On 27 June 2022, the Malaysia Competition Commission (“MyCC”) imposed a financial penalty of RM1,548,192.35 against eight enterprises for an infringement of the prohibition under section 4 of the Competition Act 2010 (“CA 2010”) by engaging in bid rigging conduct involving four IT related projects worth RM1,925,365.90 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 which has the object to perform an act of bid rigging¹ under section 4(2)(d) of the CA 2010.
 
BACKGROUND
 
In 2015 and 2016, ASWARA advertised several projects and requested potential participants who meet the relevant qualification criteria to submit Request for Quotations (“RFQs”) and tender bids.
 
Arising from a notification by 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.
 
FINDINGS BY THE MYCC
 
From the outset, the MyCC stated that procurement procedures are designed to ensure a competitive bidding process; however the act of 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 on the market.
 
The First Project
 
Six out of the eight enterprises participated in the procurement exercise for this project. According to the MyCC, two different cartels had submitted RFQs.
 
First Cartel
 
The MyCC found that two of the participating enterprises colluded to submit cover bids² to ASWARA as one of the enterprises had prepared and submitted the quotation documents on behalf of itself and the other enterprise.
 
The MyCC also found that if either enterprise wins the project, it would choose 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 ASWARA further supported the finding that the subcontracting arrangement here was a cover bidding-cum-subcontracting relationship. The MyCC added that if parties genuinely intended to collaborate, they would have submitted a single bid.
 
Second Cartel
 
The MyCC opined that the four enterprises comprising this cartel 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 amongst others, letterheads, financial documents, regulatory certificates and company stamps. Pursuant to 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 infringes the Section 4 Prohibition.
 
The Second Project
 
The MyCC said the cartel in this instance 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 mentioned enterprise but no bid was submitted in the name of the first mentioned enterprise. Notwithstanding the foregoing, 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 mentioned enterprise was due to time constraints rather than a decision by the enterprises to depart from the collusion.
 
The Third Project
 
According to the MyCC, three enterprises participated in this cartel, in which the first enterprise requested consent from the second enterprise and the 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 is 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 despite the fact that none of the enterprises was awarded the tender, by forming a cartel, they have infringed the law and acted in breach of the Section 4 Prohibition.
 
The Fourth Project
 
The MyCC found that two enterprises formed a cartel to participate in the RFQ for this project by using the name sharing arrangement described above. 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 the submission of 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 ASWARA’s estimated price.
 
COMMENTS
 
This decision is groundbreaking as it is the first decision by the MyCC 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.
 
It is to be noted that pursuant to the recent circulars issued by the Ministry of Finance³, 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
 
As the MyCC has warned that they are investigating 500 companies suspected of being involved in bid rigging of contracts valued at RM2 billion⁵, this decision may be a harbinger of a wide-scale crackdown on such activities.
 
The MyCC’s decision can be read here.
 
 
Article written by Tan Shi Wen (Partner) and Angela Hii (Associate) of the Competition Law Practice Group of Skrine.
 

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