While the publication of of the Treasury list on successful bidders is welcomed, there are some concerns from a competition and corruption law perspective, writes Maphanga Maseko.
In August, the National Treasury published a list of successful bidders (the Treasury list) that were awarded tenders in relation to the procurement of personal protective equipment and related products and services for the purposes of containing Covid-19.
The publication was rightly welcomed by the general public because it, among other issues, promotes transparency, accountability, and the rule of law upon which our constitutional dispensation is built.
It is also in line with other tender award prices that are published from time to time, but with less fanfare. But, as set out below, this process, in particular the Treasury List, is not without serious problems from a competition and corruption law perspective.
As a starting point, the Treasury list is problematic in that different state entities used different formats to disclose the winning bidders' price-sensitive information. It is not clear why such latitude was given to them as they may lack the appreciation of the adverse consequences of the manner of their disclosures.
A number of entities have disclosed not only the winning tender price, but also the tendered items' cost per unit/quantity. For example, the list from the Department of Correctional Services reveals that a winning bidder charged R48.88 per unit of N95 masks. One hundred thousand N95 masks were ordered by the DOC for a total cost of R4 888 000.
The disclosure of the unit price per N95 mask is not necessary and is likely to lead to fellow bidders' pricing below R48.88 per unit for each N95 mask in the future in order to win such a tender.
This will have a chilling effect on price competition and may facilitate illegal price coordination among competitors, even without direct contact between the bidders. It may facilitate or enable the bidders to collude on prices o N95 masks since they would know the winning tender price.
This collusion could take place through complementary tendering and/or tender suppression.
Complementary bidding takes places when bidders agree in advance who will submit the winning tender.
The losing bidders will, for example, submit higher prices (e.g. R60 per unit of N95 masks) and/or omit key statutory tender documents in order to lose that tender.
Refrain from bidding
In turn, not always, the winning bidder (the one who bid R48.78 per unit or lower for each unit N95 masks) will refrain from bidding on another tender or similar tender as a favour/payback to the losing bidder/s on the first tender.
The colluding parties may also engage in tender rotation by agreeing to rotate who will be the winning bidder on that tender if it were to be re-issued. After all, the winning unit price per item is now well known, thanks in part to the Treasury List and the publication of other tender price awards.
Section 4(1)(b) of the Competition Act No 89 of 1998 as amended, prohibits competitors from engaging in price fixing, market division and collusive tendering. A firm guilty of contravening Section 4(1)(b) of the Competition Act may be liable for an administrative penalty of up to 10% of its annual turnover in South Africa and its exports from South Africa during that firm's preceding financial year. In addition, the directors of that firm who were party to or aware of the contravention of Section 4(1)(b) of the Competition Act, are liable for imprisonment not exceeding 10 years and/or a fine not exceeding R500 000.
Collusive tendering, in addition to being a contravention of the Competition Act, also amounts to corruption in terms of the Prevention and Combating of Corrupt Activities Act No 12 of 2004 (Precca). A firm guilty of corruption contemplated in the Precca may be blacklisted from tendering for up to 10 years by the National Treasury.
Therefore, the publication of the tender award prices might end up doing more harm than good in the fight against corruption and malfeasance.
It may even facilitate more collusive tendering and/or corruption in the future and undermine the Competition Act and Precca.
We thus propose that the Competition Commission develop guidelines on the publication of tender price awards to guide the state entities on how to mitigate the risks of such publications being used by bidders to facilitate future coordination.