Three building companies and two individuals have been ordered to pay penalties totalling A$1.38 million for their roles in submitting "cover prices" in bids for government construction contracts in Queensland.
"Cover pricing" is a practice where a genuine bidder invites competitors to submit a price higher than the genuine bidder's price in response to a request to tender in order that they be seen as tendering for the work without actually seeking to win it. The submission of these higher cover prices convey the impression that the genuine bidder's price is competitive, as it is lower than the cover prices. There is a risk that the genuine bidder's price may be inflated in the knowledge the higher cover prices will not be successful.
In his liability judgment1, Justice Logan held that the parties willingness to seek and provide "cover prices" exposed a relevant "understanding" between them to control tender prices and therefore came within the scope of prohibited price fixing.
In his penalty judgment2, Justice Logan ordered the three construction companies (JM Kelly, TF Woollam and Carmichael Builders) to pay penalties of A$600,000, A$450,000 and A$250,000 respectively.
In deciding the appropriate penalty, the Court deliberately avoided reference to mathematical formulae, and the specific number of contraventions by each construction company, focusing instead on imposing a penalty which would deter this kind of conduct from happening at all. While the Court considered the financial circumstances of both the individuals and the corporations involved, holding that "capacity to pay is certainly relevant," Justice Logan ultimately concluded that if "a corporation exposes itself to a penalty that is apt for the circumstances, and that penalty happens to be of an order that must lead to the liquidation of the company, then so be it."
Nonetheless, the Court reduced the penalties that might otherwise have been payable by the construction companies as no loss or damage was caused by the contravening conduct. This is one of the factors relevant to the assessment of penalty which was first identified by Justice French (as he then was) in TPC v CSR Ltd [1991] 13 ATPR 41-076. The Court found that while the State Government had not suffered any monetary loss or damage (because none of the tenders submitted by the construction companies had involved an inflation of prices), the construction companies had undermined the Government tender process for public works, which seeks to promote value for public money through competitive tendering. By providing false signals about the range of prices for building works, the builders had created "an illusion as to the range of prices" in the market.
The Court also penalised two construction company executives who were involved in the cover pricing. Interestingly, both executives who were found liable did not themselves issue any cover prices. However, Justice Logan found that both had knowledge of the practice of cover pricing and its features and had authorised a subordinate to communicate a cover price to another contractor. They therefore had knowledge of the essential matters which go to make up the contravention, and thus were both liable as having been knowingly concerned in the contraventions.
In his penalty judgment3, Justice Logan ordered that:
- Mr Bogiatzis (TF Woollam's Managing Director) pay a penalty of A$50,000
- Mr Murphy of Carmichael Builders pay a penalty of A$30,000.
The case represents an important victory for the Australian Competition and Consumer Commission and further develops the law in respect of price fixing in that it extends the prohibition to capture the practice of cover pricing in circumstances where no prices were fixed between competitors.
Footnote
1Australian Competition and Consumer Commission v TF Woollam & Son Pty Ltd [2011] FCA 973
2Australian Competition and Consumer Commission v TF Woollam & Son Pty Ltd (No 2) [2011] FCA 1216
3Australian Competition and Consumer Commission v TF Woollam & Son Pty Ltd (No 2) [2011] FCA 1216
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