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George Kamencak Regional Director. Greg Trengove Regional Outreach Manager. 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

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Presentation Transcript
slide1

George Kamencak

Regional Director

Greg Trengove

Regional Outreach Manager

South Australia

slide2
Who is the ACCC?

ACCC is a independent statutory authority

this session will cover
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
slide4
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
Government risk exposure
  • Purchaser / Provider environment
  • Transparency of process
  • Tender design - predictability
  • Understanding the market
  • Internal corruption (kickbacks)
slide6
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

slide7
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

slide8
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
slide9
Cartels make procurement less competitive, through either tenders or quotation
  • The conduct may involve:
    • market sharing
    • price fixing
    • output restrictions
    • bid rigging
market sharing
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
price fixing
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
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
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
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
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 rotation
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 ….

slide20

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

minimising risk
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)
slide23
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.

slide24
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
slide25
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
slide26
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
slide30

Metadata

Can be

Revealing:

slide31
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
slide32
Breaking cartels

They are difficult to detect and prove

  • ACCC Immunity Policy
slide33
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
slide34
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
slide35
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