A cartel is a collusive agreement between rival business to eliminate the process of competition, i.e. not to compete against each other to capture sales.

Agreements between businesses on the price or on the terms of their response to a call for bid or tender is prohibited.  Similarly, agreement between businesses on whether to submit a bid or not in respect the call for bid is also prohibited

The Competition Commission investigates and imposed substantial fines on enterprises involved in a bid rigging agreement. The enforcement of the prohibition (investigation) and the decision making to impose fines is made by the Competition Commission without having recourse to Courts.

The prohibition on bid rigging is under section 42 of the Competition Act 2000.

In a tendering process, all bidders are expected to independently decide whether they wish to participate in the tender or to determine the price, terms/conditions of their bid without discussing or agreeing with actual or potential bidders.  Only then will suppliers genuinely compete among themselves to win a tender.

A purchaser (public/private procurer) resorts to tendering as form of procurement because the process offers a means of obtaining the desired goods/services at the best value for money by encouraging available suppliers on the market to compete among themselves and submit their best offer.

Bid rigging evades the very objective of a procurement process and deprives procurers of genuine opportunities to achieve value for money.

Whatever the form which bid rigging takes, the result is that the benefits of competitive tendering are lost, because true competition never occurred in the first place. Procurers end up paying higher prices for goods and/or obtaining lower quality goods or services.  Bid rigging may also exclude potentially more efficient competitors from the bidding process or reduce suppliers’ incentives to improve quality or innovate.

The prohibition on bid rigging is in respect of all calls for bids whether by a private procurer or public procurement by Government.

 

The different forms of bid rigging

Bidders can employ various schemes to limit competition in a tender process.  Generally, the most common forms of bid rigging are:

  • Cover bidding: involves agreeing upon a pre-designated winning bidder while others deliberately bid in such a way (quoting artificially higher or with unacceptable conditions), as to create the illusion that the winning bid is competitive;
  • Bid withdrawal or suppression involves one or more bidders refraining from bidding or withdrawing a previously submitted bid;
  • Bid rotation occurs where participating bidders take turns in submitting the lowest bid;
  • Market allocation: involves bidders dividing the market either by sharing customers or geographic regions among themselves.

However, one instance of bid rigging can involve any one or a combination of the above schemes.

Unlike other types of restrictive business practices (abuse of monopoly situation, mergers, vertical agreements other than Resale Price maintenance) for which offsetting public benefit may be found, the Competition Act 2007 does not allow the Commission to exempt or otherwise authorize a collusive agreement, on any ground whatsoever.

Any agreement which is found to be collusive under the Competition Act will be void and prohibited under the Act.  The Commission may also give such directions it deems fit and/or impose financial penalties on the enterprise(s) concerned.

Collusive agreement including bid rigging agreement is penalised by fines under the Competition Act 2007. The fines imposable on each member of the cartel is 10% of their turnover. If the breach is more than one year then the 10% turnover is multiplied by the number of years during which the collusive agreement existed.

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An enterprise may avoid the fine imposable on cartels if it comes forward and disclose the cartel to the Competition Commission. The disclosure will help the Commission to put an end to the cartel and also to fine the other business that have participated in the cartel.

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Section 51A of the Competition Act 2007 guarantees that the information and the identity of an informer will, at the request of the informer, be treated as confidential between the Commission and the informer.

The Commission therefore encourages anyone with information on a cartel including RPM to come forward and disclose such information to the Commission in full confidence that their identity will not be disclosed and will be kept confidential.