Is your business tendering for public-sector work? ACCC issues warning on tender conduct that may be illegal cartel conduct
The competition watchdog has issued a warning to public sector agencies of potential collusion, better known as Cartel Conduct.
The Australian Competition and Consumer Commission (ACCC) raised caution to public servants and businesses of breaching cartel laws during procurement process. This insight will cover what constitutes cartel conduct, the penalties, and how to minimise the risk of engaging in cartel conduct.
- The ACCC is warning public sector agencies to be alert to the potential for collusion between bidders during the procurement process.
- Never agree or even try to agree with a competing business on the prices you or they will charge, or what discounts will be offered.
- It’s important that businesses working in public sector procurement proactively review their procurement process, and identify and remedy any anti-competitive elements that could lead to substantial fines.
- Educating staff in procurement about cartel conduct and implementing anti-collusion clauses can assist in minimising risks.
- Keep records of past tenders and pricing in relation to similar goods and services so that they can be analysed over time.
- Obtain independent legal advice to assist you in developing or remedying any current procurement processes, to ensure they do not breach Cartel laws
What is Cartel Conduct?
Cartel Conduct is where businesses agree to act together in a ‘cartel’, instead of competing. Cartel behaviour cheats both consumers and businesses, restricting natural economic growth, price increases, and reduced investments. It is when, during the procurement process, businesses rig bids, agreeing who will or will not bid for a particular tender, and for what prices. This creates an illusion that there is competition, while driving up profits of the cartel participants. Other types of conduct involve price fixing, bid rigging, market sharing, or controlling the amount of goods or services available.
To be in breach of a cartel provision under the Competition and Consumer Act 2010, a business must only attempt to engage in conduct which amounts to cartel conduct. If the businesses acting together are owned by the same company, this is not a cartel.
Recent Alleged Conduct
The ACCC in recent years has experienced public servants and businesses not being aware of the risks of breaching cartel laws during the procurement process.
Last year the ACCC began proceedings against a building management systems developer, Delta Automation Pty Ltd, and its sole director, for allegedly attempting to rig a bid, by fixing prices submitted to Delta for a tender conducted by the National Gallery of Australia. The ACCC is seeking pecuniary penalties, injunctions, declarations and costs, in addition to an order disqualifying the sole director from managing a company.
The chair of the ACCC, Rod Slims, commented that “encouraging businesses to discuss their bids with each other, or to make agreements about who will bid for a particular tender, is likely to amount to cartel conduct, which is against the law”. He further warned that cartel activity can start with “a small encouragement or an innocent remark”, which sparks an environment enabling collusion between competing firms.
The ACCC recommends that public sector procurement officers ensure their current procurement processes are constructed to prevent businesses from breaching cartel laws, and to minimise collusion. It is important for them to identify and remedy any potential anti-competitive elements in their procedures or guidelines.
Other steps to be taken include:
- Anti-collusion clauses: Require bidders to sign a warranty confirming that their bid has been developed independently from their competitors
- Disclosure of proceedings: Require the tenderer to disclose any proceedings involving anti-competitive conduct in Australia or overseas
- Competitive tender design: Ensure the process is designed to attract as many bidders as possible, and attempt to periodically change their market engagement when retendering for similar goods or services
- Training: Improve training for procurement professionals, specifically on noticing signs of cartel conduct and how to appropriately remedy these issues when they arise
- Notification to the ACCC: Warn bidders in tender documentation that all suspected instances of collusion will be reported to the ACCC
These measures should assist in preventing a business from facing significant penalties from the ACCC.
Where a corporation breaches cartel conduct provisions, the maximum penalty is the greater of:
- $10 million; or
- Three times the value of the benefits gained through the cartel; or
- Where the illegal benefits value cannot be ascertained, 10% of the annual turnover of the corporation in the previous 12 months
For Individuals, it is a civil penalty of $500,000. The Courts can also disqualify directors and officers from managing companies.
Criminal penalties can also apply, and include imprisonment of up to 10 years, and fines of up to $420,000 per infringement.
Remember, 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.
If you require advice or assistance in relation to the risks of cartel conduct and designing a procurement process that prevents collusion and cartel conduct, please contact us today on (02) 9189 5288.
Craig Higginbotham and Nicole Sarraf
30 November 2022