When thinking of cartels, one usually has in mind agreements between undertakings operating in the field of sales of consumer goods or services. However, due to the combination of several factors (such as the importance of the authorities’ orders, low flexibility and inelastic order volumes despite price variation), public procurement has come under particular scrutiny for cartels of undertakings.
Unlawful agreements regarding public procurement
The last couple of years have seen increased activity by national competition authorities regarding unlawful agreements in relation to public procurement. In a public procurement cartel, bidders determine among them who will “win” the offer by concerting their offers and ensuring that the “designated winner” will be selected by the public authority, through an apparently “competitive” process. This mechanism is referred to as “bid rigging”, which, at the very least, is prohibited under both EU and Belgian competition laws (art. 101 TFEU and art. IV.1 BCEL).
Guidelines on Collusion in Public Tenders
In January 2017, the Belgian Competition Authority (BCA) published the Guidelines on Collusion in Public Tenders (the Guidelines) to address the issue and to better inform the buyers (public entities), which are both the first victim and the first entity able to spot any potential bid rigging.
The BCA stresses that some markets are more likely to encounter bid rigging than others. It has indicated that factors which will establish a market prone to bid rigging include: a small number of competitors; few or no potential/new entrants; bidders who know each other; identical or similar products; and repetitive calls for tender with a constant and foreseeable demand.
The Guidelines highlight several mechanisms constituting bid rigging, such as:
- Fictive offers (so-called “coverage offers”): a person or an undertaking agrees to submit a tender, which (i) is higher than the one of the “designated winner”; and/or (ii) is too high to be accepted by the buyer; and/or (iii) prescribes special conditions, which obviously would not be acceptable by the buyer;
- Withdrawal of tenders: one or several undertakings agree(s) not to submit any tender or to withdraw a tender previously submitted, so that the “designated winner” will effectively win the market;
- Rotational offer system: each bidder takes turns in “winning” a market; and
- Market allocation: competitors allocate markets and agree not to compete regarding certain clients or geographic areas, or only via fictive offers.
The underlying framework of such agreements is often a system of compensation and repartition of the profit triggered, be it through the setting up of a subcontracting agreement with, or deliveries made to, the “designated winner”.
The BCA lists specific examples of what should catch the attention of buyers, including: a lower than usual number of bids; not-withheld bidders turned subcontractors under the winning bid; documents being submitted containing identical errors; tenders not selected being significantly higher than the “winning” tender (usually 10%); a sudden and identical price increase; or even undertakings submitting bids when the bidder is clearly not capable of correctly executing the contract.
However, such indications do not constitute rebuttable proof. Rather than several indicators collected during one public procurement procedure, the best indicator according to the BCA seems to be the reiteration of suspicious over time.
Implications of the Guidelines
The Guidelines underline the importance of preparation on the buyer’s side. Buyers are advised to analyse themselves which undertakings are present in the market, looking at factors such as where they usually sell their products/services and what the characteristics of the market are.
Buyers should also maximise chances of undertakings submitting their tenders. For instance, buyers should not set conditions which unreasonably limit competition, or should open the tendering process to undertakings located in other regions/countries.
Another effective means of preventing undertakings entering into collusive behaviour is to insert anti-cartel clauses within the buyers’ documents. Such clauses might, for example, prohibit the exchange of information between tenderers and/or require the divulgation of all subcontracting agreements concluded before and after the assignment of the contract. Tendering entities are invited to inform the BCA of any potential bid rigging.
As a part of what may be perceived as a drive to involve more people on the ground, the overarching focus is on raising buyers’ awareness regarding collusive behaviour in public procurement. They are the first able to spot any anti-competitive behaviour and should work hand-in-hand with competition authorities. The BCA’s Guidelines align themselves in this perspective.