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Guide to Combating Corruption & Fraud in Infrastructure Development Projects

  • Detection
    • Complaints
      • General initial interview questions
      • How to Generate Complaints and Reports
      • List of fraud reporting sites for Multilateral Development Banks
    • Red Flags
      • Red Flags Listed by Project Cycle
      • “Visible red flags” of Implementation Fraud
      • Proactive Fraud Detection Tests
    • Due Diligence
      • “Top Five” Due Diligence Background Checks
      • Free and Subscription Internet Sites
      • Local and On-Site Due Diligence Checks
      • Due Diligence Service Providers
  • Proof
    • Proving Common Schemes
      • Corruption Schemes
      • Bid Rigging Schemes
      • Collusive Bidding Schemes
      • Fraud Schemes
      • The Basic Steps of a Complex Fraud and Corruption Investigation
    • Elements of Proof for Sanctionable Offenses
      • Elements of Proof of Corrupt Practices
      • Elements of Proof of Obstructive Practices
      • Elements of Proof of Coercive Practices
      • Elements of Proof of Collusive Practices
      • Elements of Proof of Fraudulent Practices
  • Evidence
    • The Basics of Evidence for Investigators
  • Prevention
    • Anti-fraud Resources
Home » Proof » Most Common Schemes » Potential Scheme: Unbalanced Bidding

Potential Scheme: Unbalanced Bidding

“Unbalanced bidding” includes a number of schemes in which bidders manipulate line item bid prices in order to gain an advantage in the bidding process.  The schemes include:

  • “Front loading:” deliberately submitting artificially high item bids for the early stages of a construction project, offset by artificially low line item bids for later stages of the project, in order to improve the contractor’s cash flow
  • Quoting high prices on line items that the contractor knows – perhaps by being tipped off as the result of bribes to project officials – will be the subject of change orders that increase the quantity of goods or works required.  For example, in a road project a bidder might quote a very high price for each cubit meter of earthworks to be moved, knowing that the number of cubic meters that need to be moved will be drastically increased after the contract award.  The bidder might reduce the price of other line items in order to offset the price increase for the selected line item
  • Quoting dramatically lower prices on line items that the bidder knows – again perhaps by being tipped off by corrupt  officials – will not be called for after contract award. This information allows the favored bidder to drastically lower its price on the unneeded items to defeat its uninformed competitors.  In a variation of the above, project officials can allow certain line items to remain in recurring contracts that have never been called for in the past and which will not be called for in the future, to allow the current, informed contractors to lower their prices and defeat uninformed newcomers.

Unbalanced bidding is one of the more effective bid rigging schemes because the manipulation is not as obvious as other bid rigging methods, such as rigged specifications or unjustified sole source awards.  Project officials can facilitate the scheme by drafting vague or incomplete specifications to obscure the actual contract requirements and further disadvantage competitors

RED FLAGS OF UNBALANCED BIDDING

  • Certain line item bid prices appear to be unreasonably high or low
  • Change orders issued after contract award extending the line item requirements (in case of high line item bids) or reducing or deleting them (in case of low line item bids)
  • Presence of line items that have not previously been called for
  • Wide disparity in bid prices (because bidders are uncertain of the actual requirements)
  • Indications that the favored bidder met or communicated with project officials during the procurement process

CASE EXAMPLES OF UNBALANCED BIDDING

See actual case example of unbalanced bidding from investigated cases.

BASIC STEPS TO DETECT AND PROVE UNBALANCED BIDDING

  1. Identify and interview all complainants to obtain further detail.
    • General interview questions
    • Unbalanced bidding questions
  2. Obtain the  following documents and examine them for the red flags listed above:
    • Requests for bids and line item specifications
    • Winning and losing bids
    • Bid evaluation reports
    • Contract
    • Change order requests and approvals
  3. Determine if there were complaints from losing bidders regarding vague or inadequate specifications. Contact the losing bidders to obtain further details.  Consult industry sources for assistance in technical contracts.
  4. Interview witnesses and examine telephone, email records and visitors logs to determine if there were communications or meetings between a bidder and project officials during the bidding period.
  5. Examine the winning and losing bidder’s line item bids and note unreasonably low or high line item bids.
  6. Examine change orders affecting the relevant line items and review for reasonableness.
Category: Most Common Schemes

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