Transatlantic efforts against bid rigging in procurement [free webinar alert]

Prof Chris Yukins and Michael Bowsher QC have put together an excellent webinar on the current approaches to detect and sanction bid rigging in procurement in the US and the EU, as well as the possible future approach the UK may take post-Brexit.

Among other things, the webinar will include discussion of the European Commission’s recent bid rigging exclusion guidance (for initial comments see here).

The webinar will take place on 2 June 3pm CET / 2pm GMT. All welcome. Further details and free registration here.

Interesting proposals for post-Brexit strengthening of UK approach to corruption and collusion in procurement -- re Jones (2021)

Prof Alison Jones has recently published on early view an interesting paper on ‘Combatting Corruption and Collusion in UK Public Procurement: Proposal for Post‐Brexit Reform’ (2021) Modern Law Review, forthcoming.

The paper provides a very good, comprehensive overview of the current rules and enforcement practices in the UK, their more than likely shortcomings, and four groups of proposals to tighten up the rule book and enforcement approach to the prevention and repression of corruption and bid rigging post-Brexit.

Except for some proposals on the transparency of procurement data (at p 32) and Prof Jones’ faith in the potential of the (now abandoned) ‘Screening for Cartels’ tool — both of which deserve a more in-depth discussion (see eg here on procurement transparency, and here on the SfC tool) — the UK legislator would do well to take these proposals seriously as it progresses in its review of procurement and competition laws post-Brexit.

First thoughts on the Commission's bid rigging exclusion guidance -- what difference will it make?

On 18 March 2021, the European Commission officially published its Notice on tools to fight collusion in public procurement and on guidance on how to apply the related exclusion ground (the ‘bid rigging exclusion guidance’). This document has been a long time in the making and officially announced almost four years ago, so it is no exaggeration to say that it was keenly awaited (by competition and procurement geeks like yours truly, at least).

The guidance is clearly addressed to contracting authorities — not economic operators — and is distinctly ‘pro exclusion’ in its minimisation of the practical difficulties and legal constraints inherent in the adoption of exclusion decisions. However, even with such clearly programmatic orientation, after a first reading, I have a few thoughts that do not make for an optimistic assessment of the guidance’s likely practical impact.

Mostly, because I do not think the Commission’s bid rigging exclusion guidance provides much by way of actionable practical advice to contracting authorities—and it certainly does not really go beyond already existing guidance, such as the OECD’s 2009 guidelines for fighting bid rigging in public procurement. By contrast with more general documents e.g. the OECD guidance, the Commission’s bid rigging exclusion guidance intends to concentrate on the possibility to exclude operators engaged in the manipulation of a tender. However, it includes lenghty discussion of measures to prevent collusion, as well as complementary measures such as training and data analysis and, when it comes to the specific issues that the interpretation and application of Art 57(4)(d) of Dir 2014/24/EU generates, it is mainly restricted to setting out issues that Member States’ domestic legislation cannot do — rather than focusing on what contracting authorities can (and should) do.

Moreover, its likely limited practical impact results from the fact that the guidance simply ignores that the EU rules (especially discretionary ones) need to be embedded in the Member States’ administrative/public law system and, in many places, the guidance is at odds with the latter. In that regard, the guidance seems to presume a sort of sphere of subjective rights for contracting authorities that they are capable of exercising even against the decisions of other (superior/centralised) administrative authorities, or in disregard of broader constraints and requirements for administrative action—such as burden of proof, the duty to state reasons, the increasing enforceability of exclusion grounds against other tenderers, or the very practical implications of risking damages compensation for unlawful exclusion—which is (as far as I know) an area of constant interest for tenderers and practitioners alike.

To be fair, this in part follows from the stance of the Court of Justice in some recent cases (referred to in the guidance), but that is still no excuse for the Commission’s guidance not to recognise that Member States retain significant discretion in their administrative self-organisation and that some of the issues raised in the practical implementation of the relevant provisions will be conditioned by pre-existing administrative law doctrines and procedures.

The most glaring example of this approach that sidesteps the difficulties in the domestic implementation of EU procurement law is the fact that the guidance simply states that ‘The possibility to exclude an economic operator for suspected collusion is not construed in the Directive as a penalty for its behaviour before or during the award procedure’ (section 5.2). That is at face value fine. But the Directive also does not say that exclusion is not a penalty or a sanction and, consequently, establishing the legal nature of an exclusion will be dependent on the relevant public/administrative law framework at Member State level. Moreover, exclusion has been framed as a penalty in at least one recent preliminary reference and the Court of Justice has not disabused the referring court from that prima facie legal classification (see eg Tim, C-395/18, EU:C:2020:58). Given the increasing relevance of the Charter of Fundamental Rights in the interpretation of economic operators’ rights in the context of procurement litigation, I think it is far from certain that exclusion will not be construed as a (quasi)penalty, in particular when it is grounded on the infringement of prohibitive legal rules (such as Art 101 TFEU), rather than on shortcomings in the standing of the economic operator or non-compliance of its tender with substantive and formal requirements included in the tender documents.

To my mind, this (ie the nature of exclusion measures) can be one of the thorniest interpretive issues in this area, particularly because of the due process implications of exclusion being treated as a penalty or sanction—which is also not helped by the absence in the Remedies Directive of any procedural requirements applicable to the exclusion stage. The perpetuation of this disconnect with the Member States’ administrative law framework can in itself constitute the quicksands where the bid rigging exclusion guidance disappears, and certainly can continue to prevent an adequate use of the possibility to exclude tenderers suspected of bid rigging, because the fundamental issues raised by Art 57(4)(d) Dir 2014/24/EU remain unresolved — coupled with other sweeping statements concerning e.g. the level of demonstrability of the suspected collusion that contracting authorities need to meet (as discussed below).

For these and the reasons given below, I am afraid that the bid rigging exclusion guidance will not leave up to the expectations. I will carry out a more detailed and formal assessment of the guidance in a future research paper (likely after my shared parental leave… so not until mid summer or so), but here are my further initial observations, which do not attempt to be comprehensive.

Framing the issue

For those interested in understanding how to interpret and apply Art 57(4)(d) and the associated Art 57(6) self-cleaning possibilities, only section 5 and the Annex of the bid rigging exclusion guidance will be relevant. Indeed, the bid rigging exclusion guidance includes a rather lengthy explanation of what the Commission has done and what it expects to do (or for Member States to do) in the broader area of professionalisation and promotion of collaboration between competition and procurement authorities, which makes the document not very practical. This raises some questions on the fitness for purpose of the document, and whether alternative guidance format that had discharged most of sections 1 to 4 onto a different policy document would have been preferable, but perhaps this is mostly just presentational.

One of the most welcome aspects of the bid rigging exclusion guidance is that, in section 5.2, it makes it clear that the ground for exclusion based on suspected ‘contemporaneous’ collusion (or bid rigging) in Article 57(4)(d) of Directive 2014/24/EU is separate from (and compatible with) the possibility of excluding infringers of competition law as economic operators ‘guilty of grave professional misconduct’ under Article 57(4)(c). It is also to be welcome that, also in section 5.2, the Commission shares the view that, despite the different wording of Art 57(4)(d) and Art 101 TFEU, the former needs to be interpreted in a Treaty-consistent manner, which means that the exclusion must be possible for all types of behaviours caught by Art 101 TFEU — notably, concerted practices and decisions by associations of undertakings, in addition to agreements [for discussion, and advancing the positions now confirmed by the guidance, see A Sanchez-Graells, Public Procurement and the EU Competition Rules (2nd edn, Hart 2015) 296 ff].

The Commission also rightly stresses that contracting authorities in principle retain discretion not to exclude economic operators suspected of bid rigging, as the exclusion ground in Art 57(4)(d) is discretionary. However, this obviates not only the possibility for Member States to transpose it as a mandatory exclusion ground, but also more general EU law duties (such as the duty not to deprive Art 101 TFEU of its effet utile), and domestic administrative law duties (such as equivalent duties not to promote or tolerate illegal activity, or duties mandating inter-administrative collaboration with competition authorities). In that regard, the bid rigging exclusion guidance could have usefully developed a checklist of reasons that could (objectively) justify not excluding economic operators despite there being sufficiently plausible indications to conclude that the economic operator had entered into agreements with other economic operators aimed at distorting competition. In the end, it will not (or should not) be entirely up to the contracting authority to decide to turn a blind eye on those indicia.

Lack of practical guidance, or guidance that is impractical

Despite the largely correct framing of the issue, and despite acknowledging that tackling bid rigging in procurement is fraught with difficulties, the bid rigging exclusion guidance fails to deliver the much needed practical orientations on how to identify contemporaneous bid rigging and how to apply (as opposed to interpret) the relevant exclusion ground of Art 57(4)(d) Dir 2014/24.

The guidance does not really provide practical tips on how to identify bid rigging in a single tender scenario (which is the most likely to be faced by most contracting authorities). If indications of the existence of bid rigging that require cross-sectional or time series analysis are left to one side (as those are generally not for contracting authorities, but rather for competition authorities to screen for and analyse), and with the exception of flagging as suspicious unexpected tender withdrawals (annex, section 3), the only indications highlighted in the guidance (section 5.3) are:

• The text of the tenders (for instance, the same typos or phrases in different tenders or comments left by mistake in the text of the tender indicating collusion among tenderers).

• The prices offered in the award procedure (for instance, tenderers who ... offer excessively high or low prices) [although the interaction of this with the rules on abnormally low tenders is not explored]

• Administrative details (for instance, tenders submitted by the same business representative)

This is then slightly expanded in the annex (section 3), which details indicia such as:

• Identical mistakes or spelling errors in different tenders.

• Different tenders drafted with similar handwriting [in 2021!] or typeface [except default in most commonly used software applications, one would hope!].

• Tenders using another tenderer’s letterhead or contact details.

• Different tenders with identical miscalculations or identical methodologies to estimate the cost of certain items.

• Tenders submitted by the same person or with persons having the same contact details.

This can only help contracting authorities identify clumsy economic operators, potentially involved in collusion. However, in all seriousness, this is unlikely to result in much practical results as once these types of issues are included in official guidelines, it is likely that economic operators will make sure to avoid those mistakes when thy submit rigged bids [for discussion, in the context of automated treatment of bids, see A Sanchez-Graells, '"Screening for Cartels" in Public Procurement: Cheating at Solitaire to Sell Fool’s Gold?' (2019) 10(4) Journal of European Competition Law & Practice 199–211].

The guidance also incurs in temporal inconsistencies, such as when it uses as an indication of bid rigging that contracting authorities should take into account for the purposes of exclusion: ‘The selected tenderer subcontracting work to unsuccessful tenderers for the same contract or the selected tenderer not accepting to sign the contract and later found to be a subcontractor of the tenderer that is finally awarded the contract may be considered sufficiently plausible indications of collusion’ (annex). This can well be an indication of bid rigging, but at this stage no exclusion can take place because the contract will have been awarded. Consequently, the relevant consequence here should be reporting this issue to the competition authority as well as, where possible, terminating the contract (which is not, however, explicitly foreseen in the Directive).

The guidance is also somewhat naive or flippant, for example in its remarks concerning the contracting authority’s (potential) knowledge that a tenderer ‘has pre-ordered the material needed to perform the specific contract in question well before the evaluation of the tenders is concluded’. Quite how a contracting authority would get to this knowledge, or how specific the pre-order should be for it not to be susceptible of confusion with just a standard supply of the economic operators is anybody’s guess.

It can also generate confusion when it, on the one hand, recommends resorting to centralised procurement as a way of avoiding collusion and, on the other, stresses that framework agreements managed by central purchasing bodies are more susceptible to collusion than ordinary tender procedures (annex, section 2).

Moreover, the guidance lacks detail in crucial aspects and, in particular, concerning the extremely complex analysis of joint tenders and subcontracting among (potential) competitors (section 5.6). Here, the Commission’s guidance does not even cross-refer to the more detailed guidelines published by some Member States’ competition authorities — notably, the Danish Competition and Consumers Authority. Similarly, the guidance largely brushes over the complex issue of multiple participation by economic operators belonging to the same corporate group (section 5.5), and also sets aside the difficulties of deciding the scope of application of exclusion decisions that need to respect the doctrine of the single economic entity under competition law [for discussion, see K Kuzma and W Hartung, Combating Collusion in Public Procurement (Elgar, 2020)].

Let’s ignore the administrative legal framework

The Commission’s bid rigging exclusion guidance largely ignores the administrative legal framework at Member State level. This is not only in relation to the treatment of exclusion as (not) a penalty, but also in relation to evidentiary requirements and the related duty to provide reasons. In that regard, the literal interpretation of the Directive leading to the conclusion that ‘national rules should comply with both the letter and the spirit of the Directive, which requires only “indications” of participating in illegal agreements that distort competition in an award procedure and not formal evidence, such as a court judgment confirming such participation’ (section 5.4) is misleading and conflates the need for a prior administrative or judicial decision with the existence of ‘evidence’ of collusion.

First, the guidance is right to exclude the need for a previous administrative or judicial decision, but that should not be treated as excluding ‘evidence’ of collusion, but rather as a precedent decision that has the effects of (quasi) res iudicata or, at least, constitutes a legal fact that the contracting authority cannot ignore. It is also wrong to indicate that ‘plausible indications’ of collusion include, for example, ‘information brought to the attention of the contracting authority of an investigation launched by the competition authority or of penal charges brought against the management of the operator for suspected collusion either in the pending award procedure or in other award procedures’, as this raises fundamental issues concerning the presumption of inocence (which treatment will also differ across jurisdictions, depending on e.g. the trigger for the opening of an administrative investigation). Here the guidance makes the reverse mistake of conflating a formal decision with the evidence (presumably) underpinning it.

Second, the guidance ignores the legal meaning of ‘evidence’ when it establishes that ‘contracting authorities are not required to have evidence of collusion in a pending award procedure, as this would contradict the letter of the Directive’. ‘Plausible indicia’ are a type of evidence, falling short of direct (uncontrovertible) evidence, but clearly above the absence of evidence. This should have been clear from the excerpt that the guidance quotes, where the CJEU stressed that ‘anti-competitive behaviour, “may be proved not only by direct evidence, but also through indicia, provided that they are objective and consistent and that the related tenderers are in a position to submit evidence in rebuttal”’ (Specializuotas transportas, C-531/16, EU:C:2018:324, paragraph 37).

Indiciary evidence is still evidence and the unresolved problem is where to draw the line to decide that the contracting authority has enough evidentiary support to adopt an exclusion decision. Moreover, this is of paramount relevance to the adequate discharge of the duty to state reasons. Here, it not only is impossible for a contracting authority to act in the absence of evidence, but the administrative file will usually be accessible to the economic operator for the purposes of its legal defence. This makes the further recommendation for contracting authorities not to disclose to economic operators that they suspect the existence of bid rigging largely impractical, as the contracting authority will only be able to keep this under wraps up to the point where it must make a formal decision and notification to the economic operator affected by the (potential) exclusion.

Some problematic statements

Unfortunately, in addition to the shortcomings stressed above (and some others), the guidance includes some unhelpful statements concerning the interpretation and application of Art 57(7) of Directive 2014/24/EU, in particular when it states that ‘If an economic operator, who has been excluded from award procedures for a certain period under Article 57(7) of the Directive, submits a tender during the period of exclusion, the contracting authority, without any further need for assessment, must automatically reject that tender’ (section 5.9), and when it reiterates that ‘It goes without saying that if the economic operator has been excluded from all award procedures in your country for a period of time and submits a tender during this period, you must exclude it from your award procedure without assessing the tender submitted.’ (section 3 of Annex) (both emphases added).

These statements are, at best, confusing and misleading and, at worse, legally incorrect. In that regard, it should be stressed that Art 57(6) Dir 2014/24/EU is very clear that the conditions for lengthy exclusions stipulated by Member States in the implementation of Art 57(7) are to be applied ‘if no measures as specified in paragraph 6 are taken by the economic operator to demonstrate its reliability’. Therefore, the statements above should have made it clear that further assessment is required and contracting authorities must carry it out where an economic operator, who has been excluded from award procedures for a certain period under Article 57(7) of the Directive, submits a tender during the period of exclusion and it claims to have implemented the sort of measures detailed in Art 57(6).

This is the sort of problematic drafting that should be avoided in official guidance and, in this instance, rectified by the Commission as soon as possible.

Final thoughts

On the whole, a first reading of the guidance does not call for optimism. While the Commission’s bid rigging exclusion guidance does contain some useful information, it is at its weakest in relation to the particularities of the interpretation and application of Art 57(4)(d) and related provisions of Directive 2014/24/EU, which are supposed to constitute its core concentration.

I would not be surprised if contracting authorities found little to no comfort in the guidance when pondering how to address the key issue of how to spot collusion in single-tender settings, how to decide if there are sufficient plausible indications, and how to go about the adoption of an exclusion decision that is, in almost all likelihood, going to be challenged on the basis that it constitutes a sanction/penalty for a (suspected) breach of competition law that the contracting authority has no competence to enforce, or which has not followed the heightened procedural requirements of procedures leading to the imposition of a sanction. It should be obvious that exclusion on these grounds generates the additional risk of a follow-on investigation by the competition authority and/or private litigation, so no economic operator should be expected to just accept an exclusion on grounds of contemporaneous bid rigging under Art 57(4)(d) Dir 2014/24/EU (or, rather, its domestic transposition).

I will continue reflecting on the guidance and its implications, and I am sure there will be a lively debate in the months and years to come. As always, any feedback and comments will be most welcome.

'Public procurement' for Global Dictionary of Competition Law

I have been invited to contribute an entry on ‘public procurement’ for a new Global Dictionary of Competition Law (Concurrences Books, forthcoming). The initial draft of the entry is below. Comments welcome: a.sanchez-graells@bristol.ac.uk.

Public Procurement
Albert Sanchez-Graells
University of Bristol Law School

Definition

Public procurement rules govern the award of government or public contracts for the acquisition of supplies, works or services, including the direct provision of public services to citizens. Public procurement rules seek to foster effective competition for public contracts to generate value for money, and to harness competition as an anticorruption tool to ensure integrity and probity in the expenditure of public funds. The main challenges to effective competition in public procurement settings are bid rigging (or collusion among bidders), which risk is heightened by the transparency inherent to procurement processes, and anticompetitive requirements imposed by the public buyer.

Commentary

The effectiveness of public procurement and its ability to deliver value for money depend on the existence of two layers of competition: competition in the market for the goods, works or services to be acquired, and competition within the tender for a specific contract. While most competition analysis focuses on the existence (or absence) of competition within the tender and tends to assimilate this with models of competition for the market, this is a short-sighted approach. Except for very rare public contracts for goods, services or works for which the public buyer is a monopsonist—mainly in sectors such as defence—most public tenders take place in a framework of competition in the market, and one with many private and public buyers seeking to purchase from a range of potential suppliers (for example, tenders for the acquisition of cloud services, general supplies, or school meals). Therefore, it is important not only to ensure that procurement rules and administrative practices prevent distortions of competition within a given tender, but also that they do not generate negative knock-on effects on (dynamic) competition in the relevant market.

The most commonly discussed distortion of competition within a public tender concerns anticompetitive agreements between bidders (bid rigging) that seek to manipulate the competition for the public contract and to extract excessive rents from the public buyer. The mechanics of bid rigging schemes are widely understood, including predominant strategies such as cover bidding, bid suppression, bid rotation and market allocation. However, these anticompetitive practices are also difficult to prevent in oligopolistic or concentrated markets because the transparency inherent to public tenders significantly facilitates monitoring of the cartelists’ bidding behaviour, and because the atomisation of public tenders requires a significant investment in market screening tools to spot suspicious patterns across regional markets and over time. Fighting cartels in public procurement settings has become a high priority for most competition authorities in recent years, in part as a result of the OECD’s work on this area—see its 2012 Recommendation on Fighting Bid Rigging in Public Procurement—as well as the push by the International Competition Network. There is also hope in the development of effective systems of automated screening and red flags where public procurement is conducted electronically (of which there is longstanding experience eg in Korea in relation to its eProcurement platform KONEPS), but these require a solid procurement data architecture which absence has marred recent attempts in jurisdictions such as the UK and its now abandoned ‘Screening for cartels’ tool.

An additional difficulty in ensuring effective competition within a given tender derives from the unclear boundary between anticompetitive practices such as bid rigging and procompetitive cooperation through teaming, joint bidding and subcontracting arrangements between bidders. There is currently significant debate about the limits to cooperation between (potential) competitors in the context of procurement procedures, as well as whether it should be treated as a restriction of competition by object or by effect for the purposes of Article 101 TFEU. The debate is particularly alive in Scandinavian countries, following a 2016 Decision by the EFTA Court in the Ski and Follo Taxi case, and a more recent 2019 Judgment by the Danish Supreme Court in the Road Markings case, which has led to a revision of the Danish Competition and Consumer Authority’s guidelines on joint bidding. The main points of contention about the state of the law concern the counterfactual to be used to determine that joint bidders are (potential) competitors, as well as the measurement of any efficiencies passed on to the public buyer.

In order to empower public buyers to self-protect against bid rigging and to strengthen the effectiveness of competition law in public procurement settings, EU procurement rules have created discretionary grounds for the exclusion of bidders ‘where the contracting authority has sufficiently plausible indications to conclude that the economic operator has entered into agreements with other economic operators aimed at distorting competition’, as well as in cases ‘where the contracting authority can demonstrate by appropriate means that the economic operator is guilty of grave professional misconduct, which renders its integrity questionable’—which the Court of Justice of the EU has interpreted as inclusive of non-procurement related breaches of competition law (Generali-Providencia Biztosító). Recent Court of Justice case law has clarified the extent to which these exclusion grounds are applicable where bidders have benefitted from leniency, as well as the intensity of the duty to cooperate incumbent upon bidders seeking to avoid exclusion through self-cleaning measures (Vossloh Laeis). The system created under the EU rules is converging with those of other major jurisdictions, such as the US, where the Federal Acquisitions Regulations allow for similar approaches to assessing the responsiveness (or reliability) of bidders engaged in anticompetitive practices.

Beyond the abovementioned issues, which are all concerned with bidder behaviour, it is important to stress that competition within a public tender can be restricted through decisions made by the public buyer, such as the imposition of excessive participation requirements, the choice of suppliers in less than fully open procedures or foreclosure through eg the use of excessively broad and excessively long framework agreements. Such restrictions of competition can not only generate losses of value for money in the allocation of the specific contract, but also have negative effects on dynamic competition in the relevant market. Unfortunately, the direct application of competition law (ie Article 102 TFEU) to the public buyer has been excluded by the case law of the Court of Justice, except in rather rare situations where the public buyer is engaged in downstream market activities (FENIN). However, a principle of competition has been explicitly enshrined in EU public procurement law to prevent public buyers from ‘artificially narrowing competition’, in particular where ‘the design of the procurement is made with the intention of unduly favouring or disadvantaging certain economic operators’. This is a promising tool to prevent publicly-generated restrictions of competition in public procurement settings, although its interpretation generates some difficulties and its application is yet to be tested in the EU Courts.

Case References

Case C-205/03 P FENIN v Commission, EU:C:2006:453.

Case C-470/13 Generali-Providencia Biztosító, EU:C:2014:2469.

Case C-124/17 Vossloh Laeis, EU:C:2018:855.

EFTA Court, Judgment in Case E-3/16, Ski Taxi SA, Follo Taxi SA og Ski Follo Taxidrift AS v Staten v/Konkurransetilsynet, 22 December2016.

Danish Supreme Court, Judgment in the Road Markings case, 27 November 2019. The case is not available in English, but a comprehensive discussion by Heidi Sander Løjmand can be found at https://www.howtocrackanut.com/blog/2019/11/28/the-danish-supreme-courts-ruling-in-the-road-marking-case-the-end-of-a-joint-bidding-era-guest-post-by-heidi-sander-ljmand-msc [accessed 22 Jan 2021].

Bibliography

Robert Anderson, William Kovacic and Anna Caroline Müller, Promoting Competition and Deterring Corruption in Public Procurement Markets: Synergies with Trade Liberalisation (2016) http://e15initiative.org/publications/promoting-competition-and-deterring-corruption-in-public-procurement-markets-synergies-with-trade-liberalisation/ [accessed 22 Jan 2021].

Alison Jones, ‘Spotlight on Cartels: Bid Rigging Affecting Public Procurement’ (Concurrentialiste, 16 Nov 2020) https://leconcurrentialiste.com/jones-bid-rigging/ [accessed 22 Jan 2021].

Katarzyna Kuźma and Wojciech Hartung, Combating Collusion in Public Procurement. Legal Limitations on Joint Bidding (Edward Elgar 2020).

Albert Sanchez-Graells, Public Procurement and the EU Competition Rules (2nd edn, Hart 2015), Chapter 5.

Albert Sanchez-Graells, ‘“Screening for Cartels” in Public Procurement: Cheating at Solitaire to Sell Fool’s Gold?’ (2019) 10(4) Journal of European Competition Law & Practice 199-211.

Combating collusion in procurement: webinar recording and slides

It was a pleasure to host today the book launch of Katarzyna Kuźma and Dr Wojciech Hartung's Combating Collusion in Public Procurement. Legal Limitations on Joint Bidding (Edward Elgar, 2020). The authors were joined by Dr hab. Piotr Bogdanowicz and Jesper Fabricius, as well as yours truly, to discuss recent developments in the treatment of joint bidding under Article 57 of Directive 2014/24/EU, as well as the outstanding legal uncertainty on the interpretation and application of this provision, which Katarzyna and Wojciech have analysed in detail in their book. The slides used for the presentation are available (via dropbox) and a recording of the session (minus Q&A) is also available via the image below (or this link).

The authors would be happy to receive feedback or more general questions about the book and its subject-matter. They can be contacted at katarzyna.kuzma@dzp.pl and wojciech.hartung@dzp.pl.

Collusion in procurement book launch, 10 Dec 2020

Dear How to Crack a Nut friends,

You are kindly invited to the book launch of Katarzyna Kuźma and Dr Wojciech Hartung's Combating Collusion in Public Procurement. Legal Limitations on Joint Bidding (Edward Elgar, 2020). It will take place online on 10 December 2020 at 11.30 UK time via Zoom. The authors will be joined by Dr hab. Piotr Bogdanowicz and Jesper Fabricius, as well as yours truly, to discuss recent developments in the treatment of joint bidding under Article 57 of Directive 2014/24/EU, as well as the outstanding legal uncertainty on the interpretation and application of this provision, which Katarzyna and Wojciech have analysed in detail in their book.

More details and free registration here: https://www.eventbrite.co.uk/e/combating-collusion-in-public-procurement-book-launch-and-discussion-tickets-130271675087.

All the best, Albert

The Danish Supreme Court’s ruling in the “Road Marking Case”: the end of a joint bidding era [guest post by Heidi Sander Løjmand, MSc]

In this insightful and thoughtful blog post, Heidi Sander Løjmand discusses the hot-off-the-press Judgment of the Danish Supreme Court in longstanding litigation concerned with joint bidding in procurement procedures. As she stresses, this is a ‘must-know’ case for all competition and procurement practitioners, much as the earlier Norwegian SKI Taxi and the related EFTA Court Judgment, because it fleshes out the difficulties and implications of a strict application of competition law in this setting.

The Danish Judgment is likely to mark the end of an era in Danish practice, as Heidi points out, but it will certainly only add fuel to the fire of academic and policy-making discussions about the interpretation and application of Article 101 TFEU in the context of public procurement. I for one, am very grateful to Heidi for making this interesting line of Scandinavian case law accessible in English, as well as for sharp questioning of the legal arguments. 

The Danish Supreme Court’s ruling in the “Road Marking Case”: the end of a joint bidding era

Yesterday, the 27th of November 2019, the Danish Supreme Court delivered its long-awaited judgment in the so-called “Road Marking Case”. The full judgment is available here (in Danish). The Danish Supreme Court found that joint bidding by companies that could have submitted independent bids for several lots of the same tender constituted an anticompetitive agreement between competitors and, as it included an agreement on the price of the tender as well as on the division of the services (share by lots) to be carried out by each of the teaming companies, it constituted a by object violation of Art 101(1) TFEU and the domestic equivalent, Section 6 of the Danish Competition Act. In doing so, the Danish Supreme Court upheld the initial decision by the Danish Competition Council and overturned an intermediate decision by the Danish Maritime and Commercial High Court that had deemed the joint tendering lawful.

1. Background

In 2010, the consultancy firm McKinsey & Company provided the Danish Government with a report on how to increase economic growth through competition. Amongst the suggestions were to consolidate public tenders within the construction and services industries in order to (i) take advantage of potential economies of scale, (ii) to attract foreign companies, and (iii) to apply procurement procedures and tender requirements that encourage efficient operation. Such initiatives would, according to the report, lead to fewer yet bigger and more efficient companies, and thus to a better utilization of economies of scale.

Tender I (2012): In that light, the Danish Road Directorate changed its tender format and published – in 2012 for the first time – an invitation to bid for a consolidated tender comprised of 337 contracts covering 19 different subject areas. One subject area was road marking. The demanded road marking services were divided into five lots/contracts covering different geographical areas. It was possible to submit bids for one or more lots; companies submitting bids for multiple lots could offer rebates not exceeding 20%, compared to the aggregation of their offers for individual lots. The award criterion was the lowest price.

The two road marking companies, Eurostar Danmark A/S and GVCO A/S (formerly LKF Vejmarkering A/S) (hereinafter referred to as Eurostar and GVCO or the parties) decided to team up and submitted a joint bid with a rebate for all 5 contracts via their agreement-based Danish Road-marking Consortium. The consortium was unsuccessful. All 5 contracts were awarded to the competitor, Guide-Lines, who had offered a 20% rebate (it bears mentioning that Guide-Lines would have won all the contracts without the rebate).

Tender II (2013): One year later, Guide-Lines won a similarly structured tender by the Road Directorate regarding road maintenance. As in 2012, Eurostar and GVCO submitted an unsuccessful joint bid via their Danish Road-marking Consortium.

Tender III (2014): Guide-Lines defaulted on two of their road marking contracts (i.e. from the 2012 tender) as they were unable to perform according to the set time and work schedules. As a consequence, the Danish Road Directorate decided to publish an invitation to bid for 3 of the initial geographical lots. The procurement format was similar to the two previous tenders, except this time there was no limit to the size of the rebate. For the third time, Eurostar and GVCO submitted a joint bid through their Danish Road-marking Consortium for all three contracts. If the consortium was awarded one contract, no rebate would be granted. If it won two or three contracts a rebate of 5% or 20% would be granted, respectively. The consortium won all three contracts. It turned out that no other company had submitted a total bid for all three lots, and on one of the lots the consortium’s bid was the only one. Guide-Lines had submitted a bid for two lots with no rebate, and Lemminkäinen for one lot. Guide-Lines filed a complaint with the Danish Competition Council alleging that the joint bid from Eurostar and GVCO constituted an infringement of Section 6 of the Danish Competition Act and art. 101(1) TFEU. 

It is worth noting that Eurostar and GVCO concluded a new consortium agreement for each of the three above-mentioned tender procedures. The civil charges in the present case concerned only the consortium agreement between Eurostar and GVCO in relation to the 2014-tender. The criminal charges that were brought against the parties in 2016 following the Competition Appeals Tribunal’s decision (discussed below), however – remarkably – accuse the parties of having entered into a cartel agreement in the period from primo 2012 to ultimo 2014, thus including the collaboration between the parties in all three tenders. It shall be interesting to see the outcome of the criminal proceedings, not least because individuals engaged in cartel behavior (which is defined very broadly in the Danish Competition Act) face the risk of prison sentences of up to 6 years. Fortunately, the Danish Appeals Tribunal noted in its decision that the joint bidding in question did not amount to a classic cartel.

2. Procedural history

A) Decision of the Danish Competition Council (24 June 2015) [available in full here (in Danish)].

The Competition Council found that Eurostar and GVCO had infringed the prohibition on anticompetitive agreements. Decisive for this finding was that the two companies could have submitted separate bids on at least one lot with their current individual capacity. In addition – though it was not essential for the conclusion – the companies could have expanded their individual capacities so as to bid separately for all three lots. They were therefore to be regarded as competitors in the tender procedure at issue, despite their argument that they were not competitors because they were incapable of submitting individual bids for all three lots, and that this, the total tender, was the relevant benchmark due to the way the procurement procedure was structured.

The Competition Council found that the joint bidding constituted an infringement by object because the consortium agreement was concluded between competitors (debatably the two largest in the industry, that were also subsidiaries of two large corporate groups: SAFEROAD and Geveko AB), and it contained the fixing of a joint price as well as an agreement to share the different geographical lots between the two companies with (allegedly) no pooling of resources etc. Not surprisingly, the Competition Council also found that the agreement did not meet the conditions for exemption under art. 101(3) TFEU.

The parties appealed the decision to the Danish Competition Appeals Tribunal.

B) Decision of the Danish Competition Appeals Tribunal (11 April 2016) [available in full here (in Danish)].

The Danish Competition Appeals Tribunal upheld the Competition Council’s decision but refrained from assessing whether Eurostar and GVCO had – or could achieve – sufficient capacity to submit separate bids on the entire tender. The parties indisputably had the capacity to bid individually for some of the lots and were therefore to be regarded as competitors. In light of this, the Tribunal found that their agreement to submit joint bids eliminated competition between them, and that it infringed art. 101(1) TFEU by object. Like the Competition Council, the Tribunal found that the criteria for exemption under art. 101(3) TFEU were not met.

Once again, the parties appealed the decision to the Danish Maritime and Commercial Court. 

C) Judgment of the Maritime and Commercial High Court (27 August 2018) [available in full here (in Danish)].

Contrary to the decisions of the competition authorities, the Maritime and Commercial High Court found that the agreement between Eurostar and GVCO to submit joint bids did not infringe art. 101(1) TFEU. The Court noted that the tender was structured in a way that favored bids on all three lots, and that the companies’ ability to submit separate bids on some lots could not prevent them from teaming up for the purpose of submitting a joint bid for the entire contract. In the Court’s view, such a restriction on companies’ freedom to carry out their business would not necessarily promote competition.

Since the Competition Council had not provided sufficient proof that Eurostar’s and GVCO’s capacity calculations were inaccurate, the Court found that the parties were unable to independently bid for the entire contract. As a consequence – though it is not explicitly stated – they were not classified as being competitors, and therefore the agreement fell entirely outside of the scope of art. 101(1) TFEU. The competition authorities’ decisions were thus set aside.

Besides the different benchmark for assessing when two companies are competitors in connection to a tender procedure, the Court also stated its view on the Competition Council’s way of assessing companies’ ability to bid independently. The Council did not allow the companies to subtract resources allocated to the servicing of existing key customers, unless written agreements were in place. The Court dismissed this, stating that companies are entitled to take account of such capacity if the expectation of recurring orders is backed by previous experience. It would be commercially irresponsible not to.

This time, the Danish Competition Authorities appealed the judgment. 

3. Ruling of the Danish Supreme Court (27 November 2019)

As already noted, the Supreme Court set aside the judgment of the Maritime and Commercial High Court. It is worth mentioning that during the proceedings, the Supreme Court refused to refer questions to the CJEU for a preliminary ruling as it found the law to be clear. The questions submitted by the parties have not been published, and thus it is not possible to elaborate on the justification of the Court’s refusal.

In general, the Supreme Court gave support to the interpretation applied by the Competition Appeals Tribunal. Initially, the Court confirmed that Eurostar and GVCO would not be treated as competitors if they were incapable of undertaking the services demanded by the Road Directorate independently, and that the basis for evaluating this ability was the requirements of the tender documents. Remarkably, the Supreme Court then stated that all the conditions, which according to the two consortium parties encouraged the submission of total bids—i.e. the terms of the tender (consolidation of previous smaller tenders + option to provide collective rebate) and the history of previous tenders (in which the winner submitted a total bid)—were irrelevant. Because the tender documents objectively allowed companies to bid for one, two or all three lots, the Supreme Court found no basis for the view that the “real contest” was for the total tender, i.e. all three lots. The Supreme Court instead observed that the other tenderers submitted bids for only one or two lots, respectively.

Since it was undisputed that Eurostar and GVCO could have submitted separate bids on individual lots, the Supreme Court found that Eurostar and GVCO were competitors in relation to the tender procedure at issue. On the issue of object/effect, the Supreme Court acknowledged that the agreement between the two companies was entered into with the purpose of submitting a joint bid on the Road Directorate’s tender and to perform the tasks accordingly if the consortium was successful. The Court then went on to state that the agreement did not possess the characteristics of a production agreement, and that it did not foster collaboration between the parties as to the actual performance of the offered road marking services, since the parties had decided ex ante which one of them should operate in the respective geographical areas in each possible outcome (i.e. whether the consortium won one lot, two or three). On this note, the Supreme Court concluded that the consortium agreement was in fact a means to distribute two individual companies’ services – and highlighted the price fixing as well as the market division element – and that the Appeals Tribunal was right in finding that it amounted to a restriction of competition by object. Not surprisingly, the Court also found that the conditions for individual exemption under art. 101(3) TFEU had not been proved to be met.

4. Comment

The Danish Road Marking Case is the second case in Scandinavia to make it all the way to the Supreme Court. In 2017, the Norwegian Supreme Court decided on the much-debated Ski Taxi case, in which two taxi companies had submitted joint bids via a jointly-owned administrative company for a number of years (for comments on the case, see e.g. A Sanchez-Graells, “Ski Taxi: Joint Bidding in Procurement as Price-Fixing?” (2017) 8(7) Journal of European Competition Law & Practice 451–453, and I Herrera Anchustegui, “Joint bidding and object restrictions of competition: The EFTA Court’s take in the ‘Taxi case’” (2017) 1(2) European Competition and Regulatory Law Review (CoRe) 174-179).

One would like to believe that, with these cases, the boundary between legal and illegal joint bidding should be just about clear-cut; providing legal certainty for the companies thereby allowing them to plan effectively their bidding strategy and behaviour. The reality is, however, that even with the clarity stemming from the mentioned cases, many (essential) issues still remain unsettled and/or ambiguous (as recently pointed put in a joint letter of 1 November 2019 to the European Commission by the Confederation of Danish Industry (DI), the Confederation of Norwegian Enterprise (NHO), the Confederation of Swedish Enterprise (Svensk Näringsliv), the Confederation of Finnish Industries (EK) and the Federation of Icelandic Industries (SI); on file with author)

First. When are two companies to be regarded as (of particular interest potential) competitors in relation to a certain tender procedure? The Supreme Court cases clearly indicate that it suffices to classify two companies as competitors if they are capable of submitting bids on some (the same?) lots, and that it is irrelevant whether they have the ability to submit bids for the entire tender/contract for which they have actually teamed up to bid.

The Danish Supreme Court does not seem to give importance to the distinction between the individual lots, but it follows from the Competition Council’s decision that GVCO had the capacity to submit an individual bid on lot A or B and Eurostar on lot A and B (given the information about the lot sizes, Eurostar could presumably also have bid for lot C instead of lot A and B). Without specifically mentioning that the two companies are competitors because of their ability to submit individual bids on (some of) the same lots, the Danish Supreme Court leaves the impression that if company 1 is able to submit an individual bid for lot A, and company 2 for lot B, the two companies will be competitors in relation to a tender consisting of the two lots A and B. Unless the two lots are very similar in size – and needless to say concern the same product – this logic does not appear very convincing or pro-competitive.

Providing the lots A and B are similar, what is clear from the Danish Supreme Court’s approach is that the possibility of receiving two bids on lot A or lot B is favoured over the possibility of receiving one (joint) bid on lot A and B. For the contracting authority (and society in general), this may not be the most desired (economically efficient) approach, as lot B will have to be re-tendered if company 1 and 2 happen to submit individual bids on the same lot (provided of course that there are no other bidders than company 1 and 2).

Both the Norwegian and Danish Supreme Court cases concerned contracts/lots of the same product. It is not clear-cut how the analysis is to be applied to tenders of e.g. framework agreements or public contracts with various products. Two companies could have subject-specific overlaps but different key operations – a consultancy firm specialized in construction could have in-house architects employed (or have architecture companies as subsidiaries) but want to team up with a specialized, independent architecture company. If a tender is divided into lots, one of which concerns architectural services, would such an overlap in competencies lead to the conclusion that the consultancy firm and the architect are competitors, because of their ability to bid for the “architecture lot”? Or should they be viewed as non-competitors in relation to the entire tender/or to the demanded consultancy services of which architecture services may just be a part?

Second. The Danish Supreme Court did not consider the capacity assessments put forward by the parties or the Competition Council in order to prove the companies’ (in)ability to submit individual bids. It is therefore uncertain whether the parties’ calculations had been sufficient to prove their lack of individual abilities, if the benchmark had been the entire tender as in the Maritime and Commercial High Court’s view. It is going to be very interesting to see how far the assessment of a company’s “real and concrete possibilities” to expand its capacity in order to submit a bid (on a single lot!) will be stretched. Indeed, if the standard follows that of the Competition Council in the Road Marking Case (which however concerned the ability to expand in order to bid for the entire tender, not single lots) it seems many companies are likely to be viewed as potential competitors for future procurement tenders.

Third. It remains undecided how the use of sub-contractors affects the competition assessment. If it is common to use sub-contractors, should two companies be classified as competitors if they could submit individual bids with the use of (non-competitors) as sub-contractors? In a case for the Norwegian Competition Authority (Vedtak V2009-17 – Gran & Ekran AS og Grunnarbeid AS [available here (in Norwegian)], the company Gran & Ekran could perform only 8% of the tasks required in the tender. The fact that the company had contacted a sub-contractor with a view to submit a bid for the entire tender, however, indicated to the competition authority that it was a potential competitor to the company Grunnarbeid. Though the case is not a straight-forward joint bidding case as it concerned a reciprocal sub-contracting arrangement between Gran & Ekran and Grunnarbeid (and was assessed ex post with the knowledge that both parties in fact submitted separate bids on the entire tender with each other as sub-contractors, and thus were de facto actual competitors), it raises the question whether – in a “more traditional” joint bidding case – a company with such a limited ex ante competence to bid risks being considered a potential competitor for a tender (lot!?) to which 92% of the tasks must be performed by sub-contractors?

Fourth. The relevance of whether the companies submitting a joint bid are competitors in the market “outside of” the particular tender appears ambiguous. The Danish Supreme Court observed in its commented Judgment that Eurostar and GVCO were amongst the biggest Danish undertakings in the road marking industry at the time the Road Marking Consortium was established and the joint bid submitted, and that they were active in the same market and at the same level of the value chain. Thus, it is apparent that they were competitors in the traditional relevant market; but (why) does this matter?

In a recent case for the Danish District Court [Retten i Glostrup, case 15-10950/2017 Bjerregaard Sikkerhed, available here (in Danish)] two companies’ (lack of) competitive relation outside of the tender procedure was determinative for the conclusion. The company Bacher Logistics (formerly Four Danes) submitted a bid for an entire tender (i.e. 5 lots of various work wear and logistics) with the company Bjerregaard Sikkerhed as a sub-contractor. Bjerregaard Sikkerhed, however, also submitted an independent bid for one of the lots, and thus the two companies were de facto competitors for that lot. The two independent bids from the companies on that specific lot were identical. Nevertheless, the Court found that – with the evidence presented – this behavior did not amount to a restriction of competition. The conclusion rested on mainly three arguments:

i)               since the companies were specialized in different products/services (specialist wholesaler within safety footwear vs logistics), they were not normally competitors;

ii)              there was nothing unusual about the commercial practice of submitting bids based on prices/product information from sub-contractors; and

iii)            it was unlikely that the sub-contractor would have been able to submit a better bid.

 As with the Norwegian case mentioned above, this case is not a “straight-forward” joint bidding case, yet it opens for a discussion of the impact that the competitive relation outside of a specific tender may have for the assessment of the companies bidding behavior.

Fifth. As regards the size and number of the teaming companies, one could in the light of the Maritime and Commercial High Court’s approach wonder: if two consortium parties are amongst the biggest companies (no. 1 and 2, or 2 and 3) in a highly-concentrated industry, and none of them could bid individually for a contract, what is the likelihood of other market participants being able to? Presumably, less likely. Would the acceptance of a joint bid between these two companies then not lead to the conclusion that all of the industry’s companies could have teamed up to submit one joint bid without conflicting with the competition rule, because none of them could be regarded as competitors in relation to the tendered contract? No. Though it does not appear from any the mentioned cases, a joint bidding arrangement may restrict competition if it involves more companies than it is objectively necessary to submit a bid, even if the companies are not competitors in relation to the specific tender.

The requirement of a joint bid being “objectively necessary” also raises – in light of the Road Marking Case – the question of whether account should be taken of the size/market share/market power of the teaming companies. Would it have been objectively necessary that the allegedly two largest companies teamed up, even if they were incapable of submitting individual bids? What if the two companies could have submitted bids in competition with each other by teaming up with any of the industry’s smaller enterprises; should they be regarded as competitors because of that possibility? Can and should competition law impose such a “less restrictive means” approach to determine the legality of joint bidding, and if so should it be applied to determine whether two companies are competitors or whether the restriction is by object or by effect for the purposes of art. 101(1) TFEU, or perhaps reserved for whether exemption is possible under art. 101(3) TFEU?

Sixth. An issue that has not been given much attention in the mentioned cases is the risk of achieving static efficiency as opposed to dynamic, when assessing the legality of a joint bid with a sole focus on the particular tender procedure at issue. Such an approach risks neglecting the possible spill-over effects that may affect the broader market on which the companies operate, including for example higher (joint) concentration. Of course, one may argue that if there is an expectation that consortium members will bid jointly for future contracts, the industry’s other companies will (need to) team up in order to effectively compete against that consortium. This may promote economic efficiency, if the (likely) fewer bids are more competitive than any individual bids would have been; thus, such promotion of a more concentrated industry structure (in the bidding market) may not sit as awkwardly together with competition policy as would appear at first sight. One could, however, wonder whether this type of structural assessments belong to the enforcement of the prohibition of anticompetitive practices rather than e.g. merger control, as joint tendering in one occasion does not necessarily imply joint tendering for future contracts.

More generally, this line of argumentation raised one of the main questions in the Road Marking Case: Do fewer bids necessarily equal a restriction of competition when such could provide the public authority with a higher (or equivalent) value-for-money than individual bids? Having in mind that the goal of competition law is to promote economic welfare (for the consumers), and that the mean to achieve this goal is effective competition, it would be useful to obtain further clarity on how exactly “effective competition” is to be understood in a public procurement context, and how the static welfare of a contracting authority stemming from one tender procedure is to be weighed against the dynamic welfare of other contracting authorities and consumers in its broader sense.

Seventh. A different but somewhat related topic, which the cases do not provide clarity on, is whether and/or when joint bidding constitutes an infringement of competition law by object or by effect; and how much detail and effort is needed to establish an object infringement. In the Road Marking Case both the competition authorities and the companies used AG Bobek’s fish metaphor (Opinon of 5 September 2019 in Budapest Bank and Others, C-228/18, EU:C:2019:678, para 51) to support their respective views.

The companies claimed that, although the consortium agreement perhaps looked like a fish and smelled like a fish, it possessed so many characteristics different from a fish that in order to qualify it as such, a detailed examination (of its effects) should be carried out. Of course, they also argued the obvious; since joint bidding can have pro- as well as anticompetitive effects on competition, such behavior does not categorically fall into “the object box”. In fact, because of its ambivalent effects, joint bidding should always require a detailed analysis as to the effects on competition.

Not surprisingly, the competition authority argued to the contrary. In their view, the consortium agreement looked like a fish, smelled like a fish, and behaved like a fish; and no circumstances in the market could convincingly question the (likely) anticompetitive effects of such a fish. It was a price fixing and market sharing agreement between competitors, and because such have long been classified as object restrictions, no detailed analysis was needed to establish that it was in fact a fish. The only plausible object of the agreement was to restrict competition. As revealed, the Danish Supreme Court supported the authority’s interpretation.

Clearly, the parties and the competition authority viewed the agreement very differently. Some may argue that at first glance their different approaches seem to fit nicely into “the more economic” vs “the orthodox” approach to competition law enforcement. The authority seemed to follow the rather stringent approach adopted by the Norwegian Supreme Court and the EFTA Court in the Ski Taxi case, where a joint bidding arrangement was deemed a restriction of competition by object mainly due to its price-fixing element. From an enforcement perspective, this simple yet inflexible approach is not hard to understand; merely observing a price-fixing element between competitors renders a joint bidding arrangement anticompetitive by object, regardless of any legitimate purposes or (likely) pro-competitive effects. The benefits of this approach are that it provides a high degree of legal certainty; it reduces the procedural burden of the competition authorities under art. 101(1) TFEU; and it effectively reverses the burden of illegality to the parties, who must provide sufficient evidence to prove fulfilment of the cumulative conditions in art. 101(3) TFEU to find their joint bidding agreement exempt. This approach, however, also creates risk of type I enforcement errors, i.e. condemnation of conducts that are not anticompetitive, and may lead businesses to refrain from entering into joint bidding arrangements that are not harmful to competition—to the potential detriment of contracting authorities and, ultimately, taxpayers.

The parties in the Road Marking Case did not give “stand-alone” importance to the price fixing element as this is an inevitable element of joint bidding. To correctly assess the restrictive effects of joint bidding one should therefore see the price-fixing element in its rightful context. This led to another principal disagreement in the case; namely, determining which facts and circumstances should be included in the “legal and economic context”, and which should be reserved for the analysis of efficiencies under art. 101(3) TFEU. The companies argued that past experience from comparable tenders revealed that the winning bidder was likely to be found amongst those who submitted bids for the entire tender, and the companies’ legitimately anticipated participation by foreign tenderers to submit such “total bids” because of the Road Directorate’s active marketing efforts in the Nordic countries. These circumstances determined the parties’ bidding strategy and should, according to the parties, be taken into account under the legal and economic context (art. 101(1) TFEU). The authority noticed that the companies’ ability to provide a “more competitive bid” (i.e. a “more likely to win” bid) could only be assessed under art. 101(3), as the ability to bid is the determinative factor under 101(1) TFEU, not the ability to win, and objectively it was not a requirement that tenderers submitted “total bids”. Again, as already declared, the Danish Supreme Court upheld the authority’s approach, leaving much to be desired from a commercial bidding strategy perspective.

It is correct that it was objectively possible to submit bids for one or several lots, and that the consortium parties could in fact have done so independently. The problem is that in reality no company (except in certain cover price cases) submits bids merely to participate in public tenders because of the costs involved; they bid to win. If they assess that there is no (or a low) chance of winning, they will refrain from bidding. The Maritime and Commercial High Court acknowledged this commercial reality of the companies, and though the Court repealed the case primarily because the parties were not competitors (in relation to the entire tender), it also noted that the Competition Appeals Tribunal had failed to carry out the necessary, concrete assessment of the agreements’ purpose and character so as to conclude with sufficient clarity that it had the object of restricting competition. Whether the Maritime and Commercial High Court would have repealed the case if the companies had been found to have the ability to individually submit bids for the entire tender, is questionable.

The Supreme Court found that, in the given market settings, the consortium agreement by its very nature had the potential to restrict competition, and thus it was unnecessary to demonstrate any actual anti-competitive effects on the market. Neither the parties’ subjective purpose of submitting a more competitive bid, nor the fact that the collaboration happened openly, could change this.

The questions and issues highlighted above are by no means exhaustive, but already demonstrate the complexity of the enforcement of competition law in the context of public procurement. Further topics within the joint bidding sphere are equally interesting (and unclear), for example; the possibility of joint bidding arrangements fulfilling the conditions for exemption under art. 101(3) TFEU; the burden of proof and usage of the proof proximity principle in regards to the assessment of companies’ (lack of) capacity to bid individually; the substance of the profitability test when assessing whether it constitutes a sustainable business strategy to expand company capacity; the relevance and significance of ex ante vs ex post facts; the limits on information exchange between the companies during the different stages of the tender process; the relevance and application of auction theory; the relevant market and competitor-analysis when applying the de minimis, the qualification of illegal joint bidding as cartel behavior that may be faced with criminal charges; etc.

Needless to say, the Road Marking Case limits the possibility for companies to bid strategically with each other; or at least it makes clear that such collaboration must involve some integration of resources/competencies. A prospective need to (maybe) pool resources if needed during the contract period does not suffice, if the market (in this case geographical lots) has been divided between the parties ex ante. The case, however, not only offers a cautionary tale to companies but also to contracting authorities when it comes to procurement design (as did the SKI Taxi case, as discussed by Sanchez-Graells in this blog). Clearly, the contracting authorities have very limited scope to utilize the benefits of potential bidders’ economies of scale, if at the same time, they decide to divide the tender into lots.

Looking at the future, it is worth stressing that the detailed Danish Guidelines on joint tendering [available here (in English)]: were amended – in a less than convincing way – to reflect the judgment of the Maritime and Commercial High Court. In light of yesterdays’ Supreme Court judgment, the Danish Competition and Consumer Authority may simply pick out the few comments reflecting the High Court’s stance and change the guidelines back to how they used to be.

Heidi Sander Løjmand, MSc

Heidi Sander Løjmand is a PhD Researcher at the University of Southern Denmark (Law Department). In her PhD she explores the approach to joint bidding under art. 101(1) TFEU, in particular in the Nordic Countries. She holds a master’s degree in Business Administration and Commercial Law (law and economics) from Copenhagen Business School, and has previously worked in legal practice. You can connect with Heidi via LinkedIn: https://www.linkedin.com/in/heidi-sander-l%C3%B8jmand-ba41513b/.

Public consultation on procurement planning by the Spanish Competition Authority now open (until 20/12)

The Spanish Competition Authority (Comisión Nacional de los Mercados y la Competencia, CNMC) is in the process of revising its 2011 Guide on public procurement and competition to reflect recent developments and the change of regulatory framework derived from the transposition of the 2014 EU Public Procurement Package [for a critical assessment of the original guide, in Spanish, see A Sanchez-Graells, ‘Una Visión Crítica de la 'Guía Sobre Contratación Pública y Competencia' Publicada por la CNC’ (2011) 21 Gaceta Jurídica de la Unión Europea y de la Competencia 15-31].

The CNMC plans to update their guidance in steps, and has started the process by focusing on procurement planning. In order to gather input into the formulation of guidance on procurement planning from a competition perspective, the CNMC has published a short preliminary working paper (in Spanish), is holding a public conference on 3 December (in which I am honoured to participate), and has also opened a public consultation (closes 20 Dec 2019).

Even thought, unfortunately, this is a process mainly conducted in Spanish, I am sure the CNMC would welcome any contributions on best procurement planning practices and on the impact of planning on competition via email: dp.ayudaseinformesnormativos@cnmc.es (subject: “Consulta pública Planificación de la contratación pública", indicating whether your contribution can be published or should remain confidential). In case of interest, below is my own contribution to the public consultation (in Spanish).

Competition and public procurement: a mind map

I have been asked to teach a workshop on competition and public procurement for an audience of postgraduate students and practitioners in this week’s session of the Competition Specialist Advanced Degree convened by Prof Antonio Robles Martin-Laborda at Universidad Carlos III of Madrid.

It has been some time since I last taught the topic, so I had to reconstruct my mind map in preparation for the workshop. This is a sketch of what I have come up with (not mind-blowing graphics…). Some additional bullet-points of the key issues in each of the areas of interaction and cross-references to papers where I have developed my ideas regarding each of the topics are below.

Bid rigging

• In principle, this is the least controversial area of competition and procurement interaction; bid rigging being an instance of anticompetitive conduct ‘by object’ (under Art 101(1) TFEU) (see here for discussion)

• Fighting bid rigging in procurement is high on competition authority’s enforcement agendas

• Procurement structurally increases likelihood of collusion; which is partially compensated by the counter-incentive created by the rules on exclusion of competition infringers (Art 57(4)(c) and (d) Dir 2014/24/EU), provided leniency does not negate its effects

Joint tendering

• Analytical difficulties to establish a boundary between bid rigging (object-based analysis) and anticompetitive collaboration for the submission of joint tenders

• Emerging approach to the treatment of joint bidding as a restriction of competition by object (cf EFTA Court Ski Taxi, 2018 Danish guidelines, see also here for analysis of their draft)

• Particular complications concern the analysis of potential competition under Art 101(1) and 101(3) TFEU, in particular in cases where this is both used to subsume the practice under prohibition in Art 101(1) and also to assess whether the restriction is indispensable to the generation of efficiencies (or whether there were less restrictive forms to achieve them) under Art 101(3) TFEU (see here and here).

Exclusion & self-cleaning

• Conceptual difficulties with boundary between Art 57(4)(c) and (d) of Directive 2014/24/EU, as well as applicable tests (see here)

• Application complicated in leniency cases (see eg Vossloh Laeis, C-124/17, EU:C:2018:855, as well as due to different approaches to judicial and administrative finality (see eg Meca, C-41/18, EU:C:2019:507, not available in English)

• These difficulties are particularly complex once the rules are implemented at the national level, as evidenced by the on-going Spanish sainete in the railroad electrification works cartel (see here and here)

Public buyer power

• Inapplicability of EU antitrust rules (ie Art 101 and 102 TFEU) directly to the public buyer, given the FENIN-Selex case law (see here)

• However, potential clawback under EasyPay’s strictest approach to separation test (see here)

CPBs

• Difficult exemption from EU antitrust rules even under FENIN, given exclusive activity (see here and here)

• Very minimal regulation and oversight, especially in the context of their cross-border activities (see here, here and here)

SGEI & In-house

• Interaction complicated in these settings, both in terms of State aid rules (see here), as well as in potential accumulation of conflicting rules under Articles 102 and 106(2) TFEU (ie publicly-mandated or generated abuses of a dominant position)

• Increasingly complicated tests to assess SGEI entrustment (Altmark, Spezzino, German slaughterhouses)

• Move towards declaration of some types of procurement (eProcurement, centralised procurement) as an SGEI themselves

State aid (more generally)

• Difficulties remain after the 2016 Commission notice on the notion of aid (see here)

Abnormally low tenders

• Difficulties also remain after Art 69 Directive 2014/24/EU, in particular concerning those tainted by State aid (see here)

• Mechanism hardly used to monitor ‘adequate competition’ or to prevent predatory pricing

Contract changes

• Difficult analogical application of notice on notion of aid and almost impossible market benchmark in most cases

• Similarly complicated interaction between merger control and public procurement rules on change of contractor, although these are partially alleviated by Art 72(1)(d)(ii) Dir 2014/24/EU (but cfr ‘economic operator that fulfils the criteria for qualitative selection initially established provided that this does not entail other substantial modifications to the contract and is not aimed at circumventing the application of this Directive’)

Principle of competition

• Established in Art 18(1)II Dir 2014/24/EU, has the potential to be the gangway between competition and procurement spheres of EU economic law

• Difficulties in its interpretation (see here), as well as in its application (see here)

Litigation in Spanish railroad electrification cartel highlights further inadequacies of regulation of bid rigger exclusion

In a new episode of the Spanish sainete of the railroad electrification cartel (see here for an overview), it has now emerged that one of the companies affected by the exclusion ground (prohibición de contratar) declared in the resolution of the Spanish National Commission on Markets and Competition (CNMC) of 14 March 2019 subsequently secured interim measures suspending its effectiveness on 19 July 2019.

The freezing order prevents (Spanish) contracting authorities from relying on the exclusion ground and thus shortens the maximum period of (future) exclusion of the colluding companies, unless the CJEU revises its case law on the time-limit calculation for such grounds established in Vossloh-Laeis (24 October 2018, C-124/17, EU:C:2018:855). The decision also highlights issues concerning the cross-border effects of litigation on exclusion grounds. In this follow-up post, I discuss these two issues.

The interim measures decision

Quick recap: it should be stressed that the Spanish transposition of Article 57(4)(d) has resulted in a system whereby the exclusion of economic operators on the basis of previous infringements of competition law is mandatory under Article 71 of Law 9/2017 on Public Sector Procurement (LCSP). However, the scope and duration of such exclusion generates some difficulties, in particular when they are not established in the original decision declaring the infraction and imposing the measure—which is precisely the case of the railroad electrification cartel. In such cases, a further administrative procedure needs to be completed and the scope and duration of the mandatory exclusion (prohibición de contratar) are to be established by decision of the competent Minister.

The effectiveness of the mandatory exclusion ground in the period running from the initial infringement decision and the further Ministerial decision is contested. Two opposing schools of thought exist. One that gives automatic effect to the exclusion ground despite the future specification of its scope and duration, and the opposing view that considers that the measure is incomplete and cannot generate (negative) effects against the sanctioned undertaking until the Ministerial decision is adopted.

The CNMC expressed the first view in its railroad electrification decision, when it stated that ‘regardless of the time limits within which the duration and scope [of the prohibition] must be set [by the Minister of Finance] ... it is possible to identify an automatism in the prohibition of contracting derived from competition law infringements, which derives ope legis or as a mere consequence of the adoption of a decision that declares said infraction, as established in the mentioned Article 71.1.b) of [Law 9/2017]‘ (page 319, own translation full decision available in Spanish).

The Spanish High Court (Audiencia Nacional), in a Judgment of 19 July 2019 (ES:AN:2019:1673A, hat tip to Alfonso Rincón García-Loygorri for posting it on LinkedIn) adopted the same view and recognised that the measure was bound to immediately restrict the affected undertakings’ ability to participate in public tenders. Considering that it is likely that the final decision on the main appeal of the cartel decision arrives after the expiry of the three year maximum duration foreseen for the exclusion ground and that (should the appellant prevail) the effects of such exclusion would be very difficult, if not impossible to correct at that stage, the High Court decided to suspend the effectiveness of the mandatory exclusion ground.

Implications in terms of maximum duration of the exclusion

Quick recap: the CJEU has established that ‘where an economic operator has been engaged in conduct falling within the ground for exclusion referred to in Article 57(4)(d) of that directive, which has been penalised by a competent authority, the maximum period of exclusion is calculated from the date of the decision of that authority‘ (Vossloh Laeis, above, para 42).

I criticised the CNMC for creating legal uncertainty by not establishing the scope and duration of the exclusion ground in its initial decision. I argued that the CNMC knew or should have known that, as a matter of directly applicable EU law, de facto the maximum exclusion period can run for three years, up to 14 March 2022. Therefore, by referring the file to the Minister and creating legal uncertainty as to the interim effects of the prohibition to contract with a yet to be specified scope and duration, the CNMC actually bought the competition infringers time and created a situation where any finally imposed prohibition to contract is likely to last for much less than the maximum three years.

The High Court’s Judgment raises the same criticisms. While the High Court explicitly took into account the fact that the undertakings could find themselves in a position of not being easily compensated for the undue exclusion from public tenders in case of prevailing in their appeal of the CNMC decision, the High Court ignored that its freezing order will create the reverse effect in case the appeal is dismissed. By preventing (Spanish) contracting authorities from excluding the competition infringers from tenders for an indefinite period starting on 19 July 2019, the High Court has created the risk that the undertakings are never excluded from public tenders because such exclusion is time barred by the time the CNMC decision becomes final—which does not solely depend on the outcome of the High Court’s proceedings, but is subject to a potential further appeal to the Supreme Court.

This highlights once again the inadequacy—or, at least, partiality—of the CJEU Vossloh criterion that the maximum period of exclusion starts running at the time of adoption of the initial infringement decision. It seems clear that, where that decision is contested and, in particular, where interim measures are obtained to freeze its effects—the maximum period of exclusion needs to be calculated taking that into account. Otherwise, the simple fact of litigating buys competition infringers immunity from the debarment system foreseen in Directive 2014/24/EU and thus excludes its effet utile. That cannot be right.

Territoriality of effects

The new episode of the Spanish sainete also raises questions concerning the cross-border effects of the CNMC decision. While Spanish contracting authorities are effectively enjoined from giving effect to the mandatory exclusion ground, the situation is by no means necessarily the same in other EU/EEA jurisdictions. Non-Spanish contracting authorities could (justifiably) be tempted to apply domestic mandatory or discretionary exclusion grounds based on the fact that the relevant undertakings were sanctioned for bid rigging by the CNMC. This could be the case whether they are aware or not of the High Court Judgment, in particular where they have discretion in this matter.

Should any such decision be challenged, the issue should make its way to the CJEU, which would have a hard time finding ways of squaring this practical difficulty with the differentiated treatment that Art 57 of Directive gives to grounds based on a ‘conviction by final judgment‘ (Art 57(1)) and those based on decisions and judgments not subjected to that finality requirement (notably, Art 57(4)), as well as with the self-imposed constraint of the way the maximum time-limit is calculated as per Vossloh.

Once again, we are yet to see the final act of this sainete…

Bid rigging conspiracy in railroad electrification works: A very Spanish 'sainete'

A case of bid rigging in works contracts for high-speed and conventional railroad electrification in Spain evidences a number of shortcomings in the domestic transposition of the 2014 rules on discretionary exclusion of competition law offenders from public procurement tenders, as well as some dysfunctionalities of their interpretation by the Court of Justice of the European Union (CJEU) in its Judgment of 24 October 2018 in Vossloh Laeis, C-124/17, EU:C:2018:855. The unilateral price adjustment of live contracts sought by the main victim of the cartel, the Spanish rail network administrator ADIF comes to raise very significant issues on the limits to the ‘self-protection’ (or private justice) for contracting authorities that are victims of bid rigging. In this post, I point to the main issues that puzzle me in this very Spanish sainete. I am sure there will be plenty debate in Spanish legal circles after the holidays…

Legal background: EU level: Art 57(4)(c) and (d) of Directive 2014/24/EU

As is well known, Article 57(4) of Directive 2014/24/EU establishes discretionary grounds for the exclusion of economic operators from public procurement tenders. In relation to economic operators that have breached competition law, there are two relevant grounds.

First, Art 57(4)(c) foresees the possibility of exclusion ‘where the contracting authority can demonstrate by appropriate means that the economic operator is guilty of grave professional misconduct, which renders its integrity questionable‘. This was interpreted by the CJEU as covering entities that had been sanctioned for breaches of competition law in relation to the earlier rules of Directive 2004/18/EC (Art 45(2)(d)) as an instance of their being ‘guilty of grave professional misconduct proven by any means which the contracting authorities can demonstrate’. The CJEU established in unambiguous terms that ‘the commission of an infringement of the competition rules, in particular where that infringement was penalised by a fine, constitutes a cause for exclusion under Article 45(2)(d) of Directive 2004/18’ in its Judgment of 18 December 2014 in Generali-Providencia Biztosító, C-470/13, EU:C:2014:2469 (para 35).

Second, Art 57(4)(d) allows for the exclusion ‘where the contracting authority has sufficiently plausible indications to conclude that the economic operator has entered into agreements with other economic operators aimed at distorting competition‘. The relationship between both exclusion grounds relating to competition law infringements is somewhat debated. I have argued elsewhere that Art 57(4)(c) should still be used as the legal basis for the exclusion of economic operators that have already been sanctioned for previous bid rigging offences, whereas Art 57(4)(d) creates an additional ground for exclusion based on indicia of contemporary collusion. For details, see A Sanchez-Graells, Public Procurement and the EU Competition Rules (2nd ed, Hart, 2015) 296-301.

Of course, discretionary exclusion on grounds of infringements of competition law can be modulated by the rules on self-cleaning in Art 57(6) Directive 2014/24/EU. It is also important to add that these discretionary exclusion grounds can be applied for a period not exceeding three years from the date of the relevant event, as per Art 57(7) Directive 2014/24/EU. The CJEU has interpreted the ‘relevant event’ in this context, and clarified that ‘where an economic operator has been engaged in conduct falling within the ground for exclusion referred to in Article 57(4)(d) of that directive, which has been penalised by a competent authority, the maximum period of exclusion is calculated from the date of the decision of that authority‘ (Vossloh Laeis, above, para 42)

Legal background: domestic level: the transposition by Law 9/2017

The transposition into Spanish law of these provisions has introduced some important modifications.

First, these exclusion grounds have been made mandatory under Article 71 of Law 9/2017 on Public Sector Procurement, as discussed by P Valcarcel, ‘Transposition of Directive 2014/24/EU in Spain: between EU demands and national peculiarities‘ in S Treumer & M Comba (eds), Modernising Public Procurement: The Member States Approach, vol. 8 European Procurement Law Series (Edward Elgar, 2018) 236-237. For a broader description of the Spanish system of mandatory exclusion (ie through ‘prohibiciones de contratar,’ or prohibitions on contracting), see A Sanchez-Graells, 'Qualification, Selection and Exclusion of Economic Operators under Spanish Public Procurement Law' in M Burgi, S Treumer & M Trybus (eds), Qualification, Selection and Exclusion in EU Procurement, vol. 7 European Procurement Law Series (Copenhagen, DJØF, 2016) 159-188.

Second, the grounds in Art 57(4)(c) and (d) of Directive 2014/24/EU have been transposed in a seemingly defective manner. Art 57(4)(d) has been omitted and Art 57(4)(c) is reflected in Art 71(1)(b) of Law 9/2017, according to which there is a prohibition to enter into a contract with an ‘economic operator … guilty of grave professional misconduct, which renders its integrity questionable, in matters such as market discipline, distortion of competition … in accordance with current regulations’ (own translation from Spanish).

Thirdly, Art 72(2) of Law 9/2017 foresees two ways in which the mandatory exclusion ground based on a prior firm sanction for competition infringements can operate. On the one hand, the prohibition to enter into a contract with competition law infringers ‘will be directly appreciated by the contracting bodies when the judgment or administrative resolution [imposing the sanction] had expressly established its scope and duration, and will be in force during the term indicated therein’ (own translation from Spanish). On the other hand—and logically, as a subsidiary rule—it is also foreseen that ‘In the event that the judgment or administrative resolution does not contain a ruling on the scope or duration of the prohibition to contract … the scope and duration of the prohibition shall be determined by means of a procedure instructed for this purpose, in accordance with the provisions of this article’ (own translation from Spanish). Such procedure is rather convoluted and involves a decision of the Minister of Finance on the advice of the State Consultative Board on Public Procurement.

Fourthly, and in an extreme pro-leniency fashion, Art 72(5)II of Law 9/2017 has established that the prohibition to enter into contracts will not apply to economic operators that have self-cleaned and, in particular, to those that have obtained leniency in the context of competition enforcement procedures. That is, there is an exemption from the otherwise applicable exclusion ground based on infringements of competition law for undertakings that demonstrate the ‘adoption of appropriate technical, organisational and personnel measures to avoid the commission of future administrative infractions, which include participating in the clemency program in the field of competition law‘ (own translation from Spanish).

It is also odd that the provision does not require economic operators to have ‘clarified the facts and circumstances in a comprehensive manner by actively collaborating with the investigating authorities‘, which was the main issue at stake in the Vossloh Laeis litigation.

A controversial decision by the Spanish National Commission on Markets and Competition (CNMC)

On 14 March 2019, the CNMC adopted a decision against 15 construction companies finding them responsible for a long-lasting bid rigging scheme to manipulate the tenders for public contracts works relating to different aspects of high-speed and conventional railroad electrification (full decision available in Spanish). One of the novel aspects of the decision is that the CNMC explicitly activated the prohibition to enter into contracts against the competition infringers. However, the CNMC did so in very peculiar manner.

The oddity of the decision mainly lies on the fact that CNMC decided not to establish the scope and duration of the prohibition to contract, but simply to refer the case to the State Consultative Board on Public Procurement (see pages 317-320). This was the object of criticism in a dissenting vote by Councillor María Pilar Canedo, who stressed that the CNMC should have set the scope and duration of the prohibition to contract in its decision (pages 366-370). The position of the CNMC is certainly difficult to understand.

On the one hand, the CNMC stressed that ‘regardless of the time limits within which the duration and scope [of the prohibition] must be set [by the Minister of Finance] ... it is possible to identify an automatism in the prohibition of contracting derived from competition law infringements, which derives ope legis or as a mere consequence of the adoption of a decision that declares said infraction, as established in the mentioned Article 71.1.b) of [Law 9/2017]‘ (page 319). On the other hand, however, the CNMC decided to (potentially) kick the effectiveness of such prohibition into the long grass by not establishing its scope and duration in its decision—and explicitly saying so (unnecessarily…). No wonder, contracting authorities will have some difficulty applying the automaticity of a prohibition which time and scope are yet to be determined.

Moreover, the CNMC was aware of the CJEU decision in Vossloh Laeis (above), to which it referred to in its own decision (in a strange manner, though). In that regard, the CNMC knew or should have known that, as a matter of directly applicable EU law, de facto the maximum exclusion period can run for three years, up to 14 March 2022. Therefore, by referring the file to the Minister of Finance via the State Consultative Board on Public Procurement and creating legal uncertainty as to the interim effects of a seemingly prohibition to contract with a yet to be specified scope and duration, the CNMC actually bought the competition infringers time and created a situation where any fianlly imposed prohibition to contract is likely to last for much less than the maximum three years.

The (for now) final twist: ADIF takes justice in its own hands

As if this was not enough, according to the Spanish press (see the main story in El Pais), the main victim of the cartel—the Spanish rail network administrator, ADIF—has now decided to take justice in its own hands.

According to the report, ADIF has written to the relevant companies announcing claims for damages—which is the ordinary reaction that could be expected. However, it has also taken the decision of demanding an anticipation of the compensation from those companies with which it has ‘live’ contracts, to which it has demanded a 10% price reduction. What is more, ADIF has decided to withhold 10% of the contractual price and to deposit in an escrow account before a notary, as a sort of sui generis self-created interim measure to ensure some compensation for the damages suffered from the cartel. The legal issues that this unilateral act generates are too many to list here. And these will surely be the object of future litigation.

What I find particularly difficult to understand is that, in contrast with this decisively aggressive approach to withholding payment, ADIF has awarded contracts to some of the competition infringers after the publication of the CNMC decision. And not a small number of contracts or for little amounts. In fact, ADIF has awarded over 280 contracts for a total value close to €300 million.

Thus, ADIF has largely carried out its business as usual in the award of public works contracts, both ignoring the rather straightforward argument of automaticity of the prohibition to contract hinted at by the CNMC— though based on a convoluted and rather strained interpretation of domestic law (Art 72(2) Law 9/2017)—and, more importantly, the discretionary ground for exclusion in Art 57(4)(d) of Directive 2014/24/EU.

There will certainly be some more scenes in this sainete…

New paper: ‘Screening for Cartels’ in Public Procurement: Cheating at Solitaire to Sell Fool’s Gold?

By Andy Saxton.

I have uploaded a new paper on SSRN, where I critically assess the bid rigging screening tool published by the UK’s Competition and Markets Authority in 2017. I will be presenting it in a few weeks at the V Annual meeting of the Spanish Academic Network for Competition Law. The abstract is as follows:

Despite growing global interest in the use of algorithmic behavioural screens, big data and machine learning to detect bid rigging in procurement markets, the UK’s Competition and Markets Authority (CMA) was under no obligation to undertake a project in this area, much less to publish a bid-rigging algorithmic screening tool and make it generally available. Yet, in 2017 and under self-imposed pressure, the CMA released ‘Screening for Cartels’ (SfC) as ‘a tool to help procurers screen their tender data for signs of illegal bid-rigging activity’ and has since been trying to raise its profile internationally. There is thus a possibility that the SfC tool is not only used by UK public buyers, but also disseminated and replicated in other jurisdictions seeking to implement ‘tried and tested’ solutions to screen for cartels. This paper argues that such a legal transplant would be undesirable.

In order to substantiate this main claim, and after critically assessing the tool, the paper tracks the origins of the indicators included in the SfC tool to show that its functionality is rather limited as compared with alternative models that were put to the CMA. The paper engages with the SfC tool’s creation process to show how it is the result of poor policy-making based on the material dismissal of the recommendations of the consultants involved in its development, and that this has resulted in the mere illusion that big data and algorithmic screens are being used to detect bid rigging in the UK. The paper also shows that, as a result of the ‘distributed model’ used by the CMA, the algorithms underlying the SfC tool cannot improved through training, the publication of the SfC tool lowers the likelihood of some types of ‘easy to spot cases’ by signalling areas of ‘cartel sophistication’ that can bypass its tests and that, on the whole, the tool is simply not fit for purpose. This situation is detrimental to the public interest because reliance in a defective screening tool can create a false perception of competition for public contracts, and because it leads to immobilism that delays (or prevents) a much-needed engagement with the extant difficulties in developing a suitable algorithmic screen based on proper big data analytics. The paper concludes that competition or procurement authorities willing to adopt the SfC tool would be buying fool’s gold and that the CMA was wrong to cheat at solitaire to expedite the deployment of a faulty tool.

The full citation of the paper is: Sanchez-Graells, Albert, ‘Screening for Cartels’ in Public Procurement: Cheating at Solitaire to Sell Fool’s Gold? (May 3, 2019). Available at SSRN: https://ssrn.com/abstract=3382270

Bid rigging, self-cleaning, leniency and claims for damages: A beautiful procurement mess? (C-124/17)

In his Opinion of 16 May 2018 in Vossloh Laeis, C-124/17, EU:C:2018:316 (not available in English), Advocate General Campos Sánchez-Bordona has offered an interesting view on the interpretation of the grounds for discretionary exclusion of economic operators engaged in bid rigging. In particular, his proposed interpretation concerns the limitations of the contracting authority's ability to demand full and unrestricted cooperation from undertakings seeking to reassure them that they have self-cleaned after participating in collusive practices in public markets. This Opinion and the forthcoming CJEU Judgment in Vossloh Laeis will be relevant for the interpretation of Article 57 of Directive 2014/24/EU, as well as Article 80 of Directive 2014/25/EU, on which the case rests. In my view, the Vossloh Laeis Opinion raises difficult questions about the coordination of enforcement of mechanisms to prevent bid rigging in the fields of public procurement and competition law. It also creates some functional tensions with recent cases such as Generali-Providencia Biztosító, C-470/13, EU:C:2014:2469; and Impresa di Costruzioni Ing. E. Mantovani and RTI Mantovani e Guerrato, C-178/16, EU:C:2017:1000. Thus, it deserves some close analysis.

Vossloh Laeis - Background

This case concerns the aftermath of an investigation into bid rigging practices by the German competition authority (Bundeskartellamt), which established that '[d]uring the period from 2001 to 2011 Vossloh Laeis concluded agreements with other companies on the supply of rails and switches to the detriment of local public transport companies, private, regional and industrial railway companies and construction companies. The aim of the agreements was to divide up tenders and projects among the members of the cartel'. This resulted in the imposition of a fine of just under 3.5 million euros on the company Vossloh Laeis in 2016 by the Bundeskartellamt.

In the case that triggered the reference to the CJEU, a contracting entity whose procurement is covered by Directive 2014/25/EU (Stadwerke München) sought to exclude Vossloh Laeis from its qualification system on the basis that it had been fined for its participation in the cartel. It is important to stress that the relevance of the cartel for Stadwerke München was not simply remote or theoretical, but concerned it rather closely because this entity had been a victim of the anticompetitive practices carried out by Vossloh Laeis. This led Stadwerke München to seek damages compensation from Vossloh Laeis in civil litigation, as well as to exclude it from its list of approved contractors.

Vossloh Laeis sought to resist its exclusion from Stadwerke München's qualification system on the basis that it had taken self-cleaning measures and should thus be reinstated in the list of approved contractors on the basis of Article 57(6) of Directive 2014/24, to which the applicable Article 80 of Directive 2014/25 refers. In particular, Vossloh Laeis sought to persuade the contracting entity that it had taken organizational and personnel measures to clarify the facts and prevent their future repetition. It also indicated that it would compensate the damage caused by its illicit behavior. 

Stadwerke München rejected the claims of self-cleaning on the basis that (i) despite the uncovering of the cartel in 2011, Vossloh Laeis had not addressed the contracting entity or undertaken any initiative to clarify the facts as a whole; (ii) only in 2016 had Vossloh Laeis ceased to deny, in front of Stadwerke München, its participation in the relevant collusive practices, and even then it stressed that it had challenged the decision imposing the fine. Most importantly, Stadwerke München took issue with Vossloh Laeis' behaviour because (iii) it had not agreed to furnish a copy of the Bundeskartellamt's decision imposing the fine, so that Stadwerke München could examine it. Neither did Vossloh Laeis agree to cooperate with Stadwerke München in clarifying the infringement committed, since it understood that his cooperation with the competition authority was sufficient.

The Vossloh Laeis Opinion states that '[t]he referring court does not dispute (as it was stated in the sanctioning decision itself) that Vossloh Laeis had collaborated continuously and without restrictions with the German competition authority during the infringement procedure procedure' (para 17, own translation from Spanish). This creates a situation that may seem difficult to understand. Why would an undertaking that has already cooperated unreservedly with the competition authority not take the same approach to cooperation with the contracting entity? Is it a matter of opposition to red tape and duplication of effort? Or is there any secret that the economic operator is seeking to protect? Equally, on the side of the contracting entity, why is it so interested in the nitty-gritty details of the decision imposing the fine? Could it not just accept that the economic operator was sanctioned and is now trying to move on?

The importance of leniency programmes in this context

Even if the Opinion of AG Campos does not mention this at all, the dispute about access to the Bundeskartellamt's decision and Vossloh Laeis' refusal to cooperate with Stadwerke München in a parallel clarification of the facts needs to be placed in the context of the applicable leniency programme run by the Bundeskartellamt, and the civil litigation around the action for damages against Vossloh Laeis. This is important to understand the position of the parties, as well as the shadows that loom over the approach taken by AG Campos (discussed below).

As part of a leniency programme (not only Bundeskartellamt's, but those run by the contracting authorities of other Member States and the European Commission itself), economic operators that have participated in bid rigging offences can seek an exemption or reduction of the fines that would otherwise be applicable if they uncover the cartel and/or cooperate with the competition authority in its investigation (the degree of cooperation and the relevance of the information provided determining the level of 'discount' on the otherwise applicable fine).

In return for their cooperation, cartellists not only benefit from exemption or reduction of the fines, but also from some protection against claims for damages by the victims of their collusive behaviour. Indeed, competition authorities will take measures to ensure that leniency statements are not disclosed to the public, will include minimal parts of them in their final decisions imposing fines, and will redact relevant material from the public version of those decisions. This makes it virtually impossible for 'outsiders' to learn about the detailed ways in which the cartel functioned on the basis of public information resulting from the infringement procedure. Moreover, leniency programmes are specially protected by the Directive on competition damages (2014/104/EU), which requires Member States to ensure that 'for the purpose of actions for damages, national courts cannot at any time order a party or a third party to disclose ... leniency statements' (Art 6(6)(a)) (see also the position of the CJEU here).

This creates significant difficulties in the context of follow-on damages actions, where the previous investigation by the competition authority is of no avail to victims seeking redress. This would explain why Stadwerke München insisted in having access to the confidential version of the decision imposing a fine, and why Vossloh Laeis resisted such disclosure. It also clarifies how, in this specific context, cooperation with the competition authority is of no use to contracting entities and authorities seeking to understand the behaviour of the economic operator, as the opacity surrounding leniency programmes prevents them from benefiting from the investigation and findings of the competition authority. 

The Vossloh Laeis Opinion in its own terms

In own terms, the Opinion of AG Campos seems to be solely based on the conceptual premise that the dispute between Stadwerke München and Vossloh Laeis resulted not from the background discussed above, but rather from the peculiarity of the German rules that transposed Article 57(6) of Directive 2014/24/EU, which required that, for the purposes of self-cleaning, economic operators must demonstrate that they have 'fully clarified the facts and circumstances by actively collaborating with the investigating authorities and the contracting authority' (Art 125(1)(2) Gesetz gegen Wettbewerbsbeschränkungen, as reported in para 10 of the Opinion). This deviates from the literal wording of Article 57(6) of Directive 2014/24/EU, which foresees that 'the economic operator shall prove that it has ... clarified the facts and circumstances in a comprehensive manner by actively collaborating with the investigating authorities'. The analysis in the Opinion, thus, largely rests on the interpretation of the concept of 'investigating authorities' in Article 57(6) with the purpose of establishing whether it covers the contracting authority or entity itself (see para 2). The Opinion offers a good synthesis of the competing arguments in paras 26-36.

In that regard, the Opinion provides some relevant positions. First, that the requirements explicitly listed in Article 57(6) of Directive 2014/24/EU are mandatory and, consequently, contracting authorities and entities cannot accept claims of self-cleaning that do not meet them all (paras 40-41). Therefore, establishing the scope of the duty of collaboration in the clarification of the facts becomes paramount because its breach determines the impossibility of benefiting from any other self-cleaning measures adopted.

Second, on the specific issue of the entities included in the concept of 'investigating authorities', AG Campos takes the view that, despite the fact that Article 57 of Directive 2014/24/EU grants contracting authorities and entities some investigative powers, 'the exercise of these functions does not make the contracting authority one of the "investigating authorities" referred to in Article 57 (6), second paragraph of Directive 2014/24' (para 47, own translation from Spanish). In addition to other functional reasons on the way contracting authorities carry out their limited investigation for the purposes  of establishing the existence of an exclusion ground (paras 48-50), AG Campos concludes that, in general terms, 'the "investigating authorities" referred to in Article 57, paragraph 6, second paragraph, of Directive 2014/24 will not coincide with the contracting authorities. In front of the latter, the tenderer (or the company that aspires to be part of a classification system, as in this case) must prove that it has actively and thoroughly collaborated with the investigating authorities to clarify the facts. But this collaboration must be, by force, with an institution other than the contracting authority itself: otherwise, [the collaboration] would be, for the latter, a notorious fact that does not require any proof' (para 51, own translation from Spanish).

Finally, AG Campos also rejects the possibility for Member States to go beyond the scope of the collaboration foreseen in Article 57(6) of Directive 2014/24/EU in demanding that the economic operator seeking to benefit from its self-cleaning efforts not only collaborates with the 'investigating authorities' but also with the contracting authority or entity (paras 55-61). Interestingly, AG Campos stresses two main issues against this possibility: (i) that it would create a duplication of obligations required against those who, like the investigating authorities and the contracting authorities, perform different functions and (ii) that it 'could place the economic operator in a situation close to defenselessness when, in circumstances such as those in this case, the contracting authority claims to have suffered damages, because of the infringing conduct that led to the exclusion of [the economic operator], for which it requests compensation' (para 60, own translation from Spanish).

It is worth stressing that the case also concerns issues surrounding the maximum period of exclusion of economic operators that cannot benefit from self-cleaning (paras 62-86). However this post concentrates solely on the interpretation of Article 57(6) of Directive 2014/24/EU.

In my view, the Opinion of AG Campos advances a plausible interpretation of Article 57(6) of Directive 2014/24/EU. However, I would disagree with two issues. First, the fact that Member States cannot go beyond the minimum mandatory self-cleaning requirements established in the Directive on the grounds that this would result in a duplication of effort for economic operators does not make sense to me, in particular after the recent CJEU Judgment in Impresa di Costruzioni Ing. E. Mantovani and RTI Mantovani e Guerrato, C-178/16, EU:C:2017:1000 (see comment here), which AG Campos acknowledges but sets aside in his Opinion (para 57). Second, and more importantly, I think that the Opinion of AG in Vossloh Laeis does not work in the context of infringements of competition law covered by leniency programmes, which triggers the second of the arguments against an expansive functional interpretation of Article 57(6) on the grounds of the undertaking's procedural rights.

The Vossloh Laeis Opinion in the broader context of leniency programmes

Indeed, the main difficulty I have with the AG Opinion in Vossloh Laeis is functional. It is worth stressing that the implication of this Opinion is that a contracting entity or authority that knows that it has been the victim of a cartel offence cannot oppose self-cleaning of the competition law violator on the basis of its lack of cooperation, despite being in litigation with that undertaking over damages compensation. From the perspective of the infringer, this also means that participation in a leniency programme not only provides a shield from administrative fines and some protection from actions for damages, but also some protection from exclusion from procurement procedures. These are two negative results from the perspective of ensuring the effectiveness of competition law in public procurement markets and, in my view, runs against the thrust of previous decisions such as Generali-Providencia Biztosító, C-470/13, EU:C:2014:2469 (see comment here).

I also think that the way in which the Vossloh Laeis Opinion frames the issue of defenselessness is artificial. An economic operator that has infringed competition law and received a reduced fine as a result of its leniency application has already obtained a relevant practical advantage. Therefore, I see no problem in making it face a simple choice between either (i) sticking to the secrecy created by the leniency mechanism and thus accepting exclusion from procurement procedures for an adequate period of time, or (ii) waiving that secrecy vis-a-vis the contracting authority (which would implicitly require compensation of the damage resulting from the cartel), so that the contracting authority can form an adequate view of whether the organisational and personnel self-cleaning measures really address the root causes of the past illegal behaviour and, if appropriate, set aside the relevant exclusion ground.

The Vossloh Laeis Opinion allows the economic operator to avoid this simple choice and to have two bites at the cherry. It also makes it difficult for the contracting authority to satisfactorily carry our its limited investigative functions under Art 57(6). Without knowing exactly what happened, it is difficult to judge whether the self-cleaning measures are 'appropriate to prevent further criminal offences or misconduct'. Additionally, it forces the contracting authority to make this decision in a context where it can have other grounds to doubt the economic operators' loss of integrity, such as its resistence to provide damages compensation despite having engaged in illegal behaviour that damaged the contracting authority's interests.

Ultimately, if AG Campos was worried about the existence of a conflict of interest between the contracting authority that has an outstanding claim for damages and at the same time needs to assess the self-cleaning efforts of the economic operator--which is a fair enough point--it would have been interesting to learn about the ways in which Article 24 of Directive 2014/24/EU needs to be applied and interpreted in situations such as this. It would have also been interesting to explore in more detail the extent to which the discrete requirements for satisfactory self-cleaning in Article 57(6) interact as, in the case of leniency-related situations, the lack of collaboration with the contracting authority or entity has a bearing on the extent to which the economic operator can be seen to have 'undertaken to pay compensation in respect of any damage caused by the criminal offence or misconduct'. 

However, by not addressing these issues, the Vossloh Laeis Opinion seems to seek to protect the effectiveness of leniency programmes without even mentioning them, which in my view is an odd position to take.

New analysis of joint tendering under EU competition law: a few comments on Ritter (2017)

Cyril Ritter has made a new contribution to the analysis of joint tendering for public contracts under EU competition law in this interesting recent paper. Ritter's paper goes beyond previous discussion of the topic [eg my critical remarks on Thomas (2015), see here] and proposes an alternate analytical approach in many points. I find his analysis of different 'theories of harm' applicable to joint tendering interesting and insightful, and the special criteria he suggests for negotiated procedures and for tenders where one contractor is indispensable to two or more tenderers are thought-provoking. However, there are also aspects of Ritter's proposals which I do not see entirely clear, and where I do not think his paper goes much further than previous discussion of the topic.

One of the key issues that require clarification for the purposes of assessing whether join tendering breaches EU competition law (Art 101 TFEU) as an instance of anticompetitive joint selling concerns whether the members of the joint tender are competitors or not. On that point, Ritter emphasises that "what matters here is whether they are competitors for the purpose of the particular procurement procedure at issue" (p 4). After a review of the relevant ECJ case law, Commission's guidelines and administrative practice in the area of EU competition law enforcement, he proposes that the relevant question is to assess whether a firm has "real concrete possibilities" to bid for the contract being tendered (see p. 6). In his view, the burden of proof rests with the authority, but it can be shifted where the "authority brings substantial evidence that the parties are potential competitors" (ibid). Substantively, his main test requires assessing whether the firms have independent ability to bid for the contract, which is determined by the "ability to meet the tender specifications -- in terms of having sufficient spare capacity, equipment, staff, regulatory permits, quality certifications, etc" (p. 7). Interestingly, Ritter excludes the possibility of carrying out an analysis of the undertakings' intention to bid for the contract (pp. 9-10).

At this point, Ritter reaches the need to assess the extent to which it can be objectively determined that an undertaking had the ability to bid independently for a contract for which it has decided to bid jointly with others. He points out at the disagreement between Thomas an myself (see here) concerning whether the possibility of giving up alternative projects can/should (not) be included in the analysis. Ritter considers that the discussion may be beside the point, and that the issue rather requires an assessment of "what happens when a party to the joint tender would not be able to bid on its own (perhaps because capacity is allocated to other projects), but could have done so by hiring more staff, buying or renting more equipment, or teaming up with someone else? Should it be considered a potential competitor?" (p. 8).

Interestingly, this brings Ritter's proposed test very close to Thomas', where the latter indicates that it is important not to ignore "the possibility that each undertaking might nonetheless be able to submit an independent bid, by bringing in specialist resources from outside. If it were in fact feasible for each undertaking to submit a tender in this way, then surely it cannot be excluded that a joint bid would restrict competition. The real question is rather whether, in the absence of the joint bid, there could in fact have been two or more independent bids". And, more specifically, when Thomas clarifies that "One possible approach to this issue would be to ask whether, in the ordinary course of business, each undertaking would normally bring in such resources from outside. Alternatively, and more precisely, are such resources demonstrably available on reasonable terms and in time to prepare and submit the tender, from an undertaking that is not a competitor in the procurement procedure?".

As I said when I commented on Thomas' paper, I find this line of argument exceedingly restrictive. Conceptually, because it relies on an assessment of whether the parties of the teaming/joint bidding agreement could have cooperated with other undertakings or complemented their capacities in a different way (including the need to source additional capacity from elsewhere), which fundamentally and in itself proves the point that they were unable to submit bids individually or with a total independence from third parties (including suppliers or providers of services, as well as employees, although this raises the tricky issue of the need to contain the analysis within the limits of the concept of undertaking for the purposes of EU competition law enforcement). Once this is clear, I see no good reason for the assessment to rely on whether there were alternative potential partners that joint bidders could have (independently?) teamed up with, not least because this would require an excessive amount of second-guessing by procurement and competition authorities, who may not be the best placed to query business decisions ex post facto.

Indeed, the difficulty with this line of assessment is that it would require second-guessing business strategies and preferences actually revealed by the undertaking -- which decided to participate in the joint bid with its specific partners, rather than engaging in any of the other (theoretically) possible alternative business strategies -- and compare them with an alternative scenario envisaged by the enforcement authority. Even if Ritter advises against extracting hard and fast conclusions from such an analysis (p. 9), he does indicate that "the rule of thumb is that the parties to a joint tender are competitors if it reduces the number of tenders that realistically could have been made otherwise" (ibid).

Overall, this comes to indicate the difficulties in excluding the applicability of Art 101(1) TFEU to cases of joint tendering, which are likely to be considered potentially restrictive of competition in most instances if a strict objective assessment of the joint tenderers' ability to have tendered for the contract (independently, or with others) is carried out, as proposed by Thomas and Ritter. However, this does not necessarily eschew the analysis (although it does effectively reverse the burden of proof) towards the finding of infringements, provided that the possibility of declaring prima facie restrictive joint tendering agreements exempted under Art 101(3) TFEU properly concentrates on the analysis of their efficiency. Ritter addresses this issue towards the end of his paper (pp. 15-16).

In that regard, Ritter considers that the parties to the joint tendering agreement need to be able to show that

• the joint tender improves the value proposition to the customer, e.g. in terms of price, or, more likely, in terms of quality (first and second conditions of Article 101(3); this assessment may require giving a monetary value to non-price factors);

• achieving those efficiencies would not have been possible through a less restrictive alternative, such as hiring personnel or equipment, or teaming up with another firm which is not a competitor (third condition of Article 101(3); this assessment may entail an element of counterfactual analysis); and

• the joint tender does not "afford such undertakings the possibility of eliminating competition" with respect to the procurement procedure at issue, i.e. the joint tender is unlikely to be the only tender (fourth condition of Article 101(3)) (Ritter (2017) 16, emphasis added)

Once more, this test also seems rather stringent and, in particular, its second aspect can be rather problematic. In its literal reading, the equivalent condition of Art 101(3) TFEU requires that the agreement does not "impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives". A strict reading, such as Ritter's, to the effect that this requires that "achieving those efficiencies would not have been possible through a less restrictive alternative, such as hiring personnel or equipment, or teaming up with another firm which is not a competitor (third condition of Article 101(3); this assessment may entail an element of counterfactual analysis)" would create the effect of conflating the test for the application of Art 101(1) TFEU and the exemption of Art 101(3) TFEU with the logically circular and perverse implication that any teaming agreement that is found prima facie restrictive and in breach of Art 101(1) TFEU because the parties could have sought additional personnel or equipment, or teamed up with a third party (itself not a competitor), is also necessarily excluded from exemption under Art 101(3) TFEU precisely because of those reasons.

The need to distinguish the elements for an analysis under Art 101(1) and Art 101(3) TFEU when the assessment includes the need to consider potential competition triggers some difficult issues. In the context of public procurement, this requires settling whether the assessment of the need for the (potential) competitive restriction implicit in the joint tender to generate the claimed efficiencies is, either (a) limited to the agreement under analysis, or (b) should also include the potential alternative business strategy which (theoretical) existence brought the joint tendering agreement under scrutiny in the first place. Existing European Commission Guidelines on  the application of Article 101(3) of the Treaty can provide a framework for this analysis.

The key part of the Art 101(3) TFEU Guidelines is para [76] and, more precisely, the consideration that "It is particularly relevant to examine whether, having due regard to the circumstances of the individual case, the parties could have achieved the efficiencies by means of another less restrictive type of agreement and, if so, when they would likely be able to obtain the efficiencies. It may also be necessary to examine whether the parties could have achieved the efficiencies on their own" (emphasis added). Applied to the specific point, I read this to require an assessment of whether a less restrictive agreement between the same parties would have allowed the joint tender and, potentially, whether they could have generated the same efficiencies (strictly) on their own, quod non because of the previous determination that they would have needed "hiring personnel or equipment or teaming up with a non-competitor" -- which in my view does not fit the counterfactual of an analysis of the ability of the party to bid for the tender all things being equal, which would have determined its classification as an actual competitor. My objection is that proceeding in the way Ritter suggests (ie considering the potential scenario of alterative business strategy both at Art 101(1) and Art 101(3) stages) would create, if not a circular or self-referential logic, at least a double whammy for the joint tenderers because their condition of potential competitors would not only be used to bring their agreement under Article 101(1) TFEU, but also to exclude its exemption under Article 101(3) TFEU -- which does create substantive analytical conflation in my view.

In my opinion, an alternative analysis is preferable, to the effect that 

... undertakings concluding joint bidding and teaming agreements should be able to prove that they can only submit a compliant tender if they participate together, or that the terms of their joint tender are substantially better for the public buyer than those they could offer independently—ie, that there are specific and measurable efficiencies derived from the teaming or joint bidding strategy and that they are passed on to the public buyer. For their part, contracting authorities will need to be on the lookout for potential negative impacts on competition in the market, as well as the inclusion of unnecessary restrictions in the teaming and joint bidding documents (A Sanchez-Graells, Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015) 339, footnote omitted and emphasis added).

Or, in other words, I think that -- for the purposes of the application of Art 101(3) TFEU -- the analysis needs to rest on whether the joint tenderers have limited their collaboration to what was necessary to create the efficiency of their joint bid, or have rather improperly taken that chance to further restrict competition amongst them. But it should not revisit the same theoretical counterfactual analysis that brought the agreement under Art 101(1) TFEU scrutiny to begin with.

An EU Competition Law Primer for Public Procurement Students

My friend and colleague Dr Carina Risvig Hamer asked me to contribute a chapter on EU competition law to her forthcoming handbook on EU public procurement she is about to publish with Djøf Forlag. She is writing it in Danish to support her teaching at the University of Southern Denmark. Thus, the book is unlikely to reach a wider English-speaking audience. This is why I decided to post the chapter on SSRN, in case there are some non-Danish procurement students interested in a first introduction to EU competition law issues.

As the abstract indicates, this chapter aims to identify the key areas where EU competition law is relevant from a public procurement perspective: that is, mainly, the prevention and sanctioning of procurement manipulation by suppliers (bid rigging) and the granting of distortive State aid that advantages some of them over others. It also focuses on potential abuses of market power by undertakings holding a dominant position, but it assesses this potential distortion of competition to a more limited extent. Once these areas are identified, the chapter describes the basic EU competition rules that apply in each of these different cases, as well as their interpretation in the case law of the CJEU. The main goal of this chapter is to provide public procurement students with an overall view and basic understanding of the EU competition rules more directly relevant to procurement practice.

The paper's full reference is: A Sanchez-Graells, 'An EU Competition Law Primer for Public Procurement Students' (October 18, 2015). Available at SSRN: http://ssrn.com/abstract=2675787.

New paper on intersection of competition law and public procurement

During the Spring of 2014, Dr Jonathan Galloway and Dr Francesco De Cecco of the Newcastle Law School organised a seminar series on ‘The Intersections of Antitrust: Competition Law and…’ and I was fortunate to be invited to present my views on the interaction between competiton law and public procurement. A condensed re-run of the presentations will take place in London on 15 September 2015 in a joint LSE/Newcastle event.

This seminar series is now turning into an edited collection to be published by Oxford University Press. I have uploaded my contribution on SSRN, which abstract is as follows:

The interaction between competition law and public procurement has been gaining visibility in recent years. This paper claims that these two bodies of EU economic law mainly intersect at two points, or in two different dimensions.

Firstly, they touch each other at the need to tackle anticompetitive practices (or bid rigging) in public tenders. This has attracted significant attention in terms of the enforcement priorities of competition authorities and led to recent regulatory developments in the 2014 EU public procurement Directives aimed at increasing the sanctions for bid riggers.

Secondly, competition and public procurement cross again at the need to avoid publicly-created distortions of competition as a result of the exercise of buying power by the public sector, or the creation of regulatory barriers to access to public procurement markets. This second intersection has been less explored and the development of regulatory solutions has been poor in both the fields of EU competition law and EU public procurement law. Moreover, the protection of the ‘public mission’ implicit in the public procurement activity led the CJEU to deform the concept of undertaking in a way that can distort EU antitrust enforcement beyond public procurement markets.

This paper assesses these issues and stresses the possibilities for a better integration of competition considerations in public procurement through the principle of competition of the 2014 Directives. 

Full details of the paper are: A Sanchez-Graells, 'Competition Law and Public Procurement', in J Galloway (ed), Intersections of Antitrust: Policy and Regulations (Oxford, OUP, 2016).

Another interesting paper on corruption and (induced) collusion in public procurement (Gong & Zhou, 2015)

Still on the topic of interaction between corruption and collusion, or how corrupt officials can create or consolidate collusion in procurement markets, I have come across another interesting recent paper: T Gong & N Zhou, "Corruption and marketization: Formal and informal rules in Chinese public procurement" (2014) 9(1) Regulation & Governance 63-76. 

This time, the research focuses on the Chinese experience and shows shockingly (not) similar trends to the Russian case study mentioned yesterday. The paper forcefully argues that 'empirical findings from China indicate that the relationship between market liberalization and corruption is more complex and nuanced than conventional wisdom suggests'. 

Some of the most interesting insights refer to the collusion (in broad terms) of bidders and public officials to avoid the application of formal public procurement rules (72-73) which, once again, will sound very familiar to scholars and practitioners with experience in any jurisdiction.
 

Interesting paper on corruption and (induced) collusion in public procurement (Ostrovnaya & Podkolzina, 2015)

In their recent paper "Antitrust Enforcement in Public Procurement: the Case of Russia" (2015) 11(2) Journal of Competition Law & Economics 331-352, M Ostrovnaya and E Podkolzina of the International Laboratory for Institutional Analysis of Economic Reforms discuss an example of interaction between corruption and (apparent) collusion in public procurement for drugs in Russia. 

I found the paper an interesting read and some of their insights on how corrupt officials can create or consolidate collusion in procurement markets will certainly ring many bells. This was an issue we recently discussed extensively at a knowledge exchange event at the Law School of the University of Sussex, and one that seems to be triggering increased attention in academic and practitioner circles.

Ostrovnaya and Podkolzina's analysis clearly shows that antitrust intervention against the public sector's restrictive procurement practices was resisted by a specific public buyer, which most likely decided to resort to an orchestrated system of bid covers (or passive bidding, as they label it) to avoid further antitrust intervention--thus deviating the attention of the antitrust watchdog towards the behaviour of the (certainly non-innocent) bidders. 

Their case study will be a useful guideline for the development of more effective competition rules applicable to the public sector. Or, at least, a warning against naive assumptions that antitrust intervention can ipso facto exclude issues of (induced) collusion in procurement markets.

New SSRN short paper on Art 18(1) Dir 2014/24 and other competition and procurement issues

I have been invited by the e-Competitions Bulletin to write the third edition of my foreword to their special issue on public procurement. I have uploaded the draft on SSRN and the paper is now downloadable as A Sanchez Graells, 'Public Procurement: A 2015 Updated Overview of EU and National Case Law' (June 1, 2015), available at http://ssrn.com/abstract=2613076.

Some difficult questions on the interaction between public procurement and competition law

I was invited to participate in the Irish Society for European Law (ISEL) Public Procurement Forum a couple of days ago. 

The session started off with two presentations from distinguished members of the Irish Competition and Consumer Protection Commission (Pat Kenny, Member with responsibility for Criminal Enforcement and Úna Butler, Legal Advisor, Competition and Consumer Protection Commission), who respectively addressed issues concerning bid rigging and consortium bidding in public tenders by SMEs. Both presentations were excellent and I had not much left to say. In view of that, I just launched some 10 groups of difficult questions to the audience. The debate that ensued was really interesting. 

I am reproducing a reworked version of the 10 questions below, in the hope that they can be useful to researchers trying to find topics in the area of public procurement and competition law. Hopefully, some (of my) answers will be available in the 2nd edition of my book. Of course, I am happy to exchange views on these and any other issues at: a.sanchez-graells@le.ac.uk.

A) In relation to bid rigging and the application of Article 57(4) of Directive 2014/24

1. How will contracting authorities treat instances of contemporaneous bid rigging? Will they be allowed (by Member States) to exclude tenderers or candidates right away or will they have to stay proceedings and get the competition authorities involved? How will this play-out in relation to the very short deadlines required by procurement procedures and, in particular, the 10-day standstill obligation under Directive 2007/66? 

2. What procedural guarantees will be necessary to ensure that a "presumption of guiltiness" is not constructed? How wide will the protection under Article 47 CFREU be [on that key point, see M Safjan and D Düsterhaus, "A Union of Effective Judicial Protection: Addressing a Multi-level Challenge through the Lens of Article 47 CFREU" (2014) 33(1) Yearbook of European Law 3-40]. What if, in the future, they are proven wrong? Will excluded tenderers and candidates be entitled to significant damages?

B) In relation to joint participation or consortium bidding [particularly in relation to Arts 19(2) and 63 of Directive 2014/24]

3. From a competition law perspective, it is clear that joint bidding will be controversial when actual or potential competitors enter into consortium agreements.In that case, the application of Article 101(3) TFEU requires efficiencies to be generated by the agreement (and those to be passed on to consumers). This creates some difficult issues, such as: must those efficiencies be solely economic? If yes, how can we square that with the growing inclusion of non-economic considerations in award criteria, and particularly with the special rules in Art 76 of Directive 2014/24 regarding the procurement of social and special services? If not, how can we square this with the general enforcement of Art 101(3) TFEU [and the on-going controversy on the use of non-economic factors]? Can we take into account SME-specific issues, such as the existence of high opportunity costs (such as iddleness of capacity available to the contracting authority) or the creation of social benefits? Can efficiencies be created in the public procurement market at the expense of general open markets, or reversely [on this, see the thought provoking post by Alfonso Lamadrid "On the (mis)application of Article 101(3): of judicial capture and cross-market assessments", Chillin' Competition].

4. How must those efficiencies or other advantages be documented? Can at some point the burden of proof reverse, so that the contracting authority needs to disprove indicia of advantage submitted by the (wannabe) joint tenderers? Will the competition authority be involved/available to assess that evidence? How can they make sure that they are building the right counter factuals? Is this not too complicated within the scope of a procurement process with tight deadlines?

5. On the point of exchanges of information, when is the exchange assessed, during the exploratory conversations (where maybe too much information could be disclosed) or at the moment of submission of the tenders? How can companies make sure that they exchange the absolute minimum of necessary information and how can a "need to know" test be developed safely? Given that SMEs may be reluctant or incapable of protecting their proprietary information through IP rights, how can they not be deterred from participating in order to protect their business secrets? Which specific assurances can they get that their information will not be disclosed at debriefing stage (particularly if a competitor challenges the technical capacity of the consortium)?

6. How will ancillary restrictions be treated in the field of consortium agreements? Would non-poaching clauses be allowed? If so, would it be justified to include 2 year non-compete/non-poaching clauses on employees and consortium partners, even if the tender is unsuccesful? If not, how can this not become a significant deterrent for SMEs strongly reliant on the technical knowledge of a very limited number of (difficult to replace) staff?

7. Even if the rules in Art 63(3) in fine of Directive 2014/24 establishes that contracting authorities can require joint liability for the execution of the contract, members of consortia (and particularly SMEs) will be tempted to reallocate liability internally (through side letters, or otherwise). Is this compatible with the procurement rules? If it is, should the contracting authorities be informed? Should financial guarantees be required to a larger extent? If it is not allowed, would such liability redistribution / indemnity agreements fall foul of Art 63(3) Dir 2014/24 and/or Art 101(2) TFEU? If the law is not clear on this point, will this not be a very significant deterrent for consortium bidding?

8. Where an undertaking participates in more than one bid, particularly as a specialised sub-contractor, it holds (relative) market power. Does this bring it under the prohibitions of Art 102 TFEU, particularly as price discrimination is concerned? Would that sub-contractor, then, be forced to quote the same prices and conditions to all groupings of tenderers? Can they not enter into exclusivity agreements or simply decide to only deal with a given consortium on the strength of existing business relationships?

9. Can rules on conflict of interest now affect the possibility to participate as part of different consortia with different composition of members in different projects? At what point would being in a "network" of consortia arrangements create significant risks for the undertaking, particularly as being perceived as a nexus for the exchange of information?

10. What is the interaction between SME support, public procurement and State aid? Particularly in innovation partnerships that may be concluded with a consortium of innovative SMEs (or start-ups), how is it possible to avoid the undercover granting of State aid [cf the issues that arise whene SMEs that spin-off from universities enter into subsequent contracts here: State aid and (university) software licensing: who's interested? (T-488/11)]? How and when should the evaluation of the expected innovation be carried out? Can SMEs actually engage in the complex legal negotiations needed to comply with the requirements of Art 31(6) of Directive 2014/24 ex ante?