A cartel in business operates by independent corporations or market participants who are otherwise rivals colluding with one another to increase their profits, restrict competition and dominate the market.
Roofing companies in Sydney set up cartel
Wesley College in Sydney University needed to fix an old slate roof. The college approached a couple of roofing companies for quotes. They obtained two price estimates, one significantly higher than the other. Naturally they went for the roofer offering the cheaper quote.
What the college didn't know was that the two roofing companies had secretly colluded so that one roofer would bid much higher, and in return the lower bidder who was awarded the contract would pay the higher bidding roofer $10,000.
The same collusion was found to have taken place on a smaller roofing job at a house in Bellevue Hill, with the higher bidder receiving $2,000 from the cheaper bidder who was awarded the contract.
What is bid rigging and cartel conduct?
Bid rigging can take many forms.
Rival bidders can drive up the price by all secretly agreeing to quote above the real cost of the work. A bidder may submit fake bids to drive up the price.
A bidder can deliver a job to a fellow member of the cartel by including unacceptable conditions in their quote.
Court finds companies breached cartel conduct laws
The roofing companies were found out and taken to the Federal Court by the Australian Competition and Consumer Commission. (Please see Australian Competition and Consumer Commission v First Class Slate Roofing Pty Limited  FCA 1093.)
The court found the roofing companies, First Class Slate Roofing and Mr Shingles, had breached cartel conduct and bid rigging laws contained in the Competition and Consumer Act 2010.
Justice David Yates ordered the sole directors of the businesses to pay penalties totalling $420,000. (Please see Court orders two roof tiling businesses and their directors pay $420,000 for cartel conduct, ACCC, 14 September 2022.)
Penalties for illegal cartel between roofing companies
First Class was ordered to pay penalties of $280,000, and its director was ordered to pay $60,000 in penalties. Mr Shingles was ordered to pay penalties of $65,000, and its director was ordered to pay $15,000 in penalties.
Possibly even more damaging to their reputation was that the directors were ordered to publish a notice to members of the Roofing Industry Association of NSW, spelling out their unlawful conduct. They also had to participate in training programs on competition law.
They agreed to say in their notice they were fortunate, as the penalties took their financial situation into account and they were allowed six years to pay.
They warned in their notice to other roofers:
This sort of conduct can be prosecuted criminally, including potential imprisonment. The ACCC can refer serious cartel conduct for prosecution by the Commonwealth Director of Public Prosecutions. We could have ended up with a criminal record. We made very serious mistakes by engaging in illegal bid-rigging, and this has had serious consequences for us, our families and our businesses. Do not do what we did. Learn from our mistakes and make sure you don't engage in cartel conduct.
Decision sends warning to companies on cartel conduct
The court decision was a warning to company directors about the consequences of cartel conduct and secretly colluding on bids for contracts.
Individuals can face ten years in jail and fines of $550,000 per cartel offence. (Please see Fines and penalties, ACCC, January 2023.)
Companies can be hit with $10 million fines, or three times the value of the benefit they derived from the offence.
The details of laws encompassing cartel conduct in section 45 of the Competition and Consumer Act can be difficult to follow, and it would be wise to get legal advice to see if your company's bidding practices could be breaching the law.
It's not only company directors who suffer when charged with breaching cartel law, but also their employees and sub-contractors, who can end up losing their employment through no fault of their own.
Government investigations and prosecutions
Stacks Collins Thompson
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.