Malaysia: Competition Appeal Tribunal's Decision In Malaysia's First Bid Rigging Case Under Section 4 Of The Competition Act 2010

INTRODUCTION

On 19 September 2023, the Competition Appeal Tribunal ("Tribunal") delivered its decision in respect of the first bid rigging case under Section 4 of the Competition Act 2010 ("Act") in Malaysia.

BACKGROUND TO THE TRIBUNAL'S DECISION

The Tribunal's decision is in respect of the Malaysia Competition Commission's ("MyCC") infringement decision dated 27 June 2022 made pursuant to Section 40 of the Act. In its infringement decision, MyCC found that 8 enterprises had engaged in anti-competitive conduct by participating in bid rigging for the award of 4 contracts by the National Academy of Arts, Culture and Heritage of Malaysia ("ASWARA") in infringement of Section 4(1) read with Section 4(2)(d) and (3) of the Act. Collectively, a total financial penalty of RM 1,548,192.35 was imposed on the 8 enterprises.

5 of the 8 enterprises, namely Caliber Interconnects Sdn Bhd ("Caliber"), Novatis Resources Sdn Bhd ("Novatis"), Silver Tech Synergy Sdn Bhd ("Silver Tech"), Basenet Technology Sdn Bhd ("Basenet") and Venture Nucleus Sdn Bhd ("Venture Nucleus") appealed against MyCC's infringement decision before the Tribunal (though Venture Nucleus's appeal was struck off as it was filed out of time).

In dismissing the appeals by Caliber, Novatis, Silver Tech and Basenet (collectively the "Appellants") with no order as to costs, the Tribunal held that it was satisfied that there is sufficient evidence by MyCC to find that there is an infringement of Section 4 of the Act.

SUMMARY OF KEY LEGAL PRINCIPLES ON BID RIGGING

This article attempts to summarise some of the key legal principles on bid rigging (as we understand) as elucidated by the Tribunal in its written grounds of judgment dated 19 September 2023. It is important to note that we abstain from expressing any opinion regarding the Tribunal's decision within this article.

Bid Rigging under Section 4 of the Act

1. The Tribunal referred to Section 4(1), 4(2)(d) and 4(2) of the Act.

2. Under Section 4(1) of the Act, a horizontal or vertical agreement between enterprises is prohibited in so far as the agreement has the object or effect of significantly preventing, restricting or distorting competition in any market for goods and services. Section 4(2)(d) of the Act further provides that without prejudice to the generality of subsection (1), a horizontal agreement between enterprises which has the object to perform an act of bid rigging is deemed to have the object of significantly preventing, restricting or distorting competition in any market for goods and services. Any enterprise which is a party to such agreement shall be liable for infringement for the prohibition under Section 4(3) of the Act.

3. The Tribunal held that having an agreement amongst the parties bidding for a contract in a tender process is harmless under Section 4 of the Act; it is the objective and the effect of that agreement that is critical. If the objective and the effect is to significantly prevent, restricting or distorting competition in any market for goods or services, it could amount to an infringement.

Features or characteristics of Bid Rigging

4. The Tribunal recognised that Section 4 of the Act does not say much about what "bid rigging" is. The Tribunal referred to 'the guidelines published by MyCC' (although it is not immediately apparent from the Tribunal's written grounds which specific guideline published by MyCC was being referred to) which describes "bid rigging" as a form of price fixing and allocation of markets. It occurs when two or more bidders in a tender exercise collude to distort the normal conditions of competition. The bidders agree amongst themselves who should win the tender and at what price. Instead of submitting the best tender, the parties fix the tender.

5. The Tribunal then summarized the features or characteristics of "bid rigging" as follows:

6. The Tribunal held that it is not necessary for all the five elements above to be present in a bid rigging attempt.

7. Bid rigging can manifest in various forms, some of which are highlighted in MyCC's guidelines:

• Bid suppression – this occurs when some of those who collude do not make a bid and thus permit a predetermined party to get the tender.
  
  
• Bid rotation – this occurs when bidders take turns to submit the most competitive tender price or the lowest bid (and therefore winning the contract). They rotate the winning bid amongst themselves.
  
  
• Bid withdrawals – this is where colluding bidders deliberately withdraw their bid at the end of the tender period thus leaving their chosen bidder to win the bid.
  
  
• Cover pricing – this involves colluding bidders who submit a bid price that is deliberately higher than that submitted by the bidder they have determined should get the tender. Such collusive tendering is also known as 'courtesy bidding' or 'complementary bidding'.
  
  
• Non-conforming bids – this is where colluding bidders deliberately submit bids not in accordance with the terms or conditions specified in the tender, except by the bidder who is intended to win the tender.

Agreement to rig Sebut Harga A to be inferred where there is no direct evidence

8. The Tribunal noted that MyCC in its final decision had grouped the Appellants in two groups. Group No. 1 is the winning group comprising Caliber and three others and Group No. 2 is the losing group comprising Novatis, Silver Tech, Basenet and 'two others'.

9. The Tribunal concluded that there was evidence to support MyCC's finding and conclusion that there is an agreement and collaboration between Caliber and a Tuah Packet Sdn Bhd ("Tuah Packet") to work together and bid for a project called Sebut Harga A (perkhidmatan membekal, menghantar, memasang, menguji dan mentauliah serta menyenggara (dalam tempoh Jaminan) peralatan System bekalan kuasa bersepadu dan backup data for ASWARA). The Tribunal found that this collaboration was aimed at ensuring that one of them would win the bid, and they had agreed to offer each other subcontracting work in case of a win.

10. Insofar Group No. 2 is concerned, where there is no direct evidence, the Tribunal held that the existence of an anti-competitive practice or agreement must be inferred from several coincidences and indicia, which, taken together, may in the absence of another plausible explanation, constitute evidence of an infringement of the competition rule. In this case, the Tribunal held that evidence by Novatis's employee that he, on his superior's direction, contacted Silver Tech and Basenet to find out whether they were also interested in participating, and indications by the latter that they have no objection to Novatis to use their company's name to bid for the contract of Sebut Harga A, was evidence that all three had colluded to rig the bid for Sebut Harga A.

The scope of agreement under Section 4(2) is expanded to cover vertical agreement

11. Caliber argued that there was no horizontal agreement with Tuah Packet because they are in a vertical relationship, i.e., main contractor and subcontractor.

12. The Tribunal disagreed, emphasizing that the type of agreement (horizontal or vertical) is less important than its objective or effect. The Tribunal defined "agreement" broadly, not limited to enforceable contracts, and stated that even non-enforceable agreements could be considered under the Act. The Tribunal extended this further by stating that Section 4(2) of the Act does not prejudice Section 4(1), meaning that any type of agreement, "even if it is vertical agreement", whether enforceable or not, will be subject to the deeming provision under Section 4(2) if it has the object or effect described in section 4(1).

When both Contractor and Subcontractor participate in the same tender, they are considered horizontal competitors

13. The Tribunal held that the fact that Caliber and Tuah Packet competed for the same Sebut Harga A placed them at the same horizontal level – they are not in a vertical arrangement of a main contractor and subcontractor.

14. The Tribunal also noted that Caliber had high scores on its technical specifications for Sebut Harga A, which indicated that it has the capability to undertake the whole project works on its own. The Tribunal thus rejected Caliber's argument that it appointed Tuah Packet as subcontractor since it could not have completed the project on its own.

Being registered with the MOF with the same skills and expertise signifies that they are horizontal competitors

15. The Tribunal rejected Novatis's and Silver Tech's argument that they are not each other's competitors since each of the parties does not have the ability to meet the entire specifications or scope of work for Sebut Harga A on its own on the basis that they are both registered with the Ministry of Finance ("MOF") with the necessary skills and expertise to carry out the work they bid for.

Exchange of information and direct contact beyond genuine Subcontractor relationship

16. Caliber submitted that the alleged bid rigging arrangement was wrongly construed by MyCC. Caliber argued that it was in a simple relationship of a contractor and subcontractor with Tuah Packet (another bidder who did not win the contract) due to each other party's limitations of its technical capability to complete the project on its own.

17. The Tribunal rejected the said argument and held that a subcontractor is a person or a company hired by a main contractor to perform part of the work undertaken by the main contractor in a contract. A subcontractor generally will either relieve a main contractor of part of the contract work or will be able to perform the work undertaken at a lower cost or at a greater skill level than the main contractor would. The subcontractor enters into a contract only between themselves and the main contractor. The subcontractor would not bid for or undertake any contract directly from the client/employer as they would typically be hired by the main contractor. The arrangement between Caliber and Tuah Packet went beyond a genuine arrangement for subcontracting work in a project.

18. The Tribunal agreed with MyCC's finding that throughout the process of preparing the tender bid documents there had been exchange of information and direct contact between Caliber and Tuah Packet. Tuah Packet submitted for the tender bid as well in addition to Caliber's bid to ensure one of them would have a chance to win the contract.

19. The Tribunal is satisfied with the evidence and admission by Tuah Packet that support MyCC's finding that Caliber had taken the lead role as instigator in a bid rigging arrangement with Tuah Packet by approaching Tuah Packet, requesting it to prepare Caliber's technical documents and deciding to select Tuah Packet as the "subcontractor" which is a form of reward in relation to Sebut Harga A.

Non-disclosure of Subcontracting Relationship to Project Owner created a false impression of independent bids

20. The Tribunal found that the submission of tender documents of Tuah Packet and Caliber to ASWARA for Sebut Harga A by Tuah Packet without disclosure of their subcontracting relationship created a false impression that the bids were independent, separate and competitive.

Implicit acquiescence to rig or submit cover bids based on established understanding or practice

21. Novatis argued that MyCC failed to adequately appreciate its subcontracting relationship with three other parties, Basenet, Venture Nucleus and Silver Tech and failed to evaluate the evidence in the context of that relationship; there is no direct evidence of collusion between the parties to rig or submit cover bids for Sebut Harga A and the evidence relied upon by MyCC did not show any discussion or agreement between the parties on the pre­selected loser or winner for Sebut Harga A. On the contrary, there is evidence given by Novatis that it put in three separate bids for Sebut Harga A using the names of Basenet, Venture Nucleus and Silver Tech unilaterally, without the knowledge of the three enterprises and it decided on the bidding price unilaterally.

22. The Tribunal agreed with MyCC's finding that the parties had given their implicit acquiescence to allow Novatis to use their documents and information to submit bids for Sebut Harga A based on established understanding or practice. Unilateral conduct can still constitute an agreement if acquiesced tacitly. In the absence of tacit acquiescence or even in the case of one party unilaterally cheating the other parties, an anti-competitive agreement and concerted practice can still exist so long parties pursue a single, common and continuing objective to distort or restrict competition.

23. The Tribunal agreed with MyCC's finding that there were communications between the parties; wherein the parties supplied confidential information (such as parties' bank statements, MOF's Business Registration Certificate or Bumiputra Certification) to Novatis who then used this information to fill in and submit bids for the parties. The parties' draft and/or finalized bid documents were also found in the possession of Novatis's employee. There was a common intention to rig Sebut Harga A as there is no reason for Novatis to have the parties' confidential information if they were merely in a subcontracting relationship.

Conduct that took place after the Infringement Period indicated continual understanding to collaborate

24. Basenet challenged the validity of MyCC's decision on the basis that MyCC erroneously considered purported conduct that had taken place long after the alleged period of infringement to conclude that there was an understanding between the parties to rig the bid for Sebut Harga A.

25. The Tribunal held that even though the said purported conduct was post the infringement period, it shows that parties were in continual understanding to collaborate in other projects.

No evidence of Public Distancing

26. The Tribunal noted that there is no evidence that Silver Tech and Basenet had distanced themselves from the actions taken by Novatis, and they also never informed ASWARA that they did not submit or participate in the bid process. Neither Silver Tech nor Basenet publicly declared that they did not participate in the bids that were prepared by Novatis. It is also not in evidence that any of the Appellants had disclosed to ASWARA that they were in contractor and subcontractor relationship for Sebut Harga A. The Tribunal held that if the Appellants were in a genuine subcontracting relationship, they would have submitted a joint bid as a consortium leveraging on their synergy and cross-expertise.

Natural justice and procedural impropriety

27. The Appellants raised concerns related to natural justice and procedural impropriety by MyCC, but these issues were dismissed by the Tribunal. We plan to address these issues in a separate write-up.

Financial Penalty: MyCC wrongly used a proxy figure to adjust the relevant turnover for parties who submitted their relevant turnover figure

28. The Tribunal found that MyCC incorrectly used proxy figures, instead of the turnover figure from the relevant market provided by Novatis, Silver Tech and Caliber respectively to arrive at their relevant turnover and consequently, their respective financial penalties. In this regard, the financial penalties for Novatis, Silver Tech and Caliber were substantially reduced following the adoption of the relevant turnover figure submitted by them, save for Basenet where the Tribunal held that proxy figure was correctly applied given that Basenet did not earn any turnover from the relevant market during the infringement period.

CONCLUDING REMARKS

This is the first bid rigging case in Malaysia under Section 4 of the Act involving public procurement and is expected to set the precedent for future bid rigging cases in Malaysia, subject to potential review by a higher court (if such a review occurs). With MyCC's revelation that it is investigating 500 companies suspected of being involved in rigging the bidding process of contracts worth RM2 billion across industries, we expect an increase in public enforcement of bid rigging cases in Malaysia.

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