A new law is all set to put paid to the practice of making false bids, jacking up the prices of products and services. Frannie Guan has the details.

With new legislation coming into effect just weeks from now, Hong Kong hopes to begin a major crackdown on bid-rigging by shady contractors. The new Competition Ordinance comes into force on Dec 14, with the specific aim of eliminating practices that thwart fair competition at the expense of consumers.

"We have received complaints from residents and groupsComplaints from more than one building complex related specifically to what they consider bid-rigging," said Anna Wu Hung-yuk, chairperson of the Competition Commission, the body that will oversee the Ordinance.

The concerns about an ongoing problem came to the fore in July, after the Independent Commission against Corruption (ICAC) brought charges against 57-year-old Yau Shui-tin, the former proprietor of an engineering company, in connection with a HK$45 million bid rigging scam.

Late last month, Yau pleaded guilty in district court, admitting that he conspired in a bid-rigging effort on a major renovation of Garden Vista, a 25-year-old residential estate in Sha Tin. Yau told ICAC that he had worked with several others who have not yet been charged, to secure the renovation contract for Garden Vista at an inflated bidding price.

The court heard that in 2010, Yau, a professional with a wide network of connections to consultancy and engineering companies, was approached by another man to discuss bid-rigging on the project. According to Yau's statement, an agreement was reached at a dinner that three co-conspirators would receive, respectively 10 percent, six percent and one percent, of the contracted amount, once the bid was approved by the corporate owners.

Yau said he recommended that the board be advised to choose the consultancy entering the third-highest bid and to choose the building contractor offering the third-lowest bid. The conspirators agreed to submit bids from dummy companies.

Yau claimed in early July that the common way for consultancy and engineering companies to secure contracts was to arrange for tenders from several dummy companies, above existing market rates, to create a spurious "market price", opening the way for disreputable contractors to rig the bid.

Vincent Ho Kui-yip, chairman of the Council of the Building Surveyor Division of the Hong Kong Institute of Surveyors, said that some reputed firms were harassed during the tendering process, to dissuade them from contesting.

Lam Cheuk-ting, a spokesman for the Property Owners' Anti Bid-Rigging Alliance and a former ICAC investigator, said agents would try to dissuade well-behaved players by harping on the enormity of the task and dealing with the building estate's principals as particularly difficult.

Chong Yung-fai from the same anti bid-rigging Alliance said residents lacked the market knowledge and hence didn't realize they were being hoodwinked. He added that chairmen of incorporated ownership boards and the building management company could easily gull residents to choose consultants and engineers who charged substantially above market rates.

Chong claimed that some incorporated owners have forged signatures of disinterested owners to assure that the contract approval is given the necessary letters of authorization.

Ho said residents often paid little attention to building renovation projects and were happy to have others take care of the tedious process.

Coughing up more

To illustrate the point, only 14 percent of households attended the incorporated owners' meeting at Garden Vista in July 2013, when an engineering company was awarded the contract for 11 individual renovation projects. Another 27 percent of the residents presented authorization letters through their proxies.

Ho estimated that residents of Garden Vista may have paid one third more for the renovations than the going market value. Thus far, Yau is the only one charged by ICAC.

Bid-rigging is a serious offense under the Competition Ordinance, which was passed in 2012. Lam is concerned that the Ordinance may have little effect in preventing market manipulation in the renovation and maintenance industry.

"It is very difficult for outsiders to collect evidence, since the bid-rigging parties are tacitly allied and their strategies keep changing," said Lam.

Chiu Yan-loy from the Property Owners' Anti Bid-Rigging Alliance, contended that one tactic was for conspirators to divide projects into smaller contracts to disguise the overall inflated price. Chiu cited a housing estate in Tsuen Wan in which flat owners assumed the HK$30,000 they paid per household was for the renovation of the whole building. It was later discovered it covered only water pipes replacement, which charged six times the fair market price.

Ho warned that if such acts of manipulation were not eliminated, Hong Kong's housing estate owners would pay a heavy toll, given the Mandatory Building Inspection Scheme (MBIS) requires buildings over 30 years old to be inspected and renovated according to recommendations of the inspection team.

Whistleblowers' reprieve

"Existence of cartels is notoriously difficult to prove," said Ernest Yang, partner of DLA Piper, a law firm. "However, the Competition Commission has extensive powers to conduct investigations into suspected infringements."

He explained that the Commission can obtain search warrants, to seize internal memos, meeting schedules, correspondence and text messages that may contain hints of the contents of any discreet agreements.

He also believed whistleblowers being promised leniency might help uncover and gather evidence on anti-competition agreements. The leniency policy works after the informant signs an agreement and reports the cartel's conduct to the Commission. In exchange for the informant's cooperation, the Commission will not initiate legal proceedings seeking pecuniary penalties.

The court heard that Yau surrendered himself to the ICAC last year. On March 25 this year, ICAC executed search warrants at the head office of Synergis Holdings, and arrested the company's then executive director Fan Cheuk-hung.

Yau had implicated the company in his statement to ICAC. Trading in company shares on the stock market was halted until April 13. Fan was released on bail but have not been charged.

The Ordinance is meant to provide a fair competition environment for all stakeholders, be it manufacturers, retailers, or consumers.

Natalie Yeung, a partner of law firm Slaughter and May, has several years of experience in competition law in London. She said another common practice in Hong Kong is resale price maintenance. It is a policy under which suppliers require distributor or retailers to sell the suppliers products at a fixed or minimum resale price. "For example when you go to a store, often they would say to customers that they are not allowed to discount," said Yeung.

"It is common to see that the products of big brands are sold at the same price," said Kenneth Wong, partner of law firm Woo Kwan Lee Lo. But whether such market behavior will be regarded as unlawful still depends on how the Commission deals with cases, as the guidelines concerning resale price maintenance are vaguely defined.

Anna Wu said though formal investigation cannot start until Dec 14, preliminary market studies have commenced to survey the landscape to assist in planning operations.

Contact the writer at frannie@chinadailyhk.com

Anna Wu Hung-Yuk, chairperson of Competition Commission, says her office is looking forward to starting investigations and receiving complaints formally when the Competition Ordinance is enforced on Dec 14.

(HK Edition 11/18/2015 page11)