greg trengove regional outreach manager

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: cartels@accc.gov.au

Any Questions?