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By Karabo Orekeng
Section 4 of the Competition Act 89 of 1998 regulates the prohibition of restrictive horizontal practices by firms. Section 4(1)(a) pertains to general agreements that have the effect of substantially preventing or lessening competition in the market; and s 4(1)(b) pertains to specific types of conduct. In order to find a contravention under s 4(1), the following jurisdictional facts must first be satisfied –
In determining whether the conduct complained of falls within the ambit of s 4(1)(b) of the Act the conduct needs to be properly characterised. The principle of characterisation was first introduced in the Supreme Court of Appeal case of American Natural Soda Ash Corporation and Another v Competition Commission of SA and Others [2005] 3 All SA 1 (SCA), the court expressed the view that any conduct alleged to contravene subs (b) must be properly characterised to ascertain whether the conduct falls within the ambit of subs (b). Characterisation occurs through the formulation of an inquiry, it must be determined, whether parties are in a horizontal relationship meaning whether the parties are in the same line of business or simply competitors, and if that is the case, whether the case involves direct or indirect fixing of a purchase or selling price, the division of markets or collusive tendering within the meaning of s 4(1)(b) of the Act.
In the case of Tourvest Holdings (Pty) Ltd v Competition Commission and Another [2022] 2 CPLR 27 (CAC), the Competition Appeal Court (CAC) established the test for horizontality in the context of alleged collusive tendering. The CAC found that ‘a fundamental enquiry into section 4, therefore, involves determining whether the parties are in a horizontal relationship or competitors, absent the impugned behaviour’ (The Competition Commission of South Africa v WACO Africa (Pty) Ltd and Others [2023] 3 CPLR 35 (CT) (WACO Africa (2023)) at para 60).
The Tribunal and the CAC ‘only have jurisdiction to determine if a harmful restrictive practice of collusion or price fixing has occurred if it is established that the agreement … was concluded … between parties who can … be described as “competitors”’ (Competition Commission v WACO Africa (Pty) Ltd and Others [2024] 2 CPLR 12 (CAC) (WACO Africa (2024)) at para 58). Methodologically, the question of whether firms are competitors is ascertained by employing a counterfactual analysis (WACO Africa (2024) at para 59). The question posed in this counterfactual analysis is whether the parties were potential competitors in absence of the impugned agreement. If the answer is in the affirmative, then competition may have been harmed. If the answer is in the negative, then the agreement could not have harmed competition and would not fall within the scope of the per se prohibition.
For purposes of this article the specific conduct of concern herein is that of collusive tendering. ‘Collusive tendering, commonly called “bid rigging”, is an agreement amongst competitors not to compete on the bids they submit after being invited to tender’ (Competition Commission ‘Bid rigging’ (www.compcom.co.za, accessed 19-3-2025)). It is a particular form of price-fixing within the context of tenders involving potential bidders agreeing among themselves to collude and coordinate their bids in order to determine the winner at a particular price (see Waco Africa (2024) at para 86). In this instance, the producers of the goods or the service providers in the market collude and decide among themselves which of them will submit the lowest and ultimately successful bid (Waco Africa (2024) at para 86). The result of this conduct is artificially high prices. Given that, collusive tendering is a form of unethical allocation of markets and ultimately price-fixing in the context of tenders.
The question then becomes: Does submitting multiple bids constitute collusive tendering?
In WACO Africa (2023), ‘the Competition Tribunal (“Tribunal”) … dismissed a case of collusive tendering through price fixing, involving a 2015 Eskom tender worth R240 million, against four firms and three joint ventures (“JVs”)’ (Gillian de Gouveia ‘Tribunal dismisses case of alleged collusion in 2015 Eskom tender after finding that the implicated firms were not competitors’ (www.comptrib.co.za, accessed 19-3-2025)). There was an invitation to tender which had various requirements that had to be met in order to qualify for the awarding of the contract, Tedoc, Superfecta and Mtsweni were not in possession of these documents and did not meet the tender requirements. Although SGB-Cape met the technical aspects of the requirements, it did not meet the requirement of 51% black ownership.
The Commission referred a complaint to the Tribunal, seeking a declaration that the respondents contravened s 4(1)(b)(i) and (iii) of the Act as well as the imposition of an administrative penalty. There were two main allegations made by the Commission but for purposes of this article only one will be dealt with, which is: The agreement between SGB-Cape and the JVs as firms that could have independently competed with each other but did not do so, as a result of their decision to mandate Mr Falconer (the Commercial Director of WACO Africa) to prepare the bids on their behalf (the first impugned agreement) constituted collusive conduct.
The Commission’s case was premised on its contention that SGB-Cape and the JVs were in a horizontal relationship. It argued that SGB-Cape and the JVs in submitting four separate tenders became competitors regarding the tender and the collusion happened as a result of them authorising Mr Falconer to attend to preparing the tender documents on their behalf (WACO Africa (2023) at para 61).
The respondents, responding to the horizontality argument argued, firstly, that the JVs and bids were devised by a single controlling mind of SGB-Cape. Secondly, that the different apparent competitors only came into existence as a result of the alleged impugned conduct. Thirdly, the firms were not in a horizontal relationship but rather in a vertical relationship with the JVPs (WACO Africa (2023) at para 75).
After considering both arguments on this point, the Tribunal ruled that the Commission failed to prove that the firms were horizontal competitors (WACO Africa (2023) at para 106). In reaching this decision the Tribunal stated: ‘The bids were submitted by SGB-Cape, as the controlling mind, on behalf of all the JVs. If SGB-Cape is the single controlling mind it … could not compete with itself. Furthermore, because the JVs would not exist in the absence of this tender, they could not compete with each other or with SGB-Cape, absent the tender’ (de Gouveia (op cit)) Thus the Tribunal found that there had not been a contravention of s 4(1)(b)(i) and (iii) of the Act. Ultimately the Tribunal disposed of the case on the grounds of lack of horizontality and did not deal with the alleged issue of collusive tendering.
The Tribunal’s decision was appealed to the CAC. The CAC confirmed the Tribunal’s decision albeit reaching this decision on different reasons. The CAC seemed to be against the analysis carried out by the Tribunal in reaching its finding because it reached this conclusion solely based on lack of horizontality, which the majority judgment found to be erroneous (WACO Africa (2024) at para 90 and 61). This was based on the following reasons, the agreements identified by the Commission as the restrictive horizontal practices in issue were the mandates given by each of the JVs to Mr Falconer of SGB-Cape to complete and submit their bids. The CAC stated that the restrictive practice targeted by the Commission was the coordination of the bids rather than the formation of the JVs. Therefore, absent the coordination arising from the mandate given to Mr Falconer, SGB-Cape and each JV remained in a rival position and capable of bidding for the work and receiving it from Eskom. The majority ultimately held that the Tribunal erred in its ultimate finding that the complaint fell to be dismissed on the basis that there was no restrictive practice between firms in a horizontal relationship (WACO Africa (2024) at para 75).
In the minority judgment, it was held that the JV partners are not competitors in the same line of industry as SGB-Cape, individually none of them could be bidders for the tender, they are labour brokers not equipped with the necessary experience or skills to compete in that market (WACO Africa (2024) at para 147). Therefore, it cannot be inferred that there was an implied horizontal agreement (WACO Africa (2024) at para 150). The minority did not further engage the issue of collusive tendering because without a horizontal agreement there can be no finding of price fixing or collusive tendering (WACO Africa (2024) at para 151).
The issue of collusive tendering, however, was addressed in the majority judgment. The Commission argued that once each JV granted SGB-Cape the right to compose its bid, they committed an act of collusion (WACO Africa (2024) at para 91). The Commission also argued that the object of the agreement was to distort competition, price coordination among the firms was not disclosed to Eskom, and this it was argued, was deceptive by creating an illusion of disclosure (WACO Africa (2024) at para 91). The CAC was not convinced by these arguments, expanding on this, held that the purpose of the impugned agreement aligned with the key purposes of s 2 of the Act, namely, to promote and maintain competition in South Africa in order, inter alia, to ensure that small and medium sized enterprises have an equitable opportunity to participate in the economy.
The nature and narrower purpose of the impugned mandate to Mr Falconer, were predicated on the assessment that SGB-Cape was the only entity with the full information required to complete the bid, and it did not pass any pricing information from the JVPs to the other JVPs.
Therefore, the impugned agreement or conduct in this instance lacked the features normally associated with collusive tendering and did not cause any apparent harm. In emphasising this the court adopted evidence given by Mr Stephan Malherbe (an economist employed by Genesis Analytics), who gave evidence in the Tribunal proceedings, that there was no attempt by SGB-Cape to create the illusion of competition, there was also no conspiracy to create anti-competitive effects or impact. The court thus found that there was insufficient evidence that Eskom was misled (WACO Africa (2024) at para 100).
In this regard the CAC stated that collusive/collusion involves an element of deceit, secrecy or surreptitious dealing before impugned conduct can constitute collusive tendering. All forms of collusive tendering have two things in common –
However, the CAC held that the fact that SGB-Cape/Mr Falconer executed his mandated in a blatant, transparent, and easily detectable manner destroys any intention to deceive Eskom (WACO Africa (2024) at para 93).
The outcome of the case should be read in the context on which the dispute arose. To meet the tender requirements, the multi-bid strategy through the JV partnerships was established to better their prospect of securing the award since each JV offered distinct transformation objectives. As it stands according to the CAC judgment, if the strategy is carried out transparently, blatantly and in an easily detectable manner, it would be treated as lawful. The case serves as recent precedent in the context of submitting multiple bids where the intention will be looked at with a close eye to ascertain whether the bidders aim to deceive (rig the outcome of the tender) or innovatively use this strategy to meet the tender and client’s requirements. The ultimate guiding document in these circumstances will be the tender itself, its requirements as well as the bidders’ own conduct.
Karabo Orekeng BA Law BA (Hons) (Economics) LLB (Rhodes) is a Case Management Intern at the Competition Tribunal in Pretoria. (The article represents the views of the author and not the affiliated institutions.)
This article was first published in De Rebus in 2025 (May) DR 38.
