Ensuring that businesses play hard
By Atty. Macario De Claro Jr.
May 8, 2019
Everyone loves a good fight. Be it the exciting series between the Warriors and the Rockets in the NBA playoffs or the ultimate battle between the forces of good and evil in Avengers: Endgame, competition demands that both sides bring out their best performance, and most often, regardless of the outcome, the viewing public emerges as the winner. No one wants to spend hard-earned money and valuable time on a rigged match.
In the business arena, competition is equally important. It incentivizes companies to offer consumers the best quality products and services at the best prices in all instances, and to prioritize innovation to secure long-term operational sustainability. Competition among companies can be best illustrated in a bidding process where companies enter into the competing business arena set up by the prospective client as they try to outbid each other in terms of product quality and prices. In both government and private business procurement, biddings increase the likelihood that clients receive the best value in exchange for their scarce resources.
But what if the contending firms, instead of competing, coordinated their actions and manipulated the outcome of the bidding process for their own benefit? These actions refer to an anticompetitive conduct, which is called bid rigging. This is now a per se violation under Section 14(a)(2) of Republic Act 10667 or the Philippine Competition Act (PCA). Companies and individuals who commit this type of violation may be held administratively and criminally liable, regardless of intent.
Common forms of bid rigging include cover bidding, bid suppression, bid rotation and market allocation. How do you know if bid riggers are ripping you off? There are red flags to watch out for.
If some bidders, save for one or a few “designated winners,” suddenly increase their prices or submit bids that obviously do not meet your budget or quality specifications, cover bidding may be at work. Did some of your usual suppliers suddenly fail to bid or withdraw a previously submitted bid? This is a sign of bid suppression. Alternatively, there may be a constant set of bidders that seems to just take turns in submitting winning bids. Or there could be suppliers that unreasonably refuse to serve you or your whole geographic area. They might have bid rotation or market allocation agreements with their competitors. Bid riggers can be sophisticated, and there is no exhaustive list of bid rigging schemes. The examples above and all “other analogous practices of bid manipulation” are prohibited under Section 14(a)(2) of the PCA.
Since the PCA grants the Philippine Competition Commission primary jurisdiction in the enforcement and regulation of all competition-related issues, including bid rigging, the PCC can initiate investigations based on reasonable grounds. These investigations may be motu propio—on the PCC’s own initiative—or upon the filing of a verified complaint by an interested party, or upon referral by a regulatory agency.
The PCC may impose fines and penalties up to P100 million for the first offense, between P100 million and P250 million for the second offense, and between P150 million and P250 million for succeeding offenses. The PCC can stop bid rigging by applying remedies, such as the issuance of injunctions and disgorgement of excess profits. Based on evidences, the PCC may file a criminal complaint against erring entities before the Department of Justice. If there would be probable cause found by the prosecutor, the corresponding information will be filed before the proper court which may impose criminal sanctions for bid rigging, such as imprisonment from two to seven years, and fines between P50 million and P250 million. The fine will be tripled if the bid rigging involves basic necessities and prime commodities as defined by Republic Act 7581 or the Price Act.
Notwithstanding, however, the administrative and criminal penalties that may be imposed on erring entities for bid rigging, a participant may still be immune from prosecution or have the administrative fines reduced if said participant will avail himself of the PCC’s Leniency Program.
Thus, if anyone suspects that any of the above anticompetitive conducts may have been committed, you may report this to the PCC immediately. Help the PCC keep an even playing field for business to ensure that the consuming public will always get their money’s worth.
Commissioner Macario R. de Claro Jr., a CPA lawyer, has worked in companies in the fields of manufacturing, mining, telecommunications, real estate, and banking and finance prior to his appointment to the Philippine Competition Commission. A litigation and corporate lawyer, he once served as legal consultant to the Department of Environment and Natural Resources. He graduated from the De La Salle College with a BS in Commerce, Major in Accounting and earned a Bachelor of Laws degree from the Ateneo de Davao Law School.
(Originally published on Business Mirror’s Competition Matters column on May 8, 2019 here.)