Competition Law and Compliance
This indicates that any form of discussion by providers with potential competitors prior to, or during a tender process is a concerted practice and therefore illegal under EU and UK competition law. Discussions of this kind are known as "concerted practices"
The European Commission has defined a “concerted practice” as follows:Co-ordination between undertakings which, without having reached the stage of concluding a formal agreement, have knowingly substituted practical co-operation for the risks of competition. A concerted practice can be constituted by direct or indirect contact between firms whose intention or effect is either to influence the conduct of the market or to disclose intended future behaviour to competitors.
© European Commission
A number of umbrella organisations and others have sought to help small providers through the creation of entities, usually companies which would tender for contracts and then pass out the work to their members. Not only is this contrary to Competition law, but to even discuss a forthcoming contract with a potential competitor can constitute a concerted practice and thus break the law. This is important because not only can the Courts levy fines of up to 10% of total annual turnover based on most recent accounts, on providers who are found guilty of breaking completion law, but recently the courts awarded punitive damages in such a case. The contract was small, amounting to a total value of £34,000. The damages awarded were however £60,000.
The article below sets out the difficulties which providers face in seeking to collaborate for tendering purposes:
As far as information exchanges between competitors are concerned, the ECJ has reiterated that each provider in the market must independently determine the policy which it adopts. The ECJ points out that those providers are expected to adapt themselves intelligently to their competitors' existing or anticipated conduct. However, Article 85 of the Treaty of Lisbon (1st December 2009) restates Article 81 of the earlier Treaty of Maastrich (7th February 1992) which strictly precludes any direct or indirect contact between competitors which might influence them or might disclose their intentions regarding a forthcoming tender or decisions about their own conduct on the market where the effect of such contacts do not correspond to normal market conditions. The ECJ concludes that the exchange of information between competitors would infringe competition rules if it reduces or removes the degree of uncertainty as to the operation of the market in question, with the result that competition between providers is restricted.
The fact that the information exchanged did not regard end prices has been found by the ECJ to be irrelevant. The ECJ held that a concerted practice can infringe competition rules if the subject-matter of the information exchanged by the providers concerned matters which are relevant to the contents and limits of the contract being the subject of the competition. This is the case even if there is no direct connection between the activities and methods to be proposed in the tender and prices quoted.
The ECJ has declared that it is left to National Courts to the interpret Community Law. But as EC law and the decisions of the ECJ are binding on all National Courts, they are in turn obliged to apply the presumptions of the ECJ in making decisions at a National level. The ECJ presumes that where “concerted practices” may arise from so called “casual connections” between providers and a concerted practice may arise from casual discussions as well as formal and informal meetings. Such practices breach both EU and UK competition law. Providers are presumed to have taken account of the information exchanged with their competitors prior to or during a tender process, unless they are able to prove the contrary with sufficient evidence.
Some of the providers when faced with action under competition law have argued that a causal connection can only be presumed where they have met regularly with the knowledge that confidential information has been exchanged. It would be "irrational" to assume that a provider would base its market conduct on information exchanged during the course of just one meeting, in particular, where the meeting otherwise had a legitimate purpose.
The ECJ, however, did not agree with this contention and concluded that a single meeting may be sufficient for the participating companies to align their market conduct. According to the ECJ, what matters is not so much the number of meetings but whether the meeting(s) afford the opportunity to take account of the information exchanged with their competitors in order to determine their conduct on the market and knowingly substitute practical cooperation between them for the risks of competition.
The ECJ judgment sets a strict standard for information exchanges. It clearly shows that information exchanges as such are capable of infringing Articles 81 (1) and 85 of the Treaties. It also endorses enforcement activities of national competition authorities when applying national provisions similar to these Treaty Articles. Recent ECJ and UK judgements judgment should remind providers to check and monitor their policy in relation to contacts with competitors:
- a concerted practice can infringe competition rules i.e. it is not necessary to consider the actual effects of the practice;
- the intention of the companies itself is not an essential element;
- it is irrelevant whether or not there is a direct connection between the concerted practice and prices;
- an infringement of the competition rules can occur if the subject-matter of the information exchanged concerns the limits of the competition and removes uncertainties in the market;
- it will be assumed that providers taking part in a concerted practice take account of the information exchanged with their competitors, unless they are able to prove the contrary with sufficient evidence;
- a single meeting may be sufficient to establish such presumption.
Compliance with competition law is a crucial aspect of successful tendering. TfC has considerable experience in helping providers to collaborate for tendering purposes without breaching competition law. Remember that the Public Contracts Regulations define a consortium as “two or more economic entities”. So under procurement law, two providers tendering together are defined as a consortium
This is a very helpful document form the Office of Fair Trading
Tel. 01629 57501
Fax 01629 584972