Procurement in a nutshell – Preliminary ruling questions risks posed by related tenderers under procurement law and competition law

Please click here for a link to the case.

The case is one to watch as it will provide answers to important questions of relevance to contracting authorities (CAs) in terms of protection from the costly effects of anti-competitive conduct of bidders.

The competition risks in procurement

Public procurement is at risk of harmful anti-competitive practices such as collusive tendering (bid-rigging), abusive conduct of strong public buyers, or mergers of suppliers in small procurement markets. Bid-rigging is considered by competition authorities as one of the most hard-core practices. In a previous post we explained the practice of bid-rigging and outlined some preventative measures which CAs can take to reduce their risk of harm. The risk of anti-competitive activity such as bid-rigging is brought into focus by the existence of a relationship between bidding economic entities such as being subsidiaries of the same parent company. The Šiaulių case raises the issue of the possible procurement and competition law consequences where there is such a relationship between two tenderers.

Background of the case

The case relates to a public tender for waste management services. Four tenders were received by the CA. Two of the tenderers were related, sharing the same shareholder and management board directors. A third tenderer objected to the submission of bids by the connected tenderers. It contested on the ground that the interrelation between the two tenderers breached the principles of transparency, non-discrimination and fair competition.

Questions referred to the CJEU

The Supreme Court of Lithuania referred the matter to the CJEU, giving rise to the following questions to be addressed by the Court:

• Are two tenderers which are related (by virtue of economic, management, financial or other links) obliged to disclose the links between them to the CA?
• Does failure to disclose such a link mean that the related tenderers will be deemed to have acted anti-competitively?
• Is the CA obliged to make inquiries to verify the independence of the separate bids of the two tenderers?
• Can the actions of mutually related economic operators (both subsidiaries of the same company) which are participating separately in the same tendering procedure be, in principle, assessed under the provisions of Article 101 of the TFEU (a competition law provision prohibiting anti-competitive agreements)?

The case is pending judgment by the CJEU.

Why is this important?

The CJEU’s answers to the questions posed in this case will determine whether bidders will have the responsibility of disclosing relationships with other bidders or, whether CAs will be obliged to directly make inquiries to establish any connections between bidding entities. Thus the decision will impact on the potential exposure of CAs to anti-competitive conduct.

It is crucial that CAs are informed and equipped to ward off the potential harm caused by anti-competitive activity which can take place in procurement processes, which according to the Government’s estimates brings an overcharge of 20%. CAs are advised to incorporate risk management mechanisms into their processes. The Government’s e-learning package launched last year is a recommended starting point for CAs to become better equipped at preventing anti-competitive behaviour and therefore ensure value for money for public funds.

How can I find out more?

If you have any queries on the issues raised or on any aspect of procurement, please contact us via our procurement hotline on 0191 204 4464.