Since the Hong Kong Competition Ordinance (CO) came into force in December 2015, there has been a significant focus on bid-rigging conduct. The first case brought before the Competition Tribunal involved bid-rigging; the first market study commissioned by the Hong Kong Competition Commission (HKCC) identified bid-manipulation practices in the residential building renovation and maintenance market; and the HKCC has published various guidance on tendering, bid-rigging and model non-collusion clauses.
What has been less discussed is the legality of joint tendering. Joint tendering is commonplace in real estate development, construction and many other industries in Hong Kong, and it is critical for businesses to understand how such practices sit with the CO. Common questions that are asked about joint tendering include: 'can joint tendering ever be bid-rigging?' and 'would joint tendering be acceptable as long as the person calling the tender knows about the co-operation?'
What is bid-rigging?
Bid-rigging generally occurs when various parties come together to agree that they will not compete with each other for tendered projects. It can take many forms. Certain parties could, for example, agree not to submit a bid or withdraw a previously submitted bid. Alternatively, parties could agree amongst themselves to take turns at winning tenders, or to submit unattractive cover bids at high prices to allow another party to win the tender. In essence, any conduct that reduces the competitive tension in the bidding process could constitute bid-rigging. The HKCC considers bid-rigging to be inherently anti-competitive, and a contravention of the CO's prohibition against anti-competitive agreements that restrict competition in Hong Kong (the First Conduct Rule).
It is to be noted, however, that the CO carves out a subset of bid-rigging conduct by providing a definition of bid-rigging under S2(2) CO that amounts to serious anti-competitive conduct (Serious Bid-rigging). This is distinct from bid-rigging that does not amount to a serious anti-competitive conduct (Non-serious Bid-rigging), a key difference between the two being that Serious Bid-rigging can only arise when the person calling the tender does not know of the coordination between the bidding parties; there being no such statutory requirement to establish a case of Non-serious Bid-rigging.
It is important to differentiate between Serious Bid-rigging and Non-serious Bid-rigging because small and...