Collusion put floor under bids for carpeting contracts

The path to the State’s first bid-rigging conviction took five years to complete. The long journey for prosecutors ended with just a suspended prison sentence and what the judge conceded were “modest fines”.

In early 2012, a whistleblower contacted what was then the Competition Authority, now known as the Competition and Consumer Protection Commission (CCPC). The whistleblower said tender price collusion was widespread among major players in the commercial flooring sector and claimed that bids for massive projects for multinational investors such as Google, MasterCard and PayPal were fixed.

Crucially, the CCPC was provided with email evidence. This included an October 2011 message sent by David Radburn of Dublin company Carpet Centre Contracts (CCC) to Brendan Smith, a director of Aston Carpets and Flooring (ACF). The email mentioned pricing for Google's Montevetro building in Dublin.

Armed with this email and the whistleblower’s statements, competition officials made their move on April 30th, 2013. With gardaí, they simultaneously raided four locations: CCC’s premises and Radburn’s home, the Dublin base of ACF, and the Mayo headquarters of Crean Mosaics, which owns ACF.

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Smith showed up at ACF during the raid, and was overheard by officers making a phone call urging someone to get rid of their computer and “delete the emails”. It later transpired the call was made to Radburn.

Fourth raid

CCPC officials took away multiple files and computers as evidence. After assessing them, two months later officials raided a fourth premises.

Six weeks after that, the story of the bid-rigging investigation publicly broke on the front page of The Irish Times.

The heat was on.

At all times, a CCPC enforcement official carries what is known as the “immunity phone”, which is connected to a hotline associated with its cartel immunity programme. This line is contacted just a few times each year.

In November 2013, four months after the raids, it rang. The caller was Radburn, seeking to co-operate with the investigation. In return, he received immunity from prosecution.

The following April, Smith was arrested over the allegations of bid rigging.

A 40-year-old father of three from Dunshaughlin in Co Meath, he had built up ACF during the Celtic Tiger years before selling it in 2007 to Crean Mosaics, owned by prominent Mayo businessman Alan Crean.

Smith was kept on as an employee of ACF under Crean’s ownership. But by the time of the CCPC probe he had developed a serious drinking and cocaine problem. He entered rehab after his arrest.

In September 2015, more than two years after the raids, Smith and ACF were set to face criminal charges. Crean accepted the book of evidence on behalf of ACF, while Smith was granted bail of €500.

Central Criminal Court

Unusually for allegations not involving violent crime, the case was sent to the Central Criminal Court, the highest level of criminal jurisdiction, for hearing. Here, the precise details of the bid rigging were to come to light, including the litany of top corporate names that fell foul of the illegal scheme.

The formal charges were that ACF and Smith implemented an agreement which indirectly fixed prices of carpets and flooring. It covered a period from January 1st, 2011, until April 30th, 2013, the day of the raids. Both defendants subsequently pleaded guilty.

Major companies such as Google, Dell and MasterCard were all targets of the scheme that aimed to set an artificial bottom for tender bids for major flooring projects, where square-metre costs quickly add up.

At a pre-sentencing hearing last month, the court finally heard full details of how the bid rigging was implemented.

Smith first contacted Radburn in early 2011 by telephone, suggesting they meet. The pair subsequently met about “eight or 10 times at a coffee shop near the Westbury Hotel” in Dublin, the court was told.

The pair would essentially decide who should file the more “competitive” quote for a specific job and the other would then offer a higher price.

While other companies could, and often did, compete for the same contracts, ACF and CCC were two of the biggest players in the market. By colluding on price, they effectively carved up the major contracts between them.

In one such case, detailed in court, Radburn won a €193,000 contract to provide flooring for Google. Having tendered for the contract in October 2011 he sent an email to Smith with the details so that he could, in turn, file a higher price.

This was the crucial email that helped to convince the CCPC to launch the raids.

In some cases, one of the men would agree to simply add an additional euro or two to the square-metre price. In total, prosecution lawyers estimated that eight of 16 contacts investigated by the CCPC ranged in value from €17,000 to €300,000 with an average of €137,000.

However, lawyers for ACF said the contracts it ultimately won had a total gross value of €556,000 but a gross margin of €118,000 and an operating profit of just €31,000.

Amended legislation

Because the allegations related to a period between 2011 and 2013 when relevant legislation was amended, the charges were brought under the Competition Act 2000 and the amended Competition Act of 2012.

Anyone convicted under the 2002 law could potentially face up to five years in prison and a possible fine of up to €4 million or 10 per cent of turnover. The 2012 act increased the penalties to as much as €5 million and 10 years in prison.

Michael O’Higgins SC, representing Smith, said his client had received only an “indirect benefit” from the bid rigging. “In lean times he kept his job.”

Smith (40), who had trained in quantity surveying, went on to build up the value of ACF’s business to €8 million before selling it to Crean in 2007. He remained on at ACF, where he was paid a salary of €130,000 as well as €20,000 in expenses and €20,000 in pension contributions. The court heard he has since faced up to his cocaine and alcohol problem and found alternative employment.

The sentencing judge, Justice Patrick McCarthy, imposed a fine of €10,000 on ACF and €7,500 on Smith, which he said were “modest”.

He further sentenced Smith to a three-month suspended prison sentence for impeding the investigation with his phone call to Radburn to delete the emails.

Isolde Goggin, chair of the CCPC, said cartels "pose significant damage to the economy".

“Bid rigging, in particular, distorts the competitive tender process, potentially excluding legitimate competitors. The victims of bid rigging are customers – in the private sector, hard-working, legitimate businesses, and in public procurement, where the customer is the State, it is the taxpayer who suffers.”