In an important reminder that government departments and agencies can easily be the target of anti-competitive arrangements, a US-based defence technology company has recently admitted to engaging in collusive tendering in contravention of the competition law provisions of the Trade Practices Act 1974 (Cth) (Australian Competition and Consumer Commission v DRS C3 Systems Inc NSD588/2009, orders made by Edmonds J on 5 February 2010). The conduct related to a procurement project of the Commonwealth Department of Defence (Defence).
DRS C3 Systems Inc (DRS) entered into an arrangement with its competitor, Cubic Defence Applications Inc (Cubic), in relation to a Defence procurement project for an air combat manoeuvring instrumentation system. DRS and Cubic agreed that DRS would withdraw from the procurement, increasing Cubic's prospects of securing the Defence contract. DRS then gave effect to that agreement by actually withdrawing.
DRS was ordered to pay a penalty of $1 million and contribute $100,000 towards the Australian Competition and Consumer Commission's costs of the proceedings. It was also ordered to supplement its current corporate compliance program and has been enjoined from engaging in similar conduct.
Since the conduct occurred before 24 July 2009, it was prosecuted under the civil penalty provisions of the Trade Practices Act 1974 (Cth). Any such conduct occurring since that date will be prosecuted under new cartel conduct provisions and may attract criminal liability.
The Federal Court is yet to publish its reasons for decision. Nevertheless, this case serves as a reminder to all government departments and agencies to exercise caution against being the target of anti-competitive conduct when undertaking public procurement. The securing of a government contract can often determine the future of a business, thus providing strong incentives to manipulate the competitive tendering process. This can especially be the case in advanced technology and other sectors where a great deal of investment in research and development has occurred and where there are relatively few potential customers. Collusion is also often easier in concentrated markets where there are relatively few suppliers, thus facilitating communication and agreement between them.
Importantly, there are a number of steps that can be taken to mitigate the risk of being a victim of collusive conduct. These include insistence that all participants in the procurement process have an effective compliance policy and program that relates to Australian trade practices laws. Signed assurances that participants have not communicated with each other about the procurement project or otherwise engaged in unlawful conduct may also be useful. Suspicious conduct (such as sudden or unexplained withdrawal, patterns in bidding or other irregularities) may also be identified and reported.
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