17 June 2021
#Dispute Resolution & Litigation, #Competition & Consumer Law, #Government, #Procurement
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:
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.
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:
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:
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
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.