Greg Trengove Regional Outreach Manager George Kamencak Regional Director South Australia
Jan 21, 2016
Greg TrengoveRegional Outreach Manager
George KamencakRegional Director
South Australia
Who is the ACCC?
ACCC is a independent statutory authority
This session will cover:
• What cartels are
• How you can avoid them
• How you can detect them
• What you should do if you are suspicious
• Examples
What are the features of a Cartel?
• An arrangement not to compete
• A secret deal
• Deception
• Monitored and controlled
• Long term strategy
Government risk exposure
• Purchaser / Provider environment
• Transparency of process
• Tender design - predictability
• Understanding the market
• Internal corruption (kickbacks)
The Cost of Cartels:2005 Media Release: Major Pizza FranchiseSaid a five-year supply agreement with a cardboard packaging company for their boxes would generate cost savings of up to $250,000 in the first year.
If we estimate 430 stores @ 500 pizzas per store per day. Each box costs 60c. 10% premium as result of cartel = 6c per box.
Over one year, the cost to pizza chain would be:
$4,417,000
Civil Penalties for Cartel conduct
The greater of:The greater of: - - $10 million $10 million
- 3 times the value of the - 3 times the value of the benefit benefit
- 10% of the annual - 10% of the annual turnoverturnover- companies$500,000$500,000 - individuals
& Criminal penalties on the
horizon
Cartels occur in a wide variety of industry sectors:
• Petrol retailing• Concrete• Construction• Waste Management• Demolition• Stock Feed• Bus services• Air conditioning
• Fire protection• Marine Hose• Cardboard boxes• Transformers• Medical services• Liquor sales• Internet providers• Fishing (abalone)
Cartels make procurement less competitive, through either tenders or quotation
The conduct may involve:• market sharing • price fixing• output restrictions• bid rigging
Market Sharing4 kinds of market sharing agreements, where competitors refrain from:
– producing one another’s products
– selling in one another’s territories
– soliciting or selling to one another’s customers
– expanding into a market in which another
participant is an actual or potential rival
Price Fixing Price fixing is an agreement between competitors to fix, control or maintain the price of goods or services.
Price fixing agreements do not have to be in writing: they can be a `wink and a nod’, made over a drink in the local pub, at an association meeting or at a social occasion.
Key point: Competitors are working out their prices collectively and not individually.
Output restrictions
An agreement between competitors to restrict their output to the market:
– Volume of product available– Timing of the release of product
Bid rigging
Collusive tendering is an agreement between two or more competitors where, in response to a call for tenders, one or more of the competitors agrees either:– not to submit a tender or – to submit a tender that has been agreed
between themselves.
Cover Tendering This occurs when tenderers:
– choose amongst themselves who will win particular tenders, with the others submitting higher prices, or
– submit a tender containing special terms they know will be unacceptable to the tendering authority
Tender Suppression
This is the opposite of cover tendering and involves one or more of the tenderers agreeing:– not to tender, or – to withdraw their tender to ensure the firm
chosen to win is successful
Tender RotationThis is a systematic method by which the tenderers take turns being the lowest tenderer.
Schemes of this nature are difficult to catch because the tenderers try to make sure that they each receive an equivalent share.
For example ….
Electrical Construction Contracts
(Contracts Awared Every Six Months --Assume All Bids Above Estimate
And L owest Bidder Wins Contract)
CONTRAC T NO. 1 CONTRAC T NO. 2 CONTRAC T NO. 3
Contractor A - $1,800,000 Contractor C - $ 800,000 Contractor D - $ 650,000
Contractor B - $1,944,000 Contractor B - $1,100,000 Contractor B - $ 800,000
Contractor C - $2,088,000 Contractor D- $1,800,000 Contractor A - $1,000,000
Contractor D - $2,232,000
CONTRAC T NO. 4 CONTRAC T NO. 5 CONTRAC T NO. 6
Contractor B - $1,800,000 Contractor C - $1,000,000 Contractor D - $1,150,000
Contractor A - $2,100,000 Contractor A - $1,500,000 Contractor B - $1,510,000
Contractor D - $2,100,000 Contractor B - $1,900,000 Contractor A - $1,525,000
Contractor C - $2,300,000 Contractor C - $1,575,000
CARTEL
Dept A Dept B Dept C Dept D
Market for Building and Construction
Tender A
Tender B
Tender C
Tender D
Local GovtPrivateSector
It may only be at an aggregated level, that the extent of the Cartel is evident.
Minimising Risk• Warning in RFT that you will refer suspicions of
collusion to ACCC (overcomes privacy issue of sharing info)
• Require disclosure of sub contracting
arrangements (before and after letting the tender)
• Impose penalties for being part of a Cartel (preclude from Govt contracts for a period of time)
• Tender design should encourage competition (Italian Bus Service example)
Detecting Collusion
How do you recognise a cartel?
The nature of the industry and the behaviour of industry participants can provide signs indicating that a cartel is operating.
Behavioural Signs: Prices prices, rebates or discounts are similar or identical
unjustified or unexplained price increases or different
suppliers raise prices by a similar margin
suppliers charge different prices in certain geographical
regions
price changes suggest a leader / follower pattern
the range of quoted prices has narrowed suddenly, or
existing discount arrangements have changed suddenly
Behavioural signs: Tendering:
suppliers meet before they submit tenders
and you are not present
tenders are much higher than estimated
suppliers that you expect to tender don’t
prices drop when a new supplier tenders
Behavioural signs: Tendering contd:
the successful tenderer subcontracts work to its
competitors that have submitted higher tenders
tenders are similar, such as identical spelling
errors, miscalculations or one firm represents
several tenderers
MetadataCan be Revealing:
Behavioural signs: Verbal Statements: where suppliers use the same words or
ideas when explaining price increases telling you that the ‘industry’ has decided
to increase margins saying that it cannot sell to you or in your
area because of an agreement with another firm
saying that another supplier should not have sold to you
Breaking cartelsThey are difficult to detect and prove
• ACCC Immunity Policy
If you do suspect collusion: DON’T ask the suppliers about it make a note of events and conversations
between you and the tenderers note details of submitted tenders that caused
suspicion contact the ACCC to discuss further continue with tender process encourage unsuccessful tenderers to contact the
ACCC if they complain about collusion
Next steps?
ACCC wants to work with Agencies, and is prepared to
offer workshops for procurement officers
ACCC working with Crown Law to develop a protocol for
advising the ACCC of suspicious conduct
Soon you will be able to subscribe to an ACCC email
information service that will provide examples and tips to
detect cartels
DVD: “Cartel Conduct: Warning signs during the procurement process”
ACCC contact details
General line: 1300 302 502
Adelaide Office: 8213 3444
Web Page: www.accc.gov.au
Email Contact: [email protected]
Any Questions?