Collusive Bidding in Ireland – understanding the legal requirements CMG Conference – 3 December 2015 Speaker: Alan McCarthy, Partner, A&L Goodbody

Outline The law on collusive bidding The approach to collusive bidding by the Competition and Consumer Protection Commission (CCPC) Lessons from competition investigations in the construction sector How to comply with competition law when tendering as part of a consortium Evidence of collusive tendering and managing dawn raids.

Collusive bidding – The rules and regulators Two key rules No anti-competitive agreements (e.g. in the context of competitors / potential competitors jointly bidding) No abuse of dominance Regulators Competition and Consumer Protection Commission (CCPC) EU Commission The Garda Síochána

Collusive bidding – Consequences? Jail: up to 10 years Fines: up to €5 million or 10% of group turnover Disqualification as a director Possible follow on legal actions Damage to business and reputation Irish Rail (alleged bid-rigging) and Mayo Waste (waste collection tender prosecution) Current industrial flooring contractors case – alleged price-fixing Ireland – 33 convictions (highest = 2 years (suspended) sentence and €80,000 fine) Dawn raids

The law on collusive bidding What is collusive bidding? Competitors agree on who will win a tender. Two or more firms agree not to bid against one another for a tender or contract. This means that the winning tender price will be too high. Bid suppression Complementary bidding (“cover pricing”) Bid rotation

UK and EU construction cartels cases Examples from the UK and EU 1. UK Construction Sector Cartel - 2009 £129m fines on 103 construction firms for colluding with competitors on building contracts (covers). 2. UK (on-going) investigation - 2013 Supply of products to construction industry - 7 arrests 3. UK and EU marine hose cartels – 2007/2009 Supply of marine hose – bid-rigging – UK (imprisonment and director disqualification) and EU (€131m fines) 4. Denmark – Construction cartel - 2014 Co-ordination of tenders/bid-rigging – fines 5. EU Elevators and Escalators Cartel - 2004 Otis, Schindler, ThyssenKrupp, Mitsubishi - bid-rigging - €992m fines

Tendering as part of a consortium CCPC view on how to comply with competition law Members are not actual or potential competitors or Members all owned by same parent or None of the members could individually fulfil tender requirements; and No subset of members could fulfil the requirements; and Minimum info exchange and “need to know” restriction; and Members compete as normal in all other contexts or Do “efficiency gains” outweigh anti-competitive effects of consortium? (i) Notify purchasing body of consortium; (ii) limit and control information and (iii) be vigilant and reactive of anti-competitive effects of co-operation

Tendering as part of a consortium What if members decide to try to weigh pro v anti-competitive effects? Do members individually meet tender requirements? Effect on prices/product quality? How competitive is the market - market shares? Real efficiency gains and consumer benefits? Restrictions in consortium indispensable to gain the efficiencies? Does bid substantially eliminate competition? Remember: No price-fixing/market-sharing/customer allocation/bid-rigging

Consortium bids – Risk reduction How to reduce risks: Notify purchasing body of consortium Tell purchasing body if a consortium member is in more than one consortium Scope of co-operation Limit discussions and access to materials Third party to manage bid/filter data Confidentiality agreements (e.g. for sub-contractors in multiple bids) “Need to know” restrictions re data If win – separate JV to carry-out work Object if discussion strays into danger territory

Indicators of possible collusive tendering Comments by bidders/technical consultants suggesting collusion Unusual bidding patterns e.g. pricing/rotation Absence of bid from likely bidder Correspondence between bidders/similar or unusual bid wording Identical prices/lack of detail/lowest bidder not taking contract

Indicators of possible collusive tendering Sub-contracting between bidders last minute changes/suspiciously high bids identical/similar phrases, excuses or spelling mistakes/miscalculations Similar post marks or franking on bid envelopes Parts of bids missing from higher bids e.g. bill of quantities False bids “cover-pricing”/Non-compete agreements/bid suppression/Geographic or customer allocation Use of sub-contractors to exchange commercially sensitive data

Managing dawn raids by the CCPC Immediately contact co-ordinator Check inspectors’ authorisation and identification cards and take copies CCPC Inspectors are unlikely to wait for lawyers – never stop them. CCPC inspectors may use force Record everything said, done and copied/seized Take copies of originals seized and a copy of copies (incl. hard-drives) Keep a record of all documents accessed by the inspectors Inspectors may not take external lawyers correspondence (privilege)

Collusive Bidding in Ireland – understanding the legal requirements CMG Conference – 3 December 2015 Speaker: Alan McCarthy, Partner, A&L Goodbody