Market study shows data will inform Hong Kong competition investigations, says expert

That is one of the things businesses can take away from a recent market study carried out by Hong Kong's Competition Commission. The Commission's report (14-page / 386KB PDF) more generally is a timely reminder of the importance of understanding and complying with competition law.

The Commission's study into the residential building renovation and maintenance market in Hong Kong found suggestions of bid-rigging, although no concrete examples of wrongdoing were identified. The Commission's scrutiny of the construction sector comes at a time when the government in Hong Kong has raised concern about the high cost of infrastructure and residential property.

It was the first market study carried out by the Competition Commission, which was established under Hong Kong's Competition Ordinance. The Ordinance came into full effect on 14 December 2015 and is already having concrete effects on behaviour in a number of markets.

For its study, which concerned activities that occurred before the Competition Ordinance came fully into force, the Commission relied on data pooled from external sources. "Historical information on tenders for projects" was shared with the Commission by the Urban Renewal Authority and Hong Kong's Housing Society.

On the basis of "substantial anecdotal and other market intelligence suggesting that bid-manipulation practices may have taken place regularly in Hong Kong in the recent past in relation to the market", the Commission's study looked for patterns indicative of bid-rigging behaviour. To look into this the Commission applied 'screening techniques' to analyse the tender records that had been shared with it.

Screens are tools competition authorities use to assess large volumes of information, and can consist of, among other things, a process of document review using key term filters or an economic analysis of the market.

In this case the Commission used screening to check whether the same consultants and contractors were participating in and winning tenders. It said that where the same businesses participate in the same tenders frequently it might indicate that there are groups of bidders conspiring to "influence tender outcomes in their favour".

The Commission's assessment found "possible associations in the data between certain consultants and contractors as well as between certain contractors" and that where a link existed between bidders it increased their chances of winning tenders.

Another screening exercise helped the Commission identify anomalies in the amount consultants would bid for work and the actual cost of providing the underlying services, the Commission said.

The Commission was clear in its report that were it to find similar evidence again, now that the Competition Ordinance is in full force, it would seek to investigate further and potentially take enforcement action.

As well as revealing the Commission's appetite to uncover bid-rigging practices and cartels, the report pointed to the importance the Commission is likely to place on data as an indicator of unlawful practices in future.

The Commission was open about how its study, and the screening techniques it deployed, had provided it with tools it could use again in future to "detect possible competition law violation". However, it said "meaningful screening" relies heavily on "the amount and quality of data that are made available for analysis".

The Commission suggested it plans to scrutinise new data from the market and called on public bodies and businesses in Hong Kong to build "databanks of building maintenance-related tenders". It also specifically referenced a new electronic bidding platform that the Urban Renewal Authority is to set up to enable "property owners to invite bids and receive expressions of interest from contractors for building renovations". The Commission said it would "explore … the possibility of assessing data on different projects collected via the electronic bidding platform". 

The use of screening techniques alongside assessments of input costs suggests that the Commission has built a sophisticated model for on-going assessment of this part of the construction sector. It would be very surprising if it would not continue to monitor the market for some time and seek access to other data sets to see if the same patterns found in its market study can be observed again.

There are a number of contracting bodies in Hong Kong that might hold large data sets of tenders beyond the Urban Renewal Authority and Hong Kong's Housing Society. These include government departments such as the Architectural Services Department and Civil Engineering and Development Department, as well as a number of property developers.

The Commission might look to evaluate these data sets using the same techniques it applied in its market study to identify patterns that warrant further investigation.

Mohammed Talib is a competition law expert at Pinsent Masons, the law firm behind Out-Law.com.