"These figures show that a huge amount of taxpayers’ money flows into public tenders. They also show that contracts affected by cartel agreements are more expensive than they should be. This is why we absolutely need to pursue a zero tolerance policy," explains Natalie Harsdorf, Director General of the Austrian Federal Competition Authority (AFCA).
Tender markets particularly susceptible to cartel breaches
Markets for public contracts are more susceptible to collusive arrangements. This higher level of risk is often due to the fact that public clients frequently procure the same goods and services at regular intervals. If similar quantities of a standardised product are required in the context of frequently recurring calls for tenders, the public client’s demand becomes predictable, and companies also get to know who their competitors in future tender procedures will be. Markets in which goods and services are only offered by a very limited number of companies are particularly susceptible to collusive arrangements.
AFCA investigations
The AFCA has uncovered several bid rigging cases over the last few years and secured high fines from the Cartel Court. These include the Austria-wide construction cartel, the dry-construction cartel, the facade construction cartel, the opinion research cartel, the waste management cartel and the joiner cartel. Total fines of around EUR 194 million have been imposed in response to infringements of cartel law.
"Our investigations have shown that bid riggers have been devoting a lot of time and creative energy to circumventing the competition rules in Austria. In all the evidence we gathered, there was one case in which emails were sent out to competitors in relation to road building projects referring to, for example, street XX and house number 135. This house number was a coded instruction for them to make an offer of EUR 135,000,” reveals Natalie Harsdorf.
Anti-competitive arrangements take different forms. Past examples include price fixing, market divisions, anti-competitive working groups and bidding consortia, and the exchange of competitively sensitive information. In the construction cartel, there had been regular meetings among competitors to agree which bidder should be awarded a specific contract. Those companies that were left out would either be subcontracted or chosen to be the best bidder at another opportunity.
Regional Courts of Audit
Regional Courts of Audit may also have to deal with collusion in tendering procedures since they are regularly obliged to examine procurement contracts at state and municipality level. Collusion in procurement procedures is against the law and undermines the general public’s trust in the integrity of public procurement processes. It also comes at great expense for taxpayers. This is why it is of the utmost importance that any irregularities in relation to calls for tenders are detected at an early stage. The aim of cooperation between the AFCA and the Regional Courts of Audit is to raise and maintain awareness of collusion in public sector tendering.
“Examinations conducted by the Courts of Audit over the past few years have unearthed various shortcomings in public procurement, such as inadequate estimates of contract value, the wrong choice of procedure or insufficient documentation of the procurement process. These are the very factors that foster bid rigging,” insists René Wenk, Director of the Burgenland Court of Audit.
Checklist for contracting authorities – awareness of cartel breaches
The Regional Courts of Audit in Burgenland, Carinthia, Lower Austria, Upper Austria, Salzburg, Styria, Tyrol and Vorarlberg have agreed to cooperate more closely with the AFCA to raise awareness of cartel law breaches among contracting authorities.
“AFCA investigations, such as those in connection with the construction cartel, show that the public sector had to bear additional costs because of bid rigging. This underlines the absolute need for greater effort to be put into its prevention. The Regional Courts of Audit will assess whether the new measures are sufficient at both state administration level and for state-owned companies and local authorities. The checklist should help them to build and develop prevention measures, possibly as part of their compliance systems,” explains René Wenk.
“One thing that is especially important is that smaller entities, such as the Regional Courts of Audit, share the knowledge gained from their audits and work together on joint methods to prevent illegal contracting. The checklist we drew up together with the AFCA is very helpful in this regard,” adds Rudolf Hoscher, Director of the Upper Austria Court of Audit.
“We designed the checklist to give contracting authorities a tool to identify cartel law breaches. Our investigations of the last few years have found some distinguishing characteristics of cartel law breaches in the public procurement process. These can be useful for contracting authorities to know, helping them to detect and report breaches,” says Natalie Harsdorf.
Contracting authorities can take various measures to promote fair and effective competition, as early as in the design phase of a tendering procedure, for example:
- Allowing no involvement from clients
- Giving no preference to established providers
- Avoiding tender predictability
- No requesting of bidding companies to ask other companies to submit bids
- Obtaining as much information as possible about the market and its goods or services
- Reporting suspicious cases
- And other similar measures.
Cartel screening – a global trend
To spot and combat signs of cartel behaviour as early as possible, increasing use is being made worldwide of cartel screening tools. These tools allow users to identify suspicious patterns or signs in tender data that point to possible cartels. They are mostly used in public sector tendering, and their implementation relies heavily on the availability of data.
Contracting authorities can take preventive action, in collaboration with the AFCA, to put a stop to cartel activities.
“Cartel screening, and therefore early detection of cartels, can be useful to protect taxpayers from having to pay excessive prices,” comments Natalie Harsdorf.
“The explanation we often get to hear when contracts are repeatedly awarded to the same company: ‘We have worked with them for years, and they know exactly what we need.’ This will naturally lead to dependency and possibly also to prices that are not in line with market levels,” adds Rudolf Hoscher.
Reporting of suspicious cases
If there are grounds for suspicion, individuals and businesses may share their information with the AFCA by using an online complaints form, available at: https://www.bwb.gv.at/en/complaints.
The AFCA also has its own whistleblowing system (https://www.bwb.gv.at/en/cartels_and_abuse_control/whistleblowing_system), via which suspected antitrust violations can be submitted anonymously.
Prevention and recognition of collusion (currently available in German only)
Fact sheet on checklist for contracting authorities (currently available in German only)
