It is common practice for companies to participate occasionally in tenders as part of a consortium. In such a scenario, market players openly bid together in an attempt to win a tender and collectively provide services or products that were sought by the particular customer.
There are many valid reasons for companies to enter into such a cooperation. For example, they may lack the necessary experience, skills or technical and financial capacity to make a successful offer and execute the contract independently.
Although joint bidding is accepted by the European Union and national regulations, companies must remember that their cooperation may be subject to interest from competition authorities. This is because market players must comply with antitrust regulations when tendering collectively.
The Warsaw Court of Appeal recently delivered a judgment in the first Polish antitrust case regarding bidding as a consortium.(1)
The Office for Competition and Consumer Protection (OCCP) concluded that ASTWA and MPO – companies which had created a consortium and submitted a joint bid in a tender for the collection and transport of municipal waste in the city of Białystok – had entered into an anticompetitive agreement and violated Article 6 of the Competition Act (which is the equivalent of Article 101 of the Treaty on the Functioning of the European Union (TFEU)).
Following the companies' appeal, the Court of Competition and Consumer Protection annulled the OCCP's decision. However, the Warsaw Court of Appeal upheld the OCCP's decision, confirming the authority's standpoint and reasoning in the case.
According to the Warsaw Court of Appeal, the cooperation between ASTWA and MPO constituted an agreement that had an anticompetitive object and had caused anticompetitive effects in the market.
The court stressed that the idea behind the participation of consortia in tenders (and the rationale of Article 23 of the Public Procurement Law, according to which "contractors may compete for a contract jointly") is to allow participation in tenders by market players that have no capacity to participate independently. Therefore, tendering as part of a consortium when its members can make bids independently and win a contract breaches competition law and is harmful to the customer (ie, the purchasing body).
The court emphasised that entities smaller than ASTWA and MPO had launched independent bids, which made the parties' argument unconvincing (ie, that the consortium members did not have enough capacity to execute the contract).
After analysing the parties' cost data, the court stated that, contrary to ASTWA's and MPO's claims, a lower price offered in a bid (compared to the period before the tender) was the result of the consortium members cutting the profit margin. An attractive price was not an efficiency gain that could be linked to the fact that ASTWA and MPO had created a consortium. According to the court, both companies could also have reduced the price when making separate bids, by pushing down the profit margin.
The judgment pointed out that the consortium's members had not combined their technical capabilities when executing the contract with the customer. In line with the consortium's agreement, the parties simply shared the market geographically and continued providing their services in the same parts of the city as before the tender.
The court agreed with the OCCP's conclusion that the parties had failed to prove that the requirements for individual exemption (identical to Article 101(3) of the TFEU) had been satisfied.
Since the joint bid submitted by ASTWA and MPO was the first case anticompetitive consortium case in which the OCCP issued a decision, the authority refrained from imposing fines due to its unprecedented character.
The Court of Appeal judgment, together with the OCCP's decision, serve as an example which parties considering the creation of a consortium should take it into account when performing a self-assessment.
As a result of this case, parties should be cautious when creating a consortium with competitors, especially when the technical and financial capacity to bid separately exists. It is highly advisable to perform an in-depth analysis of reasons for joint bidding and the benefits of such cooperation. In particular, potential consortium members should try to assess objectively if the efficiencies of bidding jointly outweigh the potential anticompetitive effects of such cooperation.
The OCCP did not impose fines on ASTWA and MPO due to the lack of previous decisions regarding consortiums and joint bidding. Thus, it can be assumed that the authority and courts will impose penalties in future when deciding on similar cases that arise.
For further information on this topic please contact Katarzyna Terlecka or Pawel Kulak at Schoenherr Attorneys at Law by telephone (+48 22 223 09 00) or email ([email protected] or [email protected]). The Schoenherr website can be accessed at www.schoenherr.eu.