Two roof tiling companies and their sole directors have been penalised $420,000 in Federal Court proceedings for illegal cartel conduct. The directors admitted that they breached cartel laws by bid rigging two slate roofing projects.
Background
Wesley College at Sydney University had sought tenders for a slate roofing project. First Class Slate Roofing and another company called “Mr Shingles” both wished to tender for the work. The sole director of First Class Slate Roofing, Scott, called and texted the sole director of Mr Shingles, Damian, to offer him $10,000 if Mr Shingles submitted a higher bid for the project than his company, First Class Slate Roofing. This would allow Scott’s company to win the tender.
Later, Scott offered to return the favour. Aware that Mr Shingles was tendering for another slate roofing project, he texted Damian to say he would arrange for First Class Slate Roofing to submit a higher bid if Damian paid him $2,000. Again, Damian accepted the offer.
Both companies won their respective tenders. Installing and repairing slate roofing is a highly specialised area – due to the lack of competition – and the bid rigging between two parties proved effective. Where there are more competitors, big rigging efforts can be complex, requiring cooperation between a large number of parties.
What next?
The Australian Competition and Consumer Commission initiated an investigation as soon as it became aware of the conduct. Notices were issued to both companies and their directors, requiring them to produce information, including text and phone call records. Both directors were compelled to attend a formal interview and give evidence on oath. After considering the information obtained, the ACCC instituted civil proceedings against the companies and the directors personally, alleging illegal cartel conduct.
What is Illegal Cartel Conduct?
Provisions in a contract, understanding or arrangement between competitors is known as a ‘cartel provision’ if it has the purpose, effect, or likely effect of price fixing or the purpose of bid rigging, market sharing, output restriction or acquisition restriction.
Bid rigging refers to two or more competitors agreeing not to genuinely compete for tenders, making it more likely one competitor will win over the other. In this instance, the two contractors took turns to be the ‘winner’ and take some benefit.
Section 45AJ of the Competition and Consumer Act 2010 (Cth) concerns making an arrangement which contains a cartel provision. Section 45AK concerns giving effect to a cartel provision.
Cartel conduct through bid rigging, like the current example, serves to deny the consumer the benefit of a genuinely competitive tender process, including the chance to negotiate a lower contract price for the services provided.
The Court Orders
The Court made it clear that deterrence was the primary objective in making penalty orders. It was noted that the conduct was deliberate and involved aspects of falsification and concealment. These factors favoured a high penalty.
On the other hand, the court recognised that the benefits derived were modest, each party made a full admission, and neither had been found to have previously engaged in cartel conduct.
First Class Slate Roofing was ordered to pay $280,000 and its sole director, Scott, was ordered to pay $60,000. Mr Shingles was ordered to pay $65,000 and its director, Damian, was ordered to pay $15,000.
The parties were also ordered to attend compliance training, as well as publishing an educative notice to other participants in their industry. The notice, sent by email or post, titled “don’t do what we did — rigging bids for roofing projects is illegal!”.
Takeaways
The educative notice published by the parties included the following information on how to prevent cartel conduct:
- Avoid discussing customers, pricing (including bids for projects) with your competitors.
- Never make an arrangement with a competitor on prices you or they will charge when tendering.
- Never agree to limit goods and services you supply or allocate customers or geographic areas.
- If you are approached by a competing business to discuss matters relating to pricing, customers, or bidding, report it to the ACCC.
~ with Sean Hollis, Graduate at Law
