Tenders are – of course – subject to procurement law. These rules apply to contracting authorities and ensure that all tenderers have an equal chance of winning the contract. But what tenderers sometimes overlook is that competition law also applies to tender procedures. We will tell you what that means in this blog.
Fine for construction companies
At the end of 2020, the Netherlands Authority for Consumers and Markets (ACM) imposed fines totaling €330,000 on four construction companies in the civil engineering sector for price collusion in various tenders.
What happened? The municipality of Amsterdam had invited the four construction companies to submit tenders for three projects in the city. Some of these invitees were not interested in those projects but argued that they felt obliged to nevertheless submit a bid, fearing that they would no longer be invited for future tenders otherwise. They coordinated the amounts of their bids, so that the interested companies would have a good chance of winning the tender and they themselves would stay on the radar of the municipality of Amsterdam for future tenders. This behavior is known as ‘cover pricing’ and was considered by ACM a violation of the Dutch Competition Act.
Competition law & tendering: what is not allowed?
The foregoing example again makes clear that even in smaller tender procedures, it is prohibited to align offers with other participants. The aim of a tender procedure is to obtain the best price-quality ratio for a contract or work; coordination by participating companies likely leads to a distortion of this balance. What else is not allowed?
- You may not engage in bid rigging. That means that:
- You may not discuss with competitors whether you intend to participate in the tender.
- You may not ask competitors if they (intend to) participate in a particular tender. Are competitors asking whether your company will be participating? One should avoid to answer such questions.
- You may not agree with competitors who will participate in which tender or whose turn it is to be awarded a contract.
What is allowed?
In certain circumstances, if a company meets specific conditions, it may submit a tender together with another company and even with a competitor (combination agreements). This is the case, for example, if a company cannot perform the work independently. Beware: if the cooperation goes further than necessary, combination agreements may still be risky. Among other things, one must ensure not to tender with more parties than necessary and to avoid the exchange of competitively sensitive information as much as possible.
A combination agreement is sometimes even possible if it leads or may lead to an appreciable restriction of competition. This is the case, for example, if the companies involved are very limited in size. Or if the advantages of the collaboration for end users outweigh the disadvantages of the restriction of competition. You must be able to demonstrate this; the rules are strict there too.
One can consult the Combination Agreements Manual of the Ministry of Economic Affairs for the assessment of whether a combination agreement is allowed in the Netherlands, but rules of foreign competition authorities may be much stricter (do not rely solely on this manual).
Please note: A company is responsible for ensuring that the combination agreement is compliant with competition, even if the contracting entity asks them to cooperate with other market participants.
What are the consequences of a violation of competition law?
A company acting in violation of the Competition Act during a tender may be confronted with ACM. Furthermore, procuring entities often exclude violators from future tenders and claim damages.
Questions?
Do you have questions about tenders in relation to competition law? Do you want to conclude a combination agreement and are you curious whether you comply with competition law? Do you have indications that your competitors are cheating? Or is ACM investigating your company? Please feel free to contact us without obligation, we are happy to help.