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ACCC warning on cartel conduct risk in public sector tenders

10 November 2021

#Government, #Corporate & Commercial Law, #Procurement, #Competition & Consumer Law

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ACCC warning on cartel conduct risk in public sector tenders

Procurement professionals in the government sector should be alert to the potential for cartel conduct in relation to tenders after the Australian Competition and Consumer Commission (ACCC) issued a warning to public sector agencies. The ACCC highlighted the issue following a recent investigation in which it identified departmental processes that contemplated cooperation by competing businesses on government tenders.

“Cartel conduct by businesses tendering in a public sector procurement process is illegal, just as such conduct is illegal in the context of a private sector tender,” ACCC Chair Rod Sims said.

“Encouraging businesses to discuss their bids with each other, or to make arrangements about who will bid for a particular tender, is likely to amount to cartel conduct which is against the law.”

Cartel conduct

Cartel conduct occurs when businesses agree to act together rather than competitively. Such conduct may involve price fixing, bid rigging, market sharing, or controlling the amount of goods or services available.

Collusion between bidders in public sector procurement processes can cause significant negative impacts on government organisations and the public generally. Where bids are sought from multiple suppliers, an effective procurement process relies on firms competing for business so that prices are determined through the market and successful bids provide the best value for money.

Impact on public sector procurement

Cartel behaviour can have the effect of increasing the price paid by government when procuring goods and services, with the potential for substantial detriment to taxpayers.

Public sector procurement is a multi-billion dollar sector. In 2019-20, the Australian Government published contracts on AusTender with a combined value of $53.9 billion. Therefore, it is essential that all Australian Government tender processes are not affected by cartel conduct to obtain value for money when engaging in public expenditure.

Current Federal Court proceedings

The ACCC has instituted civil proceedings in the Federal Court of Australia against a company and its sole director in relation to a tender process conducted by the National Gallery of Australia. The ACCC alleges that the company and its director attempted to fix the price of bids on a tender for a replacement building management system by approaching a competitor. The ACCC is seeking pecuniary penalties, injunctions and declarations. It has also sought that the director be disqualified from managing a company. The matter remains before the Court.

Minimising the risk

The ACCC’s warning is a reminder that public sector agencies should be aware of the risks of cartel conduct and take steps to guard against the issue. The ACCC recommends designing procurement processes to deter businesses from breaching cartel laws during the procurement process. Procurement professionals should also review their processes to ensure they minimise the potential for collusion between businesses.

Important steps which procurement professionals can take include:

  • anti-collusion tender clauses: Require bidders to sign a warranty confirming that their bid has been developed independently from their competitors and collusion has not occurred
  • disclosure of proceedings: Require tenderers to disclose any proceedings involving anti-competitive conduct in Australia or overseas
  • confidentiality: Keep decision-making processes and policies confidential, ensuring that the identity of bidders and the value of bids are not disclosed until contracts are awarded
  • competitive tender design: Design the process to attract as many bidders as possible and consider periodically changing aspects of engagement with the market over time when retendering for similar services or goods
  • training: Train procurement professionals in how to notice warning signs of cartel conduct and appropriate action if they become aware of issues
  • monitoring outcomes: Keep records of past tenders and pricing in relation to similar goods and services so that they can be analysed over time
  • notification to the ACCC: Warn bidders in tender documentation that all suspected instances of collusion will be reported to the ACCC.

If you have any queries about designing procurement processes to deter cartel conduct, please speak to us or contact us here.

Author: Elizabeth Carroll

The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

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