CONTENTS
- 1. Bid Rigging | Definition and Regulatory Framework
- - Scope of Application
- - Requirements for the Establishment of Collusion
- - Persons Subject to Punishment
- 2. Bid Rigging | Types of Collusion and Levels of Sanction
- - Administrative Sanctions
- - Criminal Punishment
- - Restriction on Bidding Eligibility
- 3. Bid Rigging | Leniency Program for Voluntary Reporters
- 4. Bid Rigging | If You Have Suffered Harm
- - Claim for Damages
- - Reporting to the Fair Trade Commission
- 5. Bid Rigging | Points Frequently Overlooked in Practice
- - Treating Remarks Made at an Industry Gathering Lightly
- - Considering Leniency Only After the Fair Trade Commission Has Launched an Investigation
- - Treating the Preparation of Another Company's Cost Statement as a Convenience
- - Treating Bid Cooperation Conditioned on Subcontracting as Customary
- 6. Bid Rigging | Daeryun's System of Preventive and Responsive Support
1. Bid Rigging | Definition and Regulatory Framework
Bid rigging refers to conduct by which business entities, through a contract, agreement, resolution, or any other method, restrict competition by agreeing in advance on bid prices, the successful bidder, the volume of awarded work, and similar matters.
Article 40 of the Monopoly Regulation and Fair Trade Act expressly prohibits this conduct as an unfair collaborative act, and a single violation can give rise to administrative sanctions, criminal punishment, and restrictions on bidding eligibility at once.
Scope of Application
The rules against bid rigging are not confined to the construction industry.
They reach business entities of every industry and size wherever bidding occurs, whether public or private, and the same sanctions apply when a business entities' association joins in collusion on behalf of its members.
Requirements for the Establishment of Collusion
Bid rigging can be established even without an explicit agreement.
A violation arises not only from a contract, agreement, or resolution but also where an agreement is found to have been reached by any method, including the exchange of information or an implicit understanding.
Where collusion was discussed at a gathering with competitors, a party may be treated as a participant unless clear evidence of its objection or absence remains on record.
Persons Subject to Punishment
The consequences of bid rigging do not stop at a penalty surcharge against the corporation.
An individual officer or employee who took part in the collusion may also face criminal punishment of imprisonment for up to three years or a fine of up to 200 million won, and where the Fair Trade Commission files an accusation, the matter may lead to a criminal investigation and a criminal trial.
On top of this, sanctions imposed as an unfair business operator may exclude the company from the public procurement market for a set period.
2. Bid Rigging | Types of Collusion and Levels of Sanction
Bid rigging falls broadly into the categories set out below.
It covers not only an explicit agreement but also an implicit agreement and indirect coordination through the exchange of information.
Type of Collusion | Principal Conduct |
Bid Price Collusion | Jointly fixing the lowest bid price or the expected award price in advance |
Advance Determination of the Successful Bidder | Choosing the intended awardee in advance and having other companies submit cover bids |
Allocation of Awarded Work | Agreeing to divide the volume of awarded work by project |
Inducement of a Negotiated Contract | Deliberately causing repeated failed bids so that a specific company obtains a negotiated contract |
Interference With Management | A business entities' association directing or intervening in whether to bid or in price targets |
Administrative Sanctions
Once bid rigging is confirmed, the Fair Trade Commission issues corrective measures, such as an order to cease the conduct and publication of the violation, and imposes a penalty surcharge.
The penalty surcharge is set at up to 20% of related sales, or up to 4 billion won where related sales are difficult to calculate.
The larger the scale of the bid, the larger the penalty surcharge may become.
Criminal Punishment
A person who has engaged in an unfair collaborative act, or who has caused such an act to be carried out, is subject to imprisonment for up to three years or a fine of up to 200 million won.
Once the Fair Trade Commission decides to file an accusation, a criminal investigation begins, and both the corporation and the officers and employees who took part directly in the collusion become subject to punishment.
Restriction on Bidding Eligibility
The Fair Trade Commission may ask the ordering agency to restrict bidding eligibility, weighing the degree and frequency of the violation.
For a business entity whose cumulative penalty points for bid rigging over the past five years exceed five points, a request to restrict bidding eligibility must, as a rule, be made.
In that situation, the ordering agency may impose sanctions as an unfair business operator, barring the company from bids conducted by state agencies or local governments for a set period.
3. Bid Rigging | Leniency Program for Voluntary Reporters
Where a party has in fact participated in bid rigging, reporting it voluntarily before an investigation begins is the prudent course.
Category | Corrective Measures | Penalty Surcharge | Accusation |
Voluntary reporting (before commencement of investigation), first in priority | Exemption | Exemption | Exemption |
Voluntary reporting (before commencement of investigation), second in priority | Mitigation | 50% mitigation | Exemption |
Cooperation with the investigation (after commencement of investigation), first in priority | Mitigation or exemption | Exemption | Exemption |
Cooperation with the investigation (after commencement of investigation), second in priority | Mitigation | 50% mitigation | Exemption |
A party that reports voluntarily as the first in priority before an investigation begins may be exempted from corrective measures, the penalty surcharge, and an accusation altogether.
Once an investigation has begun, by contrast, the requirements and scope of relief may be limited, and the range of available strategic choices may narrow as well.
4. Bid Rigging | If You Have Suffered Harm
Bid rigging is not only a problem for the business entities that take part in it.
Where collusion pushes the award price unfairly high, the ordering agency is harmed by the amount it would not have had to pay had genuine competition occurred.
A competing company shut out of the collusion may also be a victim, deprived of a fair chance to win the award.
Claim for Damages
The Monopoly Regulation and Fair Trade Act allows a person harmed by an unfair collaborative act to claim damages from the business entities that took part in the collusion.
Because measuring the harm caused by collusion is technically complex, expert review may be necessary, drawing on Fair Trade Commission decision records, award price analysis, market comparison, and similar tools.
Reporting to the Fair Trade Commission
An ordering agency or an affected company that learns of collusion may report it to the Fair Trade Commission and press for an investigation.
Filing the report together with specific circumstances and materials that point to collusion can raise the likelihood that an investigation will open.
5. Bid Rigging | Points Frequently Overlooked in Practice
Bid rigging often grows out of a complacent belief that it is "just something everyone in the industry does."
The situations below are the ones that typically cause trouble in actual practice.
Treating Remarks Made at an Industry Gathering Lightly
If personnel from competing companies traded remarks at a gathering about the price of a particular bid or about which company wanted to win it, suspicion of collusion may arise even without an explicit agreement.
A clear objection followed by departure must be left on record.
Considering Leniency Only After the Fair Trade Commission Has Launched an Investigation
Once an investigation has begun, the leniency benefit shrinks sharply.
To secure the largest possible reduction, whether to report should be reviewed with an expert as soon as the collusion comes to light.
Treating the Preparation of Another Company's Cost Statement as a Convenience
Preparing or copying another company's cost statement on its behalf is a clear act of collusion.
Though common in the field, the practice draws severe sanctions once it is detected.
Treating Bid Cooperation Conditioned on Subcontracting as Customary
Asking another company to cooperate in a cover bid on the condition that part of the work will be subcontracted after the award is collusion that amounts to advance determination of the successful bidder.
6. Bid Rigging | Daeryun's System of Preventive and Responsive Support
Bid rigging is a complex matter in which a Fair Trade Commission investigation, a criminal investigation, sanctions as an unfair business operator, and a civil claim for damages may all unfold at the same time.
Resolving any one of these does not close the matter, and the way a party responds at the early stage of the investigation has a decisive effect on the final outcome.
Preventive Measures
∙ Diagnosis of collusion risk in industry gatherings and business entities' association activities
∙ Advisory on building an internal compliance system for bidding
Responsive Measures
∙ Reviewing whether to apply for voluntary reporting (leniency) and supporting the reporting procedure
∙ Contesting corrective measures and penalty surcharge dispositions through adjudication and litigation
∙ Responding to criminal investigations and accusations related to collusion
∙ Administrative adjudication, administrative litigation, and applications for a stay of execution against sanctions imposed as an unfair business operator
∙ Pursuing and responding to claims for damages by ordering agencies or affected companies
The moment notice of the commencement of a Fair Trade Commission investigation arrives, or the period right after the collusion comes to light, is the most critical window.
Law Firm Daeryun has many fair trade attorneys with experience handling matters across the fair trade, criminal, and administrative fields.
If you need legal counsel in connection with bid rigging, you may have your case assessed through the 🔗fair trade law attorney legal consultation.
