When Does Shaping an RFP Become Bid Rigging?

Joel Jasmin via Unsplash

The US Department of Justice announced “the formation of the new Procurement Collusion Strike Force (PCSF) focusing on deterring, investigating, and prosecuting antitrust crimes, such as bid rigging conspiracies and related fraudulent schemes, which undermine competition in government procurement, grant and program funding.”

It is an interagency group made up of people from Justice’s Antitrust Division, 13 US Attorneys’ Offices, the FBI, the DoD Inspector General, the USPS Inspector General and “other partner federal offices of Inspector General.”

They are targeting those who would “cheat, collude and seek to undermine the integrity of government procurement.” This fits right in with the traditional role of the Inspectors General in identifying and eliminating “waste, fraud, and abuse” in government, at every level.

By the historical examples they cite in the release, the Strike Force presumably addresses suppliers acting in concert to defraud the government buyer based upon the “five South Korean oil companies,” and “seven individuals for conspiring to rig bids and to defraud the government.”

Consider these terms: fraud, abuse, conspiracy. The dictionary definition of conspiracy is “a secret plan by a group to do something lawful or harmful.” Or, fraud: “wrongful or criminal deception intended to result in financial or personal gain.” Or, abuse: “use (something) to bad effect or for a bad purpose, misuse.”

Notice that the description of the mandate is, in the way of bureaucracy, purposefully broad with the intent to investigate “bid rigging conspiracies and related fraudulent schemes, which undermine competition in government procurement …”

Here’s an interesting question for the Strike Force and any other commercial buyer, too. When a supplier “shapes” an RFP so that other buyers decide not to bid (because they conclude that the buyer has pre-determined the winner of the competition, signaled in the description of work and other rules around the procurement), does that constitute a fraudulent conspiracy?

Is it abusive? Yes, shaping is abusive if it turns the RFP bid solicitation into a pro forma exercise in compliance that defeats its central purpose of getting as many bids in competition on price and service as possible.

Is it a conspiracy? Yes, if we refer to the interaction between the buyer and the supplier who “shapes” the RFP. The buyer saves time and energy by getting the supplier to “write” the RFP for him. And, as I have been told countless times, everyone just knows that this is the way the RFP process works. You can be certain that they don’t tell anyone else that this is how things took place. The buyer may not be sophisticated enough to understand that this has happened himself.

But, is it a fraud? Or, is it just good salesmanship? After all, people do business with one another every day for the purpose of financial or personal gain. The critical test here has to be “wrongful or criminal deception.”

Here’s a blog post talking about the elements of fraud:

“Generally, in order to state a cause of action for fraud or fraud in the inducement, the complaining party must allege (1) a false statement of fact; (2) known by the defendant to be false at the time it was made; (3) made for the purpose of inducing the plaintiff to act in reliance thereon; (4) action by the plaintiff in reliance on the correctness of the representation; and (5) resulting damage to the plaintiff.”

Let’s imagine a scenario. Company XYZ decides that they want to buy trucks because they have determined that trucks are the solution to a problem they have. The XYZ C-Suite appoints an internal team to manage the procurement of the fleet of trucks: a procurement officer (“Jill”) and a line manager (“Bob”), in this case someone who uses trucks in the department he manages.

Bob and Jill are tasked with conducting a process that solicits as many bids from people who solicit trucks as possible so that XYZ can see a diverse array of possible truck solutions and so that XYZ can drive competition on price. They want to find the right truck at the right price, sold preferably by a supplier with low risk (and ideally one owned by someone from a historically disadvantaged group).

Bob doesn’t know anything about buying trucks. Jill may or may not know anything about buying trucks. They are under pressure to make this purchase happen sooner rather than later. Management doesn’t understand what’s involved; they just want to wave their hands around and get the answer. Bob has a day job and no time or budget to conduct market research.

So what does Bob do? He calls Company 123 whom he knows makes trucks, tells them that he is in the market for trucks, and asks for their (free) advice.

But nothing is free. Company 123’s salesperson, Devin, emphasizes all the factors about trucks that 123 is good at and de-emphasizes everything that 123 is bad at. Devin even offers to write up what a sample statement of work might look like.

Bob has his answer! He doesn’t have to do much work. He writes the RFP with Jill, who wraps it in the rules that compliance expects them to have for conducting this kind of auction. Jill emails a number of potential truck suppliers the RFP and she tries to get them to respond.

But when the other vendors see the statement of work, they know that 123 wrote the RFP, which means that 123 is going to win. This is now, as far they can surmise in the asymmetry of information, a done deal. So, why spend tens of thousands of dollars and tens of man-hours putting together a proposal that will fail with virtually perfect certainty.

Maybe XYZ receives proposals from a couple of vendors who don’t get the joke, smaller, scrappier companies that think they might have a shot.

Here’s the argument that one of those small scrappy suppliers might have to argue fraudulent conspiracy.

There was a false statement of fact: submit your proposals because we here at XYZ haven’t made up our minds yet. The RFP lists all the procedures XYZ will use to score and rank the bids in competition, the presence of which reinforces this impression of a level playing field. Bob knows who he is going with and is going through the motions with this exercise. Bob knew that statement of fact was false when he made it.

Bob issued the statement for the purpose of inducing suppliers to act in reliance thereon. If Bob and Jill don’t get enough bids (“three bids and a buy”), then the whole process might fail (depending on the XYZ procurement rules). It will certainly make Bob and Jill look bad if only one or two suppliers submit bids, in any event.

The vendors act in reliance upon the correctness of the representation that it’s a fair fight. What supplier would submit a proposal if he knew he didn’t have a chance of winning?

The resulting damage to the supplier is the time and money he spent on the RFP and the opportunity cost of business he missed by focusing on Bob’s opportunity instead of another opportunity that might have been actually fair.

It’s not hard to make a reasonable case that a “shaped” RFP is a rigged RFP.

What percentage of RFPs are shaped? It’s hard to say. Many of them are won by incumbents, for example. Do you think the incumbent isn’t shaping that RFP continuously? Do a search on Google for “shape the RFP” and you’ll see plenty of instructions on how to do it.

By this logic, any shaping of an RFP is bid rigging. It doesn’t matter if it’s government purchasing or a commercial buyer. Is this way your organization wants to do business as a buyer? Are you serving your stakeholders and obtaining the best value-for-money? Are you willing to take this kind of legal risk?

Does shaping help your organization get value-for-money? The answer is obviously no. Your employees cut corners and your firm pays the price.

EdgeworthBox makes shaping of the RFP irrelevant and unnecessary if the underlying cause is speed and access to data. Our central clearinghouse of data gives buyers access to plenty of examples of statements of work for any conceivable purchase. Our social networking tools give them access to other buyers so they can get market information from unbiased, neutrally disposed individuals who have no interest in shaping an RFP. The user experience makes it easy and simple to access a wider variety of suppliers and to lower the frictions for them in responding to an RFP so that they don’t have to respond only to those they think they can win with near-perfect certainty. And our audit trail of communications means that compliance can rest easy. Give us a shout or take a free trial.

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Founder & CEO, EdgeworthBox. Investor and entrepreneur. I want to change the RFP business process.

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Chand Sooran

Chand Sooran

Founder & CEO, EdgeworthBox. Investor and entrepreneur. I want to change the RFP business process.

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