Tan Shi Wen Angela Hii August 8 2022 MyCC issues first decision on bid rigging in public procurement SKRINE | Projects, Construction & Infrastructure - Malaysia Tan Shi Wen, Angela Hii Projects, Construction & Infrastructure IntroductionFactsDecisionCommentIntroductionOn 27 June 2022, the Malaysia Competition Commission (MyCC) fined eight enterprises 1,548,192.35 Malaysian ringgit for an infringement under section 4 of the Competition Act 2010 (CA 2010). The enterprises had engaged in bid rigging that involved four IT-related projects worth 1,925,365.90 Malaysian ringgit, which had been procured by the National Academy of Arts, Culture and Heritage of Malaysia (ASWARA).Section 4(1) of the CA 2010 prohibits a horizontal or vertical agreement between enterprises that has the object or effect of significantly preventing, restricting or distorting competition in any market for goods or services (section 4 prohibition). Such agreements include a horizontal agreement between enterprises that has the aim of bid rigging, which is prohibited under section 4(2)(d) of the CA 2010.(1)FactsIn 2015 and 2016, the ASWARA advertised several projects and requested potential participants who met the relevant qualification criteria to submit request for quotations (RFQs) and tender bids.Following a notification by the ASWARA of an alleged bid rigging arrangement in relation to one of the projects, the MyCC investigated and concluded that there was bid rigging involved in four projects.DecisionFrom the outset, the MyCC stated that procurement procedures are designed to ensure a competitive bidding process; however, bid rigging can take many forms, all of which would have a significant adverse effect on competition. Hence, in accordance with a well-established fundamental principle of competition law, enterprises are expected to act independently when determining their conduct in the market.The four projects involved in bid rigging were the following.First projectSix out of the eight enterprises participated in the procurement exercise for this project. According to the MyCC, two different cartels had submitted RFQs.First cartelThe MyCC found that two of the participating enterprises had colluded to submit cover bids to the ASWARA, as one of the enterprises had prepared and submitted the quotation documents on behalf of itself and the other enterprise.(2)The MyCC also found that if either enterprise had won the project, it would have chosen the other as its subcontractor, and it was on this basis that the MyCC decided that the enterprises had performed an act of bid rigging under the guise of a subcontracting arrangement.The presence of representatives from both enterprises at the ASWARA project kick-off meeting and the use of the successful bidder's name by the other enterprise in presentations to the ASWARA further supported the finding that the subcontracting arrangement had been a cover and a type of bidding with subcontracting relationship. The MyCC added that if parties had genuinely intended to collaborate, they would have submitted a single bid.Second cartelThe MyCC opined that the four enterprises this cartel comprised did not act independently when participating in the bidding process for this project.Instead, one of the enterprises (the lead enterprise) had entered into bilateral agreements with each of the other enterprises for a name-sharing arrangement, which entailed the sharing of confidential company documents with each other, including:letterheads;financial documents;regulatory certificates; andcompany stamps.Under the name-sharing arrangement, the lead enterprise prepared and submitted RFQs for all the enterprises in the cartel. In the MyCC's view, this gave the lead enterprise an upper hand over genuine bidders, as it had submitted three other tenders under the guise of three separate enterprises.Although all four enterprises in this cartel were unsuccessful in the tender, the MyCC was of the view that such collusion infringed the section 4 prohibition.Second projectThe MyCC said the cartel in this instance was comprised of two enterprises, one of which agreed in writing to allow the other to use its name to participate in the tender. An unsuccessful bid was submitted by the second enterprise, but no bid was submitted in the name of the first enterprise. However, the MyCC concluded that the two enterprises had breached the section 4 prohibition. The MyCC found that the non-submission of a bid in the name of the first enterprise was due to time constraints rather than a decision by the enterprises to depart from collusion.Third projectAccording to the MyCC, three enterprises participated in this cartel, in which the first enterprise requested consent from the second and third enterprise to use their respective names to participate in the RFQ. The second enterprise consented to the first enterprise's request, resulting in an RFQ being prepared and submitted by the first enterprise in the second enterprise's name.Although the third enterprise did not respond to the first enterprise's request, the MyCC found there was an existing practice of name-sharing between the first enterprise and the third enterprise. In this regard, the MyCC found that the first enterprise had used the third enterprise's name to purchase the bid document for this project.The MyCC held that, while none of the enterprises had been awarded the tender, by forming a cartel, they had infringed the law and acted in breach of the section 4 prohibition.Fourth projectThe MyCC found that two enterprises had formed a cartel to participate in the RFQ for this project by using the above name-sharing arrangement. The first enterprise was awarded the project based on an RFQ prepared by the second enterprise. The MyCC found that the arrangement between the enterprises was such that the second enterprise would carry out the works and that the first enterprise would be awarded 5% of the contract value as a reward for allowing the second enterprise to use its name for the RFQ.Although the second enterprise did not submit an RFQ for this project, the MyCC concluded that its use of the first enterprise's name as a proxy amounted to an act of bid rigging by way of submitting a cover bid. The MyCC was of the view that in proving an agreement between the enterprises to perform an act of bid rigging by way of an agreement and/or concerted practice, it was immaterial that the first enterprise's bid price was lower than the ASWARA's estimated price.CommentThis decision is groundbreaking, as it is the first time that the MyCC has issued a judgment on bid-rigging in public procurement. It affirms the MyCC's avowed commitment to support the government's effort to combat anti-competitive practices, such as bid rigging in the tendering process for public procurement projects.According to recent circulars issued by the Ministry of Finance,(3) individuals or enterprises found to have engaged in bid rigging conduct in public procurement may be suspended from registration for a maximum period of five years, blacklisted and prohibited from participating in other procurements by government agencies during the suspension period.(4)Since the MyCC has warned that they are investigating 500 companies suspected of being involved in bid rigging of contracts valued at 2 billion Malaysian ringgit,(5) this decision suggests the beginning of a wide-scale crackdown on such activities.For further information on this topic please contact Tan Shi Wen or Angela Hii at SKRINE by telephone (+603 2081 3999) or email ([email protected] or [email protected]). The SKRINE website can be accessed at www.skrine.com.Endnotes(1) Bid rigging is a form of anti-competitive conduct between enterprises participating in a procurement process. Some examples of bid rigging conduct are set out in paragraph 3.27.4. of the MyCC Guidelines on Chapter 1 Prohibition: Anti-competitive Agreements.(2) Cover bids are where an enterprise and its competitors choose a winner while the other participants, except the winner, deliberately bid above an agreed amount to establish the illusion that the winner's quote is competitive.(3) The Ministry of Finance's circular on Integrity in public procurement (PK 1.6) to be read together with the circular on non-compliance in public procurement (PK 8).(4) The MyCC news releases dated 22 June 2022 and 5 July 2022.(5) The MyCC news release dated 5 July 2022.