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Participation in tenders for Companies Owned by the same people

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Re: Participation in tenders for Companies Owned by the same people

Post  Rutaihwa on Wed Mar 07, 2012 3:10 pm

To members
When I come across This discussion, I observe that there are elements of Flaudulent Practice from the initial stage which leads the formation of 4 companies with the same owners. In this case no faireness practices in this process. The aim of seling is to obtain the highest evaluated price. So there was no need to restrict the bidders to be awarded only Two Lots While there are capable for more lots at the highest price.
The only Flaudulent Practice motives of establishing four different companies in same line of business

RJM wrote:
Fmwalongo, although somehow I have been convinced by other contributors that these are different entity but still not convinced if the "law" you are referring is giving justice those who participating in the tender process taking into account below unanswered questions?

[1] What is the motive of establishing four different companies in same line of business? Who is competing against who?
[2] Is this monopolistic situation GEVE is talking about? Consider yourself as a bidder participating in the tendering process clouded by this scenario.

Let us discuss in consideration with the questions I put forward above.

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Re: Participation in tenders for Companies Owned by the same people

Post  RJM on Wed Oct 20, 2010 6:17 pm

Fmwalongo, although somehow I have been convinced by other contributors that these are different entity but still not convinced if the "law" you are referring is giving justice those who participating in the tender process taking into account below unanswered questions?

[1] What is the motive of establishing four different companies in same line of business? Who is competing against who?
[2] Is this monopolistic situation GEVE is talking about? Consider yourself as a bidder participating in the tendering process clouded by this scenario.

Let us discuss in consideration with the questions I put forward above.

RJM

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Re: Participation in tenders for Companies Owned by the same people

Post  fmwalongo on Fri Oct 15, 2010 12:00 pm

Those were different persons in law. so the PE was right to do the way it did.

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Re: Participation in tenders for Companies Owned by the same people

Post  RJM on Thu Aug 05, 2010 8:49 pm

Mauka + GEVE + RSM

From the discussion above, four companies were taken as legal persons distinct from the individuals who are its shareholders and in such case the companies could have participated in all lots without comprise the law.

In connection with the above, can the bid documents [submissions] of all companies signed by one person duly authorized [given Power of Attorney] by the firms? What could be the interpretation?

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Re: Participation in tenders for Companies Owned by the same people

Post  RJM on Thu Jul 01, 2010 4:47 pm

RSM+GEVE+MAUKA,

From the discussions, it seems that even if companies X, Y, Z, W decided to participate in all lots there were no harm since they regarded as legal persons distinct from the individuals shareholders. Even the issues such as collusion and influence of the results need to be proof beyond reasonable doubt existed. If this is the case, I am afraid to say there is no competition in line with what RSM has pointed out "Can a person, who is a majority shareholder, establish more than one company with the same objects?" What is the motive of establishing four different companies in same line of business? Is this monopolistic situation GEVE is talking about? Can we use Fair Competition Act, 2003 provisions to disqualify these companies??

GEVE wrote,

However, if the tender documents have a restriction to define widely the status of bidder by excluding owners or subsidiary companies (those affiliated to the group of companies) to participate in that particular tender, then it will help PE to make wise decision of eliminating such kind of bidders during evaluation on the basis of non- compliance of tender conditions.

Can we put this restriction in the tender documents without breaking other legislations?

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Re: Participation in tenders for Companies Owned by the same people

Post  RSM on Thu Jul 01, 2010 11:59 am

Mauka,

In my submission i mentioned the following:
That the companies did not compete in the same lots. There were eight lots and each company was required to compete in all lots but the award would be made for two lots only. Therefore although the companies, based on the instructions, could participate in all eight lots, they chose each to tender for two lots only of which eventually they came out as winners
This element is very important bacause if the firms had participated in the same lots, one could conclude that there was a possibility for them to collude and influence the results. But in this particular case each company chose to tender for only two different lots and in all the lots there were more than 10 bidders. Surely under those circumstances it is difficult to say that they were in a position to influence the results.

What they did to me, is using a network of companies owned by the same person (WITHOUT BREAKING THE COMPANY LAW), to increase their chances of winning by putting in as many bids as possible in the same way we do in a lottery by buying as many tickets as possible. And may be this calls for a big question: Can a person, who is a majority shareholder, establish more than one company with the same objects?

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Re: Participation in tenders for Companies Owned by the same people

Post  mauka on Thu Jul 01, 2010 1:31 am

RSM,
I got you very well but take an example these four companies X, Y, Z, W (with the same shareholders) decide to enter into “gentlemen agreement” in order to secure all the lots and obtain reasonable gains or to exercise their bidding systematically. Therefore, they decide to submit a losing bid with assurance that they will receive subcontracts or contracts in exchange from the successful bidder and hence divides the obtained higher price and share reasonable profits between them.
Do you think the said PE had considered the possibility of “gentlemen agreement” before awarding a contract to them.

Am putting this argument forward because, this practice is too common in subcontracting.

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Re: Participation in tenders for Companies Owned by the same people

Post  RSM on Wed Jun 30, 2010 10:39 pm

Mauka+Geve+RJM,

Let me and explain how a decision to award the tender to the four companies was made:

1. That according to what Mauka has rightly prescribed the
four companies were taken as legal persons distinct from the individuals who are its shareholders
And to remove any daught about this the PE scrtunised particulars of each of the four companies - its individual business profile, its audited accounts, payments of taxes etc for the last three years which was required to be part of their submission- all the four firms had track records as companies.

2. That the companies did not compete in the same lots. There were eight lots and each company was required to compete in all lots but the award would be made for two lots only. Therefore although the companies, based on the instructions, could participate in all eight lots, they chose each to tender for two lots only of which eventually they came out as winners.

Anything more to comment?

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Re: Participation in tenders for Companies Owned by the same people

Post  mauka on Wed Jun 30, 2010 2:17 am

In addition to Geve contribution
I can say the PE was right to award contracts to those four companies on the basis that, company itself is an association of many persons who contribute money and employ it for the common purpose. Normally, the persons who contribute money are known as members or shareholders. In this case, two or more person can form a company regardless its private or public or partnerships.

However,the company in the eyes of law is generally considered to be a new legal entity separate from its shareholders. It will suffice to say that, the company will become a fourth person separate and different from these three persons individually or collectively. This means, a company as legal entity has its own legal existence and properties and it is capable of being sued and suing.

In this perspective “that PE” made right decision because those four companies were taken as legal persons distinct from the individuals who are its shareholders and I don’t think if there is prohibitions on the shareholders of company A to be a shareholder of company B as long as the shareholder is competent to enter into contract.

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Re: Participation in tenders for Companies Owned by the same people

Post  RSM on Wed Jun 23, 2010 11:42 am

Geve + RJM,

You have both enlightened us of various aspects of company law as well as the provisions of the public procurement Act. You have however not answered the question which I put forward

I will not discuss what happened for the time being. But the PE ended up awarding the contract to the four companies. Do you think they were right?

I also understand that RJM has put up some questions. can other forum members provide answers?

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Re: Participation in tenders for Companies Owned by the same people

Post  GEVE on Tue Jun 22, 2010 11:38 pm

Section 3 of the Companies Act (Cap. 212 of the Laws of Tanzania) provides that:

“ (1) Any two or more persons, associated for any lawful purpose may, by subscribing their names to a memorandum of association and otherwise complying with the requirements of this Act in respect of registration, form an incorporated company, with or without limited liability”

(2) Such a company may be either –

(a) a company having the liability of its members limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them (in this Act termed ''a company limited by shares''); or
(b) a company having the liability of its members limited by the memorandum to such amount as the members may respectively thereby undertake to contribute to the assets of the company in the event of its being wound up (in this Act termed ''a company limited by guarantee"); or

(c) a company not having any limit on the liability of its members (in this Act termed ''an unlimited company'').

You may note from above that once a company is incorporated or registered under the Companies Act is regarded as “a legal person having all status as a natural person including but not limited to a right to sue and being sued on its own capacity or name independently from its shareholders/ owners/subscribers to the Memorandum and Articles of Association.

In that case, the status of the company, the company is allowed dealing with other companies or individuals free from any legal liability attached to its members (limited liability), unless there is a breach of statutory obligation under the Companies Act or other laws of the country. For example, shareholders could use a company to obtain funds dishonestly, avoid taxes; use the name of company for illegal business etc. Under this situation, the law will regard the shareholders are acting as an agent of their company, hence may bound by the same liabilities and rights of their company through “lift of the veil of incorporation” to make the directors or individual owners of the company, personally liable.

Can the two separate companies owned by same individual bid for tender

Regulation 10 of the Public Procurement Regulation, 2005 (GN. No.97) provides to allow for participation in the invitations to tender and in award of contracts equally to all natural persons, companies or firms or public or semi -public agencies of Tanzania and foreign countries;

Normally, tenders are invited based on certain conditions, it is sometimes obvious to see PE invites tender from individual or a company owned by nationals or a company in which certain per cent of the share capital is owned by nationals.

In this kind of invitation, it is open for both individuals owning a certain company and their own companies to bid in the same tender as separate legal entities without any legal problem.

There are also tenders where Joint Venture (JV) or Consortium is allowed. In some case also, one company can act or represent others in all tendering process depending on terms and conditions of tender (see Section 49(3)(b) read together with Reg. 6(6) (7) of PPR, 2005 GN. No.97 of the PPA, 2004 recognises joint ventures & consortiums).

However, if the tender documents have a restriction to define widely the status of bidder by excluding owners or subsidiary companies (those affiliated to the group of companies) to participate in that particular tender, then it will help PE to make wise decision of eliminating such kind of bidders during evaluation on the basis of non- compliance of tender conditions.

Otherwise, it should be noted that by our Procurement law, it is required that all tender condition to be set forth in the pre-qualification documents, if any, and in the solicitation documents or other documents for solicitation of proposals, offers or quotations, and shall apply equally to all suppliers, contractors, service providers or buyers. The procuring entity are restricted not to impose criterion, requirement or procedure with respect to the qualifications of suppliers, contractors, service providers or buyers other than those provided for in the Public Procurement Regulation (see Regulation 14 (3) & (4) of GN No. 97/2005).

Splitting of tender

Regulations 49(1) and (3) of the PPR, 2005 (GN No. 97), restricts a procuring entity not divide its procurement into separate contracts for the purpose of avoiding international or national competitive tendering, unless with the prior approval of the PPRA.

Limitation for fair Competition

Under the Fair Competition Act, 2003 it is illegal for companies of firms to engage in anticompetitive behaviour which in the procurement can for example make few companies controlling public tenders and creating price settor and price taker situation. For instance, in monopolistic situation, the companies can be regard as one taking the led in the negotiation instead of clients. Also, this situation tends to move out other small and unpopular out from the market.

In the procurement, anti- competitive behaviour may include bid rigging, and in particular cover pricing, in breach of the Fair Competition Act. Cover pricing occurs where one or more bidders in a tender process obtain an artificially high price from a competitor, distorting the tender process.

To the PE, anti-competitive behaviours in the procurement can be cross-checked through compliance to the tender condition during pre-qualification. The suspicious bidding patterns may involve:
  • Bids received at the same time or containing similar or unusual wording.
    • Identical prices.
    • Bids containing less detail than expected.
    • The likely bidder failing to submit a bid.
    • The lowest bidder not taking the contract.
    • Bids that drop on the entry of a new or infrequent bidder.
    • The successful bidder later subcontracting work to a supplier that submitted a higher bid.
    • Expected discounts suddenly vanishing or other last minute changes.
    Suspiciously high bids without logical cost differences (eg delivery distances).
    • A bidder betraying discussions with others or with knowledge of previous bids.


The PE has a right to apply the provsions of of PPA on sanctions or to contact with the Fair Competition Commission for the investigation in case it realises that there are clear signs of breach of fair competition in the tendering process.

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Re: Participation in tenders for Companies Owned by the same people

Post  RJM on Fri Jun 11, 2010 7:31 pm

This is a big call!

RSM, I will try to analysis as follows:-

Who is the tenderer?

R2(3)/97/2005 defines "tenderer" as any natural or legal person or group of such persons submitting a tender, with a view to concluding a contract.
What is a company?

According to the free encyclopedia, in English law, a company is a form of body corporate or corporation, generally registered under the Companies Acts or similar legislation. It does not include a partnership or any other unincorporated group of persons.

What is the body corporate?

According to the free encyclopedia, Legal personality (also artificial personality and juristic personality) is the characteristic of a non-human entity regarded by law to have the status of a person. A legal person (Latin persona ficta), also legal person, artificial person, juristic person, and body corporate) has rights, protections, privileges, responsibilities, and liabilities under law, just as natural persons (humans) do. Legal personality allows one or more natural persons to act as a single entity (a composite person) for legal purposes. In many jurisdictions, legal personality allows such composite to be considered under law separately from its individual members or shareholders. They may sue and be sued, enter into contracts, incur debt, and have ownership over property. Entities with legal personality may also be subject to certain legal obligations, such as the payment of tax. An entity with legal personality may shield its shareholders from personal liability.

From what quoted above, the company/firm is established by the legal person or persons. I believe in the Article of Association/Memorandum of Association of companies X, Y, Z and W will depict the same names [legal persons] which can be interpreted that they are being own by the same legal persons.

RSM, I think here is where I need to go back to school or to look for a “learned brothers” for correct interpretation.

In the situation at hand whereby company X, Y, Z and W are participate in one tender can we apply test of “one bid per bidder”? This can be found in most of the Standard Bidding Documents in the Instruction to Bidders. The referred ITB Clause [One Bid per Bidder]:-

[1] A firm shall submit only one bid, in the same Bidding process, either individually as a Bidder or as a partner in a joint venture.
[2] No firm can be a subcontractor while submitting a bid individually or as a partner of a joint venture in the same Bidding process.
[3] A firm, if acting in the capacity of subcontractor in any bid, may participate in more than one bid but only in that capacity.
[4] A Bidder who submits or participates in more than one bid (other than as a subcontractor or in cases of alternatives that have been permitted or requested) will cause all the bids in which the Bidder has participated to be disqualified.

[a] In the situation at hand is there a competition?
[b] Who is competing against whom?
[c] Can this rescue one to disqualify such companies?

RJM

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Participation in tenders for Companies Owned by the same people

Post  RSM on Thu Jun 10, 2010 4:13 pm

Dear Forum Members,

This is true case study which happened in the era of Central Tender Board in 2004.

Procuring Entity A advertised a tender to sell some cereals. Previous experience had shown that, they had a tender for the sale of the same commodity which was divided into two bid lots of 8,000 tons each which ended up to be won by only one company. So in this tender, in order to enable many small companies to participate, they decided to divide it into eight smaller lots of 2,000 tons each and they put a condition that companies can bid for as many lots as possible but no company will be awarded more than two lots.

Almost 20 bidders participated in this tender, and it was won by four companies X, Y, Z and W. However, instead of awarding the tender to the four companies, the PE looked into the ownership of the four companies, only to discover that majority shareholder to all the four companies was the same person?

I will not discuss what happened for the time being. But the PE ended up awarding the contract to the four companies. Do you think they were right?

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