The Commerce Commission has filed criminal charges against two construction companies and two directors for alleged bid rigging of publicly funded construction contracts
The charges follow a Commission investigation into allegations that the companies and their directors colluded to rig bids for infrastructure projects in Auckland. It is the country’s first-ever criminal prosecution for cartel conduct.
Commerce Commission Chair, John Small, says the criminal proceedings filed in the Auckland District Court send a strong message to businesses that the Commission will not tolerate cartel conduct, and is prepared to lay criminal charges to enforce the law.
“Cartel conduct harms consumers through higher prices or reduced quality, and it harms other businesses that are trying to compete fairly. The criminalisation of cartel conduct in 2021 underlines just how serious and harmful this offending is.
“Bid rigging of publicly funded construction contracts loads extra costs onto taxpayers and the New Zealand economy as conduct of this type undermines fair competition. The Commission will not hesitate to bring criminal proceedings in appropriate cases to ensure kiwis are getting the benefits of fair prices, quality services and more choice.”
What is cartel conduct?
A cartel is where two or more businesses agree not to compete with each other by price fixing, allocating markets or customers, or restricting the output or acquisition of goods and services. Bid rigging is a form of price fixing and can also involve allocating markets or customers.
Bid rigging or collusive tendering is when there is an agreement among some or all of the bidders about who should win a tender or have an unfair advantage in the tender. This may involve potential bidders not bidding for a tender to support the proposed winner or bidders may agree the prices that each party will bid. This often occurs in the form of “cover pricing.”
Cover pricing is where one or more parties submits a tender bid or bids at an inflated price with a view to increasing the prospects that another designated firm wins the tender. Such an agreement prevents open and effective competition and means procurers are unlikely to achieve best value for money for their business, customers, and in some cases, taxpayers.
Cartel conduct is prohibited under section 30 of the Commerce Act. As of 8 April 2021, cartel conduct is punishable with a term of imprisonment of up to 7 years, underlying just how serious and harmful offending of this nature can be.
How to avoid cartel conduct
- Make sure that you and your staff are familiar with the requirements of the Commerce Act. Keep records of who has attended training about the Act.
- Think carefully about who you are, or may be, in competition with, especially if sub-contracting is involved.
- Do not agree prices, discounts or any matters relating to price with your competitors (unless it is a specific sub-contract you are discussing).
- Do not agree to restrict output in any way, or to allocate customers or geographic markets between competitors.
- Do not exchange pricing, how much you plan to produce in the future, customer information or which markets you sell into with your competitors.
- If you are approached by another business to discuss pricing, allocating customers, bids for contracts or restricting outputs you should raise an objection straight away. Leave the discussion immediately and contact the Commerce Commission.
- Review internal documents, policies and procedures for compliance with the Commerce Act and seek independent legal advice.
- If you become aware of anti-competitive conduct, contact the Commerce Commission immediately.
