Collusive bidding, or collusion, is a well-known phenomenon within the business world, but its effects are particularly egregious in the defence industry. Collusive bidding occurs when supplier companies that are supposedly competing against one another secretly agree on who will win the contract. These companies may have agreements for sharing the profits, for rotating the contract between the bidders, or for agreeing who is to be the successful bidder in a range of different contracts.

In some cases, one organisation is in fact the beneficial owner of several of the bidding firms and does not disclose this fact. Where the defence supplier market is relatively small, one organisation can take ownership of several of the competing suppliers. This gives the impression of a fair and competitive bidding process, when in reality the profits from the contract are channelled to a single company.

A genuinely competitive bidding process is integral to transparent procurement. Collusive bidding allows companies to inflate prices, meaning that governments (and thereby taxpayers) are overcharged for the equipment or services the companies provide. It may mean that there are fewer ramifications for lack of delivery or partial delivery. In addition, it cuts smaller firms and those not complicit in the agreement out of the bidding process.

Overcoming Corruption amongst Collusive Bidders

Governments should require a disclosure of the beneficial owner of all bidding organisations and companies. A contracting government should have done its own analysis of what constitutes a reasonable price for the contract, and it should undertake adequate investigations when the price seems to be higher. It should also be working with the national defence industry association to understand and clarify the nature of the market. The greater the scrutiny of defence companies, the more difficult collusive bidding becomes.

In addition, the lower the number of bidders, the easier it is for them to operate a collusive agreement. Contracting governments should therefore encourage as many companies as possible to enter the bidding process.

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