Greg Trengove Regional Outreach Manager

1. George Kamencak Regional Director Greg Trengove Regional Outreach Manager South Australia

2. Who is the ACCC? ACCC is a independent statutory authority

3. 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

4. What are the features of a Cartel? • An arrangement not to compete • A secret deal • Deception • Monitored and controlled • Long term strategy

5. Government risk exposure • Purchaser / Provider environment • Transparency of process • Tender design - predictability • Understanding the market • Internal corruption (kickbacks)

6. The Cost of Cartels: 2005 Media Release: Major Pizza Franchise Said 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

7. Civil Penalties for Cartel conduct The greater of: - $10 million - 3 times the value of the benefit - 10% of the annual turnover - companies $500,000 - individuals & Criminal penalties on the horizon

8. Cartels occur in a wide variety of industry sectors: • Fire protection • Marine Hose • Cardboard boxes • Transformers • Medical services • Liquor sales • Internet providers • Fishing (abalone) • Petrol retailing • Concrete • Construction • Waste Management • Demolition • Stock Feed • Bus services • Air conditioning

9. Cartels make procurement less competitive, through either tenders or quotation • The conduct may involve: • market sharing • price fixing • output restrictions • bid rigging

10. Market Sharing 4 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

13. 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.

14. Output restrictions An agreement between competitors to restrict their output to the market: • Volume of product available • Timing of the release of product

15. 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. 

16. 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

17. 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

18. Tender Rotation This 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 ….

20. Market for Building and Construction Dept C Dept D Dept A Dept B It may only be at an aggregated level, that the extent of the Cartel is evident. Local Govt Private Sector CARTEL Tender B Tender D Tender A Tender C

21. 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)

22. Detecting Collusion

23. 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.

24. 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

25. 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

26. 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

30. Metadata Can be Revealing:

31. 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

32. Breaking cartels They are difficult to detect and prove • ACCC Immunity Policy

33. 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

34. 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

35. 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

36. Any Questions?