Introduction
Press release
Further information
Alleged anti-competitive practice
Comment


Introduction

On November 6 2015 the Competition Authority announced that it had fined companies from the construction sector approximately Kr2 billion (€74 million). It found that the companies had engaged in anti-competitive practices in the form of bid rigging. The authority's press release did not reveal further information, as the decision is not yet in force. The companies are expected to appeal. At first glance – and based only on the press release the fine seems exceptionally high compared to those imposed by the Competition Authority in the past.

Press release

The Competition Authority's press release briefly stated that it had adopted a first-instance decision regarding a bid-rigging cartel agreement in the construction sector and imposed fines on the cartel members in the amount of around Kr2 billion. As the parties to the proceeding are likely to appeal to the chair of the Competition Authority, the Competition Authority will not provide further information on the case until its decision comes into force. The press release contained no further information about the number or names of the companies that participated in the cartel or the specifics of their alleged anti-competitive practices.

Further information

More detailed information was published a couple of days after the press release. Apparently, one or more of the fined companies provided the decision to a newspaper. The newspaper revealed details about the members of the alleged bid-rigging cartel and alleged anti-competitive conduct.

According to the newspaper, the Kr2 billion fine was imposed on seven construction companies (Skanska, Strabag, Eurovia, Swietelsky, M-Silnice, Berger Bohemia and Lesostavby Trebon) for bid rigging in four public tenders between 2004 and 2008. The largest of these companies (Strabag, Eurovia and Skanska) were each fined around Kr600 million (approximately €22 million).

All addressees of the decision have denied their participation in the alleged bid-rigging cartel. According to the companies' management, the documentation on which the Competition Authority based its decision consisted of standard documents with standard notes made during preparation of public tender bids.

The Competition Authority is convinced of the opposite. The newspaper cited the Competition Authority's decision, which states that the companies must have been aware of the illegal nature of their conduct and that it might affect the results of the public tenders (ie, might impede economic competition).

?Alleged anti-competitive practice

According to the newspaper, the Competition Authority's decision states that the companies colluded during the preparation of public tender bids. In particular, they informed each other about the offered prices and pre-determined which company would win the tender.

The Competition Authority's decision was largely based on documents seized in the offices of the companies' executives. The most serious case included paper documentation with handwritten notes on:

  • how the specific tenders would develop;
  • which companies would participate in the tender;
  • which company would "need to win"; and
  • which companies would participate only in order to "cover up" the alleged anti-competitive practices in the public tender.

More specifically, during the public tender for the construction of a six-kilometre section of the R4 expressway, six companies agreed on which companies would participate in the tender. In addition, they coordinated their bids in such a way that some played only a cover-up role. Most of the companies did not try to win; they only supplemented the pre-determined winner (in this case Strabag-Swietelsky) with their bids in order to make the tender appear authentic.

The Competition Authority seized a document containing three tables from the office of a Swietelsky executive. The document was created before submission of the bids and contained a list of companies that had obtained a copy of Swietelsky's public tender documentation. Handwritten numbers and notes in the seized document indicated which companies would place a bid in the public tender. The handwritten notes also indicated which bids were "cover ups" and which company "needed to win" the tender. According to the Competition Authority, another note stating "we have the numbers" indicated that the necessary number of competitors agreed to place artificial bids.

As soon as Strabag-Swietelsky and its major subcontractor Eurovia were confident about the result of the public tender (based on an exchange of information), they artificially raised the price by 28%. This is what the officials concluded based on the seized documentation containing handwritten notes.

The Road and Motorway Directorate – the contracting authority in this case – declared Strabag-Swietelsky the winner of the tender, with an offered price of approximately Kr944 million (€35 million). While this was about approximately Kr64 million (€2.4 million) below the investor's initial estimate, officials believe that fair competition would have saved taxpayers tens of millions of crowns.

Another example of the alleged anti-competitive conduct relates to another bidding procedure. Two executives of Strabag and Lesostavby Trebon exchanged emails containing price information, including a detailed cost estimate for specific reconstructed items. Based on this exchange of information, the other competitor could back up the bid by increasing its own bid by 0.9%, ensuring that its competitor would win. In a previous tender, the two competitors had switched roles.

Comment

The Competition Authority can impose a maximum fine of 10% of the annual turnover of a convicted company. According to the newspaper, the highest fine was imposed on Skanska (Kr649 million, approximately €24 million), although it participated only in a single disputed tender worth Kr1 billion (approximately €37 million) and did not win. Despite the fact that only limited information is available, the Competition Authority's fine-setting procedure may again be questioned (for further information please see "Škoda Auto fined Kr49 million for resale price maintenance"), as the imposed fine seems disproportionate and solely exemplary. However, due to the lack of official information, it is not yet possible to evaluate the impact on the authority's regular decision-making practice.

On the other hand, any appeals filed by the companies may re-open another controversial topic: how the Competition Authority carries out its dawn raids. Eurovia has already tried to challenge the Competition Authority's conduct during the dawn raid, but was rejected by the court for lodging its appeal too late. If the case is further appealed to the court, it will be interesting to learn the court's view of how the Competition Authority has interpreted Delta Pekarny (for further information please see "Competition Authority resumes dawn raids on business premises").

For further information on this topic please contact Jitka Linhartová or Claudia Bock at Schoenherr by telephone (+420 225 996 500) or email (j.linhartova@schoenherr.eu or c.bock@schoenherr.eu). The Schoenherr website can be accessed at www.schoenherr.eu.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.