Public sector procurers advised to beware anti-competitive supplier bid-rigging
In November 2014, the UK’s new competition regulator, the Competition and Markets Authority (CMA) issued a “60 second summary” containing advice for public sector procurers on “bid-rigging”.
As the CMA points out in this one page document, where suppliers agree to limit competition in the tender process (bid-rigging), not only are public sector customers denied a fair price but this can cost the taxpayer money. It may also exclude potentially more efficient competitors from the tender process and reduce suppliers’ incentives to improve quality or innovate.
The CMA encourages the public sector to remain alive to the possibility that their suppliers might be rigging bids and to report any suspicious behaviour to the CMA.
In particular, public sector procurers are advised to look for suspicious bidding patterns, and inform suppliers that they will be looking. The CMA gives a number of examples of how to spot these, including bids received at the same time or containing similar or unusual wording; different bids with identical prices; bids containing less detail than expected; the likely bidder failing to submit a bid; the lowest bidder not taking the contract; expected discounts suddenly vanishing or other last minute changes; and suspiciously high bids without logical cost differences.
According to the CMA, as well as considering requiring bidders to sign non-collusion clauses and/or certificates of independent bids, procuring authorities should also avoid tender list management that incentivises firms to bid even if they do not want the work and should share experience with other public sector procurers.
Bid-rigging (which can be a criminal cartel offence, punishable by up to five years’ imprisonment and/or an unlimited fine) may take several forms, including:
- bid rotation – where firms agree to take it in turns to submit the lowest bid
- bid suppression – where one or more firms agree not to bid, or to withdraw their bids
- cover pricing – where bidders arrange for one or more of them to submit an artificially high bid, distorting the procuring authority’s impression of the competitive price.
Indeed, findings of cover pricing and other bid-rigging in the construction industry led to over 100 construction companies receiving large fines from the CMA’s predecessor, the Office of Fair Trading. Suppliers found to have engaged in bid-rigging may also potentially face exclusion from future public sector tender processes (see, for example, the recent Court of Justice judgment in Generali-Providencia).
Update on UK implementation of new EU Procurement Directives
The Cabinet Office published draft new UK procurement rules for consultation in September 2014, paving the way for the 2014 EU Procurement Directives to be implemented in the UK in early 2015. A number of responses to the consultation were received by the October 2014 deadline and the Government is currently in the process of analysing this feedback.
We anticipate that the new regulations will come into force in Spring 2015. This timetable is in line with the Government’s aim for early implementation of the Directives in the UK for all procurements, except clinical services. Until 18 April 2016, clinical services procurements will continue to be dealt with under the current Part B services procurement regime and the NHS (Procurement, Patient Choice and Competition) (No. 2) Regulations 2013.
Hinkley Point nuclear decision fills energy gap in Commission state aid guidance
In October 2014, the European Commission gave EU state aid approval to the UK’s revised plans to subsidise the construction and operation by EDF of the new Hinkley Point C nuclear power station on the Somerset coast.
Since the new Commission guidelines on state aid for environmental protection and energy, which apply from 1 July 2014, do not cover the nuclear sector, the Commission’s Hinckley Point C decision sets a very important benchmark for its wider energy policy.
The Commission was satisfied in this case that, although the UK deal with EDF did involve state aid, this aid was permissible because the public support for the project would address a genuine market failure. Without the proposed assistance from the state, the promoters of this project would be unable to obtain the necessary financing due to the project’s unprecedented nature and scale.
However, the UK has nonetheless agreed to modify its financial proposals to ensure the state aid being granted is proportionate, and that potential distortions of competition are kept to a minimum. One of the modifications involves the extension – from 35 years to the 60 year life cycle of the project – of a government “contract for difference” price support and gain share mechanism, guaranteeing stable revenues for EDF to counteract the volatility of wholesale electricity prices.
In the absence of current Commission guidance on state aid for nuclear energy, EU Member State governments would be well advised to bear this decision in mind when considering state aid for future large-scale nuclear energy projects. We look forward to reviewing the decision in detail once it is published on the Commission’s website.