Announcement
We are excited to announce that you can now follow Compedia on Twitter!
In the same way that our blogposts have kept you updated on African competition law, you can expect to see us tweet about recent developments in the space. It is a better way to stay up-to-date with developments as they happen, rather than waiting for the longer form analysis in our blogposts.
One implication of this announcement is that we will no longer include recent developments at the end of our blogposts—these will exclusively be on our Twitter feed, while our posts will focus on analysing a few selected issues.
As always, thank you for your support, and we hope you enjoy this week’s article.
Bid-rigging
I was recently asked, “How does competition law overlap with anti-corruption?” To answer this question, we have to think of whether there are any instances where a normal functioning government should benefit from the process of competition. If such instances can be identified, we must then consider whether that process can be corrupted to lead to substandard or inefficient outcomes for the government. And if that is also true, then competition law can help fight corruption by protecting competition in those instances.
Of course, this is not to say that competition law is the only or most effective way to fight corruption. That would be nonsensical. What it does suggest, however, is that the work of competition authorities can reduce the impact of corruption in government agencies.
So, how can governments benefit from the process of competition? The obvious example is in how they award contracts or licences through bids. By calling interested parties to bid, government agencies benefit from the process of competition: the bidders compete against each other and the best (or highest) bidder is likely to be best suited for the task in question. In the end, citizens benefit because the best companies are, in theory, awarded government contracts and licences.
The Tale of 5G (and why bid-rigging is harmful)
Take, for instance, how the Nigerian Communications Commission (NCC) awarded the licences to deploy 5G technology. Three companies—MTN, Mafab, and Airtel—were invited to bid for two awards.1 In a rather dramatic turn of events, Mafab, a relatively unknown player, founded in July 2020 (just 16 months before the bid), managed to outbid the well-established Indian telecommunications company, Airtel.
Bidding opened at $199 million in the first round, which was fixed by the NCC. Eight hours and 11 rounds of bids later, MTN bid $273 million, which was matched by Mafab, while Airtel could ‘only’ bid as high as $270 million. MTN and Mafab were then awarded the licences.
The NCC intended to benefit from competition by selling the licence to the highest bidder. And, to some degree, they did. I say “to some degree” because the winners were meant to deploy 5G technology in Nigeria by August 24, 2022. MTN has already begun. Meanwhile, Mafab has faced issues—which is unsurprising given its age and relative inexperience—and has now received a five month extension from the NCC.
Arguably not the ideal auction for the NCC, especially since Airtel would likely not have faced the same issues, and therefore, would have presented much more of a competitive constraint on MTN.
Matters could have been worse, however.
Imagine if Mafab, Airtel, and MTN met before bidding opened and agreed that only MTN would bid for, and win, the licence. And, in exchange for opting out, Mafab and Airtel would receive a share of MTN’s 5G-generated profits. That would, of course, have denied the NCC from benefiting from competition: the NCC would likely have lost out on $74 million because MTN would have not been incentivised to bid higher than the fixed open bid.
This very practice, otherwise known as bid-rigging, is prohibited and is a criminal offence under section 109 of the Federal Competition and Consumer Protection Act, 2018. Therefore, by protecting auctions from bid-rigging, competition authorities can play some role in fighting against corruption.
The Tale of the Green Point Stadium (and taxpayer money)
I must admit, though: the 5G deployment example is not the best. All that was at stake was how much money the NCC stood to make—somewhere between a lot and a lot.
The problem with bid-rigging can be better spelt out by a South African example, concerning the Cape Town Stadium, which was built for the 2010 FIFA World Cup. In 2013, the Competition Commission of South Africa found that 15 construction companies had colluded in their bids for various World Cup projects: they created the ‘illusion of competition’ through fake bids (that they knew would be rejected) in order to allow particular conspirators to win.
Fast forward to now, and the City of Cape Town recently reached a separate settlement agreement with three of those construction companies with respect to similar collusive practices involving the construction of the Cape Town Stadium. The companies involved—Stefanutti Stocks, WBHO, and Aveng—will pay R94.5 million to the City.
I think this is especially worse because, here, bid-rigging actually cost the City money. Taxpayer money, which could have been spent on healthcare, education, and security. But is instead being snatched from the public purse and smuggled into shareholder pockets. What I am getting at is that bid-rigging is worse in developing countries, particularly those in Africa, because governments need money to spend on social services and other basic amenities. Diverting funds away from that purpose is deplorable.
Put simply, intervening against bid-rigging is important in African countries because it ensures that taxpayer money can be spent more efficiently.
The Tale of Medical Gases (and competition culture)
The Competition Commission of Mauritius (CCM) understands this and has had quite a bit of experience with bid-rigging.
The CCM recently published guidance for public procurers on bid-rigging at a workshop organised with the Mauritian Procurement Policy Office.2 The workshop identified common forms of bid-rigging,3 warning signs for procurement officers,4 and also suggested ways to design bids to deter or mitigate rigging.5
Important to note that this guidance and workshop came about a month after the CCM fined two suppliers of medical gas for entering into collusive agreements when supplying the Ministry of Health between 2012 and 2020. The two players—Gaz Carbonique Ltee and Les Gaz Industriels—jointly prepared their bids and reached a common consensus on the prices to be quoted to the Ministry of Health.
Since the Ministry of Health supplies all public hospitals in Mauritius, if it is harder or more expensive for the Ministry to get medical gases, then there would be less available for many of the most vulnerable patients who desperately require the gases.
Here, collusive agreements are costing lives.
This intervention illustrates another reason why I think bid-rigging investigations are particularly important in African countries: we do not have a competition culture.
A country or group of people are said to have a competition culture if they understand and see the benefit of competition in producing optimal economic outcomes. Competition culture is important because competition law, like any other law, cannot succeed unless there is a societal understanding and acceptance of its value: we should want to minimise the gap between legal rules and cultural norms.
Broadly speaking, African countries lack a competition culture. For instance, Mor Bakhoum, a Senegalese competition law expert, has argued that African societies value cooperation more than competition.6 He also argues that when prices are high, African consumers are not likely to consider clamouring for competition law interventions against price-fixing cartels. Instead, they are more likely to call on the government to regulate prices.
What intervening against bid-rigging does is to clearly and directly show people why collusion is bad (and not ‘just business’), why we should ensure and protect a healthy amount of competition and rivalry in our various sectors, and how competition can lead to better outcomes for the average Lagbaja.
After all, what better way to demonstrate the importance of competition than by demonstrating how the absence of competition harms the average person’s pocket or access to social services?
By intervening against bid-rigging, we can save public money, foster more of a competition culture amongst the general populace, which can (hopefully) trickle into the minds of elected officials. In turn, these officials can allocate more funding towards competition authorities to deliver on the promise of competition.
These were the only three companies which met the NCC’s technical and infrastructural requirements to bid.
The Competition Commission of Mauritius and the Procurement Policy Office also have a memorandum of understanding, which governs how both agencies should coordinate when dealing with bid-rigging cases in public procurement.
Here are the different types of bid-rigging identified by the CCM: (i) cover bidding (pre-agreed winner, while other players create the illusion that the winner is being competitive); (ii) bid suppression (agreeing that one or more bidders refrains or withdraws from bidding); (iii) bid rotation (taking turns to bid); and (iv) market allocation (dividing markets based on geography or customers).
For instance, the same bidder always winning, unexpected or unexplained withdrawals, identical mistakes in different bids, among others.
For instance, reducing communication among bidders, avoiding unnecessary restrictions that may reduce the number of qualifying bidders, collecting information about past bids and tenders, and coordinating with other public procurers who have made similar purchases.