Kaohsiung Rapid Transit Corporation (“KRTC”) was accused of improperly designating four ready-mix concrete businesses and excluding other businesses from entering the market, in possible violation of Article 19 (vi) of the Fair Trade Law

Chinese Taipei

Case:

Key Words:

bid collusion, construction bidding, superior market position, designated business

Reference:

Fair Trade Commission Decision of November 3, 2005 (the 730th Commissioners' Meeting); Disposition (2005) Kung Ch’u Tzu No. 119

Industry:

Highway and Street Construction (3802)

Relevant Laws:

Article 19(iv) of the Fair Trade Law

Summary:

1. This case originated from public’s complaint stating that:

KRTC prescribed in its notice for rapid transit construction bidding that, other than Tien-Cheng Ready-Mix Concrete Co., Ltd. (hereinafter referred to as “Tien-Cheng”), Taiwan Cement Corporation (“Taiwan Cement”), Kuo-Chan Construction Co., Ltd. (hereinafter referred to as “Kuo-Chan”), ready-mix concrete businesses must not supply materials unless being reviewed and approved by KRTC. However, some concrete suppliers were denied by KRTC who employed an excuse that “current concrete businesses have no supply problems,” even though the said concrete suppliers qualified and were approved by KRTC’s internal technology department. The act that KRTC rejected the supply from the qualified concrete suppliers, such as Hong-Yu and Feng-Sheng, contracted by the contractors caused unfair competition to other ready-mix concrete businesses and refrained these businesses from entering the market to compete, in possible violation of the Fair Trade Law.

2. With a further investigation, the Fair Trade Commission (“FTC”) found that:
   • KRTC prescribed its Guidelines for Qualification Review of Ready-Mix Concrete Businesses during July and August, 2001. Only Tien-Cheng qualified, and the rest eleven businesses (Tai-Yeh, Taiwan Cement Corp., Shih-An, Ta-Liang, Kaohsiung, Chin-Tai, Kuo-Chang, Li-Hung, Hung-Yu, Chao-Chun and Kang-Shan) failed. Due to insufficient supply of concrete, KRTC therefore lifted the review standards and re-inspected the above-referenced twelve businesses in November 2001 in accordance with the amended Guidelines. After the inspection, the qualified businesses were Tien-Cheng, Tai-Yeh, Taiwan Cement Corp., Kaohsiung, and Kuo-Chan. However, KRTC only chose Tien-Cheng, Taiwan Cement Corp., Kaohsiung and Kuo-Chan as the referenced businesses. Although Tai-Yeh qualified the review standards and relevant rules, it was excluded from the referenced businesses and was unable to supply concrete to this construction.
   • In November 2001, KRTC amended its Guidelines for Qualification Review of Ready-Mix Concrete Businesses and added one condition that “Businesses passed GRMC will be first considered.” Such a condition should be allowed by law if KRTC is concerned about the quality protection. It was found that Universal, Tai-Yeh, Hung-Yu and the four designated businesses all passed GRMC on November 7, 2002. Fong-Sheng passed GRMC in January 2003. However, from November 22, 2001 to November 7, 2003, when none of the aforesaid ready-mix concrete businesses passed GRMC, KRTC already designated Tien-Cheng, Taiwan Cement Corp., Kaohsiung, and Kuo-Chang as the referenced businesses and excluded other businesses from supplying ready-mix concrete for this construction.
   • With regard to the aforementioned matters, KRTC claimed that the contractors might submit information relating to other ready-mix concrete businesses they wished to use to KRTC for review. However, it was found that many contractors had submitted information of Feng-Sheng and Hung-Yu that passed GRMC to KRTC for review and were all denied by KRTC with a reason: “current concrete businesses have no supply problems.” It is obvious that KRTC employed the condition of passing GRMC as a measure to improperly exclude other ready-mix concrete businesses from participating in the competition and supplying concrete for this construction. It was also found that some contractors submitted information of a company “Ya-Tong” for review or proposed to supply ready-mix concrete by their own factories; but KRTC never sent its approval. Ta-Cheng Construction and Jung-Kung Company both proposed to KRTC for establishing ready-mix concrete factories of their own, but they both did not receive the approval from KRTC. It is evident that KRTC restrained the contractors from using materials with businesses other then the four designated businesses. Although Jung-Kung Company received KRTC’s approval later on, KRTC additionally required Jung-Kung Company to sign an affidavit to promise that Jung-Kung’s factory could only supply for constructions contracted by Jung-Kung and shall not supply for constructions of other sections. It can show that KRTC limited the business activity and cost competition of the contractors for the Kaohsiung rapid transit construction and made them forfeit the right to select qualified ready-mix concrete businesses.
   • The FTC additionally found that on March 26, 2003, the assistant manager of KRTC signed a notice stating that “the vice president instructed that the ready-mix concrete used for channels and surfaces shall also be supplied by businesses that passed KRTC’s verification and qualification. However, channels and surfaces are not permanent constructions and do not require concrete with certain strength or acid and alkali resisting capability. The word “instructed” mentioned in such a notice seemingly implied that contractors should purchase high-priced ready-mix concrete with the four businesses designated by KRTC. This act also caused more costs to construction contractors.
3. Grounds for Disposition:
   • It was determined that KRTC has its market position after gathering the market information of ready-mix concrete in Kaohsiung area. It was also found that the four businesses designated by KRTC obviously had higher quotations and sales prices. During the investigation period from 2001 to October 2003, the amount of concrete of the Kaohsiung rapid transit construction had reached one million cubic meters. If the cost for ready-mix concrete of the contractors of Kaohsiung rapid transit construction could have been reduced to the price given by Jung-Kung, then NT$ 100 may have been reduced for each cubic meter. The estimated expenses showed that at least N$100,000,000 could have been saved. Also, upon full competition, if the price for the entire rapid transit construction should have been reduced to Hung-Yu or Feng-Sheng’s prices, the entire cost could have been at least NT$ 500,000,000 less. In another case, if according to some contractor’s estimate where the cost in this case was NT$ 300 per cubic meter more than the market price under a valid competition, it was found that the total cost of Kaohsiung rapid transit construction would reach an amount of more than NT$ 900,000,000.
   • Since KRTC’s purpose of limiting the ready-mix concrete suppliers is to restrain contractors from using concrete provided by businesses other than the four businesses designated by KRTC. According to the relevant evidence, it is proved that KRTC made contractors forfeit their rights to select qualified ready-mix concrete suppliers and caused higher costs to contractors. KRTC’s act also affected the fair competition among ready-mix concrete businesses. KRTC’s act improperly limited its trading counterparts' business activity by means of the requirements of business engagement, in violation of Article 19 (6) of the Fair Trade Law. In addition, the excluded ready-mix concrete businesses were not KRTC’s direct trading counterparts. The construction quality and supply capacity of ready-mix concrete are both performance risks borne by the contractors. KRTC went beyond its duties and improperly limited the contractors’ selections. Furthermore, causes affecting the quality of ready-mix concrete might be numerous; however, KRTC deprived the suppliers of their rights to supply concrete for this construction simply by accusing them of providing incomplete documentation. Such a rejection is obviously groundless. Therefore, the FTC imposed an administrative fine of NT$ 15,000,000 upon KRTC.

Summarized by Liu, Chin-Chih;
Supervised by Shih, Chin-Tsun

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