Introduction
The warning was motivated by recent experiences of the ACCC which indicated public servants and businesses were not always sufficiently aware of the risk of breaching cartel laws during the procurement process. Whilst the ACCC was light on the detail of the precise source of its concerns, it indicated that it had identified government departmental procurement processes which contemplated cooperation between competing businesses responding to government tenders.
What is Cartel Conduct?
Cartel conduct occurs when businesses agree to act together rather than competing with one another. In procurement processes, it typically involves businesses discussing their bids with each other, or making agreements as to who will and will not bid for a particular tender. This behaviour is designed to drive up the profits of cartel participants whilst maintaining an illusion of competition between bidders.
To be in breach of the cartel conduct provisions in the Competition and Consumer Act, it is only necessary for a business to attempt to engage in such conduct. As an example of this, the ACCC is currently prosecuting a company and its director for an alleged attempt to rig a bid in connection with a tender issued by the National Gallery of Australia.
Cartel Conduct in Response to National Gallery of Australia Tender Request
In that matter, the ACCC alleges that a building management systems developer, Delta Automation Pty Ltd (“Delta”), and its sole director, Timothy Davis, attempted to rig the bidding for the National Gallery’s tender for a new building management system. The alleged conduct involved Mr Davis, during a meeting with a representative of a competitor of Delta, attempting to fix the price of the bids to be submitted by the competing businesses.
The ACCC alleges that the arrangement did not eventuate because it was rejected by Delta’s competitor. The case remains before the Federal Court, with the ACCC seeking declarations, pecuniary penalties, injunctions and costs, as well as an order disqualifying Mr Davis from managing a company, and orders for compliance training.
Mitigating the Risks of Cartel Conduct
To guard against cartel conduct, the ACCC recommends that public sector procurement officers take steps to ensure their procurement processes are designed to both deter businesses from breaching cartel laws and minimise the potential for any collusion.
Such steps are generally quite simple, such as including in tender documentation both a requirement that bidders sign a warranty confirming that their bid has been developed independently from competitors, as well as a warning that any suspected instances of collusion will be referred to the ACCC.
For businesses bidding on such tenders, educating relevant staff on the importance of developing bids independently should be relatively straightforward. Such measures should assist in preventing the business facing the significant penalties that the ACCC can seek for breaches of cartel laws, whilst also avoiding the PR consequences of trying to artificially inflate the prices taxpayers pay for goods and services.
Need more guidance?
If you would like further information or advice on navigating the risks of cartel conduct in the course of either issuing or responding to tenders, please contact our team.
~ Article by Michael Timlin, Lawyer
