Malaysia: Bid Rigging Series: The ABCs Of Bid Rigging In Malaysia

Introduction

In recent years, the Malaysian government and the Malaysian Competition Commission ("MyCC") have been amping up their efforts to address and combat bid rigging, ¹ a problem perceived as rampant in government procurement exercises.

In fact, the crack of MyCC's whip is sounding louder than ever.

In June 2022, MyCC revealed that it is investigating 500 companies suspected of being involved in rigging the bidding process of contracts worth RM2 billion across industries, with 43% of total cases involving the construction industry. ²

Shortly after, on 5 July 2022, MyCC issued its first ever infringement decision on bid rigging, finding 8 enterprises liable for participating in a series of anti-competitive bid rigging agreements and/or concerted practices concerning several IT-related projects at the National Academy of Arts, Culture and Heritage of Malaysia and imposed financial penalty amounting to approximately RM 1.5 million. ³ (Note: at the time of writing, appeals have been filed against MyCC's decision. The appeals are currently pending decision by the Competition Appeal Tribunal).

With the buzz surrounding bid rigging, or collusive tendering, the question one may ask would be: what exactly is bid rigging?

Bid Rigging Is...

In essence, bid rigging is a form of price fixing and allocation of markets, ⁴ involving an agreement between two or more bidders to collude to decide the winning bidder, which prevents or restricts competition in a tendering activity. ⁵

Bid rigging can manifest in many forms ⁶, the most common of which include:

(a) Bid suppression, which typically occurs when competitors collude with each other with one or more companies agreeing to refrain from making a bid for a tender, allowing a predetermined party to win the tender;

(b) Bid rotation, whereby bidders take turns to submit the most competitive tender price, or the lowest bid to win a contract. Parties typically devise a scheme to rotate the winning bid amongst themselves;

(c) Bid withdrawal, which entails colluding bidders deliberately withdrawing their bid at the end of the tender period, leaving their chosen bidder to win the bid;

(d) Cover bidding, wherein colluding bidders agree to submit a bid price that is deliberately higher, or submit non-confirming bids containing terms known to be unacceptable to the purchaser, than that submitted by the designated winning bidder to give the appearance of genuine competition. Such bids are also commonly known as "courtesy bids", "complementary bids", "token bids" or "symbolic bids"; and

(e) Market allocation, which involves competitors carving up markets and agreeing to refrain from competing for certain customers or in certain geographic areas by refrain from bidding on contracts offered by customers belonging to segments allocated to a specific competitor.

Bid Rigging under Competition Act 2010

In Malaysia, an agreement between competitors which has the object to perform an act of bid rigging is deemed to have the object of significantly preventing, restricting, or distorting competition in any market for goods or services. ⁷

Any enterprise found liable of bid rigging will face a potential fine of up to 10% of its worldwide turnover.

An enterprise involved in bid rigging activities can seek reduction of financial penalty from MyCC under its leniency regime, which may entail a reduction of penalties which would otherwise have been imposed, depending on whether the enterprise in question admitted liability, its role or level of involvement in the infringement, stage of investigation, and whether it provided information or co-operation which significantly assisted, or is likely to significantly assist the MyCC in its investigation or other circumstances considered appropriate by the MyCC. ⁸

Detrimental Effects of Bid Rigging

With public resources and multiple stakeholders dedicated to cracking down on bid rigging in Malaysia, ⁹ it is only sensible to delve into the harmful consequences of bid rigging.

One of the most evident consequences would be higher procurement costs since bid rigging interferes with the interaction of market forces and undermines fair competition, which results in higher prices for purchasers. Simply put, there is no value for money. This is especially obvious in government procurement exercises for acquisition of goods, services and works. With government procurement accounting for about 10% to 15% of our gross domestic product, Malaysian taxpayers would ultimately be the ones who has to foot the bill for public leakages. ¹⁰

Further, bid rigging impedes fair competition. If the bidding process is undermined, the ability of other competitors to compete will be adversely affected, if not eliminated, since the playing field is not level. This has drastic consequences – other than reduced price competition and higher costs, this also translates into less non-price competition to the detriment of other competitors and the people, ¹¹ since there is no genuine competition, there is no incentive to improve and innovate. This means the quality and choice of goods or services supplied will be compromised. ¹²

In public sectors, another consequence of bid rigging would the dampened public confidence in the competitive process. Bid rigging is a major blow to the perception of effectiveness and integrity of public procurement, especially if corrupt officials are involved. ¹³

Concluding Remarks

With the efforts to eliminate bid rigging looking to gain more traction, the day of reckoning is drawing close for cartels in Malaysia. Businesses in Malaysia must understand the severity of bid rigging, and actively assess and review their procurement or bidding practices to safeguard against unwitting exposure to bid rigging risks.

This article is authored by our Principal, Ms. Nicole Leong and Senior Associate, Ms. Heng Jia. The views and opinions expressed in this article are those of the authors' alone and do not constitute any legal advice. For further information or advice on Competition Law and Antitrust, kindly contact Ms. Nicole Leong.

Footnotes