Over the past years the Polish Office of Competition and Consumer Protection (UOKiK) has been intensifying measures aimed at investigating tendering procedures.
Since the beginning of 2015 twelve decisions have been issued in bid-rigging cases, in nine of which fines were imposed. More than 30 bid-rigging cases are still on UOKiK’s agenda. The main concern with the increased interest in identifying and eliminating bid-rigging cartels is that, as a result of such practices, the price paid by the contracting party is typically approximately 20% higher than it would have been in an unrestricted competition environment. In this context, two of the recent bid-rigging decisions are particularly interesting.
Guideline Decision on Joint Bidding
It is a common practice for independent entrepreneurs to combine their skills, know-how, and capacities in order to submit an attractive joint offer as a consortium for lucrative contracts. Both the EU and the Polish competition regulators recognize the economically justifiable reasons for this kind of cooperation. In principle, joint bidding constitutes a commonly accepted and lawful practice. The previously uncertain boundaries to this practice have been defined by UOKiK in a decision that has recently been affirmed by a judgment of the Court of Appeal in Warsaw.
The UOKiK’s decision concerned a public tender for collection and transport of municipal waste in the mid-size Polish city of Bialystok. The Polish competition authority held that two core market players – MPO and ASTWA – had colluded in bidding jointly for the contract. Even though UOKiK found their agreement to be restrictive by object, as it was designed to preserve existing market shares by circumventing open market competition, no fines were imposed on the cartelists. UOKiK explained its decision to forgo financial repercussions by pointing to the precedentiary character of the case, which should form guidelines on future practices of bidders anticipating a consortium for joint-bidding purposes.
The decision was appealed and overturned by the competition court (the court of first instance). However, the Court of Appeal in Warsaw followed the reasoning of UOKiK and ruled in line with the initial decision, holding that, in general, companies may bid jointly as a consortium in order to combine services where neither of them has technical or other capabilities to perform the contract independently. By contrast, the Court held that where each of the consortium members has the capacity to bid independently, joint bidding constitutes a restrictive, bid-rigging cartel. Therefore, when considering whether to bid jointly tenderers should always assess their independent and combined potential. If the economic necessity and other pro-competitive considerations do not outweigh the anticompetitive effects, UOKiK will not hesitate to initiate proceedings.
Collusive Practices Between Relatives
Lack of decision-making independence due to family ties between entrepreneurs has been historically found non-collusive, basing of the single economic unit concept. However, the withdrawal of a bid by one of the tenderers that has the object or effect of market sharing with a competing relative is at risk of being qualified as a restrictive concerted practice.
In a recent judgment on the bid-rigging practices between two companies providing road landscape and maintenance services, the competition court had to revise its previous assessment of the single economic unit argument for excusing collusive behavior of related tenderers. Although UOKiK’s fine-imposing decision from 2011 was overturned by the court of first instance in 2013, this judgment was overturned on appeal. In the second-round review the competition court recognized the existence of bid-rigging practices between two companies owned by a separated husband and wife, respectively. The arrangement between the couple was to withdraw the lower bid if the other one was the second best. Consequently, the contractor had to accept the higher bid. The competition court concluded that to the extent submission of separate bids by related entrepreneurs or companies owned by relatives is permissible, alignment of bids or any other collusive arrangement cannot be excused on the basis of the single economic unit argument.
By Arkadiusz Ruminski, Associated Partner, and Marta Smolarz, Senior Associate, Noerr
This article was originally published in Issue 3.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.