20/06/2018

When Group Companies Compete against Each Other in Public Procurement

If two companies that are in same group both participate in a public procurement procedure with their own tenders, are they allowed to exchange information? Is it all right for them to use the same people and the same sources of information when preparing their tenders, or do they have to genuinely compete against each other?

These questions may sound surprising. After all, the prohibition of bidding cartels under competition law  does not apply to companies that are part of the same group and that are in a relationship of control. For example, a group’s parent company may exchange information or allocate customers with its subsidiaries in the daily course of its business without this being considered a competition infringement.

Public procurement is a different ball game, though. According to the Court of Justice of the European Union, companies participating in a public procurement procedure must compete against each other and make their tenders independently even if they are part of the same group.

Public-Procurement

The CJEU has lately charted the territory between competition law and procurement law. It recently handed down judgments in two cases, Lloyd’s of London and Specializuotas transportas, in which it held that tenderers in a relationship of control must not be excluded from procurement procedures, but their tenders must be autonomous and independent of each other. 

If in doubt, the contracting entity must ascertain whether the relationship between the group companies had a specific effect on the tenders they submitted in the procedure. This is required by the principles of transparency and non-discrimination. The contracting entity must ask for additional clarification if it knows, for example, that the same persons are involved in the decision-making bodies of both companies or that the two tenders make use of the same resources.

Ask about Connections, Be Prepared to Clarify

How does the CJEU’s new case-law translate into practice? Contracting entities seek to generate as much competition as possible. It is important for them to ascertain that tenders are actually in competition against each other, especially in the case of framework agreements with multiple tenderers or if tenderers are allowed to submit partial tenders. Group companies, in turn, must be able to show that they have not cooperated when preparing their tenders. Finally, it is in everyone’s interest to avoid messy appeal procedures after the procurement decision is made.

The following simple checklists will help contracting entities and group companies avoid pitfalls.   

Checklist for Contracting Entities

  1. Ask the tenderers to declare their group connections in your tender documents.
  2. When reviewing the tenders, look out for tenders with a large number of similarities. This may indicate that the tenders are not competing genuinely against each other.
  3. Ask for further clarifications if you have an obvious reason to suspect that the tenders have not been prepared autonomously.
  4. If the tenderers cannot present a sufficient and credible clarification showing that their tenders are autonomous and independent, reject the tenders and explain your decision.

Checklist for Tenderers

  1. If two companies from your group are participating in the same public procurement procedure as tenderers, introduce a bidding cartel prohibition within your group. In other words, act like you would with your main competitor.
  2. Check that the tenderers do not liaise and cannot access each other’s tender materials. Make sure that the preparation of tenders is not discussed in meetings between the two companies. Have adequate confidentiality agreements in place where necessary.
  3. Prepare to give clarifications to the contracting entity: maintain sufficiently detailed records of the tendering procedure and group actions in advance.