New Zealand taxpayers are being ripped off to the tune of $360 million a year because of bid-rigging in public procurement, the Commerce Commission estimates.
Chair Dr John Small says the estimated harm illustrates the importance of the Commission’s ongoing enforcement and educational efforts.
“I have a message for those involved in this illegal activity – we’re coming for you,” Dr Small says.
“Both our Anonymous Reporting Tool and leniency programme continue to generate very strong leads, and we have investigations underway where public procurement has been targeted.”
Dr Small says the Commission is highlighting the estimated figure to shine a light on the issue.
“Ultimately, when this illegal conduct occurs all Kiwis pay,” he says.
“It is essential we protect the integrity of processes involving the expenditure of public funds.”
Government agencies spend about $51.5 billion a year on the procurement of goods and services.
“Cartels in public procurement are a specific enforcement priority for the Commission – we take an extremely dim view of any illegal activity that rips off taxpayers,” Dr Small says.
“In addition, we are tackling all forms of cartel conduct. We have ongoing actions in the real estate and grocery sectors, while last year we saw the conclusion of cases involving customer allocation and price fixing in the courier sector and the bid-rigging of public roading contracts.”
As well as ongoing enforcement, the Commission continues to roll out an extensive outreach programme aimed at educating various sectors and businesses, including those involved in procurement.
Anyone who becomes aware of cartel conduct can report it to the Commission via our Anonymous Reporting Tool.
Those involved in a cartel can apply for leniency. The first party in a cartel to apply to the Commission can obtain leniency from civil proceedings and immunity from criminal prosecution, which can include avoiding jail time or any financial penalties.
A technical note on the estimate can be downloaded here.
Background
What is a cartel?
A cartel is where two or more businesses agree not to compete with each other,
including by price fixing, allocating markets or customers, bid-rigging, or restricting the output or acquisition of goods and services.
Because cartel members make more profit than they would if they competed fairly,
goods and services become more expensive, people end up with fewer choices, and quality and service levels are likely to deteriorate. Tackling cartels is one of the
Commission’s enforcement priorities.
More information, including on allocating customers and fixing prices, can be found on our website.
Bid-rigging
Bid-rigging happens when there is an agreement among some or all the bidders about who should win a bid. This may involve potential bidders not bidding for a tender to support the proposed winner or bidders may agree the prices that each party will bid. Such an agreement prevents open and effective competition and means procurers are unlikely to achieve best value for money for their business, customers, and in some cases, taxpayers.
The Commerce Act
Cartel conduct is prohibited under section 30 of the Commerce Act. As of 8 April 2021, cartel conduct became punishable with a term of imprisonment of up to 7 years, underlying just how serious and harmful offending of this nature can be.
Section 31 and 32 outline exceptions to the cartel prohibition, for vertical supply and collaborative activity arrangements.
