Business people in South Africa who do business by responding to tenders do so well aware that empowerment credentials assist in standing a good chance of winning. Companies seeking to win a tender over their rivals will therefore often put in tenders in their own name as well as with an empowerment partner. This carries very real competition risks.
A number of years ago, textile manufacturers Berg River Textiles and Da Gama Textiles were both competing for tenders to supply uniforms to various government departments. In each instance they partnered with black empowerment entities, evidently in the hope that this would be of assistance in winning the tenders. Both fell foul of the competition law provisions regarding collusive tendering.
In 2010 and 2011, Berg River Textiles (“Berg River”) responded to two tenders advertised by the National Treasury for the supply and delivery of fabrics, but was unsuccessful. Eye Way Trading also submitted bids, but being a “tender management business”, it could not supply the fabric in question, and therefore outsourced the manufacturing to Berg River, and disclosed this in both tenders. The Competition Commission (“Commission”) launched an investigation into the tender process, which ultimately led to a complaint referral to the Competition Tribunal against Berg River and Eye Way Trading. The Commission argued that Eye Way Trading and Berg River reached an agreement on price when bidding for the tenders, which constituted price fixing and specifically collusive tendering. Before the Tribunal, Eye Way and Berg River argued that, with Berg River being a textile manufacturer and Eye Way operating a tender management business, they should not be considered to have colluded since they were not competitors. The Tribunal dismissed this argument, concluding that they were competitors as the tender was for the supply of fabrics, not the manufacturing thereof. Therefore Eye Way held itself out as a competitor with any other bidder, including Berg River. The moment Berg River submitted its own bid, the parties became competitors. On the facts the Tribunal found that Berg River had influenced the pricing of Eye Way Trading in its bid, and concluded that, being competitors, the parties fixed the output prices for the tenders rather than bidding separately, and therefore colluded with one another.
In very similar circumstances, when bidding for various tenders, including the tenders mentioned above, Da Gama Textiles (“Da Gama”) bid in its own name, but also entered into separate bilateral agreements with two black empowerment entities, Monoge Mining and Motseng Trading and Supply Services (“Motseng”). Neither of them were textile manufacturers, and therefore relied on Da Gama to supply the fabric. The Commission investigated them for collusive tendering, and both Da Gama and Motseng concluded settlement agreements with the Commission. According to the Motseng Consent Order, the parties discussed the tenders and “agreed on prices that each of them would quote in their bids submitted in response to the tenders”.
More recently in 2020 the Tribunal found Aranda Textile Mills (Pty) Ltd (“Aranda”) and Mzansi Blanket Supplies (Pty) Ltd (“Mzansi”) guilty of collusion in respect of their bidding for a 2015 tender issued by National Treasury for the supply and delivery of blankets and household textiles. In that case Aranda, a manufacturer, provided quotes to a number of bidders to supply them with product if they won the tender. They also provided prices to Mzansi, but those were on different terms, which Aranda explained was because of their long-standing relationship.
Aranda and Mzansi argued that they could not have colluded because they were in a vertical (supplier/customer) relationship, and not competitors. The Tribunal dismissed this argument, as they had done in the Berg River case above, and found that they co-ordinated their bids in an effort to ensure that one of them would win the bid. This was a method of manipulating the competitive process of tenders and a contravention of the cartel provisions of the Competition Act.
Most recently, last month the Tribunal found Tourvest Holdings (Pty) Ltd (“Tourvest”) and Siyazisiza Trust (the “Trust”) guilty of collusive tendering in relation to an ACSA tender for a leasing opportunity at OR Tambo International Airport. Tourvest and the Trust both sought to bid for one of the tender opportunities through separate bids. Tourvest assisted the Trust to prepare its bid, and subsequently entered into a Memorandum of Understanding (“MOU”) with the Trust which detailed the manner in which they would co-operate with one another when bidding.
Tourvest argued in its defence that it was not in a horizontal relationship with Siyazisiza Trust, as Tourvest conducts its business in the tourism industry, whilst the Trust is a broad-based craft enterprise development agency and works with around 400 rural crafters. The Trust could not have fulfilled the tender requirements without Tourvest as its service provider, and therefore they were not competitors. Once again the Tribunal rejected that defence, holding that “at the point the bid was submitted, the Trust was in fact holding itself out as a competitor of Tourvest and the other bidders. We, therefore, conclude that Tourvest and the Trust were in a horizontal relationship…”. The Tribunal further found that the arrangement between the parties “properly characterized was an arrangement to subvert competition in contravention of the Act. Sight must not be lost of the fact that Tourvest submitted its own independent bid for [the tender opportunity], whilst reaching agreement with the Trust about its bid for the same opportunity.”
There is a clear thread running through these cases, where, once the party with the knowhow or manufacturing capability tenders in their own right as well as with their empowerment partner, in the particular circumstances they can be found to have colluded with that partner. This is vital for parties to bear in mind when submitting tenders in their industry. The safest approach is to “pick a lane”, and either bid alone or with an empowerment partner, and not do both lest you be seen to have colluded with your empowerment partner. Otherwise, if the preferred approach is to enter alternative bids, then ensure that you have taken competition law advice before any decisions are made, to ensure proper independence of each bid so that you do not fall foul of the provisions of the Competition Act.