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Commission Files Criminal Charges Against Construction Companies And Directors In First Criminal Cartel Prosecution

The Commerce Commission has filed criminal charges against two construction companies and two directors for alleged bid rigging of publicly funded construction contracts, in the country’s first-ever criminal prosecution for cartel conduct.

The charges follow a Commission investigation into allegations that the companies and their directors colluded to rig bids for infrastructure projects in Auckland.

Commerce Commission Chair, John Small, says the criminal proceedings filed in the Auckland District Court send a strong message to businesses that the Commission will not tolerate cartel conduct, and is prepared to lay criminal charges to enforce the law.

"Cartel conduct harms consumers through higher prices or reduced quality, and it harms other businesses that are trying to compete fairly. The criminalisation of cartel conduct in 2021 underlines just how serious and harmful this offending is.

“Bid rigging of publicly funded construction contracts loads extra costs onto taxpayers and the New Zealand economy as conduct of this type undermines fair competition. The Commission will not hesitate to bring criminal proceedings in appropriate cases to ensure kiwis are getting the benefits of fair prices, quality services and more choice.”

As this is a criminal matter currently before the Court, the Commission will not be providing further comment on the case at this time.

Background

Cartel conduct

A cartel is where two or more businesses agree not to compete with each other by price fixing, allocating markets or customers, or restricting the output or acquisition of goods and services. Bid rigging is a form of price fixing and can also involve allocating markets or customers.

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Bid rigging or collusive tendering is when there is an agreement among some or all of the bidders about who should win a tender or have an unfair advantage in the tender. 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. This often occurs in the form of “cover pricing.”

Cover pricing is where one or more parties submits a tender bid or bids at an inflated price with a view to increasing the prospects that another designated firm wins the tender. 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.

Cartel conduct is prohibited under section 30 of the Commerce Act. As of 8 April 2021, cartel conduct is punishable with a term of imprisonment of up to 7 years, underlying just how serious and harmful offending of this nature can be.

Leniency

The Commission can grant leniency to any individual or company engaged in cartel conduct that meets the requirements in the Commission’s Cartel Leniency and Immunity Policy. Leniency means that the Commission agrees not to take civil enforcement action against a company or individuals for their involvement in the cartel conduct. The Commission can also recommend to the Solicitor-General that any individual or company that is granted leniency is also granted immunity from criminal prosecution.

The Cartel Leniency and Immunity Policy is a key tool for the Commission - and for other competition agencies overseas - to detect cartels. The Commission can grant leniency to the first member of a cartel who approaches it, provided they meet the requirements for leniency. Immunity against criminal sanctions is also available in appropriate cases.

You can find more details about cartel conduct on the Commission’s website.

Cartel Prosecutors Panel

Criminal cartel prosecutions are conducted on behalf of the Commission and the Crown by members of the Cartel Prosecutors Panel. The Panel is appointed by the Solicitor-General after consultation with the Chair of the Commission. Current members of the Panel are listed on the Commission’s website.

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