Public procurements are often targets for bid rigging. The harm that a rigged public procurement can cause does not need explaining. Therefore, the Hungarian authorities and legislature have made extra efforts to fight this kind of behaviour.
Bid rigging in public procurement is the only antitrust violation that is punished by criminal law in Hungary: it is punishable by imprisonment of up to five years. Participation in bid rigging may also lead to exclusion from future public procurements.
While it is not the primary authority for monitoring public procurements, the Hungarian Competition Authority (HCA) is one authority fighting anti-competitive behaviour in public procurement.
Some of the highest fines in the HCA's history were imposed on cartels targeting public procurement. In 2010, a fine of Ft7.2 billion (approximately €23.2 million) was imposed on a railway construction cartel(1) and in 2009, cartelists in the motorway construction industry were fined almost Ft3 billion (approximately €9.4 million).(2)
It has recently become an enforcement priority of the HCA to investigate all antitrust violations relating to public procurement involving smaller amounts, which also affect small and medium-sized enterprises.
Besides investigating violations, the HCA is also taking steps towards prevention and raising awareness. In May 2017, the HCA published detailed handbooks on bid rigging in public procurement. One of these handbooks was directed at 'contracting authorities' (ie, institutions that wish to purchase goods through public procurement). According to the Public Procurement Act,(3) if a contracting authority suspects a cartel during the public procurement procedure, it is obliged to notify the HCA. The handbook is an attempt to help institutions identify the signs of potential bid rigging and the existence of cartels.
The handbook gives a practical list of signs that can indicate the existence of a cartel. According to the HCA – besides the most obvious signs – it raises serious concerns even during a single procurement process, if multiple companies submit a joint bid despite being capable of bidding separately or if the winning bidder later involves the losing parties as sub-contractors.
In the course of subsequent procurements further concern is raised:
- if for no apparent reason all bidders suddenly offer higher prices;
- if the identity of the winners shows a geographical pattern;
- if tenders seem to be won in a certain order; or
- if a potential bidder refrains from participation in a public procurement, but bids in other similar proceedings.
The handbook also states that it is suspicious if independent bids seem to come from the same source (eg, if the wording or structure of the documents is very similar or if different bids contain the same mistakes or typos).
If such signs are discovered, the handbook recommends contacting the HCA's Investigation Department, which can begin an investigation and instruct the contracting authority on how to proceed. If the existence of a cartel is suspected, sometimes the best solution is not to cancel the procurement, but to 'play along' in order to discover the full extent of the infringement.
The HCA also offers an educational programme for the employees of contracting authorities, in which they can learn more about preventing and detecting bid rigging.
The other handbook the HCA published advises potential bidders on how to 'stay clean'. This handbook provides a comprehensive overview of behaviour which constitutes bid rigging in public procurement and also offers advice on what to do if a bidder is approached to participate in such a scheme.
Typical forms of bid rigging include:
- if a procurement is won in an order determined by the cartelists;
- if some cartelists refrain from a tender or submit invalid bids on purpose; or
- if some of the bidders submit uncompetitive 'dummy' bids.
Joint bidding may also indicate the existence of a cartel in cases where bidders are capable of participating in the tender alone, but instead decide to submit a joint bid without a justifiable economic reason.
The handbook recommends that if a bidder is approached with such an offer, staying passive or not responding may not be sufficient and active distancing may be required. If an e-mail is left unanswered, in legal proceedings it might not be sufficient to claim that there was no response through other means. Further, passively participating in a meeting where such a scheme is discussed could itself constitute an infringement. Therefore, the handbook recommends that it is best to actively refuse such requests as soon as they are offered. In the case of conduct which could raise the risk of bid rigging, the handbook recommends consulting the HCA and an attorney.
While it is not required to be represented by an attorney in front of the HCA, it is recommended that any party consult an experienced antitrust lawyer, for advice on when to turn to the HCA and to help to prepare appropriate submissions. It should also be kept in mind that client-attorney communication is legally privileged, while correspondence with an in-house counsel is not.
Companies must be aware that bid rigging as part of a hard-core cartel cannot be exempted on the basis of small revenue or the market shares of the participants.
While efforts by the HCA to step up against hard-core antitrust infringement is a positive and important development, efforts to raise awareness of such infringement is also important, as many businesses are often unfamiliar with even the most basic antitrust rules. Therefore, in the interest of all participants in public procurement procedures, these measures will hopefully be effective.
For further information on this topic please contact Anna Turi or Attila Jákói at Schoenherr Attorneys at Law by telephone (+36 1 8700 700) or email ([email protected] or [email protected]). The Schoenherr Attorneys at Law website can be accessed at www.schoenherr.eu.