Why is cartel risk the 'lowest priority for boardrooms'?

14 September 2020

Cartel risk is the lowest priority for boardrooms, according to the Competition and Markets Authority (CMA).

Speaking during Procurex National, Gergina Laverack, assistant director at the CMA's Cartels Team, said a CMA poll showed only 18% of firms had senior level discussions about competition compliance, with many companies unsure about the rules.

The topic is lower on the agenda than health and safety and employment law, according to Laverack. 

She said: “My message today, to all directors, is that you must understand and comply with competition law, cartels are illegal and you need to lead by example. You need to know the law to protect your business, but you also need to know what’s going on in your business.” 

Professionals in commercial areas of the business that may be most at risk needed to be trained in competition law to ensure they understood what they could and couldn’t do, and what suspicious signs of bid rigging to be aware of.

One tell-tale sign to watch out for if you think you're receiving 'token' bids – which occurs in many forms of bid-rigging – is a clear gap between the winning bid and the other bids, or the same incremental difference between bids, said Laverack.

The CMA recommended the following actions if you think you are at risk or suspect illegal cartel involvement: 

1. If you are approached by a cartel meeting, immediately reject involvement, leave the meeting and make it clear that you refuse to take part in anything illegal.

2. If in doubt, seek legal advice.

3. If you have been directly involved, consider applying to the CMA under the leniency programme where you may be able to receive immunity or reduced sanctions in exchange for whistleblowing. 

4. If you are suspicious of activity, fill out an online CMA report form or contact directly.

The consequences for businesses or individuals being involved in cartels include director disqualification of up to 15 years, fines of up to 10% of businesses global turnover, prison sentences of up to five years, and damage claims by third parties.  

“Bid rigging can come in a variety of forms all designed to manipulate the tender process for the benefit of the contractor. The main thing these have in common is that they all undermine competition and cheat companies out of a good deal,” said Laverack.

Cartels can occur in any industry, with the most common forms of bid rigging in procurement including bid suppression, bid rotation, cover pricing and market allocation. 

In bid suppression firms agree not to bid to reduce the competition. For bid rotation companies take it in turns to have the most attractive bid on a contract, ensuring they each get a share of the market. In cover pricing firms who don’t want the work submit an inflated bid. And when it coes to market allocation competitors agree to divide up customers or geographic areas.  

Laverack said: “Any kind of price fixing, bid rigging or market sharing is illegal, and are considered to be some of the worst forms of anti-competitive behaviour because they are a form of stealing from customers, forcing up prices, and reducing quality and incentives to innovate.” 

Recent cases by the CMA include a drug firm collusion which resulted in a 700% drug price increase over four years due to bid-suppression, and a case where construction firms were fined £36m for price fixing concrete drainage pipes through market allocation.

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