Competition Law And Public Procurement ' One Cannot Do Without The Other Or Potentially Diverging Rules

• Published date: 18 October 2021
• Subject Matter: Anti-trust/Competition Law, Government, Public Sector, Criminal Law, Antitrust, EU Competition , Government Contracts, Procurement & PPP, White Collar Crime, Anti-Corruption & Fraud
• Law Firm: Bird & Bird
• Author: Ms Janneke Kohlen and Bróna Heenan

Article summary

• The sustainable, green, digital era is well and truly upon us Vast quantities of taxpayer's money are set to be spent on all sorts of investments that meet EU and national policies. Public tenders and public procurement rules are in place to make sure that this money is spent in a non-discriminatory transparent way in a market where the level playing field is safeguarded as well.
• Contractors who fall short or have violated competition rules can and indeed in some cases, must be excluded from public tenders At least until they have compensated for damage suffered and put in place systems to avoid similar mistakes being made.
• To ensure that the Community money is wisely spent and properly accounted for, the EU relies on the application of procurement rules. But what if there is a lack of competition in the marketplace or companies have colluded during the bidding process?
• Then both competition law and the procurement rules apply but not always in an aligned fashion with different authorities taking the lead.
• When advising on competition and procurement law, it is often necessary to consider the differences between the two areas of law and more particularly, the different consequences of their breach. Even where the underlying activity is one and the same (bid rigging is the obvious one) the legal consequences that follow add considerable complexity to advising undertakings.
• This article discusses some of the ways in which these rules diverge and what legal counsel, lawyers and undertakings need to look out for.

When advising on competition and procurement law, it is often necessary to consider the differences between the two areas of law and more particularly, the different consequences of their breach. Even where the underlying activity is one and the same (bid rigging is the obvious one) the legal consequences that follow add considerable complexity to advising clients.

Banning corrupt companies from accessing public funds (also known as debarment) is considered an effective deterrent in terms of procurement. In markets where governments spend trillions on goods and services, few companies can afford being locked out of markets, even for short periods of time.

Successful deterrence is dependent on several factors and these include the chances of being caught and the consequences that follow. The detrimental effects of collusion on public finances may prove even greater in the aftermath of COVID as economic recovery depends greatly on the best possible use of public funds and investment in critical economic sectors. Misuse of spending, such as excessive amounts paid for works, supplies and services contracts, means less public funds for core state business, larger budget deficits, and a greater need for borrowing. This jeopardises financial stability and undermines recovery efforts.

Poised on the threshold of the largest injection of public funds in living memory, it is a good moment to reflect on how these two areas of law converge, diverge and intersect. The potential sanctions for breaching competition or procurement law (or both) are high¹, both financially, in terms of fines, potential damages actions and legal costs and commercially, through potential market exclusion and reputational damage. The timing of the Commission guidance on fighting collusion in public procurement and on the application of exclusion grounds (March 2021 - see 4 below) is noteworthy even if it falls somewhat short in terms of content.

1. Reliance on the competition rules to deter collusion

Breaches of competition law cover a wide spectrum of activities and can encompass everything from competitors agreeing to keep off each other's turf, to price fixing in virtual chat rooms or the more traditional smoke-filled rooms. With fines of up to 10% of worldwide turnover, follow-on private damages actions, reputational damage and defence costs, getting a CEO's attention is not difficult. To remain relevant, competition law must also evolve with the times. This is clearly evidenced in the recent '875 million ($1 billion) fine on five European car manufacturers for colluding to curb the use of emission cleaning technology in diesel cars over a period of 5 years. Daimler, as the leniency applicant, was awarded immunity from EU fines. In this case, the fines were considerably reduced on grounds of the novelty and the first application of competition law to the delay of innovation. Such reductions are unlikely to apply to similar cases in the future.

In countries where bid rigging is considered a criminal activity, enforcement by public prosecutors and the newly launched European Public Prosecutor Office (EPPO) are set to change the landscape considerably (see 5 below).

2. Reliance on the procurement rules to deter collusion

There are two sets of disqualification rules aimed at excluding bidders from participating in public tenders. In procurement law, these are referred to as mandatory and discretionary exclusions. The first set aimed at excluding any infringing party and these include criminal activities such as engaging in a criminal organisation, fraud, financing terrorists, money laundering, child labour and human trafficking. Mandatory exclusion rules which contracting authorities must apply and discretionary exclusion rules which remain within the remit of the contracting authority provided general EU principles of transparency, equal treatment and proportionality are met.

Mandatory = Mandatory

Mandatory exclusion rules must be applied by all contracting authorities². In addition, Member States are free to implement discretionary grounds as mandatory³. If this occurs, discretionary grounds are treated as mandatory grounds, automatically triggering exclusion⁴. The result however leads to differing approaches across Member States and a need for bidders to have a clear understanding of national measures triggering exclusion.

Prior to the 2014 Directive, tenderers who colluded could be excluded on the basis of Article 45(2) of Directive 2004/18, provided they had been convicted by final judgment for an offence related to their professional misconduct or were guilty of grave misconduct by any means that the contracting authority could demonstrate (including an infringement of competition). Arguments abounded as to what constituted "professional misconduct" and the evidence necessary to exclude on grounds of "grave misconduct". With legal certainty elusive, the scope for lawyering out of trouble increased.

The 2014 Directive amended the exclusion rules and;

• Allowed for exclusion if the contracting authority found there was 'sufficiently plausible indications' that the tenderer entered into agreements aimed at distorting competition.
• Included the possibility for economic operators to invoke self-cleaning measures to attempt to avoid exclusion in cases where no final judgment had been issued. It is worth remembering how long competition investigations can take.
• Allowed the Member State to set the maximum duration of exclusion (other than where exclusion is set by final judgment where the limit is no more than 5 years).

Self-cleaning

Criminal activities⁵, professional misconduct and similar compliance breaches can render a candidate's integrity questionable and therefore unsuitable to be awarded a public contract. Exclusion should not last indefinitely. By proving that they have adopted compliance measures remedying the consequences of their past behavior and preventing future misbehavior, companies that have been excluded have the possibility of demonstrating their trustworthiness. EU law sets out specific measures to be taken:

Article 57(6) of the 2014 Directive introduced the concept of "self-cleaning", a somewhat awkward term (in English at least) that essentially describes measures taken by bidders to demonstrate their trustworthiness to contracting authorities, even though an exclusion ground applies to them⁶. For this purpose, EU law provides that the economic operator must prove that it has -

paid...