I don't see any problems with the contest. It involves two clear objectives. Outbid other participants. Bid below the value generated. Thus simulating an actual auction.

There is no rule stating that a participant cannot bid above the maximum. I do not support adding such a rule. For example, a participant could gain from winning two items and lose massively from bidding over the maximum on another. The participant should be penalised for making this mistake. If the bid was void, this participant would gain an unfair advantage.