The recently published Competition and Markets Authority (CMA) guidance provides practical advice on how to avoid bid rigging and cartel activity.
The guidance warns that construction directors, managers and suppliers should be aware that bid rigging can take many forms, for example:
- bid rotation – agreeing to take turns to submit the lowest bid;
- bid suppression – one or more firms agree not to bid or withhold their bids;
- cover pricing – bidders arrange for or more bidders to submit an artificially high bid, which distorts the impression of what is a competitive or market price; and
- other cartel activity such as sharing commercially sensitive information, fixing prices and an agreement to divvy up the market.
The CMA also included a link to a construction cartel case study in the guidance to assist to identify anti-competitive behaviour.
The guidance also warns of the consequences of bid rigging and cartel activity in the form of large fines (up to 10 per cent of annual turnover), disqualification from company management and personal fines for directors, criminal prosecution, potentially long-lasting reputational impact and damages claims.
Contractors should also be aware of the risk of exclusion from tenders.
Under the Public Contracts Regulations 2015 bidders can be excluded from competitions where the contracting authority has sufficiently plausible indications to conclude that the bidder has entered into agreements with other economic operators aimed at distorting competition, including the forms of bid rigging and cartel activity highlighted above.
The decision to exclude would be taken on a tender by tender basis: there is no “blacklist” or wholescale debarment under the Regulations, but certainly central government departments are likely to take a uniform approach to exclusion unless the contractor has demonstrated that it has taken remedial measures to prevent repetition of the conduct - so called “self-cleaning”.
Finally, the guidance gives practical tips to construction suppliers, project directors and managers as to “what they can do”.
Construction managers and directors are advised by the CMA to:
- make clear to suppliers that they are on the lookout for signs of anti-competitive behaviour and will report any suspicions to the CMA;
- not take shortcuts by getting regular suppliers to source competing bids for a project as doing so could lead to inadvertently facilitating anti-competitive behaviour;
- make bid qualifications as wide as possible so that they can be met by the broadest range of suppliers;
- shop around for suppliers when inviting bids;
- request that bids are broken down into as much detail as possible for transparency
- ensure that records are kept for bid comparison purposes;
- insist that main contractors use a competitive process to award subcontracts;
- require that a signed declaration is obtained from each bidder as a contractual requirement;
- do not arrange meetings to bring together competitors to discuss a tender where the intention is to appoint one supplier; and
- in the case of joint tenders and integrated procurement bids, set clear ground rules at the start of meetings where competing suppliers are present.
The CMA also suggests including a link to its campaign page Cheating or Competing? and the company’s reporting message as part of the tender documents.
It is interesting that the CMA has produced guidance which is targeted to the construction sector. This serves as a reminder of the importance for those operating in construction of understanding competition risks and ensuring adequate systems are put in place to mitigate those risks, including clear policies, relevant training and effective internal speak-up systems.
For more on anti-competition risks and the key elements of effective compliance programmes, see our antitrust 10 key themes.