CCS Fines Pest Control Operators for Bid-Rigging

9 January 2008

View the Infringement Decision Document in PDF

1. The Competition Commission of Singapore (“the Commission”) has today issued its first infringement decision under the Competition Act (“the Act”) against six pest control companies. The companies were found to have infringed section 34 of the Act, which prohibits bid-rigging or collusive tendering.

2. The six companies are:

Aardwolf Pestkare (S) Pte Ltd;
Alliance Pest Management Pte Ltd ;
Elite Pest Management Pte Ltd;
Killem Pest Pte Ltd;
PestBusters Pte Ltd; and
Rentokil Initial (S) Pte Ltd.

3. The companies colluded to submit tenders or quotations for termite treatment projects involving the use of Agenda, which is a pesticide. The projects were Raffles Hotel, Alexandra Hospital, Temasek Junior College, a private school and two condominiums.

The Collusive Arrangement

4. In each of the projects, one of the companies (“the first company”) was already providing pest control services or had recommended the use of Agenda to the customer. The first company would then inform some or all of the other companies of the project via email, phone or SMS to request them, in effect, to submit bids at prices higher than its own bid, thereby increasing its chances of winning the job. The first company would also let them know the price of its bid or the prices at which they should quote. The others would either agree to the request, thus giving the first company the assurance that there would be no competition, or they would simply submit higher bids.

5. The competing bids from the other companies were therefore not priced independently. Nor were they priced with the aim of winning the bids. Customers therefore did not receive competitive proposals.

6. The Commission started investigations in October 2006 after receiving a complaint. The Commission carried out unannounced visits at the premises of the six companies, issued notices to their present and ex-personnel involved in the various projects requiring them to produce information and documents and interviewed them.

7. On 2 October 2007, the Commission issued a proposed infringement decision to the six companies and gave them 6 weeks to make written representations on the case. The six companies did not challenge or dispute the findings of infringement.

8. The Commission considers bid-rigging to be a serious infringement of the section 34 prohibition against anti-competitive agreements. Four out of the six projects were awarded to the companies which had sought the support of the other companies. The value of the contracts for these four projects ranged from S$14,950 to S$349,000. In the other two projects, other companies, which were not part of the cartel and which had been invited to tender, were awarded the contract.

9. The financial penalties levied on the six companies are as follows:

Aardwolf Pestkare (S) Pte Ltd (S$53,173.59);
Alliance Pest Management Pte Ltd (S$36,553.45);
Elite Pest Management Pte Ltd (S$4,332.28);
Killem Pest Pte Ltd (S$18,872.88); PestBusters Pte Ltd (S$57,192.96); and
Rentokil Initial (S) Pte Ltd (S$92,634.50)

The financial penalties total S$262,759.66. In fixing the appropriate amount of financial penalty, the Commission also took into account the co-operation rendered by the companies during the investigations.

10. In this regard, the Commission notes that the total Singapore business turnover of the Parties is about S$33.7 million and the Singapore business turnover of the Parties attributable to termite treatment using Agenda is about S$2.5 million.

11. Mr Teo Eng Cheong, Chief Executive of the Commission, said:

“The CCS will act against harmful anti-competitive behaviour. Cartel activities, such as bid-rigging, price-fixing and market sharing, will almost always result in less competitive markets. In the longer term, this will also result in industries with lower levels of efficiency and less innovations. Companies which engage in such anti-competitive activities must therefore be deterred.”

12. The Commission was able to uncover this case because it received a well substantiated complaint from a procurement officer enclosing an incriminating email between the companies. The Commission is therefore keen to hear from anyone who knows of such cartel activity. For cartel members, they can also come forward to provide useful information and cooperate with the CCS under the leniency programme where we will grant them up to full immunity from financial penalties.

13. The full text of the decision is available at the Commission’s website at www.ccs.gov.sg under the Public Register.

Annex A

Notes:

Section 34 of the Act prohibits agreements between undertakings, decisions by associations of undertakings, or concerted practices which have as their object or effect the prevention, restriction or distortion of competition within Singapore. This would include practices such as bid-rigging or collusive tendering.
Market competition spurs businesses to be more efficient, innovative, and responsive to consumer needs. Consumers enjoy higher quality, lower prices, and a wider range of products and services. The economy as a whole benefits from greater productivity gains and more efficient resource allocation.
Cartels are the biggest threat to market competition and are considered one of the most serious infringements of the section 34 prohibition. A cartel exists when competing producers or suppliers of goods or services agree not to compete or agree to limit competition amongst them. In so doing, they are able to raise prices to consumers and reduce the quality or range of products that they sell.
Bid-rigging occurs when competitors agree on who should win a tender. To support the cartel member, who has been designated to “win” a tender, the other members may either refrain from bidding, withdraw their bid or submit their bids with higher prices or unacceptable terms. Cartel members may agree amongst themselves to take turns to be the designated “winner” or on how to reward “supporters” of the “winning” bid, for example, by giving sub-contracts to them.
Bid-rigging usually results in the party inviting the tender (the “tenderee”) paying more than they would if the tender was competitive. The whole purpose of bid-rigging is to stop low bids. These higher prices are inevitably passed onto consumers. A non-competitive tender process may also result in the tenderee receiving lower quality goods or services. Bid-rigging may take place for tenders called by the private or public sectors.
The Commission has powers under the Act to investigate complaints of anti-competitive activity. It can require the production of information or documents, enter premises to inspect relevant documents or apply to a court for a warrant to search premises or persons. If the Commission finds that an infringement was committed intentionally or negligently, the Commission may impose a financial penalty not exceeding ten per cent of the turnover of the business of the infringing company in Singapore for each year of infringement, up to a maximum of three years.
In determining the financial penalty to be levied on the six companies, the Commission considered the following factors:

the seriousness of the infringement;
the turnover of the business of the company in Singapore for the relevant product and geographic markets affected by the infringement during the company’s last business year;
the duration of the infringement;
other relevant factors, e.g. deterrent value; and
any further aggravating or mitigating factors.

The leniency programme is aimed at encouraging cartel members to come forward to assist the CCS in uncovering and investigating cartels. Such persons or organisations may, if they meet the conditions for leniency, enjoy immunity from the imposition of financial penalties or may be granted reductions in financial penalties.

Anyone with useful information on cartel activities or wanting to make a leniency application can contact the CCS including via:

Email: ccs_feedback@ccs.gov.sg

Hotline: 1800-325 8282