ARTICLE
10 August 2023

Bid Rigging Series: Insights From Competition Regulators In Malaysia And Other Jurisdictions

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Previously, we discussed the basics of bid rigging, including the common forms of bid rigging and the consequences it may bring about.
Worldwide Antitrust/Competition Law

Introduction

Previously, we discussed the basics of bid rigging, including the common forms of bid rigging and the consequences it may bring about.

In this session, we dig deeper into the approach taken by the competition authority in Malaysia, as well as some other jurisdictions when it comes to bid rigging.

Key Takeaways

Among the other jurisdictions discussed in this article, Malaysia's Competition Act 2010 ("CA") is the only one that expressly provides under the statute that bid rigging as a type of by-object restriction is deemed significant under Section 4(2) of the CA. If a horizontal agreement with the object to perform an act of bid rigging is established, Section 4(2)(d) will be invoked and the object of significantly preventing, restricting or distorting competition on the market will deemed to have been proved.1

Notwithstanding so, we can see that the stance taken by the competition authorities of these other jurisdictions does not detract from the narrative that bid rigging is viewed as among the most serious restrictions of competition, and may amount to a prohibited conduct by object.

Legal Position in Malaysia

Under Section 4(2)(d) of the CA, a horizontal agreement between enterprises that has the object to "perform an act of bid rigging" is "deemed to have the object of significantly preventing, restricting or distorting competition in the market for goods and services".2

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 ("ASWARA").3 A cumulative fine of over RM 1.54 million was imposed on the enterprises.

In the decision,4 MyCC found several bilateral bid rigging agreements between parties agreeing to work together as "main contractor" and "subcontractor". MyCC takes the position that in principle, a bid rigging scheme may be formed under the guise of a subcontracting arrangement. The said principle arises from the notion that competitors, who agree not to bid or agree to submit a losing bid, frequently, in exchange, receive a subcontracting agreement or supply contract from the successful bidder.

In one of the bilateral bid rigging agreements found by MyCC in this case, MyCC considered that their subcontracting arrangement represents a cover bidding-cum-subcontracting relationship after taking into account, inter alia, the following:

  1. one company prepared the other's technical documents for submission;
  2. one company submitted two sets of quotation documents using both companies' names separately;
  3. one company's documents and company stamps were made available to the other;
  4. they consciously represented themselves as separate companies when submitting quotation documents to ASWARA, which created an illusion for ASWARA that its procurement process at the material time was competitive; and
  5. one company was the instigator of the bid rigging arrangement by approaching the other and requested the latter to prepare the former's technical documents, with the latter as the subcontractor as form of reward.

MyCC took the position that if they genuinely collaborated as partners, they would have submitted a single bid. It makes no commercial sense for a subcontractor to compete in the same bidding process as its principal and simultaneously for a principal to engage with a subcontractor that also bids for the same project; unless if the purpose of entering into the same tender was solely to increase the likelihood of either one of the parties winning the bid.

MyCC thus found that the agreement and/or concerted practices between the said parties had the object to perform an act of bid rigging and is deemed by law to have the object of significantly preventing, restricting or distorting competition.

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.

Unlike the other jurisdictions discussed in this article, Malaysia's CA is the only one that expressly provides under the statute that bid rigging as a type of by-object restriction is deemed significant under Section 4(2) of the CA. The effect of such provision is that upon establishing a horizontal agreement with the object to perform an act of bid rigging, Section 4(2)(d) will be invoked and the object of significantly preventing, restricting or distorting competition on the market will deemed to have been proved. Therefore, the need for MyCC to prove the effect of the agreement is dispensed with.5

However, a similar approach which perceives bid rigging as a "by-object" restriction is largely echoed by competition regulators discussed below.

Other Jurisdictions

European Union ("EU")

In the EU, bid rigging is prohibited under Article 101 of the Treaty of the Functioning of the European Union ("TFEU"), which provides that all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market shall be prohibited as incompatible with the internal market.

As the aim of bid rigging is to enable a pre-determined tenderer to win the contract while creating the impression that the procedure is genuinely competitive, the European Commission ("EC") perceives bid rigging as one of the most serious restrictions of competition constituting a restriction by object in the EU.6

As an example, the EC found that certain undertakings participated in a cartel in the international removal services sector in Belgium by providing cover quotes and agreeing to a system of financial compensation where the cartel member who won the contract would pay a "commission" to other cartel members who did not win.7 The firm which wanted to win the contract would provide information on the service required by the customer to its competitors and indicate its own quoted price so that its competitors' quotations would be higher than its own. Upon appeal, the Court of Appeal held that agreements on cover quotes had as their object to restrict competition appreciably and that they were among the most serious restrictions of competition.8

United Kingdom ("UK")

Under the UK Competition Act 1998, agreements between undertakings, decisions by associations of undertakings and concerted practices, which may affect trade within the UK and have as their object or effect the prevention, restriction, or distortion of competition within the UK are prohibited.9

As succinctly put by the UK Competition and Markets Authority in its infringement finding against constructions firms for cover bidding with compensation payment agreements in competitive tenders for contracts for demolition services and asbestos removal in London and the Midlands, it is settled law that cover bidding and compensation payment arrangements, may amount to an prohibited agreement or concerted practice by object, regardless of parties' subjective intentions, or whether or not the arrangement was implemented.10

Hong Kong

In Hong Kong, bid rigging conduct falling within the definition under Section 2(2) of its Competition Ordinance, Cap. 619 amounts to "serious anti-competitive conduct"11 which the Hong Kong Competition Commission ("HKCC") may bring proceedings to its Competition Tribunal directly (without the need to first issue a warning notice)12.

Section 2(2) of its Competition Ordinance defines "bid rigging" as an agreement between undertakings whereby one or more of those undertakings agrees or undertakes not to submit or to withdraw a bid or tender in response to a call or request for bids or tenders, or agrees or undertakes to withdraw a bid or tender submitted in response to such a call or request; or such submission, in response to a call or request for bids or tenders, of bids or tenders that are arrived at by an agreement that is not made known to the person calling for or requesting bids or tenders at or before the time when a bid or tender is submitted or withdrawn by a party to the agreement or by an entity controlled by any one or more of the parties to the agreement.

In one of the first bid rigging cases in Hong Kong, 4 IT firms were found to have contravened the First Conduct Rule by engaging in bid rigging for a tender exercise conducted by the Young Women's Christian Association ("YWCA") for the supply and installation of a server system. Three of the IT firms submitted dummy bids with substantially higher bid prices than the agreed winning firm to satisfy YWCA's procurement policy requiring a minimum number of bids. The agreements were found to constitute "serious anti-competitive conduct" which allowed the HKCC to commence proceedings without having to issue any warning notice.13

Notwithstanding that the Ordinance does not provide that "serious anti-competitive conduct" (including bid rigging within the meaning of Section 2(2)) is taken as a matter of law or presumed to be anti-competitive by object or effect,14 the HKCC in its guideline takes the position that bid rigging is inherently anti-competitive and has the object of harming competition in contravention of the First Conduct Rule.15

Singapore

In Singapore, the Competition and Consumer Commission of Singapore ("CCCS") in its guidelines takes the position that bid rigging agreements are regarded, by their very nature, as restricting competition appreciably and shall be considered as agreements involving restrictions of competition by object.16

CCCS' position is consistent with its decision. In a decision by the Singapore Competition Appeal Board ("Board") involving 12 motor vehicle traders found to have engaged in an agreement to rig bids at public auctions of motor vehicles conducted by various government agencies, the Board agreed with the CCCS that bid rigging is a type of agreement that is, by its very nature, restrictive of competition to an appreciable extent. The Board further held it is not necessary for the CCCS to also prove that a bid rigging agreement had the effect of restricting or distorting competition in Singapore.17

Concluding Remarks

The approach taken by the competition authorities in Malaysia and the other discussed jurisdictions in perceiving bid rigging as a "by object" restriction is hardly surprising considering the impact of bid rigging on economies. It has far-reaching consequences spanning all types of industries and especially impacts public procurement, which is often a large part of a nation's economy18 and the impact of which can last decades and impact many markets.19

Footnotes

1. Paragraphs 324 and 325, Case No. 700-1/1/38/2016 Decision of the Competition Commission v Tuah Packet Sdn Bhd, Caliber Interconnects Sdn Bhd, Aliran Digital Sdn Bhd, Viamed Sdn Bhd, Novatis Resources Sdn Bhd, Silver Tech Synergy Sdn Bhd, Basenet Technology Sdn Bhd and Venture Nucleus (M) Sdn Bhd dated 27 June 2022, retrieved from https://www.mycc.gov.my/case on 6 July 2023

2. Section 4(2)(d) of Competition Act 2010

3. News release by MyCC titled "Eight Enterprises Fined RM 1.5 Million for Bid Rigging Cartel" dated 5 July 2022

4. Case No. 700-1/1/38/2016 Decision of the Competition Commission v Tuah Packet Sdn Bhd, Caliber Interconnects Sdn Bhd, Aliran Digital Sdn Bhd, Viamed Sdn Bhd, Novatis Resources Sdn Bhd, Silver Tech Synergy Sdn Bhd, Basenet Technology Sdn Bhd and Venture Nucleus (M) Sdn Bhd dated 27 June 2022, retrieved from https://www.mycc.gov.my/case on 6 July 2023

5. Paragraphs 324 and 325, Case No. 700-1/1/38/2016 Decision of the Competition Commission v Tuah Packet Sdn Bhd, Caliber Interconnects Sdn Bhd, Aliran Digital Sdn Bhd, Viamed Sdn Bhd, Novatis Resources Sdn Bhd, Silver Tech Synergy Sdn Bhd, Basenet Technology Sdn Bhd and Venture Nucleus (M) Sdn Bhd dated 27 June 2022, retrieved from https://www.mycc.gov.my/case on 6 July 2023

6. Paragraph 348, Annex To The Communication From The Commission, Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to Horizontal Co-operation Agreements C(2023) 3445 final

7. Case COMP/38.543 – International Removal Services

8. Paragraphs 95 and 111, Case C-440/11P P Commission v Stichting Administratiekantoor Portielje

9. Section 2(1) of Competition Act 1998

10. Paragraphs 3.18 and 3.22, Case 50697 Decision of the Competition and Markets Authority on Supply of demolition and related services dated 12 June 2023

11. See definition of "serious anti-competitive conduct" under Section 2(2) read together with Section 67 of Competition Ordinance, Cap. 619

12. Section 82, Ibid. For contravention which does not involve serious anti-competitive conduct, the HKCC must, before bringing proceedings in the Competition Tribunal issue a warning notice to the undertaking.

13. Competition Commission v Nutanix Hong Kong Ltd & Ors[2019] HKCT 2

14. Paragraph 488 of Nutanix case; See also Paragraph 5.7 of HKCC's Guideline on the First Conduct Rule

15. Paragraph 6.29, HKCC's Guideline on the First Conduct Rule. It appears that this stance may be limited to bid rigging conduct within the meaning of Section 2(2) of their Competition Ordinance as pursuant to paragraph 6.27, HKCC's Guideline on the First Conduct Rule: If a bid rigging conduct does not fall within the definition of Section 2(2), and is, therefore, not "serious anti-competitive conduct", the HKCC takes the view that such bid rigging conduct may, however, still contravene the First Conduct Rule if it has the object or effect of harming competition

16. Paragraph 2.24 and 3.8 of CCCS Guidelines on the Section 34 Prohibition 2016

17. Paragraph 30, Pang's Motor Trading v Competition Commission of Singapore [2014] SGCAB 1

18. In many OECD countries it amounts to 15 per cent of the gross domestic product, and in most developing countries, it is substantially more.

19. OECD's Guidelines for Fighting Bid Rigging in Public Procurement

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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