What is a Cover Bid?

The Competition Commission lodged a case on 22nd March 2023 in the Competition Tribunal against 4 IT companies. The case told that these companies unfairly obtained 189 projects in “D-biz” with cover bids and the corresponding amount is about 13 million dollars.1 This is the very first case, and what is cover bidding?

Cover bidding is an under-table agreement between competitors that other bidders propose higher price to cover the designated winner. They may also offer poorer conditions. Cover bids are nicknamed “pig quote” as a race between a horse and a pig. The pig’s competition is only for a guarantee.

Review: Know more about Competition Ordinance for funding

Cover bidding is anti-competition

Cover bidding is one type of bid rigging. Bid rigging, in general, is any private agreement to reduce competition. All the detail of a bid, including price, condition and offering, should be confidential and not be disclosed to other bidders (and proxies). According to the First Conduct Rule of “Competition Ordinance”, Chapter 619 of Hong Kong Law, bid rigging is a prohibited anti-competition misbehavior. Offenders can be fined certain percentage of revenue and its directors can also be suspended to be a company director for certain time.

Previous case: ATAL has $150m fine for anti-competitive behavior

Correction: Leniency application

If you ask BizMagnet how we know we are under investigation, we can simply answer: when you are arrested or so. Perhaps you might did bid-rigging or even defraud before and under investigation now. Only for a little interest or convenience and you risk everything. In order to encourage anti-competition reporting, the Competition Commission provides Leniency Policy. The first conductor under certain condition can be immunized from legal action. (This is similar to witness immunity in criminal court case.)

Doing business legally

BizMagnet always emphasizes the importance of legality and not to be trapped in certain TVP frauds. We also anticipate that enforcement become serious. As early as 2021, the author already stated that the HKPC would pass suspicious D-biz cases to enforcement. Legality is the very first rule of doing business.

It was told: BUD Fund: Preview 2022

  1. Competition Commission, 22-03-2023, “Competition Commission takes first cartel case relating to government subsidy scheme to Competition Tribunal”, https://www.compcomm.hk/en/media/press/files/Subsidy_PR_EN.pdf