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Bidding is a primary channel for industrial, trading and construction enterprises to secure business opportunities, but it is also a high-risk area for criminal activities.

Risks and causes

The main criminal risk in the bidding process is collusive bidding, often accompanied by commercial bribery. According to article 223 of the Criminal Law and Regulations on the Implementation of the Bidding Law, collusive bidding includes:

• Collusion among bidders, often manifesting as bid rigging, where multiple entities submit bids but, regardless of which one wins, the contract is ultimately executed by the organising bidder; and
• Collusion between bidders and the tenderer, often involving leaking bid prices or bribing evaluators. Commercial bribery in the bidding process typically occurs in this type of collusion.

Other situations considered as collusive bidding include significant price differences and bid bonds transferred from the same account, which are specific manifestations of the above-mentioned two types.

In practice, phenomena such as bid buying, qualification leasing and bid rigging are widespread, yet bidders often fail to recognise their illegality, dismissing them instead as merely unwritten industry norms. This lack of awareness poses significant criminal risks. Enterprises need to recognise these risks and proactively establish internal controls to manage and isolate criminal exposure in bidding processes.

Criminal liability boundaries

Collusive bidding is a typical corporate crime subject to dual penalties: fines for the entity and criminal penalties for directly responsible personnel. However, this does not mean that the legal representative or main responsible person of the company must bear criminal responsibility.

In criminal justice practice, the individuals directly responsible for crimes committed by their organisations are those who make key decisions, approve, instigate, condone or direct such activities. These are typically the organisation¡¯s senior managers, including its legal representatives.

Other directly responsible personnel are those who actually commit the crimes and play a significant role within the organisation. This group can include both management and general staff, whether they are permanent employees or hired on a contractual basis.

Thus, in cases of bid-rigging crimes, whether the legal representative of an organisation should be punished hinges on whether their role in the collusion was crucial or decisive. However, actions like hiring third-party agencies, seeking intermediary services, reviewing bid documents or hosting business dinners, without involving collusion or bribery, do not alone constitute criminal liability.

Compliance measures

Bidding compliance risks are largely controllable. Establishing a comprehensive internal management mechanism can significantly reduce criminal risks for companies and their responsible personnel. Enterprises should focus on building an internal management mechanism in the following key areas.

Institutionalising and standardising bidding operations. Enterprises should establish a comprehensive and executable management system for their bidding operations, requiring staff to adhere strictly to regulations. Internal management policies should explicitly prohibit bid rigging and commercial bribery, with corresponding penalties in place to ensure employee awareness and compliance. Enterprises should also implement a monitoring and reporting mechanism, and develop a clear compliance manual for bidding operations, which should be distributed to all business personnel.

Setting appropriate performance evaluation methods for business personnel. Enterprises should avoid inadvertently encouraging improper practices to win bids and make compliance with laws a prerequisite for performance rewards, as well as incorporate a ¡°one-strike veto¡± mechanism in performance assessments. Individuals who trigger compliance risks should face corresponding sanctions in performance bonuses and promotions.

Strict control of bidding documents. Enterprises should centrally manage bidding documents to prevent leaks. Whether compiled internally or by a third party, these documents should not be disclosed to others. Regardless of whether submissions are electronic or offline, bidding documents must be safeguarded by designated personnel and submitted through the company¡¯s systems, or by its staff. The editing and revision of bidding documents should adhere to principles of traceability and transparency, with all modifications and their justifications communicated along established business reporting lines.

Strengthening third-party management. When engaging third-party agencies for intermediary or technical services in the bidding process, enterprises should sign written contracts specifying service scope and methods, avoiding prohibited content. Enterprises should ensure third parties do not provide similar services to other bidders in the same project to prevent conflicts of interest, and conduct thorough background checks to avoid indirect benefits to the tenderer or its affiliates.

Strengthening bid bonds management. Enterprises should ensure that bid bonds are directly transferred to the tenderer¡¯s designated account, avoiding private transactions and maintaining traceability of bid bonds, as well as avoiding financial interactions with other bidders before and after bidding.

Ensuring bidding project independence. Enterprises should minimise personnel crossover between different projects to reduce leak risks. Group companies should strictly separate personnel, funds and information when participating in the same bidding project, and the parent company should not interfere improperly. Enterprises participating in bids should refrain from prying into information about other bidders or disclosing their own bid evaluation documents to prevent inadvertently forming a de facto alliance, unless they are officially bidding as a consortium.

Su Zhongming is a senior counsel and Fan Yun is an associate at Starrise Law Firm