Bricklayers warned after ComCom investigation into suspected cartel conduct
The Commerce Commission has issued warnings to several bricklayers operating in the Blenheim area, following an investigation into suspected cartel conduct.
G J Marfell Ltd, Mike Vis Bricklaying Ltd and bricklayers Benjamin Robertson and Andrew Dwyer have been issued with warnings because they may have breached section 30 of the Commerce Act, which prohibits cartel conduct.
The conduct involves the bricklayers' use of courtesy calls, including in the form of text message exchanges, to discuss quotes for projects.
Commerce Commission chairman Dr John Small says such discussions, particularly when specific pricing is disclosed, can lead to cover pricing, which is a form of bid-rigging.
The warnings are appropriate as, while the conduct was serious, the possible harm and financial detriment were limited. The warnings are a significant sanction for relatively small businesses in a small community.
“While these are warnings, we want to highlight this case as it serves as an important reminder to all tradespeople that they must understand and comply with their obligations under the law,” Dr Small says.
"These bricklayers' actions impacted several building projects in the Blenheim area.”
The Commission's investigation, opened after a tip-off received via the Commission’s Anonymous Reporting Tool, identified several series of problematic text messages between individual bricklayers from 2020 to 2021.
These text exchanges occurred when one bricklayer was approached by a customer who was usually serviced by another bricklayer.
The messages showed multiple instances of bricklayers discussing pricing.
In some of these cases, bid rigging occurred as one of the bricklayers then submitted an anti-competitive higher quote, so the other bricklayer could retain their existing customer.
The purpose of the price-fixing involved was to ensure a particular bricklayer would be awarded the work, constituting market allocation.
“The bricklayers' actions likely deceived their customers, who in good faith sought multiple, competitive quotes,” Dr Small says.
"It is crucial that sole traders and businesses take steps to ensure their commercial dealings with competitors are lawful."
The Commission also identified concerning conduct by the bricklayers as the investigation commenced.
The Commission believes in some instances the bricklayers frustrated, or made efforts to frustrate, its investigation by failing to supply compulsorily requested information, as they are legally required to do.
As a result, G J Marfell Ltd and Benjamin Robertson have received warnings as they may have breached section 103 of the Commerce Act.
Background
What is a cartel?
A cartel is where two or more businesses agree not to compete with each other. Cartel conduct can take many forms, including price fixing, sharing markets, rigging bids or restricting output of goods and services.
Because cartel members make more profit than they would if they competed fairly, goods and services become more expensive, consumers end up with fewer choices, and quality and service levels are likely to deteriorate. Tackling cartels is one of the Commission’s enforcement priorities.
What is cover pricing?
Cover pricing is where one or more parties provides their pricing to a competitor who then submits a tender bid, or quotes at an inflated price with a view to increasing the prospects that another designated business wins the project.
Such an agreement prevents open and effective competition and means procurers are unlikely to achieve best value for money for their business, customers, and in some cases, taxpayers.
The Commerce Act
Section 30 of the Commerce Act prohibits any person entering into a contract or arrangement, or arriving at an understanding, that contains a cartel provision. A cartel provision is any provision in an agreement between competitors that has the purpose, effect, or likely effect of fixing prices, restricting output or allocating markets.
An agreement to restrict output or allocate markets is illegal regardless of whether the agreement actually affects price. These types of agreements (in addition to price fixing) are deemed to substantially lessen competition and therefore are illegal. As of 8 April 2021, cartel conduct is punishable with a term of imprisonment of up to 7 years, as well as civil pecuniary penalties.
Anonymous reporting tool
The Commerce Commission’s Anonymous Reporting Toolopen_in_new provides a secure channel to be able to report information about cartels. Information provided through the tool cannot be traced back to you, as long as you do not enter any details that identify you.