I have been invited to contribute an entry on ‘public procurement’ for a new Global Dictionary of Competition Law (Concurrences Books, forthcoming). The initial draft of the entry is below. Comments welcome: a.sanchez-graells@bristol.ac.uk.
Public Procurement
Albert Sanchez-Graells
University of Bristol Law School
Definition
Public procurement rules govern the award of government or public contracts for the acquisition of supplies, works or services, including the direct provision of public services to citizens. Public procurement rules seek to foster effective competition for public contracts to generate value for money, and to harness competition as an anticorruption tool to ensure integrity and probity in the expenditure of public funds. The main challenges to effective competition in public procurement settings are bid rigging (or collusion among bidders), which risk is heightened by the transparency inherent to procurement processes, and anticompetitive requirements imposed by the public buyer.
Commentary
The effectiveness of public procurement and its ability to deliver value for money depend on the existence of two layers of competition: competition in the market for the goods, works or services to be acquired, and competition within the tender for a specific contract. While most competition analysis focuses on the existence (or absence) of competition within the tender and tends to assimilate this with models of competition for the market, this is a short-sighted approach. Except for very rare public contracts for goods, services or works for which the public buyer is a monopsonist—mainly in sectors such as defence—most public tenders take place in a framework of competition in the market, and one with many private and public buyers seeking to purchase from a range of potential suppliers (for example, tenders for the acquisition of cloud services, general supplies, or school meals). Therefore, it is important not only to ensure that procurement rules and administrative practices prevent distortions of competition within a given tender, but also that they do not generate negative knock-on effects on (dynamic) competition in the relevant market.
The most commonly discussed distortion of competition within a public tender concerns anticompetitive agreements between bidders (bid rigging) that seek to manipulate the competition for the public contract and to extract excessive rents from the public buyer. The mechanics of bid rigging schemes are widely understood, including predominant strategies such as cover bidding, bid suppression, bid rotation and market allocation. However, these anticompetitive practices are also difficult to prevent in oligopolistic or concentrated markets because the transparency inherent to public tenders significantly facilitates monitoring of the cartelists’ bidding behaviour, and because the atomisation of public tenders requires a significant investment in market screening tools to spot suspicious patterns across regional markets and over time. Fighting cartels in public procurement settings has become a high priority for most competition authorities in recent years, in part as a result of the OECD’s work on this area—see its 2012 Recommendation on Fighting Bid Rigging in Public Procurement—as well as the push by the International Competition Network. There is also hope in the development of effective systems of automated screening and red flags where public procurement is conducted electronically (of which there is longstanding experience eg in Korea in relation to its eProcurement platform KONEPS), but these require a solid procurement data architecture which absence has marred recent attempts in jurisdictions such as the UK and its now abandoned ‘Screening for cartels’ tool.
An additional difficulty in ensuring effective competition within a given tender derives from the unclear boundary between anticompetitive practices such as bid rigging and procompetitive cooperation through teaming, joint bidding and subcontracting arrangements between bidders. There is currently significant debate about the limits to cooperation between (potential) competitors in the context of procurement procedures, as well as whether it should be treated as a restriction of competition by object or by effect for the purposes of Article 101 TFEU. The debate is particularly alive in Scandinavian countries, following a 2016 Decision by the EFTA Court in the Ski and Follo Taxi case, and a more recent 2019 Judgment by the Danish Supreme Court in the Road Markings case, which has led to a revision of the Danish Competition and Consumer Authority’s guidelines on joint bidding. The main points of contention about the state of the law concern the counterfactual to be used to determine that joint bidders are (potential) competitors, as well as the measurement of any efficiencies passed on to the public buyer.
In order to empower public buyers to self-protect against bid rigging and to strengthen the effectiveness of competition law in public procurement settings, EU procurement rules have created discretionary grounds for the exclusion of bidders ‘where the contracting authority has sufficiently plausible indications to conclude that the economic operator has entered into agreements with other economic operators aimed at distorting competition’, as well as in cases ‘where the contracting authority can demonstrate by appropriate means that the economic operator is guilty of grave professional misconduct, which renders its integrity questionable’—which the Court of Justice of the EU has interpreted as inclusive of non-procurement related breaches of competition law (Generali-Providencia Biztosító). Recent Court of Justice case law has clarified the extent to which these exclusion grounds are applicable where bidders have benefitted from leniency, as well as the intensity of the duty to cooperate incumbent upon bidders seeking to avoid exclusion through self-cleaning measures (Vossloh Laeis). The system created under the EU rules is converging with those of other major jurisdictions, such as the US, where the Federal Acquisitions Regulations allow for similar approaches to assessing the responsiveness (or reliability) of bidders engaged in anticompetitive practices.
Beyond the abovementioned issues, which are all concerned with bidder behaviour, it is important to stress that competition within a public tender can be restricted through decisions made by the public buyer, such as the imposition of excessive participation requirements, the choice of suppliers in less than fully open procedures or foreclosure through eg the use of excessively broad and excessively long framework agreements. Such restrictions of competition can not only generate losses of value for money in the allocation of the specific contract, but also have negative effects on dynamic competition in the relevant market. Unfortunately, the direct application of competition law (ie Article 102 TFEU) to the public buyer has been excluded by the case law of the Court of Justice, except in rather rare situations where the public buyer is engaged in downstream market activities (FENIN). However, a principle of competition has been explicitly enshrined in EU public procurement law to prevent public buyers from ‘artificially narrowing competition’, in particular where ‘the design of the procurement is made with the intention of unduly favouring or disadvantaging certain economic operators’. This is a promising tool to prevent publicly-generated restrictions of competition in public procurement settings, although its interpretation generates some difficulties and its application is yet to be tested in the EU Courts.
Case References
Case C-205/03 P FENIN v Commission, EU:C:2006:453.
Case C-470/13 Generali-Providencia Biztosító, EU:C:2014:2469.
Case C-124/17 Vossloh Laeis, EU:C:2018:855.
EFTA Court, Judgment in Case E-3/16, Ski Taxi SA, Follo Taxi SA og Ski Follo Taxidrift AS v Staten v/Konkurransetilsynet, 22 December2016.
Danish Supreme Court, Judgment in the Road Markings case, 27 November 2019. The case is not available in English, but a comprehensive discussion by Heidi Sander Løjmand can be found at https://www.howtocrackanut.com/blog/2019/11/28/the-danish-supreme-courts-ruling-in-the-road-marking-case-the-end-of-a-joint-bidding-era-guest-post-by-heidi-sander-ljmand-msc [accessed 22 Jan 2021].
Bibliography
Robert Anderson, William Kovacic and Anna Caroline Müller, Promoting Competition and Deterring Corruption in Public Procurement Markets: Synergies with Trade Liberalisation (2016) http://e15initiative.org/publications/promoting-competition-and-deterring-corruption-in-public-procurement-markets-synergies-with-trade-liberalisation/ [accessed 22 Jan 2021].
Alison Jones, ‘Spotlight on Cartels: Bid Rigging Affecting Public Procurement’ (Concurrentialiste, 16 Nov 2020) https://leconcurrentialiste.com/jones-bid-rigging/ [accessed 22 Jan 2021].
Katarzyna Kuźma and Wojciech Hartung, Combating Collusion in Public Procurement. Legal Limitations on Joint Bidding (Edward Elgar 2020).
Albert Sanchez-Graells, Public Procurement and the EU Competition Rules (2nd edn, Hart 2015), Chapter 5.
Albert Sanchez-Graells, ‘“Screening for Cartels” in Public Procurement: Cheating at Solitaire to Sell Fool’s Gold?’ (2019) 10(4) Journal of European Competition Law & Practice 199-211.