Downer EDI and Ventia Services taken to court by ACCC over defence contract price-fixing claims

The Australian competition regulator is taking civil action against subsidiaries of Downer EDI (ASX: DOW), Ventia Services Group (ASX: VNT) and four of their senior executives over alleged cartel behaviour in relation to maintenance and operation services they delivered to more than 200 properties for the Department of Defence.

Downer EDI’s Spotless Facilities Services and Ventia subsidiary Ventia Australia have been slapped with civil proceedings in the Federal Court as the Australian Competition and Consumer Commission (ACCC), alleging the companies engaged in price fixing in relation to separate billion-dollar contracts that covered Australian Defence Force bases and properties, including Lavarack Barracks, Victoria Barracks, Royal Military College Duntroon, Puckapunyal and several RAAF bases.

In a feisty response today to the Federal Court action, Downer EDI has “categorically” denied the allegations and plans to “vigorously defend any proceedings, while Ventia is taking a low-key approach stating that it plans to review the allegations and will not comment further.

The ACCC alleges that on three occasions between April 2019 and August 2022, Ventia and/or Spotless made or attempted to make arrangements with a view to “fixing, controlling or maintaining the prices at which these services would be supplied to Defence under specific programs of works”.

The ACCC alleges this is a breach of the cartel provisions in the Competition and Consumer Act.

During this period, Spotless is alleged to have given effect to two of the arrangements or understandings, and Ventia is alleged to have given effect to one of the arrangements or understandings.

Senior executives Jacob Bonisch and Jeffrey Collins who are employed within the Spotless corporate group, and Ventia senior executives Gavin Campbell and Lena Parker are also alleged to be involved in aspects of the conduct.

During the period outlined by the ACCC in its Federal Court claim, Jacob Bonisch was the executive general manager of Spotless Defence and Jeffrey Collins was the general manager of operations for Spotless Defence.

Campbell was the executive general manager of Ventia Defence at the time while Lena Parker was and is still the general manager of Ventia Energy Solutions.

“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,” says ACCC chair Gina Cass-Gottlieb.

“We allege this conduct caused direct harm to the Commonwealth and ultimately Australian taxpayers.

“One of the programs of work that we allege was the subject of a price fixing agreement related to a program funded by the Australian Government to stimulate work for small to medium enterprises during the COVID-19 pandemic, when many individuals and businesses were experiencing financial hardship.”

Ventia, which was formerly known as Broadspectrum, and Spotless hold separate contracts with Defence for estate maintenance and operation services with the ACCC revealing that the current contracts are due to expire in mid-2025.

The ACCC says the alleged conduct by the companies occurred without Defence’s knowledge and that this conduct was allegedly engaged in “by service providers who were trusted suppliers of services to Defence”.

In a statement to the ASX, Downer EDI, which acquired Spotless for $1.3 billion in 2017, has “categorically” denied the ACCC’s allegations and plans to defend the action.

“Downer sought to engage with the ACCC in its confidential investigation and thoroughly considered the matters raised by the ACCC,” says the company.

“Downer is of the view that neither Spotless nor the two Spotless employees referred to by the ACCC engaged in unlawful conduct.”

Downer EDI says it is committed to acting in a manner that has “underpinned the long-standing, trusted relationship it has with Defence”.

“Downer is among the few remaining large Australian providers to Defence,” the company says.

“It has been providing sustainment, infrastructure and estate services to Defence for more than 80 years and is proud of the role it plays in supporting Defence capability and local industry participation and employment.

“Downer takes compliance with its regulatory obligations very seriously, and is confident it has a robust governance framework in place to manage risk and support compliance with Australian competition law by its employees and subcontractors.”

In a separate statement to the ASX, Ventia Services Group acknowledges the action brought by the ACCC, adding that it is reviewing the details of the allegations against the company and its two employees.

“Ventia is committed to ethical business practices and seeks to uphold the highest standards of governance and risk management in all our operations,” says the company. “Ventia will continue to focus on delivering high-quality services to all customers.”

The ACCC is seeking declarations, civil penalties and costs against the companies, as well as the four senior executives, and also disqualification orders against three of them in relation to the alleged conduct.

The penalty for the alleged conduct, which occurred before a significant increase in cartel conduct penalties, is the greater of $10 million or three times the value of the benefit to the company.