Transcript European Union Competition Law Aspects of Bid Rigging

Bangor University Procurement Week 2013
European Union Competition Law
Aspects of Bid Rigging; What the
Procurement Community Needs to Know
Dr Vincent J G Power, A&L Goodbody
22 March 2013
email: [email protected]
Introduction
Do bidders in public procurement cheat
by
fixing prices, markets and bids?
2
Introduction
Do bidders in public procurement cheat
by
fixing prices, markets and bids?
A €15,000,000,000+ question!
3
Introduction
Even if there was cheating in only 10% of
cases…
4
Introduction
Even if there was cheating in only 10% of
cases…
Then €1,500,000,000
would be still a big question
5
Introduction
Even if the cheating in 10% of cases
led to only a 10% increase in price…
Then €150,000,000
would be still a big problem!
6
Introduction
Has there ever been cheating/bid-rigging
on a tender that you worked on?
7
A story…
A contracting authority in Belgium needed lifts….
8
A story…
“European Competition fines members of lifts and
escalators cartels almost over 990 million euro
The European Commission has fined the Otis, KONE,
Schindler and ThyssenKrupp groups €992 million for
operating cartels for the installation and maintenance of
lifts and escalators in Belgium, Germany, Luxembourg
and the Netherlands, in clear violation of EC Treaty rules
that outlaw restrictive business practices….”
(21 February 2007)
...lifts are an interesting sector…
9
A story…
…the contracting authority in Belgium buying the lifts was the European
Commission!
10
 Message 1:
 Bid rigging can be difficult to detect
11
A story…
“Commission goes to court over damages suffered from
elevators cartel
Brussels, 24 June 2008
Commission goes to court over damages suffered from
elevators cartel
The European Commission has filed cases with the
Tribunal de Commerce in Brussels seeking
compensation from four lifts companies for damages
suffered from inflated prices for the installation and
maintenance of lifts and escalators…..”
12
A story…
On 6 November 2012, Court of Justice cleared the way for
the damages action in Case C-199/11 Europese
Gemeenschap v Otis NV and Others:
“On those grounds, the Court (Grand Chamber) hereby rules:
1.
European Union law must be interpreted as meaning that, in
circumstances such as those at issue in the main proceedings, the
European Commission is not precluded from representing the
European Union before a national court hearing a civil action for
damages in respect of loss caused to the European Union by an
agreement or practice prohibited by Articles 81 EC and 101 TFEU
which may have affected certain public contracts awarded by various
institutions and bodies of the European Union, there being no need for
the Commission to have authorisation for that purpose from those
institutions and bodies….
13
 2.
Article 47 of the Charter of Fundamental Rights
of the European Union does not preclude the
European Commission from bringing an action
before a national court, on behalf of the European
Union, for damages in respect of loss sustained by
the Union as a result of an agreement or practice
which has been found by a decision of the
Commission to infringe Article 81 EC or Article 101
TFEU.”
14
 Message 2:
 Contracting Authorities must be willing, and able, to
take action against bid rigging
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Which is the bid rigging meeting?
16
 Building and Construction Industry in the
Netherlands
 Pre-Insulated Pipe Cartels
 Italian Raw Tobacco
 “Group 91 Architects” Decision
17
 Message 3:
 Contracting Authorities must be able to detect good
bid co-ordination and bad bid rigging
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Public Procurement & Competition Law
 Need to look beyond Public Procurement Law and
look at other areas of law including Competition
Law…
19
 A few words about the relationship between
competition law and public procurement law
 Procurement cannot work without competition
 But competition may not be enough…and needs
procurement
 But, oddly, the procurement process can foster anticompetitive behaviour!
20
 How can the procurement process can foster anticompetitive behaviour?
 Ad hoc purchases versus timed processes
 Transparency
 Commoditisation
 Risks of losing
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Public Procurement & Competition Law
 Shared Objectives & Issues
» Efficiency
» Reducing costs
» Increasing competitiveness
» Creating an environment in which competition can
exist
22
Public Procurement & Competition Law
 Shared Objectives & Issues
» Internal Market
» Open market economy with free competition
» Value for money
» Preventing protectionism
23
 Message 4:
 Contracting Authorities need to look not only at the
procurement law dimension but also the competition
law dimension
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 HAVE YOU BEEN CHEATED?
- WHAT TO WATCH OUT FOR…
25
Detective Work…
1. Watch out for markets where the product is
standardised and unbranded;
2. Be very careful of markets where there are
few competitors;
3. Watch out for phrases such as “standard
practice”, “we are cheaper than the industry
norm” and so on;
4. Watch out for “moving winners”;
5. Suspicious pricing patterns;
26
Detective Work…
6. Suspiciously high bids by a preponderance of the
bidders so as to allow one (who has been “covered”)
a clear run at winning the competition;
7. Do the bidders know each other too well?
8. Do the bidders know how many bidders have been
invited or participating in the tender process?
9. Has a bidder said or written something which was
not in the public domain and must have been learned
from another bidder?
27
Detective Work…
10. Was a bid submitted by someone who was
not invited to bid?
11. Are the prices somewhat odd and perhaps
signalling messages to other tenders?
12. Are documents similar or, at least,
suspiciously similar (e.g., calculations,
language)?
28
Detective Work…
13. Is there little or no entry into the market (i.e.,
the bidders know that they are unlikely to be
caught out by other bids from “left field”);
14. Is information freely available and
exchanged?
15. Are trade associations involved in the
process and are they active/strong/well
attended?
29
Detective Work…
16. Is there little technological change in the
sector?
17. Are competitions held infrequently?
18. Have there been any competition
cases/investigations in this sector?
19. Are there any signs of a lack of rivalry and
genuine competition? (“industry norm”)
30
Detective Work…
20. Cover bidding where one bidder is selected to win
and the others “cover” that bidder by making higher
bids or unacceptable bids. This is also known as
complementary, courtesy, token or symbolic bidding;
21. Bid suppression where there is a deliberate
refraining from bidding;
21. Bid rotation where bids are rotated;
22. How strong/active is the trade association?
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 Message 5:
 There are some tell-tale signs and Contracting
Authorities need to keep an eye out for those telltale signs
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Is all Co-operation between
Bidders always unlawful under
competition law?
33
Is all Co-operation Unlawful?
 No…
 Anti-Competitive Arrangements are permissible
where they fall within the Exemption regime
34
Is all Co-operation Unlawful?
Having regard to all relevant market conditions, the
arrangement:
+ contributes to improving the production or distribution of
goods
+ promoting technical or economic progress while allowing
consumers a fair share of the resulting benefit but
- does not impose indispensable terms
- does not afford possibility of eliminating competition
35
Is all Co-operation Unlawful?
 Openness
 Joint Ventures
 Complementary partners
 Risk sharing: Group 91 Architects
 But co-operation between direct competitors without
the need to share risk could be suspicious
36
Is all Co-operation Unlawful?
 What to do to prevent bid-rigging?
» Explicit warning of disqualification
» Explicit warning of reporting to the Competition
Authority/European Commission/Gardai
 What to do if you suspect big-rigging?
 What not to do if you suspect bid-rigging
37
Is all Co-operation Unlawful?
 Give them fair opportunity to comment
 Remind them of the penalties
» Jail Fines
» Damages
 Give very serious consideration to raising the issue with the
National Competition Authority/European Commission
 Be careful of defamation
 Be careful of colleagues?
38
 Message 6:
 Don’t assume that all co-operation is bad but have
the wisdom to tell the difference!
39
 There is an international dimension to bid rigging
 Canada, the USA etc
 OECD: its 2009 Practical Guidelines on Fighting Bid
Rigging and 2012 Recommendation
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 The New Procurement Regime will deal with anticompetitive activity more explicitly
 Article 54
 Article 55
 Comments on the proposed new regime
41
 Message 7:
 Change is afoot but the competition rules remain the
same!
42
 But after all of that…
 What is bid rigging?
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 The Canadian Competition Bureau has written:
 "Bid-rigging is an agreement where, in response to a call
or request for bids or tenders, one or more bidders agree
not to submit a bid, or two or more bidders agree to
submit bids or to withdraw bids that have been
prearranged among themselves.
 Bid-rigging is a serious crime that eliminates competition
among your suppliers, increasing your costs and
harming your ability to compete. Whether this occurs on
government projects or in the private sector, these
increased costs are ultimately passed on to the public."
44
 As early as 2 January 1973, the European
Commission stated in its European Sugar Industry
decision:
“[i]n a system of tendering, competition is of the
essence. If the tenders submitted by those taking part
are not the result of individual economic calculation, but
of knowledge of the tenders by other participants or of
concertation with them, competition is prevented, or at
least distorted and restricted.”
 OJ L 140/17, 26.5.1973.
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
Whish and Bailey have described it as “collusive tendering”. They have commented:

“Collusive tendering is a practice whereby firms agree amongst themselves to
collaborate over their response to invitations to tender. It is particularly likely to be
encountered in the engineering and construction industries where firms compete for
very large contracts; often the tenderee will have a powerful bargaining position and
the contractors feel the need to concert their bargaining power. From a contractor’s
point of view collusion over tendering has other benefits apart from the fact that it can
lead to higher prices: it may mean that fewer contractors actually bother to price any
particular deal (tendering itself can be a costly business) so that overheads are kept
lower; it may mean that a contractor can make a tender which it knows will not be
accepted (because it has been agreed that another firm will tender at a lower price)
and yet which indicates that it is still interested in doing business, so that it will not be
crossed off the tenderee’s list; and it may mean that a contractor can retain the
business of its established, favoured customers without worrying that they will be
poached by its competitors.”
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 Bidders (i.e., suppliers) agree among themselves, in
a clandestine, covered or collusive way, to eliminate
competition in the procurement process
 It differs from open transparent consortium bids
 Trust your instincts but be careful about proof!
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 Messages

Bid rigging can be difficult to detect

Contracting Authorities must be willing, and able, to take action against bid rigging

Contracting Authorities must be able to detect good bid co-ordination and bad bid
rigging

Contracting Authorities need to look not only at the procurement law dimension but
also the competition law dimension

There are some tell-tale signs and Contracting Authorities need to keep an eye out
for those tell-tale signs

Don’t assume that all co-operation is bad but have the wisdom to tell the difference!

Change is afoot but the competition rules remain the same!
48
Bangor University Procurement Week 2013
European Union Competition Law
Aspects of Bid Rigging; What the
Procurement Community Needs to Know
Dr Vincent J G Power, A&L Goodbody
22 March 2013
email: [email protected]