Give Competition Commission powers to fine tampering with tenders
Prosecutors and courts are too overburdened to effectively handle cases such as those in the PPE scandal
Reports of inflated bids to supply personal protective equipment (PPE) to the government during the national lockdown raise concerns that competition in a wide range of critical markets in SA is being disrupted by fraud, nepotism and corruption.
Tenders are among the most powerful means to foster efficient markets and can be used by purchasers in both the public and the private sectors. The tender process allows a purchaser to obtain a range of competitive quotes for goods or services, and to select suppliers who offer the best quality, at the cheapest price. A transparent, well-run tender process can ensure that the state gets the best value for its scarce resources.
The Competition Act supports the competitive tender process by prohibiting any form of “collusive tendering” by competitors. The Competition Commission can investigate any alleged understanding between competing suppliers to rig their tender bids, and if the Competition Tribunal finds that suppliers have contravened the Competition Act they can be fined up to 10% of their turnover, even for a first-time contravention.
Since May 2016 section 73A of the Competition Act has also allowed for any person “engaged or purporting to be engaged in a firm in a position having management authority within the firm” to face criminal charges if they either “cause” a firm to engage in collusive tendering, or knowingly acquiesce in this kind of collusion. Fines of up to R500,000 and prison sentences of up to 10 years — or both — may be imposed.
The Competition Act regulates agreements or understandings among competing bidders (or potential bidders) in the tender process — it does not prohibit other forms of conduct by individuals or companies that distort or subvert effective competition in a tender process. This is dealt with in other legislation, such as the Prevention and Combating of Corrupt Activities Act.
Thus the Competition Commission cannot prosecute criminal cases against individuals or companies itself, even if it obtains relevant evidence in the course of its investigations into collusive tendering: in terms of the constitution this remains the responsibility of the National Prosecuting Authority (NPA). Despite the multiple institutions that play a role in enforcing this legislation (including the police, NPA, Asset Forfeiture Unit and the Special Investigations Unit), successful criminal prosecutions have been few and far between. These institutions are underresourced and overburdened, as are our criminal courts.
One solution might be to amend the Competition Act to make the subversion of a tender a “restricted practice” in terms of the Competition Act, punishable by an administrative fine. The commission would then be empowered to investigate suspected tender subversion — something it could do effectively given its extensive powers to search premises and summon individuals and companies to provide documents and data.
What’s more, the commission has developed innovative ways to detect and prosecute multiple collusive tendering complaints simultaneously. For example, after an innovative fast-track settlement process in the construction industry it was approached by 21 companies in relation to about 300 instances of bid-rigging. The companies involved ultimately paid penalties of more than R1.46bn to settle these complaints.
The commission also has an effective corporate leniency policy, which offers firms that come forward with information about cartels immunity from prosecution. This policy could be extended to offer individual whistle-blowers immunity from administrative fines. Most importantly, the commission has a strong track record as an independent and capable regulator that can deal swiftly and effectively with large numbers of complaints.
In July 2020 the commission announced that it had received more than 1,600 complaints about excessive pricing during the national lockdown, after regulations to deal specifically with price gouging of basic foodstuffs and essential medical supplies were published. In just five months it was able to refer 30 Covid-19-related excessive pricing complaints to the tribunal for adjudication. So far, companies involved have paid more than R15.3m to settle these complaints, of which more than R5.5m was donated to the Solidarity Fund.
Amending the Competition Act would not eliminate the need for the criminal justice system to deal with tender corruption, but would function alongside it. A precedent in cartel cases already exists in countries such as Canada. There, the distinction is made between cartel conduct that merits criminal prosecutions and other less harmful forms of anticompetitive collaboration that the competition authorities can tackle in what may result in fines. In Zambia, the competition authority has entered into a memorandum of understanding with the prosecuting authority to enhance the efficiency of criminal prosecutions in cases involving conduct that is also anticompetitive.
Immediate and effective action is needed to deal with corruption in both the public and the private sectors in SA in the wake of the pandemic. An amendment to the Competition Act would allow the commission to fine companies and individuals who subvert tenders for personal gain at the same time as they deal with complaints about collusion. As the recent Covid-19 excessive pricing prosecutions demonstrate, the risk of swift and effective prosecution by the commission is a strong deterrent.
• Irvine is a partner in the corporate department, and a member of the competition practice, at Bowmans.
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