CADE investigates bid rigging in public bids subways and monorail infrastructure in seven states and in the Federal District

The General Superintendence of the Administrative Council for Economic Defense – CADE initiated the Administrative Proceeding 08700.003241/2017-81 to investigate an alleged bid rigging regarding public bids of infrastructure projects of rail transport of passengers (specially, subway and monorail), conducted, at least, in seven Brazilian states (Bahia, Ceará, Minas Gerais, Paraná, Rio de Janeiro, Rio Grande do Sul and São Paulo) and in the Federal District.

The inquiry is another outcome of the “Car Wash Operation” and was subsidized by the signature, on 5 December, of a leniency agreement with Construções e Comércio Camargo Corrêa S/A and its current and former executives. The deals were signed by CADE jointly with the Federal Prosecution Service in São Paulo (MPF/SP in its acronym in Portuguese).

This is the twelfth leniency agreement signed with CADE within the scope of the “Car Wash” Operation. By means of the agreement, the signatories admitted their participation in the anticompetitive conduct and provided information and evidence with the purpose of collaborating with the investigation of the alleged cartel. The agreement encompasses only the anticompetitive practices.

The signatories have indicated that the conduct affected, at least, 21 public bids in Brazil. The anticompetitive conduct, according to what was reported in the agreement, could have started in 1998 and lasted until 2014. During this period, the conduct involved around nine companies: Camargo Corrêa, Andrade Gutierrez, Odebrecht, OAS, Queiroz Galvão, Carioca, Marquise, Serveng, and Constran. Besides that, it is possible that other 10 contractors had also taken part in the colluding, namely: Alstom, Cetenco, Consbem, Construcap, CR Almeida, Galvão Engenharia, Heleno & Fonseca, Iesa, Mendes Junior, and Siemens.

According to the signatories, the cartel can be described in three stages: Anticompetitive Conduct Records Stage, Anticompetitive Conduct Consolidation Stage and Implementation Stage and Further Anticompetitive Conduct Decline.

The Anticompetitive Conduct Records Stage occurred, at least, between 1998 and 2004, and was the stage of the basis for the formation of the anticompetitive practices. During this period, Camargo Corrêa, Andrade Gutierrez, and Odebrecht, the three biggest companies of the sector, sought to share among them the big projects, mainly the ones that, due to high technical standards, could only be accomplished by the three companies.

In 2004, the Anticompetitive Conduct Consolidation Stage started. It lasted until 2008 when OAS and Queiroz Galvão joined the three companies. The signatories reported that, at this moment, the group started to use the nickname “G-5” (Portuguese acronym for Big 5) or “Tatu Tênis Clube” (Armadillo Tennis Club, in Portuguese) to dissimulate the alleged illicit character of the contracts.

During the 23rd Stage of the “Car Wash” Operation, the Federal Police seized a document named “Tatu Tênis Clube”. In the leniency agreement signed with CADE, Camargo Corrêa and its executives interpreted that such document apparently had the cartel’s governance rules involving the five companies, who are represented by five executives. Each executive would have received a nickname related to a famous tennis player. The signatories inferred that the title “Tatu” is a possible reference to the shield machine – a great feature in the market of subway public works -, which is popularly known as “Tatuzão” (big armadillo, in Portuguese). In that moment, only Camargo Corrêa, Andrade Gutierrez, Odebrecht, OAS and Queiroz Galvão had the license to operate that machine.

The signatories reported that, in order to obtain a bid with more restrictive qualification terms, these companies jointly supported viability studies or even the elaboration of the project plan to the future public works as a bargaining chip with local governments. The meetings to divide the future projects among the competitors occurred in person. Such meetings were scheduled by e-mail or by phone, but its content, as reported, was not frequently reproduced in the messages exchanged among the competitors. To schedule the meetings where the subway bids were discussed, the involved ones used codes in order to hide the alleged illicit character of these contacts. The expression “market” was frequently used to dissimulate the schedule of the cartel’s in-person meetings. The nicknames such as “G-5”, “Tatu Tênis Clube” or “TTC” were also used to identify the group.

Additionally, the signatories have informed that the “G-5” aligned itself with companies that had good local relationships, such as Carioca, Constran, Serveng, and Marquise, as well with companies responsible for the elaboration of the project plan for the government, such as MWH and TC/BR. The goal was to make an agreement in a specific tender and influence towards the adoption of a uniform commercial conduct within the competitors.
The signatories have also reported about the Stage of Implementation and Posterior Conduct Declining, between 2008 and 2014. In this period, the anticompetitive contacts were more frequent – due to the possibility to close big contracts boosted, partly, by the Brazilian Federal Government’s Growth Acceleration Plan (PAC in its acronym in Portuguese), due to the 2014 World Cup and the 2016 Rio de Janeiro’s Olympic Games.

On this stage, however, the cartel companies have found a higher difficulty to obtain success in the anticompetitive agreements due to the competition of foreign companies and to the difficulty to reach a consensus within the group. Besides that, many of the projects that had been discussed on the scope of the cartel had their bids canceled or suspended and were not reinstated.

Cartel targets

The leniency signatories at CADE verified that the anticompetitive agreements aimed to encompass, at least, 21 public tenders in Brazil. Among them, six public works would have been reached from 1998 to 2005: Fortaleza’s subway; Salvador’s subway; Line 3 of Rio de Janeiro’s subway; Line 4 – Yellow of São Paulo’s subway; and two public works for the Line 2 – Green of São Paulo.

There is evidence that there were also anticompetitive agreements concluded and implemented in 2008 that encompassed another two public works for the Line 2 – Green and Line 5 – Lilac, both in São Paulo. For other eight bids concluded between 2008 and 2013, the agreements were planned but were not implemented due to reasons not related to the cartel. The public works are: a project of a stretch parallel to Raposo Tavares (future Line 22) and a project in the M’Boi Mirim region, both in São Paulo’s monorail; the expansion of the subways of Brasília and Porto Alegre; the subways of Belo Horizonte and Curitiba; the Line 3 of the Rio de Janeiro’s subway and the East Line of Fortaleza’s subway. In the end, there were attempts to collude from 2010 to 2014 for the Line 15 – Silver – Expresso Tiradentes and the Line 17 – Gold, both of São Paulo’s monorail of São Paulo; the Line 15 – White – Stretch Vila Prudente/Dutra and Line 6, both of São Paulo’s subway; and the Line 4 of Rio de Janeiro’s subway.

The leniency agreement signed with Construções e Comércio Camargo Corrêa S/A and its current and former executives differs of the investigation in the Administrative Proceeding 08700.004617/2013-41, which investigates anti-competitive conducts in the market of acquisition and maintenance of rolling material and auxiliary systems of train and subway projects in Brazil.

Anticompetitive Conduct Records and Administrative Inquiry

Part of the Leniency Agreement consists in a document called the Anticompetitive Conduct Records (HC in its acronym in Portuguese), in which CADE’s General Superintendence describes in detail the anticompetitive practice as reported by the signatories and complemented by the probative documents submitted. By mutual agreement, CADE, MPF/SP, and the signatories have partially waived the confidentiality of the agreement.

At this stage, the defendants will be notified to present their defense. In the end of the investigation, the General Superintendence issues an opinion on the conviction or the filing of the case concerning each defendant. The conclusions are then forwarded to CADE’s Administrative Tribunal, which is responsible for issuing a final decision.
The final judgment in the administrative sphere is a responsibility of CADE’s Administrative Tribunal, which may impose fines of up to 20% of a company´s turnover. Fines ranging from BRL 50 thousand to BRL 2 billion may also be imposed on individuals. The Tribunal may also take other measures that it deems necessary to cease the conduct.

CADE's Leniency Agreements

According to the Law 12.529/2011, the leniency agreement has the purpose of obtaining information and documents that prove a cartel, as well as identifying the other participants in the conduct.

There are other eleven leniency agreements signed with CADE within the scope of the “Car Wash Operation”. The previous agreements were signed with Setal/SOG and employees concerning the public bids in Petrobras’ onshore platforms; with the company Camargo Corrêa and employees in public bids regarding Angra 3 nuclear plant and the North-South and West-East Railroads; with Camargo Corrêa and its current and former employees in public bids regarding the implantation of the North-South railway and of the West-East integration railway; with Andrade Gutierrez and executives of the company: the first one regarding an alleged cartel in the public bids to build and operate the Belo Monte hydroelectric power plant; the second agreement due to an alleged cartel in the public bid for engineering and construction works for the urban improvement of the Alemão, Manguinhos and Rocinha neighborhoods in Rio de Janeiro; the third one regarding an alleged cartel in bids of the Complexo Lagunar and Mitigation of the Floods of the North and Nortwest Fluminense; with Carioca Christiani Engenharia and its current and former executives regarding Petrobras’ headquarters and Rio de Janeiro Town Hall’s bids; with Andrade Gutierrez and its current and former executives regarding public bids for the construction of 2014 World Cup stadiums; and with Andrade Gutierrez S/A and its current and former executives regarding an alleged bid rigging in public bids conducted by the Secretariat of State for the Environment of Rio de Janeiro for recovery works and environmental revitalization of lakes in urban areas and containment works and flood control of rivers, including engineering services, dredging, desorption and construction of dams and jetties; and two with OAS – one regarding an alleged bid rigging in highways works of Arco do Rio de Janeiro and other related to a bid rigging in infrastructure works of urban mobility in the Federal District.