CNMC bans company from contracting with the public sector after violating Spain's Competition Act

Spain's Public Sector Contracts Act has since 2015 included a measure with a significant impact for competition law: the prohibition of companies sanctioned for a serious infringement of competition from contracting with the public sector.

This ban can be imposed in two ways: directly in the sanctioning decision of the National Authority for Markets and Competition (CNMC) or the regional competition authorities or, alternatively, through a procedure by Ministry of Finance. However, for years, the CNMC avoided setting the scope and duration of these bans and referred the matter to the State Public Procurement Advisory Board.

Prohibition on contracting

The CNMC's change of criteria came with the publication of Communication 1/2023, dated 13 June 2023, on determining a prohibition of contracting due to distortion of competition. Spain's competition authority recognised itself as the best-placed institution to assess and directly set the duration and scope of such a prohibition.

Since then, the CNMC has set out a series of parameters for determining the scope and duration of the prohibition, such as the geographical market of the infringement, the product market, the duration, the seriousness and the degree of participation of the offender, with a maximum limit of three years.

The CNMC's communication has opened the door to an unprecedented situation in which the authority itself would decide for how long and in what way to exclude sanctioned companies from public procurement.

Abuse of dominance in access disputes

This scenario has materialised for the first time in case S/0011/23, initiated against a company engaged in the generation, transmission and distribution of wind power. The renewables company was fined €958,593 for abuse of a dominant position. A six-month ban was also imposed on its contracting for works, supplies and consultancy and for construction, operation and maintenance services for wind farms and their equipment.

The case stems from a dispute over access to the electricity grid. The sanctioned company, in its role as a sole node interlocutor (SNI) at the Villimar 220 kV node, favoured access to the node for a renewable energy facility belonging to its own business group. This was to the detriment of a competitor that was denied access to its facilities after being required to make undue corrections to its access application – consequently, excluding it from the grid due to the exhaustion of the node’s capacity.

After the investigation, the ruling concluded that the company committed a very serious infringement of article 2 of the Spanish Competition Act that prohibits the abuse of a dominant position in the national market. This resulted from its discriminatory behaviour as an SNI, declaring the parent company jointly and severally liable for the payment of the fine. Furthermore, the ruling emphasised that the measure respects the principles of proportionality and effectiveness, given that the company does not regularly participate in public tenders and therefore there is no distorting impact on the market.

Possible implications for offending companies

The ruling is significant in terms of the criteria for the scope and implications of the prohibition on contracting and the practical effects of these on any company involved in public procurement. The Competition Chamber recognised that, although ancillary, it is a measure of great significance, as it directly affects the ability of the sanctioned company to participate in the public procurement market.

Firstly, the CNMC Council clarified that the prohibition should not be imposed on the parent company when it is only jointly and severally liable and not the perpetrator of the infringement, thus avoiding a knock-on effect on the business group.

Another aspect to highlight is that the Competition Chamber denies the possibility of exemption from the prohibition provided for in article 72.5 Public Sector Contracts Act, as neither the commitment to pay the fine nor the adoption of regulatory compliance programmes that would allow for a positive assessment of "self-cleaning" has been proven. This reinforces the need for companies to have effective regulatory compliance programmes in place, capable of demonstrating measures designed to prevent the repetition of infringing conduct.

Moreover, although the decision is based on the premise that the prohibition can be extended to the entire public sector, it introduces a filter that limits its application to activities related to the infringing party's corporate purpose. This criterion, although restrictive, may prove to be overly broad in cases where the corporate purpose is wide-ranging. In this regard, it will be necessary to follow future cases and the foreseeable judicial review to see whether and how this approach is consolidated.

Regarding the geographical scope of the ban, an expansive approach is adopted by not limiting it to the geographical market in which the infringement occurred but by establishing a national scope.

The CNMC Council set the duration of the prohibition on contracting at six months, citing two reasons. First, the penalty rate is in the lower half of the maximum 10% provided for serious infringements. And second that the conduct would not have had a significant direct impact on public procurement. This confirms, for future cases, that the duration may be adjusted if a limited effect and other circumstances of proportionality are proven, such as the duration of the infringement or the degree of participation.

Osborne Clarke comment

The CNMC's decision is the "debut" of the framework of Communication 1/2023 and sets a precedent, directly assuming the power to determine the scope and duration of the prohibition on contracting.

However, the question of whether the competition authorities can determine the duration and scope of the prohibition on contracting themselves is pending assessment by the Supreme Court, as several appeals have been admitted against judgments of the High Courts of Justice that upheld this action by regional competition authorities. These appeals are still pending resolution. The Supreme Court's ruling will be keenly awaited to clear up the uncertainty surrounding the future of these measures.

If you would like to know more about the issue discussed in this note or other issues related to competition law and public procurement, please do not hesitate to contact one of our experts listed below or your usual contact at Osborne Clarke.