In a recent announcement, the Commerce Commission estimated that bid-rigging in public procurement may be costing New Zealand taxpayers approximately $360 million each year. The announcement reflects the Commission’s ongoing focus on cartel enforcement and follows recent action against bid-rigging in public infrastructure contracts.
What is bid-rigging?
Bid-rigging is a form of cartel conduct in which competing suppliers agree, directly or indirectly, on how a tender process will be conducted or which party will be awarded a contract.
Cartel conduct is prohibited under section 30 of the Commerce Act 1986 and, since April 2021, has also attracted criminal liability. The April 2021 amendments introduced significant penalties. Individuals involved in cartel conduct may face up to seven years’ imprisonment or a fine of up to $500,000. Businesses may be fined the greater of $10 million, three times any commercial gain resulting from the conduct, or, if the gain cannot be readily ascertained, 10% of turnover for each year the cartel conduct occurred.
Examples of bid-rigging include:
- competitors agreeing not to submit a bid for a tender;
- competitors taking turns to be awarded contracts;
- competitors agreeing bid prices in advance; or
- the submission of deliberately uncompetitive “cover bids” to give the appearance of a competitive process.
These arrangements are intended to reduce or eliminate competition between suppliers. As a result, procurers are less likely to obtain the best price, quality or value for money. Public procurement is particularly vulnerable to bid-rigging. Government contracts are often high-value, recurring and awarded through formal tender processes. As noted by the Commerce Commission, these processes rely on genuine competition to deliver value for taxpayers.
The Commerce Commission’s latest findings
The Commission estimates that bid-rigging affecting public procurement causes approximately $360 million of harm to taxpayers each year, with a potential range of between $150 million and $640 million annually.
The estimate is based on three key assumptions:
- annual government procurement expenditure of approximately $51.5 billion;
- between 2% and 5% of procurement contracts being affected by bid-rigging; and
- a cartel overcharge of approximately 20%, with a range of 15% to 25%.
Using these assumptions, the Commission calculated the estimated annual harm by multiplying annual public procurement expenditure by the estimated prevalence of bid-rigging and the applicable cartel overcharge rate.
The Commission notes that the methodology was intended to be conservative and broadly follows an approach recently adopted by the United Kingdom Competition and Markets Authority. It also acknowledged that cartel activity can be difficult to detect as such arrangements are typically conducted in secret.
Importantly, the estimate reflects only the direct price effects of reduced competition and does not account for broader impacts such as reduced quality, lower innovation, and other inefficiencies that result from diminished competition.
Enforcement remains firmly in focus
The announcement reinforces the Commission’s commitment to detecting and prosecuting cartel conduct. Commerce Commission Chair Dr John Small confirmed that public procurement cartels remain a specific enforcement priority and that investigations are currently underway. This approach is reflected in the Commission’s recent enforcement activity, including New Zealand’s first criminal cartel prosecution in 2024 arising from bid-rigging in public roading contracts, which we examined in a previous article.
Dr Small also highlighted the Commission’s Anonymous Reporting Tool and leniency programme as important sources of intelligence on cartel activity.
Our Comment
The announcement is a clear signal that cartel conduct, particularly bid-rigging in public procurement, remains a key focus for the Commission. Businesses that regularly participate in public and private tender processes should ensure employees understand their obligations under the Commerce Act and the rules governing interactions with competitors. Businesses should review their existing compliance programmes and be prepared for increased scrutiny of tender processes and procurement practices.
It also serves as a reminder that the Commission continues to encourage leniency applications as part of its cartel detection strategy. The first party in a cartel to apply to the Commission can obtain leniency from civil proceedings and immunity from criminal prosecution, which can mean avoiding imprisonment and financial penalties.
If you have any questions about cartel conduct, please get in touch with our Construction and Infrastructure Team or your usual contact at Hesketh Henry.
Disclaimer: The information contained in this article is current at the date of publishing and is of a general nature. It should be used as a guide only and not as a substitute for obtaining legal advice. Specific legal advice should be sought where required.
