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Competition law considerations feature variously in Government procurement, including in the way that Government contracts are often public, highly sought after and sometimes encourage consortium responses, effectively incentivising potential respondents to collaborate and coordinate their responses accordingly.
In this article, we outline the key considerations that respondents need to be mindful of when pitching for Government contracts, so as to maintain and uphold competitive dynamics in the supply process and the market(s) more generally. That is, respondents need to be wary that they do not inadvertently engage in (or facilitate) anti-competitive conduct or create an uneven playing field for competition.
These considerations are particularly pertinent given the ACCC’s express warning to public sector agencies at the end of 2021 to be vigilant to the potential for illegal collusion between bidders during supply processes. The warning came after an ACCC investigation into departmental processes that may have facilitated collusion by competing respondents on government tenders.
It is important to note that the Commonwealth is not exempt from the Competition and Consumer Act 2010 (the Act) in certain contexts. Similarly, respondents need to be mindful that their dealings with the Commonwealth do not give rise to competition risks analogous to those which may arise in the context of dealing with a private entity. Specifically, even though Commonwealth departments and authorities themselves may sometimes have the benefit of Crown immunity, its tender respondents will usually be subject to the Act.1
Government tenders can be susceptible to manipulation by anti-competitive conduct. A tender process can create an environment for bidders to collude, including by bid-rigging and/or market allocation, which can occur when two or more competitors agree not to genuinely compete with each other for tenders. The outcome of such conduct can harm competition, and usually harms the procurer by not resulting in the best-priced or otherwise most competitive outcome.
Indeed, respondents to government tenders should not assume there are no competition risks simply because the tender process in question is at the behest of the government. This is particularly the case where the government requires some form of collaboration between potential respondents.
Resultantly, respondents need to consider whether government tender requirements could lead to anti-competitive conduct, thereby putting respondents at risk of contravening the Act. Indeed, this concern was at the heart of the ACCC’s recent warning to public sector bodies. As observed by the then ACCC Chair, Rod Sims: “encouraging businesses to discuss their bids with each other, or to make agreements about who will bid for a particular tender, is likely to amount to cartel conduct which is against the law.”
In summary, the ACCC made it clear that private parties are not exempt from the risks of contravening the Act simply because their conduct was at the behest of the government as part of a tender process.
It will often seem efficient for different parties to achieve economies by jointly supplying goods or services or otherwise working together to be successful in a government tender process.
However, if those same parties would otherwise compete to supply goods or services in the course of ‘carrying on a business’ make arrangements:
they may be at risk of a breach.
There are certain exceptions to the competition law that can permit joint responses, such as obtaining authorisation from the ACCC where the public benefits of the coordinated conduct outweigh the anti-competitive downside. Alternatively, the proposed collaboration can be structured as a joint venture or an exclusive arrangement (with the caveat that the joint venture or exclusive arrangement cannot have the purpose, effect or likely effect of resulting in a substantial lessening of competition). Nonetheless, organisations must be wary of the risks associated with a joint response to government tenders.
As noted above, the Commonwealth and Commonwealth authorities are bound by the Act where their conduct is undertaken in the course of ‘carrying on a business’.2
Relevant to the tender process, respondents need to be mindful their response (or joint response if part of a consortium) does not inadvertently give rise to some form of cartel conduct (e.g. price fixing, bid-rigging, market allocation) or other form of anti-competitive conduct (e.g. concerted practices).
What does ‘carrying on a business’ mean, and does it apply to Commonwealth procurement?
It has been noted that the ‘carrying on business’ test suffers from a lack of clarity, and may be ill-equipped to deal with an increasing amount of government commercial activity, in particular, government procurement.
Factors that may suggest particular conduct by a Commonwealth authority is done in the course of ‘carrying on a business’ include where the conduct:
Factors that suggest particular conduct by a Commonwealth authority is not done in the course of ‘carrying on a business’ include where the conduct:
The Act provides some express carve-outs from what constitutes ‘carrying on a business’, which include:3
Notably, Commonwealth tenders are also subject to the principles of competitive neutrality, as agreed to by each Australian government in 1995.4 These principles aim to ensure government businesses do not enjoy a net-competitive advantage over private sector competitors (whether actual or potential), by way of their public sector ownership.
Relevant to the tender process, the competitive neutrality principles mean that Commonwealth tenders should seek to:
A key point to remember when partaking in government tenders is that competitive outcomes tend to result in better, more efficient cost outcomes.
Resultantly, the following practical tips may assist in mitigating any risks of contravening the Act:
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Scams are a global phenomenon and no business is immune. In addition to reputational damage and a likely increase in customer complaints.
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