Two major services companies have been accused of causing “direct harm” to the Australian government and taxpayers by allegedly engaging in a price-fixing cartel for multibillion-dollar Defence contracts.
The Australian Competition and Consumer Commission (ACCC) announced on Thursday it had taken Federal Court action against Ventia and Spotless, a subsidiary of Downer. ASX-listed companies Ventia and Downer provide services such as cleaning, maintenance, transport, project management and emergency services.
Downer and Ventia are key service providers at a number of major Australian Defence bases.Credit: ADF
Downer and Ventia hold contracts with the Department of Defence worth $4 billion and $5.8 billion respectively across more than 200 major Australian Defence Force (ADF) bases and other properties across Australia.
The ACCC claims on three occasions between 2019 and 2022, four senior executives across the two companies engaged in price fixing in an effort to control the price at which their services were offered to Defence.
“The allegations in this case relate 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.”
Cartel conduct is where companies plan to act together – such as via price fixing – rather than compete, to increase profits for the businesses at the expense of other businesses or consumers.
One price-fixing incident alleged by the ACCC involves STIM20, a government-run program to give additional work to small and medium businesses on Defence properties during COVID.
The watchdog claims Spotless and Ventia executives communicated with each other to agree to seek additional compensation beyond what was agreed by Defence for the STIM20 works, with the executives concerned about recouping the costs associated with these works. Defence agreed to an additional mark-up after the executives petitioned the agency “several” times.
In a statement to the market, Downer said it “categorically denies” the claims made by the ACCC and said it would “vigorously” defend any proceedings, saying it believed neither Spotless nor its two executives engaged in unlawful conduct.
“We allege this conduct caused direct harm to the Commonwealth and ultimately Australian taxpayers.“: ACCC chair Gina Cass-Gottlieb.Credit: Dominic Lorrimer
“Downer is committed to best practice governance and risk management and continues to invest heavily in its compliance systems and processes,” Downer chief executive officer Peter Tompkins said.
In a separate statement, Ventia acknowledged the proceedings but said it was reviewing the allegations and would not comment further. “Ventia is committed to ethical business practices and seeks to uphold the highest standards of governance and risk management in all our operations,” it said.
The ACCC is seeking declarations, civil penalties and costs against Downer and Ventia, along with the four senior executives. It is also seeking disqualification orders against three of them in relation to the alleged conduct.
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 per cent of a company’s revenue, whichever is greater.
In a statement, a spokesperson for the Department of Defence said it was aware of the proceedings.
“Defence requires all suppliers to comply with Australian law and takes these allegations very seriously. On receipt of the ACCC advice, Defence immediately commenced taking steps to assure itself that the alleged conduct is not ongoing and was isolated,” the spokesperson said.
Ventia shares tumbled 22 per cent to $3.33 on Thursday. Downer shares also fell 5.95 per cent to $5.37.
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