How to Estimate Whether to Submit a Joint or Separate Offer in a Public Competitive Tendering?
As a general rule, tenderers participating in public procurements have the right to form a consortium and submit a tender as a joint offer to meet the requirements of the competitive tendering. Small companies, in particular, may find it difficult to tender for products or services alone.
By combining resources with a competitor, it might, however, be possible to submit a tender. Sometimes cooperation with a competitor can also result in significant cost savings for the customer compared to carrying out the procurement alone.
Competition law restricts cooperation between competitors
From a competition law perspective, joint offers are not always permitted, and forming a consortium might lead to serious competition law sanctions. If the object or effect of a cooperation between companies is to significantly prevent, restrict or distort competition, then cooperation is prohibited. This means that bidding cartels and other procedures through which markets are shared between competitors are prohibited.
The provisions of the Finnish Act on Public Procurement and Concession Contracts have a permissive view on consortiums, while the approach taken in the Finnish Competition Act is negative. So what should competing companies then take into account when they consider bidding as a consortium?
Joint offers attract interest
Under competition law, competitors may generally cooperate only if the tenderer is otherwise not able to participate in the competitive tender process. Joint offers in public procurements that violate the competition laws have lately been under discussion both in Finland and elsewhere. We would like to highlight two recent cases where the court stated that a joint offer had prevented competition.
1. In Finland, tenderers were deemed to have used a joint offer to share markets
In September 2021, the Finnish Competition and Consumer Authority (FCCA) submitted to the Market Court a penalty payment proposal, in which it proposed a penalty payment of EUR 1.9 million to six companies operating in the Turku region traffic and their joint venture. The companies submitted several joint offers through their joint ventures.
According to the FCCA’s estimate, the companies eliminated all competition with their joint offers in the competitive tendering and shared the markets in a manner agreed in advance. In the penalty payment proposal, it is stated that, when evaluated as whole, the violation concerned a serious competition restriction. The companies had alleged that the cooperation in reality would have benefited the client and consumers but, according to the FCCA’s estimate, it was not demonstrated what these benefits were or how they would have been passed on to consumers.
2. In Denmark, a joint offer was considered a competition restriction
The permissibility of joint offers has also been assessed in Denmark. The Danish Road Directorate (Vejdirektoratet) requested tenders for repainting road paintings in three different geographical areas. The road painting contract was divided into parts in accordance with the geographical areas.
Two large undertakings operating in the road painting market formed a consortium that submitted a tender for all three areas. The consortium won the competitive tendering in all areas.
One of the losing tenderers appealed the decision, and the case was brought before the Supreme Court of Denmark (Hoejesteret 191/2018). The consortium was deemed to be in violation of the Danish Competition Act and Article 101 TFEU. The Supreme Court of Denmark held that the question was of a competition restriction, the object of which was to restrict competition. The consortium had also not brought up any efficiencies that would have justified the cooperation. The companies that formed the consortium could have submitted a tender on their own at least in some areas.
Because the issue is topical and has attracted a lot of attention, we recommend that companies pay special attention to competition rules when they consider forming a consortium and submitting a joint offer. The aforementioned cases are examples of situations in which advance assessment failed.
When is cooperation permitted and when prohibited?
If the members of the consortium are not competitors or potential competitors, cooperation is, as a rule, permitted.
If the parties of the consortium are competitors, the point of departure is the opposite, and it is necessary to separately assess every time whether cooperation is permitted. The assessment must be made on a case-by-case basis taking into account the actual content of the cooperation, the concrete details and terms and conditions of the competitive tendering.
It may be permitted to submit a joint offer if the parties of the consortium could not submit a tender at all on their own or if the cooperation can be justified on efficiency grounds. It is important to note that the threshold for using the efficiency argument is high and the efficiencies must also de facto be passed on to consumers.
When making the assessment, it is advisable to consult a competition lawyer – in particular, if the cooperation is to be justified on efficiency grounds.
A company that concludes agreements with the aim to distort competition can be excluded from procurements
Under the Finnish Act on Public Procurement and Concession Contracts, the contracting entity may decide to exclude from competitive tendering a tenderer that has concluded agreements with other suppliers seeking to distort competition, and the contracting entity can prove that this has occurred.
By making joint offers that violate competition laws, the company thus also compromises its possibility to participate in public competitive tendering in the future.
Ensure in advance that the cooperation is permitted
For the tenderer it is therefore important to always assess the permissibility of cooperation in advance. If cooperation is entered without an assessment, there is a risk that it breaches the cartel prohibition and results in fines and other sanctions. The company may also lose business opportunities in public competitive tendering processes in the future.
Our competition law experts will be happy to assist you in determining whether the planned cooperation with a competitor is permitted from a competition law perspective. If you have other questions relating to competition law, please contact us.