2016Guhap83891 Revocation of and participation in competitive tendering process open only to small and medium enterprises

Action for Revocation of Restriction on Acquisition of Qualification

A Stock Company

Law Firm LLC et al., Counsel for the defendant-appellant

Attorney Han-soo, Attorneys Han Han-soo, and Hwang Jin-jin

The Small and Medium Business Administration

Attorney Lee Jong-hoon et al., Counsel for the defendant

September 28, 2017

October 19, 2017

1. All of the plaintiff's claims are dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

The Defendant’s revocation of the Plaintiff’s eligibility to participate in competitive tendering process open only to small and medium entrepreneurs on December 8, 2016 and the restriction on the acquisition of eligibility to participate in competitive tendering process

1. Details of the disposition;

A. The Plaintiff is a corporation that runs the production and sales business of B (B; hereinafter referred to as “B”).

B. A cooperative (hereinafter referred to as the "cooperative of this case") is composed of 17 companies (the plaintiff, D Co., Ltd., E Co., Ltd., F Co., Ltd., G Co., Ltd., H Co., Ltd., H Co., Ltd., J Co., Ltd., Ltd., K, L Co., Ltd., Ltd., M Co., Ltd., 00, P Co., Ltd., QP, Inc., Q., R., Ltd., Ltd., and S Co., Ltd., Ltd., including the plaintiff, D Co., Ltd., Ltd., Ltd., Ltd.,

C. From July 2011 to March 31, 2016, T, the Plaintiff’s representative director, in collusion with the executives of the instant association, the representative director, or a person in charge of tendering affairs, etc., of the instant association and its members, found the Defendant guilty of having been sentenced to imprisonment with prison labor for a specific company or its members for a bid of government-funded B purchase from July 21, 201 to March 31, 2016 (hereinafter referred to as “instant collaborative act”) by designating a successful bidder (association or individual member companies) in advance and conducting a bid at a higher price than the pre-determined bid price, and the remaining company was reflected in the bid at a higher price than the pre-determined bid price, and was sentenced to imprisonment with labor for a specific company or its members for a limited period of 36 years, 365 years through competitive bidding, 46 years in total, 366 years in total, 166 years in total, 366 years in total, 367, 367.

D. On December 5, 2016, the Defendant: (a) notified the Plaintiff that the instant collaborative act constitutes “an unfair act, such as collusion,” under Article 8(3)3 of the former Act on the Promotion of Purchase of Small and Medium Enterprise Products and the Development of Market Support (amended by Act No. 14839, Jul. 26, 2017; hereinafter referred to as “the former Act”); (b) the Defendant revoked the qualification to participate in competitive tendering process open only to small and medium enterprise proprietors on December 8, 2016; and (c) six months (from December 8, 2016 to June 7, 2017) to the effect that the said qualification is restricted (hereinafter referred to as “instant disposition”).

[Ground of recognition] Facts without dispute, Gap evidence 1, 4, Eul evidence 3, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

1) The Plaintiff and the instant member companies, including the Plaintiff, do not constitute unfair collusion, considering that: (a) small and medium enterprises, such as the Plaintiff, need to keep a large level of inventory in order to supply B at the construction site in a timely manner because their specifications are very diverse and diverse demand; (b) it is practically difficult for them to stockpile such inventory; (c) the Plaintiff and the Plaintiff, small and medium enterprises, in response to various demands; (d) designated B as competing products in accordance with the former Act on the Development of Market and Markets; and (e) the volume of demand for B exceeds the volume of supply while enjoying construction games around 2011; and (e) it is likely that the designation of competing products between the small and medium enterprises would be revoked in the future; and (e) the instant member companies, including the Plaintiff, might prevent government offices from participating in bid proposals and share stocks among each other and hold at least possible consultations in the process of determining the quantity of participation in bidding in order to ensure smooth supply B.

2) Even if the Plaintiff’s act constitutes the case where the Plaintiff committed an unfair act, such as collusion, considering the above circumstances that led to the Plaintiff’s act of collusion, considering that the Plaintiff was a small business entity in the south area, which was passively engaged in the instant collaborative act, and that the Plaintiff with higher sales volume was bound to face serious business crisis due to the instant disposition, and that the Plaintiff already received a restriction on participation in bidding from the Public Procurement Service due to the instant collaborative act, the instant disposition constitutes double disposition against the same act, the instant disposition was deviates from and abused discretion.

B. Facts of recognition

1) Competing B’s designation of competing products between small and medium enterprises was designated as competing products between small and medium enterprises pursuant to Article 6 of the Act on the Promotion of Purchase of Small and Medium Enterprises-Invested Products and Development of Market Support. The opportunity to participate in the B purchase bid procedures ordered by public institutions, including the Defendant, etc. only to small and medium enterprises was granted. In particular, as a result of the fact that public corporations and quasi-governmental institutions mandatorily entrusted the Defendant with purchase under Article 44 of the Act on the Management of Public Institutions newly established on December 29, 2009,

2) Organization of working-level council, representative council, etc.

A) Around April 2009, the instant member companies established the operational rules of the B Working-level Council (hereinafter referred to as the “Operational rules of the instant case”) consisting of B production companies at the time of the instant association, and consulted on the allocation of quantities and price maintenance in the supply market B including the private supply market among the members. As the representative of the instant association, the working-level council (hereinafter referred to as the “Working-Level Council”), the representative council (the representative director group of the instant member companies), the U committee, and the V council, etc. held regularly as the representative of the instant association, exchanged information on the monthly production and sales performance and inventory status of the instant member companies, and maintained the supply unit price of B in the government-funded market compared to other small and medium enterprises, and conducted a joint reduction plan, and conducted a joint reduction plan, and conducted an inspection of compliance with the schedule as a method of implementation, etc., to adjust the production volume of B for delivery by checking whether the supply unit was implemented.

B) All members of the instant working group including the Plaintiff participated in the instant working group, and among the working group councils of the instant working group, 10 companies, including H, M, L, D,O, K, K, S, G, E (S, and the Seoul Metropolitan Area Council), and J, etc. 10 companies, and four companies, including I, Q, P, and R, were affiliated with the Yong-Namnam Council, and five companies, including the Plaintiff, E, N, G, and F.

3) The method of the instant collusion

A) The instant member companies, with respect to the government-grade B purchase bid, failed to determine the level of successful bid price by taking into account the activity areas, production and inventory quantity, bidding eligibility points, etc. of the members, and then failed to enter into a negotiated contract. The instant member companies, other than those scheduled to award a successful bid and those members, were able to enter into a negotiated contract by failing to participate in the pertinent bid and by failing to enter into the bid in the form of “intest, single bid, and bid exceeding the estimated price” in order to enhance the basic amount publicly announced by the ordering agency.

B) (1) In the case of a bid of at least one billion won, a joint supply and demand company shall be organized, and the bid price shall be awarded in the name of the instant partnership, and the instant partnership shall be divided into the share of the joint supply and demand company, and the bid price shall be allocated to the relevant member. (2) In the case of a bid of at least one billion won, a joint supply and demand company shall be organized, a joint supply and demand company shall be selected to participate in the tender under the name of the principal agent. (3) In the case of a participation in the tender in the name of an individual company without forming a joint supply and demand company, a company located near the construction site shall be preferentially allocated due to the cost of transportation.

C) Examining the specific implementation process, in a case where a specific member participates in a tendering procedure individually, the first decision on whether to participate in the tendering procedure is made, and then the first decision on whether to participate in the final tendering procedure is made at the Consultative Council of the Working-Levels of this case, and if a specific member is determined by the Consultative Council of the Working-Levels of this case as a successful bidder for a specific case of supply B, the member requests a bidding by notifying the amount of his bid or the amount of his bid for the specific case of supply B among other member companies of this case by making a bid for the amount exceeding the bid price of the successful bidder. The member is a method of allowing the successful bidder to enter into the relevant contract by conducting a bidding at a price exceeding the bid price of the successful bidder.

D) The working-level council of the instant case allocated membership and quantity to be awarded a contract for each case of public announcement of tender, and delivered the allocated data to the employees of the instant association, and had the instant association manage the fair distribution of the contract amount by enterprise.

4) The main contents of the instant operational rules are as follows.

Article 5 (Duties of Council) of the Operational Rules of the Working-level Council shall deliberate, determine, and execute the following paragraphs:

2. 3. Joint Co-operations with respect to the monitoring of unfair practices and unfair bidding practices; 4. Sub-paragraph 2 of this Article present at the meeting of the representative director; and 4. Sub-paragraph 1 of this Article present at the meeting of the Council for the stabilization of the B industry, shall be dealt with jointly with by the resolution of the Council for the purposes of Article 2, in the event that such an act has been committed in violation of the following paragraphs. 1. 2. In the event of the detection of an offence, the relevant representative director shall be removed from the order of priority twice as soon as possible in the bidding. 3. In this case, if an offence has great damage to the industry, the companies may, with the consent of at least 2/3 of all the members (the same as the date and time) enter into the bidding, by setting forth an order of priority in the bidding (the number of members) at each of the two preceding bidding methods (the first bidding methods) and by setting forth an order of priority in the bidding among the two preceding bidding methods (the first bidding methods).

5) On July 18, 2011, the instant collaborative act constituted a joint contractor, such as the Plaintiff’s successful bid, and the instant cooperative was awarded a successful bid amounting to KRW 281,264,025,739 in the amount equivalent to 96.918% of the projected price (161,272,898 won) in the bid for B purchase of “W Corporation” publicly notified by the Busan Government Procurement Service as an end-user, in accordance with the method of the instant collaborative act prior to the instant collaborative act. From that time, from that time to December 16, 2015, the Plaintiff was awarded a successful bid amounting to KRW 281,264,025,739 in total at the government-funded purchase tender until December 16, 2015, and the Plaintiff was allocated

In addition, on August 31, 201 through the instant collaborative act, the Plaintiff was awarded a successful bid of KRW 132,477,840 equivalent to 96.58% of the projected price from the 'X Corporation' tender publicly announced by the Jeonnam-gun as an end-user institution by the Gwangju Regional Government Procurement Service on the basis of E as a modelrology, and received a successful bid of KRW 132,47,840 from the time of the public purchase tender until April 19, 2016.

As such, the sum of the amount distributed by the Plaintiff according to the share of the joint contractor is 24,081,342,845 won.

6) On September 1, 2016, the Administrator of the Public Procurement Service rendered a disposition to restrict the Plaintiff’s qualification for participation in bidding on the ground that the Plaintiff constituted “a person who was awarded a successful bid by recognizing that the Plaintiff was in collusion in a government-grade B procurement tender, such as the instant union and the instant member companies, and led to collusion in the competitive bidding.” Article 27(1) of the former Act on Contracts to Which the State is a Party (amended by Act No. 14038, Mar. 2, 2016; hereinafter “former State Contracts Act”); Article 76(1)7 of the former Enforcement Decree of the Act on Contracts to which the State is a Party (amended by Presidential Decree No. 27475, Sep. 2, 2016; hereinafter “former Enforcement Decree of the State Contracts Act”); Article 76(1)7 of the former Enforcement Rule of the State Contracts Act (amended by Ordinance of the Ministry of Strategy and Finance No. 573, Sep. 23, 2016).

[Ground of recognition] Facts without dispute, Gap evidence 1, 2, Eul evidence 3, the purport of the whole pleadings

C. Whether the grounds for disposition are recognized

1) Article 8(3)3 of the former Act on Promotion of Purchase of Small and Medium Enterprise Products and Support for Market Development (amended by Act No. 13866, Jan. 27, 2016; hereinafter “former Act on Support of Market Development”) provides that the Defendant may cancel the participation eligibility or suspend it for a period not exceeding one year where a small and medium enterprise participating in competitive bidding between small and medium enterprises has committed an unfair act, such as collusion, and may restrict the acquisition of participation eligibility within one year from the date of revocation where the participation eligibility is revoked.

In addition, Article 8 (3) 3 of the Act on the Development of Market Support shall be revoked in the above cases, and Article 8 (5) of the same Act provides that when the defendant cancels the participation eligibility, the acquisition of participation eligibility may be restricted within one year from the date of revocation.

2) In full view of the following circumstances revealed in the facts acknowledged above, the instant collusion constitutes an unfair act, such as collusion under Article 8(3)3 of the former Act on the Development of Agricultural and Fishing Villages and the Act on the Development of Agricultural and Fishing Villages. Therefore, the grounds for the instant disposition are recognized.

A) All of the small and medium entrepreneurs producing B in Korea join the instant association, and the government-funded market B is designated by B as a competitive item between small and medium entrepreneurs and limited to the suppliers. As a matter of principle, competition occurs between the instant member companies. Thus, the instant collusion is in the form of external competition, but actually results in the lack of competition in the government-funded market by excluding competition between the instant member companies and the instant association.

B) The instant association and the instant member companies, using the situation in which competition in the government-funded market B was excluded, maintained higher supply unit price in the government-funded market compared with competing products among other small and medium enterprises, and adjusted the production and shipment volume of government-funded B by formulating and implementing a joint reduction plan. The instant association and the instant member companies had a direct impact on the determination of transaction terms, such as failing to bid, failing to bid, and allowing a specific member to enter into a negotiated contract by using methods such as bid bid, single bid, and bid price excess.

C) The Plaintiff asserts that: (a) the instant member companies’ production did not rapidly increase demand; and (b) due to transportation costs, only the members of the companies near the construction site are subject to supply; (c) in order to obtain the designation of B as a competitive product open only to small and medium entrepreneurs, it is merely a short-term consultation in the process of sharing inventory materials for the purpose of preventing a bid; and (d) determining the bidder companies.

However, in light of the fact that the Plaintiff’s successful bid number and the amount of successful bid, and the member companies in this case led to a private contract or set up and adjusted the supply volume, it is reasonable to deem that the instant collaborative act was conducted to exclude competition among the member companies in this case.

Furthermore, the structural problem of the members of the instant case, including the Plaintiff, is ultimately derived from maintaining their interests by maintaining the designation of a small-party competitive product among the small-sized enterprises in B.

D) The representative director, officers and employees of the instant member companies, and the president of the instant association, etc., who were the representative director of the Plaintiff, were convicted in the first instance court on the ground that they participated in the instant collaborative act in the relevant criminal case, thereby undermining the fairness of the pertinent bidding by deceptive means or other means.

(d) Whether the discretion is deviates or abused;

1) Article 8(3)3 of the former Act on the Development of Agricultural and Fishing Villages provides that a small and medium enterprise participating in competitive bidding between small and medium enterprises may revoke the participation eligibility or suspend it within one year, and that the acquisition of participation eligibility may be restricted within one year from the date of revocation if the participation eligibility is revoked. Article 8(3)3 of the former Act provides that the period of suspension of participation eligibility and the period of restriction on the acquisition of participation eligibility shall be determined by Ordinance of the Ministry of Trade, Industry and Energy. In addition, Article 8(5) of the Act provides that a small and medium enterprise participating in competitive bidding between small and medium enterprises shall revoke the participation eligibility, and Article 8(5) of the same Act provides that where the participation eligibility is revoked, the acquisition of participation eligibility may be restricted within one year from the date of revocation, and Article 8(6) of the same Act provides that the period of suspension of participation eligibility under paragraph (3) and the period of restriction on acquisition of participation eligibility under paragraph (5) shall be determined by Ordinance of the Ministry of Trade, Industry and Energy. Article 4 [Attachment 3]

Even if the criteria for a disciplinary administrative disposition are prescribed in the form of Ministerial Ordinance, it has no effect to externally bind citizens or courts, and whether such disposition is legitimate or not must be determined in accordance with the contents and purport of the relevant Acts and subordinate statutes, not only the above criteria for disposition, but also the provisions of the relevant Acts and subordinate statutes. Thus, it cannot be immediately deemed legitimate as it conforms to the above criteria for disposition. However, unless the above criteria for disposition are in itself consistent with the Constitution or laws, or there is no reasonable ground to believe that a punitive administrative disposition in accordance with the above criteria for disposition is considerably unfair in light of the contents and purport of the relevant Acts and subordinate statutes and the contents and purport of the relevant Acts and subordinate statutes, it shall not be determined that the disposition has deviates from the scope of discretion or has abused discretion (see Supreme Court Decision 2007Du6946, Sept. 20, 200

2) Comprehensively taking account of the following circumstances revealed in the facts acknowledged above, the public interest to be achieved through the instant disposition is more than the disadvantage the Plaintiff may suffer due to the instant disposition, and thus, the instant disposition is difficult to be deemed to have deviated from and abused discretion.

A) As seen earlier, the Plaintiff constitutes a person who committed an unfair act, such as collusion under Article 8(3) of the former Act on the Development of Markets and Article 8(3)3 of the Act on the Development of Markets with respect to the successful bid of 63 cases where it was awarded a successful bid. Article 8(3) of the former Act, Article 4 [Attachment 1] 3 of the Enforcement Rule of the Act on the Development of Market Support, Article 8(3) of the Enforcement Rule of the Act on the Development of Market Support, and Article 4 [Attachment 1] 3 of the Enforcement Rule of the Act on the Development of Market Support provides that the Plaintiff shall cancel the participation eligibility and impose a restriction on the acquisition of participation eligibility for 6 months. The instant disposition conforms to the relevant laws and regulations, and is considerably unfair in light of the content and purport of the instant collaborative act, and

There is no reasonable ground to admit that the case is reasonable.

B) The public interest needs to cancel the qualification for participation in competitive bidding to a person who committed an unfair act, such as collusion under the former Act on the Development of Market Support, and restrict the acquisition of qualification for participation in competitive bidding for a certain period, thereby protecting the fair execution of competition, preventing disadvantages suffered by public institutions, and thereby promoting the national financial soundness.

C) In light of the fact that the Plaintiff participated in the instant collaborative act and received a successful bid in a large number of successful bid amounts, and the instant collaborative act was organized and repeatedly conducted, and that resulting in the Plaintiff’s failure to entirely exclude competition in the government-funded market designated as a competitive item B, etc., the possibility of criticism against the Plaintiff’s collaborative act is large.

D) While the former State Contracts Act, which served as the basis of the instant disposition, aims to contribute to improving the competitiveness of small and medium enterprises and stabilizing their business by facilitating the purchase of products of small and medium enterprises and supporting markets, the former State Contracts Act, which served as the basis of the instant disposition, aims to facilitate the execution of contracts by prescribing basic matters on the contracts to which the State is a party. Thus, the instant disposition and the instant disposition under Article 8(3)3, etc. of the Act on the Promotion of Real Estate Transactions, etc., are different with each other. The instant disposition under Article 8(3)3, etc. of the Act on the Promotion of Real Estate Transactions, revoked the qualification of small and medium enterprises eligible to participate in competitive bidding between small and medium enterprises, or restrict the acquisition of eligibility to participate in competitive bidding. However, the said disposition under Article 27 of the former State Contracts Act, "Restrictions on qualification to participate in a contract to which the State is a party, such as government procurement by an international tender and a contract to which the State is a party to the contract." Thus, the instant disposition and the period of restriction on qualification to participate in the Plaintiff cannot be seen as unlawful.

E. Sub-committee

Ultimately, the disposition of this case is legitimate since the grounds for the disposition are recognized and there is no violation of law of deviation or abuse of discretionary power.

3. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.

The presiding judge's freeboard

Judge Lee Dong-ho

Judge Lee Jong-soo