Bid rigging in procurement procedures

The European Commission (“Commission”) has published a Notice about dealing with agreements aimed at distorting competition. The Commisions' "Notice on tools to fight collusion in public procurement and on guidance on how to apply the related exclusion ground" (C (2021) 1631) contains guidance on how contracting authorities can detect unlawful collusion, when contractors should be excluded for this reason, and what options contractors have for “self-cleaning”.

The Commission interprets the ground for exclusion because of collusive bidding (bid rigging) strictly: plausible indications suffice. As soon as indications of bid rigging appear, companies should immediately initiate appropriate measures for “self-cleaning”.

Increased risk of bid rigging

Public procurement is vulnerable to bid rigging. The Commission identifies the main factors as follows:

• the often repetitive and predictable behaviour of clients,
• strict technical requirements that limit the potential pool of applicants, and
• the disclosure of names of other companies and of prices they offer, which is partly required by law.

Bid rigging (collusion) undermines a fair, transparent, competitive and investment-driven procurement process, discourages law-abiding companies from participating in procurement procedures, and is often accompanied by corruption. The Commission observes that the risk of collusion is particularly great in emergency situations when demand is high and the adverse effects of collusion are especially damaging in post-crisis periods.

Up to now, the European and national competition authorities have tended to penalise collusive behaviour only years after a contract ends. The Commission would prefer to detect and prevent collusive behaviour during the award procedure. A major role therefore plays the exclusion of bidders under public procurement law if there are sufficiently plausible indications of collusive behaviour.

The Notice lists measures and tips to combat bid-rigging. According to the Commission, the behaviour of the public sector itself plays a critical role. Important in this regard are:

• gathering knowledge and experience regarding both public procurement law and competition law,
• carrying out detailed market research before launching a procurement procedure, and
• designing the tender documents to generate the greatest possible competition.

The Commission also encourages regulatory frameworks that strengthen cooperation between competition authorities and contracting authorities, citing Sweden and Germany as examples. There, the competition authority exercises a form of supervisory function.

Is a “blacklist” coming to Austria?

The Commission also proposes states establish a national database for companies that have been involved in submission cartels. In Austria, the Economic and Corruption Prosecutor’s Register on companies (“Verbandsregisterauskunft”) already provides something along these lines.

However, a generally accessible “blacklist”, such as the one on the World Bank’s website, would obviously generate more disclosure and thus provide an additional deterrent effect.

Plausible evidence suffices

If a contracting authority has sufficient plausible evidence of an illegal agreement to collude, a contractor must be excluded from the award procedure. The Commission interprets this broadly. There is considered to be such evidence if:

• an undertaking orders material to carry out the contract before the tender evaluation,
• a conspicuous (rotating) participation in award procedures can be observed,
• it offers higher prices than in previous, comparable tender procedures,
• a criminal charge is brought, or
• information about cartel proceedings is available.

Limits of the exclusion

According to the Commission, however, exclusion is not a “punishment” for past behaviour. It is rather intended to ensure bidders are equally treated and the award procedure is genuinely competitive. A contracting authority must therefore independently assess whether the ground for exclusion is fulfilled and prove it. The mere fact that a contractor was excluded in a previous award procedure must not automatically lead to its being excluded again. The ground for exclusion relates in each case to the company involved in the agreement, but not to affiliated companies.

Duty of the bidder to cooperate

In this context, the contractor has a duty to cooperate: it must inform the contracting authority about any cartel violations established by the courts. This information is requested, for example, in the European Single Procurement Document. Even if a self-declaration is submitted in another form, it is still recommended that such judgements be disclosed. If a contractor fails to provide this information, the contracting authority may – according to the Commission – exclude it from the award procedure for this reason alone.

Multiple participation

From this point of view, the participation of affiliated companies in the same award procedure, the formation of bidding consortia or multiple participation as subcontractor/bidder is particularly sensitive. This indicates an inadmissibly close relationship and hence possible influence. Affiliated bidders must be given the opportunity to demonstrate that their bids were prepared autonomously and independently of each other and do not affect transparency or free competition.

Self-cleaning

Companies may not be excluded, however, if they can credibly demonstrate "self-cleaning", which they have the right to do. The measures taken must be proportionate to the seriousness of the infringement and vary depending on the individual case. For example, a company must have paid damages or undertaken to do so only if a lawsuit has been brought against it. On the other hand, personnel measures – without further technical or organisational measures – may sometimes be sufficient. Here, the Austrian law is probably formulated too strictly.

Self-cleaning can also take place in the case of collusion during a specific procurement procedure if the contractor proactively brings it to the contracting authority’s attention, cooperates in the investigation, and takes measures to prevent such violations in the future. The Commission also emphasises that leniency should be valued in this context.