Cartel agreements to fix prices directly or by way of collusive tendering (also known as bid-rigging) are considered by competition authorities to be among the most serious types of anti-competitive behaviour.
This is the most recent example of competition regulators imposing stringent penalties on cartel activity in the construction sector. In the 1990s a number of UK ready-mixed concrete firms were fined £8.3m for anti-competitive activities, and at the European Union level the European commission imposed a *250m fine on 42 firms involved in cartel activity in the cement sector (reduced on appeal).
In the UK, anti-cartel rules are contained in the Competition Act 1998 and the Enterprise Act 2002. The Competition Act contains a prohibition on anti-competitive agreements, which is modelled on the EU's competition rules, which apply to businesses operating on a pan-European basis. The OFT has extensive investigatory powers to enforce this legislation, for example by carrying out dawn raids on business premises to collect evidence of anti-competitive behaviour. There are heavy sanctions for infringement: contracts are rendered unenforceable; third parties, such as aggrieved customers, may sue for damages to compensate for loss suffered as a result of the infringement; and, most seriously, the OFT can impose fines of up to 10% of group turnover.
The Enterprise Act makes this regime even tougher. It introduces US-style criminal sanctions for serious cartel activities. Individuals such as company executives who are involved in a cartel face personal liabilities, alongside the sanctions attached to the companies in which they work.
The criminal offence is committed when an individual dishonestly agrees with one or more other persons to implement arrangements involving businesses in price-fixing, market-sharing, limiting production, or bid-rigging. Those found guilty face personal fines or a prison sentence of up to five years. Separately, directors of companies may now be disqualified from holding directorships for up to 15 years.
The competition authorities' powers of investigation have also been strengthened. When undertaking raids they are able to take away original documents or computers on which evidence may be stored. They also have powers to bug phones and use informants. Under both sets of rules there are leniency regimes whereby parties that come forward with evidence of a cartel in which they have been involved benefit from reduced penalties or full immunity.
So what are the rules about co-operating in tender processes? Two forms of co-operation need to be distinguished: collusive tendering, which is strictly prohibited, and joint bidding or tendering, which may be permissible.
Collusive tendering occurs when competitors decide to co-operate without telling the procuring organisation. For example, they may agree among themselves that they will not submit tenders below a certain price or that some of them will not submit tenders at all, perhaps as part of a more elaborate long-term arrangement whereby competing firms take it is turns to win successive contracts. The OFT has identified tell-tale signs of bid-rigging for purchasers to spot. These include where suppliers unexpectedly decline an invitation to bid, or there is an obvious rotation of successful bidders.
Joint bidding, by contrast, is where potentially competing tenderers openly submit a joint bid to the procurer. This may be acceptable in competition law terms if, for example, the participating companies could not on their own meet the contract requirements.
The lesson here is that companies should avoid getting involved in situations where they covertly consult with competitors on elements of a tender or bid, and they should handle even legitimate joint bids with care.
Postscript
Mark Jones is a partner at international law firm Norton Rose.
No comments yet