Defence Contractors Sued for Price Fixing Allegations

Australian Army soldiers from 10th Force Support Battalion's Amphibious Beaching Team await the arrival of troops on an Lighter Landing Craft during Exercise Trident 2022 near Shoalwater Bay Training Area, Queensland. Courtesy of the Australian Defence Force

Two companies listed on the Australian Stock Exchange (ASX) are being taken to court by the Australian Competition and Consumer Commission (ACCC).

They have been accused of forming a price-fixing cartel on major defence-related contracts worth billions of dollars.

Ventia and Spotless, a subsidiary of Downer, provide project management, cleaning, maintenance, and emergency services.

The charges follow an 18-month investigation.

The two companies hold contracts worth $4 billion and $5.8 billion respectively, and deliver services at more than 200 Australian Defence Force (ADF) bases and other properties across Australia.

Four senior executives have also been charged: the Executive General Manager of Spotless Defence, Jacob Bonisch; the company’s General Manager of Operations Jeffrey Collins; Ventia’s Executive General Manager of Defence Base Services Gavin Campbell; and that company’s General Manager of Energy Solutions Lena Parker.

The companies and their executives are alleged to have agreed to fix prices for the provision of estate maintenance and operation services (EMOS) between April 2019 and August 2022. Details of the amounts charged by the defendants have been redacted from publicly available court documents.

Some of the works that are the subject of the charges were to be undertaken by small and medium businesses as part of an economic stimulus program during the COVID-19 pandemic.

One of the allegations is that Spotless and Ventia executives agreed to seek additional payment beyond what was agreed for those works, and that Defence eventually agreed after they requested this “several” times.

Firms Were ‘Trusted Suppliers’, ACCC says

“The conduct in this case undermined competitive public procurement processes,” the ACCC says in its statement of claim. “It occurred without Defence’s knowledge and was engaged in by EMOS providers who were trusted suppliers of services to Defence.”

“This case [relates] to alleged conduct by two large, sophisticated companies providing services which are critical to the operation of Australian Defence facilities under longstanding, publicly funded Defence procurement contracts,” ACCC Chair Gina Cass-Gottlieb said in a statement.

“We allege this conduct caused direct harm to the Commonwealth and ultimately Australian taxpayers.”

The Companies’ Response

Downer said in a statement that it “categorically denies” the ACCC’s claims and would “vigorously defend” any proceedings. It said neither Spotless nor its two executives engaged in any unlawful conduct.

“Downer is committed to best practice governance and risk management and continues to invest heavily in its compliance systems and processes,” the company’s CEO Peter Tompkins said.

In its statement, Ventia said it was reviewing the allegations and would not comment further.

It added, “Ventia is committed to ethical business practices and seeks to uphold the highest standards of governance and risk management in all our operations.”

The ACCC is seeking declarations, civil penalties, and costs against both companies and the four executives. It is also seeking disqualification orders against three of them.

The maximum penalty for cartel conduct is either $10 million, three times the value obtained by the people engaging in the alleged conduct, or 10 percent of a company’s revenue, whichever is greater.

Companies Will Keep On Getting Work: Analysts

Analysts at Macquarie say Ventia’s work with Defence comprised 18 percent of the company’s first-half revenue in FY24, while public sector work more broadly comprises around 75 percent of its income.

They say it’s unlikely that Ventia will lose all its defence-related work, as many existing contracts have years left to run, and the Department has awarded Ventia $173 million worth of new contracts during the time it was under ACCC investigation.

A recent Australian National Audit Office (ANAO) review of the Defence Department’s procurement of munitions via third-party contractor Thales, released earlier this year, found that its “conduct of the sole source procurement ... was partly effective,” its planning for the operation and maintenance of “facilities beyond the expiry of the... interim contract was partly effective,” but that its “management of probity was not effective and there was evidence of unethical conduct.”

This example included an instance where a Defence official solicited a bottle of champagne from a Thales representative.

“Defence did not maintain records relating to probity management and could not demonstrate that required briefings on probity and other legal requirements were delivered,” the review concluded.

It published eight recommendations, to which the Department agreed, including that it should seek advice from the Department of Finance when it undertook “complex procurements with high levels of tenderer interaction.”