well since they are not competing against each other.

Imagine a group of friends organizing a bake sale, but instead of competing against each other to sell cakes, they decide that one person will sell at an inflated price while the rest agree to hold back. This results in customers overpaying for cakes without knowing they're not getting the best deal, and it ultimately harms the integrity of the bake sale.

Groups aligning their bids to artificially set high prices.

Cartels are formed when several companies agree to limit competition by fixing prices or coordinating their bidding strategies. This practice artificially inflates prices, making it harder for other companies to compete fairly. The existence of cartels is illegal in many jurisdictions because it violates antitrust laws designed to promote fair competition and protect consumers.

Think of a few local gas stations that agree to raise their gas prices simultaneously instead of competing for customers. When they do this, consumers end up paying more than they should while the stations share the profits among themselves, harming overall market health.

Suppliers compete to lower prices in real-time, can be manipulated by cartels.

In a reverse auction, sellers compete to offer the lowest price for a project or service during a specified period. While this can encourage lower pricing, it can also be manipulated by parties colluding together (like in a cartel) to keep prices artificially low, potentially compromising the quality of goods or services provided. This manipulation is detrimental to both clients and honest competitors who can't engage in similar unfair practices.

Imagine an online platform where multiple artists are bidding to create a mural for a community center. An artist might intentionally lower their price to win the job, but if a group of artists secretly agrees to this strategy, they could phase out the need for quality work in favor of cheap prices, resulting in less impressive art for the community.

Strict anti-collusion laws and transparent processes have been introduced to combat these practices.

To combat the aforementioned practices of bid shopping, bid fixing, the formation of cartels, and manipulation of reverse auctions, strict anti-collusion laws have been established. These laws aim to promote transparency and ensure fair competition in contracting. Regulators often monitor bids and conduct audits to detect any signs of collusion and ensure that competitive bidding processes are followed.

Think of laws in place to ensure fair play in sports. Just like referees enforce rules to prevent players from cheating, anti-collusion laws help keep the bidding process fair, ensuring that everyone has a chance to compete honestly and that the best bidder truly wins the contract.

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