Mere commonality of ownership of participating firms, is not sufficient to record any conclusion about bid rigging in the absence of any material indicating collusion among such bidders: Competition Commission of India
Unless there is material on record to justify the claims of price fixing by collusion, mere commonality of ownership does not indicate violation of the provisions of Section 3(3)(d) of the Competition Act. This was held by the CCI in the matter of In Re: Alleged Cartelization in Road Construction work in the State of Uttar Pradesh, [ Suo Motu Case No. 03 of 2018] before Hon’ble Chairperson Mr. Ashok Kumar Gupta, Hon’ble Members; Ms. Sangeeta Verma and Mr. Bhagwant Singh Bishnoi. On the basis of a report from the Comptroller and Auditor General, the Commission acted on its own initiative upon becoming aware of the possibility of bid rigging by contractors engaged in road construction in the State of Uttar Pradesh. The Public Works Department (PWD) is in charge of the state’s road, building, bridge construction and maintenance. The CAG analysed 802 contract bonds undertaken by PWD in selected districts and found significant discrepancies from the criteria for technical evaluation of bids. The CAG noted a lack of competition in the tendering process, stating that 110 contract bonds were awarded on the basis of a single bid out of a total of 802 test-checked contract bonds implemented between 2011 and 2016. There was no re-tendering in any of these cases. As a result, only a small percentage of tenders received competitive bids. Based on the above, the Commission on 26th June 2018, held that there was a contravention of Sections 3(3)(a) and 3(3)(d) read with Section 3(1) of the Act. Additionally, it also asked the Director General (DG) to conduct an investigation and submit its report. The DG observed the following, that the PWD replied to the findings of the CAG report saying that, proper tender promotion and publicity had been made, that no bid rigging arrangements had been made with bidders, and that the tendering process was unbiased. There were no restrictions on bidders participating in the bidding process if they were registered with the Department as autonomous units, even if two or more bidding enterprises shared partners or ownership. It was also pointed out that there was no clause in the tender conditions for rejecting a tender if only one bid was received. The DG ascertained that identical bids in a tender and then during negotiation may indicate collusion between two bidders.  However, no proof to support or substantiate such suspicion was found.  When two bidders submit identical bids, the work is divided between them. This guaranteed that the quality of work was accomplished at a lower cost than was authorised, that the Department had not suffered any loss or litigation, and that the work was in accordance with previous practises. The Commission with regards to the aforementioned and referring In Re: Ved Prakash Tripathi v. Director General Armed Forces Medical Services and Ors [ C.No. 10 of 2020] and In Re: Reprographics India v. Hitachi Systems Micro Clinic Pvt. Ltd. &amp; Ors. [C.No. 41 of 2018] held that, “mere commonality of ownership of participating firms, in itself, is not sufficient to record any conclusion about bid rigging in the absence of any material indicating collusion amongst such bidders while participating in tenders. The Commission has consistently held that mere common ownership is not sufficient to record any findings of contravention of the provisions of Section 3 of the Act………that in the absence of any rule regarding a single bid, it would have been difficult for the Department to cancel a tender merely because there is only one responsive bid, much less to draw any inference of anti-competitive conduct in the absence of any material on record in this regard………the investigation has not brought out any material which warrants further inquiry into the matter. The material brought forth by the DG are not sufficient to record any finding of contravention of the provisions of Section 3(1) of the Act read with Section 3(3) thereof.”
 COMPETITION COMMISSION OF INDIA Suo Motu Case No. 018 In Re: Alleged cartelization in road construction work in the State of Uttar Pradesh Mr. Ashok Kumar Gupta Ms. Sangeeta Verma Mr. Bhagwant Singh Bishnoi Order under Section 26(6) the Competition Act 2002 1. The present case was initiated by the Commission suo motu after taking cognizance of possible instances of bid rigging by contractors engaged in road construction in response to the various tenders floated by the State of Uttar Pradesh on the basis of a report of the Comptroller and Auditor General titled “Performance Audit of Construction Management in Road Worksis responsible for the construction and maintenance of roads buildings and bridges in the state. The PWD had established two public sector corporations namely the Uttar Pradesh State Bridge Corporation Limited in 1972 and the Uttar Pradesh Rajkiya Nirman Nigam Limitedin 1976 for the construction and maintenance of major bridges and buildings respectively in the State. The road works are executed by PWD by awarding work to various contractors. Chapter 7 of the report talked about cartelization in various tenders floated bids submitted for road construction undertaken in the state during the period 2011 2016. In this regard CAG Suo Motu Case No. 018 examined 802 contract bonds executed by PWD in selected districts and noted large scale deviations from the laid down criteria for the technical evaluation of bids. 3. The CAG analyzed data of bids received during 2011 2016 with respect to various tenders floated by the PWD and observed that a majority of the tenders were not competitive as only one or two bids were received despite large number of registered contractors in each district. CAG also noted lack of competition in the tendering process and observed that out of the total 802 test checked contract bonds executed during 2011 2016 110 contract bonds were awarded on the basis of a single bid. In none of these cases were re tendering done. Further 488 contract bonds were awarded in test checked districts to bidders where only two bids were received. In all these cases also re tendering was not done in any of the test checked districts. The audit observed that out of the total 802 cases three or more bids were received in only 204 cases. Thus competitive bids were received only for a small fraction of tenders. 4. On analysis of data furnished by divisions circles pertaining to 2011 2016 CAG noted that there was an increasing trend of only two bids being received against the works. Further in various instances the contractors who submitted the bids were found to be related to each other. 5. Considering the CAG report and the observations made therein the Commission vide its order dated 26.06.2018 passed under Section 26(1) of the Competition Act 2002prima facie opined that the contractors have engaged in practices to determine the prices in respect of various tenders of road works and construction of bridges floated by PWD in the State of UP and there appeared to be a contravention of the provisions of Sections 3(3)(a) and 3(3)(d) of the Act read with Section 3(1) thereof. However considering the large number of contracts that were examined by CAG the Commission initially decided to take up limited number of tenders for examination having a value of above Rs. 10 Crore as detailed and specified in the said order. Suo Motu Case No. 018 6. Accordingly vide the aforesaid order the Commission directed the Director General “DG”) to cause an investigation and submit an investigation report. The DG submitted the investigation report on 30.07.2021. 7. To investigate the matter the DG sent notices to the Engineer in Chiefand HoD Uttar Pradesh Public Works Department seeking information regarding the tenders floated in respect of Gorakhpur and Basti circles including copies of complete file noting(s) wherein decisions in respect of the tenders had been taken. The DG also summoned contractors who had participated in the bidding for the impugned 8. To begin with the DG examined the issue of common partners or related ownership and found that UP PWD in its response to the comments of the CAG report stated that entities firms with related ownership were separately registered with the UP PWD proper advertisement and publicity had been made with regard to tenders no bid rigging arrangements were made with the bidders and the process of tendering was unbiased. It was further stated that as per the terms of the tenders there was no restriction on bidders or contractors to take part in the bidding process if they were registered with the Department as independent entities even if two or more bidding entities had common partners or related ownership. 9. The DG also called for the response of UP PWD regarding tenders with only one bidder where no re tendering was done. In this regard the Chief Engineerpointed out that the tender conditions did not have any provision to cancel a tender if only one bid was received in response. 10. Further the DG called for the tender documents in respect of Basti circle where identical percentage rates were submitted by the bidders. The DG noted that works were awarded to bidders who quoted the same percentage rate in relation to the estimated cost calculated by the Department. Similarly the DG noted that in Gorakhpur circle even after negotiation two bidders who participated had quoted equal rates. The DG had called for Suo Motu Case No. 018 these tender documents and found that these works were awarded to bidders who quoted the same percentage rates in relation to the estimated cost calculated by the Department. 11. The DG observed that identical bids in a tender and thereafter during negotiation may be indicative of collusion among two bidders in that work. However investigation could not find any evidence to corroborate and substantiate such suspicion. 12. With regard to sole bidder participation the DG noted that the Department gives adequate publicity to the tenders so that more bidders can respond to it. Further it was noted that in the absence of any rule regarding a single bid it would have been difficult for the Department to cancel a tender merely because there is only one responsive bid. In this regard it was found by the DG that the Department usually proceeds to award the work in such situations if it finds that the bid rate is in line with the estimated cost. 13. With regard to Basti and Gorakhpur circle investigation on identical bids and percentage rate the DG observed from the reply of Chief Engineerthat in the case of identical bids by two bidders the work is divided between the bidders. This ensured the quality of work being completed below the approved cost and that the Department had not suffered any loss or any litigation and the work was in line with past practices. 14. The DG noted in the investigation report that bids in any tender quoting a rate higher than the estimated price of the Department is not anti competitive by itself. Pertinently the DG noted that in the works awarded in respect of Basti and Gorakhpur circles there was not one case where the work was awarded at a cost above the cost estimated by the Department. As such it was noted by the DG that awarding a work at a higher than the estimated cost does not appear to be the norm in UP PWD tenders. 15. Having examined the DG report and the material available on record the Commission at the outset notes that as regards related parties submitting bids or parties having common ownership the Commission is of the opinion that mere commonality of ownership of participating firms in itself is not sufficient to record any conclusion about bid rigging in the absence of any material indicating collusion amongst such bidders while Suo Motu Case No. 018 participating in tenders. The Commission has consistently held that mere common ownership is not sufficient to record any findings of contravention of the provisions of Section 3 of the Act. In this regard reference may be made to a few of such previous orders passed by the Commission. In Re: Ved Prakash Tripathi v. Director General Armed Forces Medical Services & Ors. the Commission held that: “…mere commonality of directors or ownership of participating firms in itself is not sufficient to record any prima facie conclusion about bid rigging in the absence of any material indicating collusion amongst such bidders while participating in the impugned tender…. Further In Re: Reprographics India v. Hitachi Systems Micro Clinic Pvt. Ltd. Ors. the Commission held that: “...merely having common business linkages between the OPs as projected by the Informant cannot be the basis to suggest collusion in the bidding process. Moreover there is no material on record to suggest that the OPs were engaged in Bid Rotation etc. Therefore the allegation of supportive bid does not find favour with the Commission....”. Resultantly mere commonality of ownership does not imply contravention of the provisions of Section 3(3)(d) of the Act unless there is material on record to substantiate the allegations of bid rigging by way of collusion. 16. The Commission agrees with the DG’s finding with respect to sole bidder(s) that in the absence of any rule regarding a single bid it would have been difficult for the Department to cancel a tender merely because there is only one responsive bid much less to draw any inference of anti competitive conduct in the absence of any material on record in this regard. In such cases the procurer may consider reviewing its procurement processes and norms to ensure that the procurement parameters do not impose entry barriers or restrictions upon potential bidders. In case of suspicion of cartel formation the same can be reported to the Commission with relevant material. 17. On a careful reading of the material on record the Commission is of the considered opinion that the investigation has not brought out any material which warrants further inquiry into the matter. The material brought forth by the DG are not sufficient to record any finding of contravention of the provisions of Section 3(1) of the Act read with Section Suo Motu Case No. 018 3(3) thereof. Resultantly the present matter is ordered to be closed forthwith in terms of the provisions of Section 26(6) of the Act. Sd Ashok Kumar Gupta) Sd Sangeeta Verma) Sd Bhagwant Singh Bishnoi) Date: 11 11 2021 Place: New Delhi Suo Motu Case No. 018 