ACCC’s enquiry into cartel conduct in the Canberra construction industry

What is happening?

The ACCC has sent a clear signal to the Canberra construction industry that it is investigating allegations of cartel conduct that have emerged from the Royal Commission into Trade Union Governance and Corruption. The ACCC does not send this kind of message without strong allegations. This investigation has the potential to lead to criminal proceedings if the ACCC finds a breach of the cartel laws.

The Property Council wants to ensure members are aware of this investigation and prepared for the ACCC’s enquiries. The Property Council supports the investigation as it believes the construction industry needs to be a level playing field and anti-competitive behaviour should be discouraged. The inquiry should present an opportunity for members to review their operations and processes and the way they engage with contractors and ensure there is the appropriate focus on compliance with competition laws.

 

The basis for the ACCC’s investigation

The investigation was prompted by evidence at the Royal Commission of alleged cartel conduct in the construction industry in Canberra. In one case, CFMEU officials allegedly suggested during negotiations over a new EBA, that sub-contractors in the scaffolding sector agree a minimum price for jobs. It was also suggested that some construction companies contribute $10,000 towards a “kitty” that would be lost if the employer “undercut” the other companies. Similar arrangements were alleged to have been made in the concreting sector in Canberra.

The allegations have been denied by the CFMEU.

 

The broader industry context:

The ACCC has investigated the construction industry before. Indeed, in 2012 the ACCC contacted 2,0 building industry executives with a warning about the consequences of engaging in cartel conduct.

Companies in the construction industry have fallen foul of the cartel laws in the past. Some clear breaches of the cartel laws involved:

• participants in the concrete industry engaging in price fixing and agreeing not to compete on particular projects;
• companies agreeing to build into competing tender responses an “unsuccessful tender fee” that the successful bidder would then pay to the other bidders to compensate them for their efforts; and
• engaging in the practice of “cover pricing”, whereby a company intending to bid but not win a project, sought pricing information from a competing tenderer to ensure its bid price exceeded the competing bid.

 

What to expect?

The ACCC may have a target list of companies to kick start their enquiries (e.g. those which have given evidence and/or been named in evidence at the Royal Commission). They may also write to other industry participants seeking information to assist them with their investigation.

The ACCC can seek information on an informal, voluntary basis or issue mandatory disclosure notices. They are also likely to invite those that may have been involved in any cartel conduct to come forward and seek the protection of the ACCC’s Immunity Policy.

 

Immunity Policy and the ‘race to the ACCC’s door’

The ACCC will be hoping to spook anyone who has engaged in possible cartel conduct to come forward with and seek immunity or for a whistle blower to emerge with information about their employer or associates.

A person or company involved in cartel conduct may be eligible to obtain immunity from prosecution under the ACCC’s Immunity Policy. It is a ‘first to the door’ policy which provides absolute leniency to the cartel participant bringing a cartel to the ACCC provided they fully cooperate with the ACCC (including providing evidence, witnesses etc. to assist the ACCC bring proceedings against the other cartel participants). The immunity policy is a highly effective way of convincing people to reveal what would otherwise have remained hidden, on the basis that their cartel partner might get in first.

Whilst the benefits of immunity from prosecution are significant, so too is the commitment that the immunity applicant must give to the ACCC to secure (and keep) its immunity status. There are various pros and cons which a company or individual should be aware of before applying to the ACCC for immunity. For one, the company or individual must also admit to having engaged in cartel conduct which may or may not be clear at the time the decision to seek immunity is made.

We would encourage anyone thinking about approaching the ACCC to seek immunity or to provide information to seek legal advice.

 

Mandatory notices and investigation powers

If no one comes forward with the right information, the ACCC has extensive information gathering powers which they use regularly when they suspect a breach of the competition laws. They are able to issue mandatory disclosure notices (requiring the production of documents and information) and mandatory interviews with persons who the ACCC consider will be able to assist with their enquiries. These notices may be issued to anyone the ACCC considers may assist – not just those persons or companies the ACCC suspect of wrongdoing. In fact, sometimes people wishing to assist the ACCC ask that this be provided under a mandatory notice so as to ‘explain’ why they have provided information.

There are a number of issues to be aware of when responding to an ACCC information request. A failure to comply with a disclosure notice is a criminal offence. Typically, issues arise regarding the scope and interpretation of the notice, the extent of the obligation to search and identify documents falling within the notice and the treatment of legally privileged information.

It is also common for the ACCC to send letters more generally to industry participants inviting them to come forward with any information that could help the ACCC with its enquiries. Any information provided would be on a voluntary basis and not subject to the laws referred to above regarding mandatory disclosure.

Although used far less frequently than mandatory notices, the ACCC also has powers to obtain a warrant to search premises for evidence of a breach of the law.

 

What should you do?

This ACCC enquiry should be taken seriously, particularly given that cartel conduct is a criminal offence. Previous enquiries of this type have resulted in court proceedings against multiple companies and multi-million dollar penalties. Also, you should be careful not to view this as the ACCC only looking for evidence of Union wrong-doing. They will also be interested in checking that participants across the industry are complying with the law. It will be no defence to reaching an agreement with a competitor to argue that you were just bowing to Union pressure, or that ultimately, an arrangement with a competitor resulted in higher wages or better conditions for employees.

Even if the ACCC don’t find evidence of a breach, they will still consider this exercise to be worthwhile because it leads to greater awareness of, and compliance with, the law. Whichever way this lands, the Canberra industry should expect a thorough investigation by the ACCC which could take significant resources and time. The ACCC are likely to learn a great deal about the industry as a result of their enquiry.

Accordingly, we encourage members to do an internal compliance check to understand whether those within your organisation understand the cartel laws and have stayed within the boundaries, and so you can assess whether there are any risky practices that should be addressed.

Members should also consider their competition and consumer law compliance more generally, as these enquiries have a tendency to grow in scope and uncover other issues.

We will keep you informed of any developments that come to our attention as the inquiry proceeds.