Bid Rigging and Cartels

Bid Rigging ImageCartels

BID RIGGING AND CARTELS


This month, we have dealt with a very common and historical practice of bid rigging in Government tenders. License Raj has been replaced by heavy competition between private and public sector companies. However, the procurer Government departments still has one sided terms in their contracts for the private bidders to combat. Making a Cartel to secure business seems like a safe bet.

Competition policies aim to level the playing field by punishing/penalizing any dominant behavior. The atmosphere can be changed by the private sector questioning the one-sided terms and colluding positively to increase their bargaining power.

Cartel Studies

Companies engage in collective bargaining and rig bids in public procurement tenders. A few examples for the same are presented below:

1. Aluminium Phosphide Tablets Manufacturer Cartelize in Food Corporation India’s (FCI) Tender.

Parties Involved: United Phosphorus(UPL), Excel Crop V/s Care Ltd. And Sandhya OrganicsPvt. Ltd.

Anti Competetive/ Adverse Effect in the Market: The CCI observed that the parties were acting together and were quoting identical prices which deprived FCI of competitive bid rates in matter of procurement of ALP tablets. Thus, the firms inflated FCI’s cost of procuring the tablet used to preserve grains.

Facts Supporting Cartelization on : Each party quoted -Rs, 3,88,000 MT.

Total Penalty: Rs 317 crore @ (CCI order dated 23rd April, 2012)

2. Explosive Maket cartelize in Coal India’s (CIL)Tender

Parties Involved: Gulf Oil Corporation, Solar Industries Indian Explosives, Keltech Energies.

Anti Competetive/ Adverse Effect in the Market: The cartelization had caused harm to the Informant/ CIL in purchase of explosives and this cartelization had resulted in controlling / limiting supply & distorting market forces of demand and supply.

Facts Supporting Cartelization on : Collective boycotting /non-participation amounting to rigging of Tender.

Total Penalty: Rs 2.8 Crore (COMPAT order dated 18th April,2013).

3. LPG Cylinder Manufacturers Cartelize in Indian Oil Corporation’s tender

Parties Involved: 48 private LPG Cylinder manufacturers.

Anti Competetive/ Adverse Effect in the Market: Indian Oil Corporation was deprived from competitive bid rates and procured LPG cylinders at higher price

Facts Supporting Cartelization on : 48 parties quoted identical prices -liable for collusive bidding in.

Total Penalty: Rs 165.58 crore @ 7% of the average turnover of each company (CCI order dated 24th February, 2012)

4. Schulumberger Asia Services -predatory pricing alleged in respect of wireline logging and perforation services required for Oil & Natural Gas exploration

Parties Involved: Schlumberger Asia Services L S Asia.

Anti Competitive/ Adverse Effect in the Market: CCI did not find evidence to support the allegation and stated that the Informant lost in a bidding process to an efficient competitor who had quoted a price that was not only lower than the ONGC estimates but also lower than previous year’s price quote.

Facts Supporting Cartelization on : Prices quoted by Schlumberger Asia were approx. 40% lower than the internal estimates of ONGC and 50% lower than the previous running contract rates.

Total Penalty: No Penalty. Matter closed by CCI

 

Adopting collective bargaining through the platform of an Association is quite common for Firms/Enterprises to cartelize.

CCI has been investigating such cases, like Sugar Mill Owners Association, Onion Traders, United Producers/Distributors Forum (UPDF) and Films Association (of distributors & theater owners).

While looking into sugar mill owners association for cartelization charges, the Commission took note of a news article titled “Cartelization by industry to push up sugar prices: Traders” published in The Economic Times alleging that certain sugar mill associations had indulged in anti-competitive practices by fixing the minimum ex-mill price of sugar through the platform of their association.

However, the Commission observed that sugar was highly regulated and controlled either through a mechanism of control over prices or control over supply and that the industry was not operating within the free market. The Commission also noted that market dynamics were not able to drive the industry because of excessive governmental control and regulations.

At the same time, the Commission has also ruled that just because sugar is a regulated commodity, it would not fall outside the scope of the Competition Act.

Last month the Government has de-regulated sugar – they will now compete in the open market – So more Competition concerns ahead.

Similarly, the onion traders were investigated on the basis of various media reports alleging hoarding, price manipulation and possible cartelization. The case was closed as the DG, in his investigation, by not understanding the nuances of traditional markets and the mechanisms that beget anti competition behavior failed to garner enough evidence of cartelization by proceeding on lines of cartel investigation as applied to the modern industry cartels.

In the cinema industry, In May 2011, CCI fined (nominally) 27 _lm producers/members of the United Producers/Distributors Forum (UPDF) controlling almost 100% of the market for production and distribution of Hindi pictures in multiplexes in India (relevant market) who were clearly acting in concert to x prices and also limiting/ controlling supply by refusing to release Hindi films for exhibition in multiplexes.

UPDF and its members had collectively boycotted the multiplex cinema operators for own gains and did not contribute to any benefits for the market or consumers. Later, in Feb 2012, Films Association (of distributors & theater owners) were fined for collectively controlling the distribution and exhibition of Films by imposing unreasonable and compulsory conditions, like becoming a member and registration with the association without which the Producers were boycotted.

The Association used the said anti-competitive conditions to ensure payments by producers. However, they have to amend and delete all such clauses to comply with this new legislation in force.


Contributors:

Shreyas Bhushan, a IV year law student at the National University of Advanced Legal Studies, Cochin (NUALS)

Swarnmala Singh, Final year law student at Amity Law School, Noida.


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