Government procurement: Detecting and deterring bid rigging conduct

Government tenders are incredibly lucrative for private sector tenderers to secure. This is particularly so given the significant procurement activity that all levels of government are engaging in this economic recovery phase from the COVID-19 pandemic. 

The lucrative nature of these government procurements gives rise to a temptation by a tenderer or tenderers to try and manipulate the bidding for such government tenders through “bid rigging”.

This article provides you with an overview of “bid rigging” conduct, recent ACCC enforcement action for bid rigging cartel conduct arising from government procurement activity and tips for government lawyers to detect and deter such conduct occurring on your procurement.

So what is “bid rigging”?

Bid rigging refers to the conduct of competitors conspiring among themselves to determine how they ought to respond in a bidding process instead of competing fairly. It can also relate to an “attempt” to conspire. According to Public Procurement Toolbox’s ‘Guidelines for detecting bid rigging in public tenders’ here, some examples of bid rigging include:

• cover bidding – this occurs when a competitor agrees to submit a non-competitive bid that is too high to be accepted or contains terms that are unacceptable to the buyer
• bid suppression or withdrawal – this occurs when a competitor agrees to withhold from making, or withdraw, a bid from consideration
• market sharing – this occurs when a competitor agrees to place bids only in certain geographic locations or only to certain public organisations
• bid rotation – this occurs when competitors agree to stagger winning business while monitoring their market shares to ensure they all have a predetermined success rate
• non-conforming bids – similar to cover bidding in some respects, this occurs when competitors deliberately include terms and conditions they know will not be accepted by the procuring authority.

The risks of bid rigging are high and to the detriment of the procuring entity or even the greater public. For example, if a government department pays an inflated price for the goods or services it procured, the burden of the reduced quality or additional costs will likely be borne by Australian taxpayers.

Cartel conduct

Bid Rigging is one form of cartel conduct under the Competition and Consumer Act 2010 (Cth) (Act).

Cartel conduct is anti-competitive conduct and exists when there is a provision in a contract, arrangement or understanding between competitors that has the purpose or effect of fixing prices, restricting supply, allocating customers or geographic areas or rigging bids (“bid rigging”). Known as the “cartel provisions”, this behaviour is strictly prohibited by the Act (under sub-sections 45AA to 45AG) and is considered the most serious contravention of competition laws.

Should an individual be found guilty of cartel conduct, they could face civil or criminal penalties (up to 10 years imprisonment or fines exceeding $400,000). Corporate entities also face civil and criminal penalties the greater of three times the total benefit or 10 per cent of annual turnover.

Action taken by the Australian Competition & Consumer Commission (ACCC)

Enforcing cartel laws is an enduring priority for the ACCC, which we highlighted in our previous article here. The ACCC has recently pursued significant bid rigging cartels arising out of government procurement activities.

National Gallery of Australia

On 13 May 2021, the ACCC released a statement advising they have commenced proceedings in the Federal Court of Australia against Delta Building Automation Pty Ltd (Delta) and its sole director, Mr Timothy Davis. The ACCC are pursuing Delta and Mr Davis for their involvement in alleged bid rigging conduct in a tender conducted by the National Gallery of Australia in Canberra.

It is alleged that in late 2019, Mr Davis, a director of Delta, met with a competitor in a Canberra café and attempted to fix the price of bids to be submitted by Delta and its competitor in response to the National Gallery’s building management systems tender. A building management system is a computer-based system installed in buildings to manage and monitor a building’s equipment such as air-conditioning, lighting, and power systems. 

The ACCC has said that the cartel arrangement was not executed because the competitor rejected Mr Davis’ and Delta’s tactic. The ACCC are seeking declarations, pecuniary penalties, injunctions and costs, as well as an order disqualifying Mr Davis from managing a company, and orders for compliance training.

What to look out for in your next procurement

In light of the above enforcement action and the significant consequences for competition arising from bid rigging, it is important that government lawyers are aware of signs that bid rigging may be occurring on their procurement. This could include:

• whether the goods or services you are procuring are susceptible to bid rigging. For example, bid rigging is likely to be more prevalent if the goods or services are standardised and suppliers or bidders can reach an agreement that is likely to last a long time
• no apparent reason for the absence of regular suppliers or bidders from competing in the tender
• irregular or suspicious bidding patterns. Consider the previous bidding patterns, the geographic locations and any previous success or otherwise, repeat suppliers or bidders in conjunction with the type and size of your tender
• fewer suppliers or bidders competing in the tender
• suppliers or bidders who appear to be alternating at winning tenders, sharing contracts by value, subcontracting to competitors with higher bids, or deliberately including unacceptable terms in tenders
• any potential communication between suppliers or bidders before the close of tender instead of the procuring entity. While this may be done via telephone or email, this form of communication does leave a paper trail. Competitors may be meeting in public repeatedly to discuss cartel arrangements (this recently occurred in the National Gallery of Australia cartel proceedings – see our previous section)
• a firm of professional advisers representing several suppliers or bidders in the same tender. Look out for bids that are produced together, or similarities in the documents produced by each supplier or bidder (including minor, cosmetic errors) as this may indicate collusion.

In addition to the hefty penalties prescribed by the Act for bid rigging cartel conduct, some other possible deterrents for suppliers or bidders from the temptation of bid rigging on your next procurement may be to:

• keep bids confidential and critically analyse each bid for any similarities or inconsistencies
• obtain disclosure from your suppliers or bidders regarding subcontractors and their market pricing
• be alert to the market prices of your suppliers or bidders and whether there have been any recent changes (including in other jurisdictions).

You have detected bid ridding conduct – what next?

If you detect conduct that demonstrates bid rigging may be occurring on your procurement, the recommended course of action is to report your concerns to the ACCC. You should also consider whether there are other reporting requirements placed upon you as government lawyers.

If you have concerns regarding possible bid rigging conduct on your government procurement, please do not hesitate to contact our Competition & Consumer Law team. We can assist you with assessing the bidding behaviour and also, if necessary, assist you with any notification needed to the ACCC or referral to your relevant corruption watchdog.

Authors: Joanne Jary & Ashleigh Sams

Disclaimer
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.

Published by:

Joanne Jary

Ashleigh Sams

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