Bid-rigging

Edmund Wan, Partner, and James Wilkinson, Senior Associate, King & Wood Mallesons

A former engineering company boss has admitted to conspiring to rig the tender process for building renovation contracts, drawing further attention to alleged bid-rigging in the building maintenance sector.

The engineering boss pleaded guilty in October to conspiracy offences under the Crimes Ordinance (Cap. 200) and Prevention of Bribery Ordinance (Cap.201). The conduct involved bribes of about HK$45 million to secure tenders for the renovation of two residential estates in Shatin.

The admission follows the Competition Commission’s decision in early 2015 to begin a market study to examine allegations of anti-competitive conduct in the building maintenance industry.

Bid-rigging is serious anti-competitive conduct under the Competition Ordinance (Cap. 619). It is likely to be a key focus of the Competition Commission’s enforcement efforts once the Ordinance comes into full effect on 14 December 2015.

What is bid-rigging?

Bid-rigging occurs when competitors covertly agree on strategy when responding to a request for tender. The competitors decide between themselves who will win the tender, and manipulate the bidding process to achieve that outcome.

Typical forms of bid-rigging include:

  • cover bidding – where competitors agree to submit higher bid prices than a competitor chosen to be the winning bidder, in order to create the impression that the winner’s bid is competitive; or
  • bid suppression or withdrawal – where competitors agree not to tender or to withdraw a tender to ensure that an agreed competitor will be successful instead.

Enforcement

The Competition Commission and Competition Tribunal’s enforcement powers come into effect from 14December. From that time, if the Commission has reasonable cause to believe that a person has engaged in bid-rigging, it may either:

  • issue an infringement notice against the person, offering not to bring proceedings on condition that the person makes a commitment to refrain from the conduct and/or admit its contravention of the Ordinance; or
  • apply to the Competition Tribunal for a pecuniary penalty or other orders to be imposed on the person. In this case, the onus is on the Commission to prove that the bid-rigging has occurred.

The Tribunal may, on application by the Commission, impose a pecuniary penalty of up to 10 percent of the turnover of the company involved for each contravention. The Tribunal has broad discretion to make other orders, including disqualifying a person from acting as a director of a company.

A person who suffers loss or damage as a result of bid-rigging will have a right to commence a follow-on action against the person that has been found to have engaged in the bid-rigging conduct.

Leniency

Companies engaged in bid-rigging will be entitled to apply for leniency under the Competition Commission’s Leniency Policy for Undertakings Engaged in Cartel Conduct. Under the policy, the Commission will agree not to bring proceedings in the Competition Tribunal against the first member of a bid-rigging cartel who reports the cartel conduct and meets the requirements for leniency. (See p. [11] for the Law Society’s comments on the Commission’s Draft Leniency Policy).