What happened?

Scott Barton of First Class Slate Roofing telephoned then texted Damian Hand of Mr Shingles to offer him $10,000 if he (Damian) submitted a higher bid for the slate re-roofing of the Main Roof of Wesley College at Sydney University, so that Scott could win the tender. Even though the project was a large one with a value of over $1 million, Damian thought the offer was too good to refuse.

Scott then offered to reciprocate. He knew that Damian was tendering to supply and/or install a Canadian slate roof for a residential property at Bellevue Hill, in Sydney’s eastern suburbs. He texted Damian that he would submit a higher bid if Damian paid him $2,000, so that Damian could win the tender. Damian agreed.

First Class roofing won the Wesley College tender and Mr Shingles won the Bellevue Hill tender. They completed the roofing work and were paid in full.

Normally, this kind of bid-rigging would not work because there are many competitors. But the installation and repair of slate roofing requires specialized skill and labour, which means there is limited competition.

What happened next?

The Australian Competition & Consumer Commission (ACCC) found out what had happened and began an investigation.

The ACCC issued notices requiring the two roofing businesses to produce information and documents, including texts and telephone call records. The ACCC required Scott and Damian to attend for examination and to give evidence on oath about their conduct. The notices to produce and to attend were compulsory.

Using this evidence, the ACCC issued civil proceedings against the companies and their directors (Scott & Damian) personally in the Federal Court of Australia for illegal cartel conduct.

At an early stage, Scott, Damian and their companies admitted they had engaged in cartel conduct and made joint submissions with agreed facts, and asked the Court to make orders for penalties, injunctions, and other orders.

The Court Orders

The Court orders were based on contraventions of s 45AJ (making an arrangement which contains a cartel provision) and s 45AK (giving effect to a cartel provision) of the Competition and Consumer Act 2010 (Cth).

In setting the penalties, the Court stated that deterrence was the primary objective.

The factors in favour of a high penalty were that the conduct was deliberate and involved aspects of falsification and concealment which denied the customers the benefit of genuinely competitive tender offers, including the opportunity to attempt to negotiate a lower contract price for the roofing services that were provided.

The factors in favour of a lower penalty were that the benefits derived were modest, the parties had not previously been found to engage in cartel conduct, and each party had made full admissions. Each business was relatively small scale.

The Court ordered these penalties:

First Class Slate Roofing pay $280,000, by 12 half-yearly instalments over 6 years Scott Barton pay $60,000, by 12 half-yearly instalments over 6 years RAD Roofing Specialists Pty Ltd t/a Mr Shingles pay $65,000 by 18 monthly instalments over 18 months Damian Hand pay $15,000 by 18 monthly instalments over 18 months

In addition, the Court ordered:

Injunctions restraining the parties for 3 years from reaching any understanding or arrangement regarding a bid for roofing projects Attendance at and undertaking compliance training under the Competition Law Publishing an educative notice to the current members of the Roofing Industry Association of NSW headed “Don’t do what we did – rigging bids for roofing projects is illegal!”, which describes what they did, what the ACCC did, the Federal Court case and ‘Lessons to learn from our mistakes’.

This was the ‘Lessons to learn from our mistakes’ section in the educative notice:

It’s pretty simple - here is what you need to know about cartel conduct:

•     Avoid speaking to your competitors about customers and pricing, including bids for projects.

•     Never agree or even try to agree with a competing business on the prices you or they will charge or what discounts will be offered including in tenders or quotes for jobs.

•     Never limit the goods or services you or they supply or allocate customers or geographic areas.

•     If you are approached by another competing business to discuss arrangements about pricing, customers or bidding, don’t get involved and report it to the ACCC.

Further information can be found in:

ACCC Media Release Court orders two roof tiling businesses and their directors pay $420,000 for cartel conduct (14 September 2022)

Australian Competition and Consumer Commission v First Class Slate Roofing Pty Limited [2022] FCA 1093 (14 September 2022) (Yates J) Federal Court of Australia

Marketing commentary by Michael Field

ACCC Slates Roofing Contractor’s Cartel Conduct

Paying the Price for Price Fixing

The building and construction industry is incredibly competitive. Profit margins are hotly contested at every stage of a building project from specification through to installation and replacement.

The illegal practice of ‘bid rigging’ interferes with competitive market forces, and significantly damages the client financially, while simultaneously propping up the contractor by providing deal certainty, predictable revenue, margin, and market share.

It is unclear how the ACCC heard about this case of cartel conduct, however they should be commended for including in their penalty, the requirement to ‘publish… an educative notice to the current members of the Roofing Industry Association of NSW’.

The requirement that the offending parties publish a notice to the industry, detailing ‘what they did, what the ACCC did, the Federal Court case and ‘Lessons to learn from our mistakes’, ensures that the industry is properly informed and fairly warned.

In this case, the ACCC has done much more than just providing a financial deterrent through penalty.

They have educated the industry.