November 8, 2017
A competitive bidding process is meant to ensure that contracts are awarded to the most qualified vendor at a fair price. A well-designed and suitably controlled process can level the “playing field” with all bids being judged solely on their merits.
False Bids Made One Company Appear the Best Choice
Two men entered guilty pleas in one federal investigation into fraud, money laundering and obstruction of justice involving a public housing project in Detroit, Michigan.
According to the FBI and court documents, the activity involved falsely inflated project bid documents submitted in the name of companies owned by Rodney Burrell, 57, and Brian Dodds, 52.
Burrell’s company was R&R Heavy Haulers and Dodd’s was D&R Earthmoving.
The false bids were used as part of a dishonest scheme to make it appear that the $11.9 million bid submitted by Ferguson Enterprises, Inc. was the lowest bid presented to perform demolition, earth work and utilities installation at the Garden View Estates project. The project involved a large-scale, multiuse public housing project being developed by the U.S. Department of Housing and Urban Development and the Detroit Housing Commission.
In exchange for allowing the false bid to be submitted in the names of their companies, Dodds received a subcontract from Bobby W. Ferguson, Owner of Ferguson Enterprises Inc., worth more than $300,000. In return for allowing the false bid to be submitted in the name of his company, Burrell and R&R Heavy Haulers received a subcontract from Ferguson worth more than $180,000.
According to the FBI, both men provided misleading and incomplete testimony to federal law enforcement agents and to a federal grand jury in an effort to conceal the commission of the conspiracy to defraud the United States. Burrell and Dodds pled guilty in late 2010 and testified for the prosecution in related litigation that continued into 2012.
In today’s highly competitive, global marketplace, gaining an edge over a competitor, however small, can mean the difference between winning and losing a bid. Companies submitting bids may be tempted to take steps to influence an “insider.” Alternatively, vendors may seek to exert influence over their competitors that are also submitting bids.
In one case involving a project for the U.S. Department of Housing and Urban Development and the Detroit Housing Commission, two men pled guilty to involvement in a bid-rigging scheme (details in the right-hand box).
Bid-rigging schemes can take place during the following bid phases:
In addition to the schemes noted above, vendors may also decide to work together to ensure that each vendor is allocated an agreed-upon portion of the overall pool of work subject to bid. By sharing information with each other, vendors will be able to increase prices across the board, which means the purchasing company will be required to pay more than they would have had the vendors not conspired.
Detecting and preventing bribery schemes requires a multipronged approach. Consider taking the following steps:
By design, bidding schemes are meant to be difficult to detect. Since a company’s procurement process involves a lot of “moving parts,” detecting and preventing these schemes requires a concerted effort that calls for a forensic accountant.