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CADE condemns bid-rigging cartel in procurements held by Sabesp

Cartel

The companies and the individuals were condemned to the payment of fines in the total amount of BRL 19,6 million
published: Apr 30, 2015 08:50 AM last modified: Apr 08, 2016 11:32 AM

The Administrative Council for Economic Defense – CADE condemned, on 22 April 2015, the companies Saenge Engenharia de Saneamento e Edificações Ltda. and Ônix Construções S/A (currently Concic Construções Especiais S/A) for cartel formation in bidding processes held by the Basic Sanitation Company of the State of São Paulo (Sabesp, for its acronym in Portuguese) for the execution of constructions in the Santos Metropolitan Region.

CADE’s Tribunal also condemned five administrators of these companies for participating in the anticompetitive conduct. The Administrative Proceeding (08012.009885/2009-21) was filed in regards to another individual for lack of evidence. The fines applied add up BRL 19,6 million.

According to Reporting Commissioner Ana Frazão the companies signed a private instrument to jointly implement the construction of Plot 03 of the Water Distribution System Mambu/Branco when they were still competitors in the bid (International Competition CSO no. 53.542/07). Due to the agreement, Concic, which was the first place in the bid, gave up of participating in the proceeding by missing the deadline defined by Sabesp to provide clarifications related to the workability of the proposal. Therefore, Saenge, the second place in the bid, was hired by an amount 23,1% over Concic’s proposal.

By the private instrument signed between the companies, Concic was the hidden partner and Saenge was the revealed partner and the only responsible in front of Sabesp. The participation of each company in the execution of works was set in 50%. To the commissioner, the format of this society reinforces the unlawful character of the agreement. It is also justifies why Concic quitted the bidding, since that was the previous arrangement to enable  the company with the higher value proposal to be hired. In addition, the distribution of companies’ participation violated the maximum percentage of subcontracting stated in the auction notice – 30% of the amount hired – and it did not have  the authorization of Sabesp.

CADE’s Tribunal understood it was the practice of suppression of proposals which is one of the main mechanisms used by companies in bid-rigging cartels. To the Tribunal, the execution of the arrangement resulted in damages to free competition due to the withdrawal of Concic and the consequent increase in the amount to be paid by Sabesp.
The partnership agreement signed by the companies in 4 June 2008, when Concic still appeared as first place in the bid, the fac-símile and emails exchanged by the administrators arranging meetings and discussing subjects related to the agreement are part of the cartel’s body of evidence.

“It was clear that the Concic quitted the bid because of the previous agreement with its competitor, second place at the time. The withdrawal of the commercial proposal in favor of Saenge, which had presented an offer significantly higher, represents a fraud to the competitive nature of the bid and it is an unequivocal violation to the free competition principle. Indeed, there is no doubt that when they started the negotiation and concluded the agreement under investigation, Saenge and Concic were still competitors in the bid”, stated Ana Frazão.

Due to the anticompetitive practices, the companies were condemned to the payment of fines in the total amount of BRL 18,6 million. The individuals involved in the case must pay fines that totalizes BRL 988,100.

The investigation began after a complaint submitted by Sabesp to the former Secretariat of Economic Law. In September 2013, CADE’s General Superintendence rendered an official opinion recommending the condemnation of the parties in this proceeding.