An Analysis of Tendering Issues Operation: Synergy’s Perth Case Study

Part A

Tenderers to the bidding process of the construction and development project of Theodore Property Ltd allegedly came into an initial agreement with each other and controlled the outcome of the tendering process.  This conduct is a typical cover pricing strategy engaged by tenderers so that bids stay within an inflated range. Cover pricing is a type of cartel or bid rigging practice that fixes pricing structure instead of religiously undergoing a fair bidding process. Cartel conduct, as defined in Competition and Consumer Act (Cth), s 44ZZRD, includes cover pricing as one of the four forms of cartel activities (ACL 2014).  Cover pricing stifles normal business processes because offerors realign pricing strategies to recover losses from inflated projects. Cover pricing results in lessening the positive outcomes of real competition (Ray, Hornibrook, & Skitmore 1999). In effect, consumers bear the economic cost of the establishment of cartels. As a matter of protection to the Australian consumer, the Australian Competition and Consumer Commission (ACCC) became a lead agency of the Commonwealth Government of Australia in ensuring the continued safeguarding of consumers’ rights and protection of known attributes to fair competition.

The Australian Consumer Law (Cth), s 18 prohibits deceptive conduct in trade and commerce on the notion that such practice harms the overall health of the economy. Simply stated, cover pricing substantially raises the cost of production and distribution of goods and services pushing businessmen to revalue the efficiency of their pricing strategies. Recovering construction costs in development projects and other commercial transactions through the adoption of higher pricing schemes would translate to inconsiderable rise in prices of goods and basic services. Overall, failing health of the economy will harm better access to public services. The Competition and Consumer Act (Cth), s 44ZZRF provides that it is a criminal offence to make a contract, arrangement or understanding containing cartel provisions. Furthermore, the CCA states that the conditions in the cartel provision is deemed satisfied if the provision has a purpose, of whatever conditions that fixes, controls, and maintains  or provide for manipulating the same (s. 44ZZRA).

On the basis of the facts presented, Theodore has no previous knowledge of the agreement between the tenderers leaving him with no choice except to award the project to Perfidious. Unknown to him and according to an ex-employee of Perfidious, the tenderers engaged in a deceptive conduct to manipulate the tendering process. Participating in cover pricing conducts fall under cartel provisions of Division 1, Part IV of the Competition and Consumer Act 2010 (Cth). Criminal and civil liabilities cover penalties of up to $340,000 per offence and up to a maximum of 10 years imprisonment for individual offenders while corporate entity offenders face a maximum fine or pecuniary penalty of $10,000,000 per cartel offence (Australian Competition and Consumer Provision 2015). In order to discourage the practice of cartel activities, CCA declares that it is illegal to release corporate funds to indemnify legal costs in relation to cartel penalties by corporate executives. Additionally, the Australian Competition and Consumer Commission has direct jurisdiction over matters relating to investigation of cartels and can compel any person having signs of probable violation of the CCA to face the legal consequences of their actions.

In Australian Competition and Consumer Commission v TF Woollam & Son Pty Ltd [2011] FCA 973, court held that the defendants made an arrangement or understanding containing and giving effect to provisions to fix and control tendering activity and substantially lessening competition. This action was a direct violation of sections 44ZZRF and 44ZZRA of the Competition and Consumer Act (Cth) as elaborated in the first paragraph of this document. With this contention, similar to the ACCC, tenderers to the inner city mixed retail and residential building project of Theodore Property Ltd also had a preexisting meeting of minds on the malicious nature of their participation to the tendering process. All the tenderers to the development project of Theodore acted in bad faith as to the intention to carry on the normal execution of the tendering process. Depending of the judgement of the Commission, the full extent of the law will favour not the acts of the tenderers.

Part B

The call for tender of the South Australian Department of Planning, Transport and Infrastructure (DPTI) in relation to the design and development of the ‘O-Bahn City Access Project’ that stretches from Hackney Road to Adelaide CBD comes with the agency’s standard request for tender (RfT). As pointed out in the CT Annexure B of DPTI’s RfT on assessment of tenders for complex / high risk / high value contracts, general tender assessment process follow the Adjusted Comparable Price Method. This type of assessment methodology takes into consideration the computation of the Total Weighted Scores of non-price elements such as capacity and management, seal and design, understanding of the requirements, and methodology in addition to comparative prices of tenderers. In short, after summing all variables up, the tenderer who has the least Weighted Comparable Price will be preferred. This concept of assessment results to a tenderer winning the tendering process even if such tender is not the lowest. As to the disappointment of KLM Engineering outlined in the case study, there was categorically a process contract formed on the basis of the RfT stipulation. Such assessment criterion was followed by DPTI to favour the lowest Weighted Comparable Price instead of basing on the actual tender prices.

In Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151, the court held that the formation of a tendering process contract became evident on the basis the referral to the RfT in the circumstances where the defendant failed to evaluate tenders and breached. In this scenario, contrary to Hughes Aircraft, DPTI stated the tender assessment criteria in the RfT and followed accordingly. DPTI’s action was made in accordance with value of fairness in the selection of tenders. The plaintiff appears to be misinformed on the nature of treating tender prices based on Adjusted Comparative Price Method. Not knowing how the process works, and being the lower bidder, KLM raises a legal action against the defendant who is a government agency. The plaintiff’s contention was based on the ground that, DPTI being a public body, is under obligation to make wise use of government resources to obtain best value for public money. State Procurement Act 2004 (SA) s 3, states that advance government priorities and objectives to be followed by public authorities in procurement is directed towards obtaining best value in the use of public money (Office of Parliamentary Counsel 2010). Furthermore, SPA states that, public authorities provide to ensure non-biased judgement in treating participants to government tendering processes. In executing the tendering process, defendant strictly carried the job in accordance with the RfT. In such a case, defendant complied in good faith by following the proper procedures as mandated by legal and ethical standards.

In Cubic Transportation Systems Inc v State of New South Wales [2002] NSWSC 656, court held that RfT in fact, stated that contractual relationship exists with reference to the tender evaluation process and overruled the exclusion contract, giving a firm hold that a process contract actually exists (Ambler & Wotton 2011). The attempt to break contractual relationship which was later overruled by the court due to the engagement of the probity auditor to oversee tender process evaluation, building a proof that there was indeed a tender process contract. Contrary to CTS, assignment scenario provides evidence that a process contract exists and was followed accordingly by the defendant. Treating the tenders in accordance with the specific provisions of the RfT means that the defendant was sincere in its job.

In State Transit Authority of NSW v Australian Jockey Club [2003] NSWSC 726, court held that a successful preclusion existed to defend the establishment of a tender process contract because of the stipulation acknowledging inexistent legal obligations between both parties until tender is accepted. This case appears to contradict the position of the assignment scenario on the basis of the existence of a process contract. In STA, RfT explicitly stipulated that no legal obligations bind both parties until a contract is signed while the assignment scenario proved to be otherwise.

KLM’s legal action to seek redress against the defendant takes hold in the concept of best value for money. In Ipex ITG Pty Ltd (in liq) v Victoria [2010] VSC 480 (Ipex), the court held that assessing tenders on the basis of best value for money doctrine does not compel the outright selection of the lowest tender price. Similar to Ipex ITG, the assignment scenario states the claim of KLM as the lowest tender worthy to be awarded the contract on the basis of the best value for money rule. With the facts of the case pointing at the RfT’s assessment of tender clause,
DPTI is likely to be favoured by the court as there was no evidence to preclude that the agency acted in bad faith to the fulfilment of the terms of the RfT.

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