Implications of the First Conduct Rule for the Construction Industry

The enactment of the Competition Ordinance (Cap. 619) is of great concern to the Hong Kong construction industry in which some of the common practices accepted widely as the norm for doing business may now be regarded as anti-competitive.

With reference to the Draft Guidelines recently published by the Competition Commission, some of the following practices and arrangements may be regarded as conduct which (i) typically has the object of harming competition or (ii) may have the effect of harming competition under the First Conduct Rule:-

• exchange of proprietary construction methods and technological innovation;
• exchange of integrated and historical pricing information;
• invitation by employer for meetings with individual tenderer and/or all interested tenderers for discussion about contract terms and conditions, construction design and methods before the submission of any bid;
• inter-group companies with separate decision-making power receiving separate tender invitation to share all pricing and non-pricing information;
• discussion between employer and tenderers during and after the tender submission with regard to pricing and/or non-pricing information submitted in their bids;
• discussion between tenderers with regard to non-pricing terms or conditions in the tender documents during the tender process;
• associations acting in a collective bargaining position for their members to discuss with clients about the terms and conditions of a tender;
• entering into pre-bid and exclusive agreements with consultants, sub-contractors and suppliers during the tender process;
• discussion between unsuccessful tenderers after the award of a contract;
• sub-contractors preparing different price quotations to tenderer as a result of their working relationship or inter-group relationship; and
• cooperation between interested parties to share all pricing and non-pricing information in order to form a joint venture to pool together financial and technical resources before or during any tender process.

In light of the above possible breaches of the First Conduct Rule, representatives of the construction sectors have submitted their comments on the draft Guidelines and the Competition Commission is in the course of reviewing them. It is likely that the Commission will look at them on a case by case basis to see if any of these practices or arrangements will give rise to an overall economic efficiency under section 1 of Schedule 1 of the Ordinance as a block exemption.

We have been advising our construction clients to take immediate action to review the established practices and arrangements which have been accepted by the construction sector to see if they will be caught by the Ordinance, and to bring them to an end before the full implementation of the Ordinance. Most importantly, all companies should have their own compliance systems in place for the purpose of preventing any infringement of the Ordinance upon its full implementation.

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張國傑

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鍾偉傑

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