In an important reminder that government departments and
agencies can easily be the target of anti-competitive arrangements,
a US-based defence technology company has recently admitted to
engaging in collusive tendering in contravention of the competition
law provisions of the Trade Practices Act 1974 (Cth)
(Australian Competition and Consumer Commission v DRS C3
Systems Inc NSD588/2009, orders made by Edmonds J on 5
February 2010). The conduct related to a procurement project of the
Commonwealth Department of Defence (Defence).
DRS C3 Systems Inc (DRS) entered into an arrangement with its
competitor, Cubic Defence Applications Inc (Cubic), in relation to
a Defence procurement project for an air combat manoeuvring
instrumentation system. DRS and Cubic agreed that DRS would
withdraw from the procurement, increasing Cubic's prospects of
securing the Defence contract. DRS then gave effect to that
agreement by actually withdrawing.
DRS was ordered to pay a penalty of $1 million and contribute
$100,000 towards the Australian Competition and Consumer
Commission's costs of the proceedings. It was also ordered to
supplement its current corporate compliance program and has been
enjoined from engaging in similar conduct.
Since the conduct occurred before 24 July 2009, it was
prosecuted under the civil penalty provisions of the Trade
Practices Act 1974 (Cth). Any such conduct occurring since
that date will be prosecuted under new cartel conduct provisions
and may attract criminal liability.
The Federal Court is yet to publish its reasons for decision.
Nevertheless, this case serves as a reminder to all government
departments and agencies to exercise caution against being the
target of anti-competitive conduct when undertaking public
procurement. The securing of a government contract can often
determine the future of a business, thus providing strong
incentives to manipulate the competitive tendering process. This
can especially be the case in advanced technology and other sectors
where a great deal of investment in research and development has
occurred and where there are relatively few potential customers.
Collusion is also often easier in concentrated markets where there
are relatively few suppliers, thus facilitating communication and
agreement between them.
Importantly, there are a number of steps that can be taken to
mitigate the risk of being a victim of collusive conduct. These
include insistence that all participants in the procurement process
have an effective compliance policy and program that relates to
Australian trade practices laws. Signed assurances that
participants have not communicated with each other about the
procurement project or otherwise engaged in unlawful conduct may
also be useful. Suspicious conduct (such as sudden or unexplained
withdrawal, patterns in bidding or other irregularities) may also
be identified and reported.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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