Region Skåne (Scania County), a Swedish Contracting Authority, is initiating a public procurement procedure in order to buy electric boats to be used by its employees when they take water samples in the sea and lakes according to an EU Directive on water quality. The Region estimates that it needs 40 boats (which means that the relevant threshold in the EU Procurement Directive has been reached). The Region is informed that electric boats is still not particularly efficient in comparison with petrol powered boats. They cannot be used for more than half an hour before the battery in the engine needs to be recharged. The Region realises the limited use for such boats but feels obliged to "think green" and therefore inserts as special award criterion in the conditions for the public procurement stating that suppliers that can deliver at least 10% of the boats as electrically powered will receive bonus points in the evaluation of the selection of the most economically advantageous tender. The Region values this environmental criterion very high in the distribution of points making it even more important than a very low price. The Danish company Future Boats (FB) has one (not very popular) electric boat in its range. The Swedish company Green Boats (GB), established in Lund, also has an electric boat in its range. To the knowledge of GB, there is no other supplier of electric boats which is likely to submit a bid in the Public Procurement initiated by Region Skåne. The sales manager at GB contacts his correspondent at FB by e-mail to hear if FB intends to submit a bid in the procurement. As this seems to be the case, GB’s sales manager proposes by telephone that FB should refrain from submitting the bid, as Region Västra Götaland (County at the western coast of Sweden), is in the process of initiating a corresponding public procurement for boats (there is a need for water samples also in that region and Västra Götaland does not want to be considered less “green” than Skåne). GB’s sales manager declares that if FB refrains from submitting a bid now, GB will not submit any bid in the procurement initiated by Västra Götaland. The sales manager at GB emphasizes that this is a win-win situation with much better profit margin for both companies, giving the limited availability of electric boats. FB replies that it will think about it. 4 GB does not hear anything from FB, but the Danish company does not submit a bid, and GB's bid is eventually evaluated as the most economically advantageous tender by Region Skåne. Another Swedish company, Fast and Furious Boats (FFB), established in Stockholm, offered a lower price but did not receive any bonus points since it could not offer any electrically powered boats. FFB is furious and considers that Region Skåne wrongfully intends to assign the contract to the local company GB. FFB argues that electric boats are currently not suitable for the use intended by Region Skåne. FFB therefore appeals to the Swedish Administrative Court claiming that the award decision should be declared invalid. Your task is to answer the following questions:
a) Is there any violation of EU competition law in the situation described above for which GB can be held responsible?
b) Is there any legal problem associated with the public procurement procedure that may affect GB’s chances of finally obtain the contract? The discussion should be held on a general level and not deal with detailed provisions in the EU procurement directives or in Swedish legislation.
c) Is there any reason to believe that the Danish company FB, which did not participate in the procurement procedure, can be considered to have infringed EU competition law or EU public procurement law?
QUESTION 1
a. Is there any violation of EU competition law in the situation described above for which GB can be held responsible?
This is a horizontal agreement or collusive practice between GB and FB. GB can be held responsible as this form of anti-competitive behaviour is not allowed under the treat or TFEU 101. From the wording of the case there seems to collusive practice between the parties to the case i.e. GB and FB. “The sales manager at GB emphasizes that this is a win-win situation with much better profit margin for both companies, giving the limited availability of electric boats. FB replies that it will think about it. 4 GB does not hear anything from FB, but the Danish company does not submit a bid, and GB's bid is eventually evaluated as the most economically advantageous tender by Region Skåne.”
First and foremost, the TFEU 101 states
‘The following shall be prohibited as incompatible with the internal market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market, and in particular those which: (a) directly or indirectly fix purchase or selling prices or any other trading conditions; (b) limit or control production, markets, technical development, or investment; (c) share markets or sources of supply; (d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.’
When looking at this question paragraphs (1) and (3) should be read successively: paragraph (1) declares that exception in paragraph (3) which provides that anti-competitive agreements that yield certain benefits may be lawful. If an agreement restricts exempted under paragraph (3) then, following paragraph (2), it is automatically void. Under EU law, agreements in breach of Article 101 are prohibited.
One must establish that the agreement is between undertakings which it is in the current case. An ‘undertaking’ encompasses any entity, (including individuals, legal persons such as companies and partnerships, state and public bodies) engaged in economic activity that offers goods and services on the given market, regardless of its legal personality or status, or the way in which it is financed.[14]Three distinct types of cooperation fall under Article 101 TFEU. An agreement represents a consensus between parties to act in a certain manner; it need not be inscribed in a binding contract, and need not be in writing. “A concerted practice is a term used to catch forms of collusion that fall short of agreement, but where the parties substitute practical cooperation for the risks of competition, affecting the conditions of competition on the market.”[15]
The case at hand between GB and FB seems to be one of Collusive Tendering or the collaboration between tenderers in a procurement or distribution of profits. Although if they are able to prove that this is a ‘consortium, which is actually allowed under EU law where several companies may be behind a bid then they may be safe. The likelihood of them being safe is scarce.
The concept agreements under the TFEU 101 “Centres around the existence of a concurrence of wills between at least two parties, the form in which it is manifested being unimportant so long as it constitutes the faithful expression of the parties’ intention.”[16] A concerted practice is a “form of coordination between undertakings which, without having reached the stage where an agreement properly so-called has been concluded, knowingly substitutes practical cooperation between them for the risks of competition”[17]
An example is a situation where undertakings meet to exchange information about the prices they intend to charge and their sales volumes information which makes coordination of behaviour likely because after the meeting each player takes into consideration what others have disclosed when planning their strategy.
“There is no agreement because specific conduct has not been determined, but the post-market behaviour of each is influenced by the information received and it is likely that prices are higher and output less than if each had determined their business conduct independently. Thus, concerted practices differ in form from agreements because of their intensity, but both are collusive devices having the same effect: coordinating the behaviour of the participants.” [18]
This was the case in the T-241/01 SAS v. Commission, where SAS and Maerks case, where the two undertakings divided the route of air traffic amongst each another. SAS was offered Stockholm-Copenhagen and has to keep out from other markets. In essence this is Horizontal market sharing or collusive tendering, which seems to be the case in the problem question at hand. One must establish that this is a cartel and there exist four conditions for a successful cartel:
I. the major suppliers take part;
II. they agree on how to coordinate their behaviour (e.g. by agreeing upon how to set prices or allocating geographical markets to each other);
III. there is a instrument to detect and punish cartel members who 'cheat' by cutting prices below the cartel price;
IV. there are high entry barriers to prevent competitors entering the market thereby reducing the cartel's profitability. [19]
“It does not, however, follow that patterns of conduct having the same anti-competitive object, each of which, taken in isolation, would fall within the meaning of 'agreement, 'concerted practice' or 'a decision by an association of undertaking.”[20]
In sum the policy behind The Court of Justice case law is to send a message to parties to a cartel that once they agree to conspire against the interests of the Union, they will be held responsible for the entirety of the conduct to which they have assented. [21]
In one case it was held that even when an undertaking is not active on the market, it facilitated the collusive outcome.[22]
Article 101 TFEU distinguishes between agreements whose object is the restriction of competition and those which have as an effect the restriction of competition. In considering infringements by object, there is reference to the object of an agreement. (please see below for more clarification)
As already mentioned above there seems to be a breach of TFEU 101. In Commission v. Anic Partecipazioni SpA, (-49/92 , ECLI:EU:C:1999:356 It was held that The list in Article (101(1)) of the Treaty is intended to apply to all collusion between undertakings; whatever the form it takes. Also, by characterising the infringement of 101 TFEU as a single conspiracy, a cartel is responsible for all of the cartels actions therefore all the parties in the question at hand may be responsible form a competition law perspective, even if it did not take part in all of them. This means that a cartel is a conspiracy by its members. Even Anic with a small market share, contributed to the conspiracy. In sum the policy behind The Court of Justice case law is to send a message to parties to a cartel that once they agree to conspire against the interests of the Union, they will be held responsible for the entirety of the conduct to which they have assented.
Non-exhaustive guidance on what constitutes restrictions by object can be found in Commission block exemption regulations, guidelines and notices. Restrictions that are black-listed in block exemptions or identified as hardcore restrictions in guidelines and notices are generally considered by the Commission to constitute restrictions by object. In the case of horizontal agreements restrictions of competition by object include price fixing, output limitation and sharing of markets and customers.[23]
The case facts of the problem question clearly indicate restriction by object as well.
From the facts of the problem question, it does not seem that the exception, i.e. 101(3) would not come into play. First possible exception is an individual exemption which is under Article 101(3). In order for the article to apply, four conditions must be met. To satisfy Article 101(3) TFEU, an agreement must satisfy four cumulative conditions:1.It must contribute to improving the production or distribution of goods or contribute to promoting technical or economicprogress,2.Consumers must receive a fair share of the resulting benefits, 3.The restrictions must be indispensable to the attainment of these objectives, and 4.The agreement must not afford the parties the possibility of eliminating competition in respect of a substantial part of the products in question”. If, however it can be shown that the company’s agreement can justify this agreement if it can prove that this way they can improve the output of product or services, consumers can benefit somehow for an example lower process or having a better quality of services or goods in the long-run or future or environmentally friendlier options then the exceptions can be used. Also, the company should prove that by this agreement the company does not cause any net harm to consumers.
For further reference involving competition law please see answer to Question 2 (c).
b. Is there any legal problem associated with the public procurement procedure that may affect GB’s chances of finally obtain the contract? The discussion should be held on a general level and not deal with detailed provisions in the EU procurement directives or in Swedish legislation.
Public procurement within the internal market is not fully harmonized, yet through the use of directives these matters are coordinated to a very large degree. “The purpose of coordinating the procedures for the award of public contracts at the EU level is precisely to eliminate barriers to the freedom to provide services and goods and therefore to protect the interests of traders established in a Member State who wish to offer goods or services to contracting authorities established in another Member State.”[24] The founding principles of the EU internal market codified in the TFEU and in the procurement directives speak for themselves that an equal opportunity to win the contract should be given to all bidders, with slight exceptions outlined in the Concordia case.[25] Some of these principles are proportionality or the requirements must have a natural relation to the supplies, services or works which are being procured. Also principle of mutual recognition states that documents issued in one Member State must be accepted in another Member State. Principle of equal treatment signifies that all suppliers must be treated equally. Principle of non-discrimination which prohibits all discrimination based on nationality and lastly the principle of openness highlighting predictability and transparency.
Taking into account GB’s behaviour and conduct of manipulating FB to not submit its bid in the procurement procedure goes against the very core of the founding principles within EU procurement law. Thereafter, GB wins the procurement bid. The core of the bidding procedure is not open and transparent and in violation the procurement directives and TFEU. Complaints against a signed contract can only be made if the contract has been signed in violation of the principle of openness, i.e. not all violations of the procurement proceedings could lead to ineffectiveness.
In relation, to FFB who is also in the bidding procedure, they (FFB) offered a lower price yet did not win the bid. This brings us to the question whether the municipality has acted in violation of EU law. Judging by the Concordia case [26] the answer here would be that the municipality have not acted in violation of EU law by not choosing the MEAT criteria or the most economically advantageous tender. It cannot be interpreted that each of the award criteria used to identify the MEAT must necessarily be of a purely economic nature and also important to note is that environmental policy is an important one under the Treaty, therefore it may be possible take criteria relating to the preservation of the environment into consideration provided certain conditions are satisfied. Directive 2014/24/EU that CA must reject an abnormally low tender if this is due to non-compliance with applicable environmental, social or labour law (after seeking explanation) – Art 18(2). Thus, in Case[27] Fair trade criteria can be used as award criteria for public supply contracts. “91 (…) as is apparent from point 110 of the Advocate General’s Opinion, there is no requirement that an award criterion relates to an intrinsic characteristic of a product, that is to say something which forms part of the material substance thereof. (..) There is therefore nothing, in principle, to preclude such a criterion from referring to the fact that the product concerned was of fair trade origin.”[28] In the Concordia case[29] it was held that the environmental criteria must be
i) Associated to the subject–matter of the agreement.
ii) Appropriate of objective evaluation.
iii) Expressly mentioned in contract notices.
iv) Non-discriminatory.
The above criterion from the Concordia case seem to be fulfilled and thus it seems as though procedure wise no discrimination has taken place since the lowest MEAT has not been taken account of by the municipality.
To add to the “environmental friendly line of reasoning” the CJEU,[30] has stated that firstly, the particular nature of waste and the principles that environmental damage should as a priority be rectified at source implies that each local entity must ensure that waste is "disposed of as close as possible to the place where it is produced, to limit its transport as far as possible". Secondly, that these considerations are not inconsistent with the organisation of a competitive tendering procedure: the call for competition does not "by itself prevent the contracting authority from contracting with tenderers capable of treating waste as close as possible to the place where it is produced".
For further reference please see 2 (c) entitled “Procurement Law Perspective”.
c. Is there any reason to believe that the Danish company FB, which did not participate in the procurement procedure, can be considered to have infringed EU competition law or EU public procurement law?
Procurement Law Perspective
FB’s actions show that FB may have acted upon GB’s advice to “refrain from submitting the bid” and may have “secured their place by winning the bid at in the procurement initiated by Västra Götaland.” These forms of dealings under the procurement directive are illegal as they impede competition and innovation which is the very foundation of the directives. The substance of the rules on public procurement are stated within ‘– Directive 2014/24/EU on public procurement – Directive 2014/25/EU on procurement by entities operating in the water, energy, transport and postal services sectors – Directive 2014/23/EU on the award of concession contracts.’ Within these the Public procurement principles in the EU are stated consisting of the, De minimis principle, Equal treatment (non-discrimination), and Transparency, Objectivity and Mutual recognition. Outside the scope of a public procurement directive, Public entities are, none the less, bound to comply with the fundamental rules of the Treaty, in general, and the principle of non-discrimination on the ground of nationality, in particular, […] that principle implying, in particular, an obligation of transparency in order to enable the contracting authority to satisfy itself that the principle has been complied with[31] Equality of treatment or non-discrimination. Equal treatment throughout the procedure is a requirement and all negotiations with candidates or tenderers on fundamental aspects of contracts, in particular on prices, are prohibited (as regards open and restricted procurement). Furthermore, in the current case there seems to be a wrongdoing in the selection process itself as the selection process must be completely distinguished from the award process. “Suitability evaluation and bid evaluation are distinct processes which shall not be confused”.[32]The obligation of transparency which is imposed on the contracting authority consists in ensuring, for the benefit of any potential tenderer, a degree of advertising sufficient to enable the services market to be opened up to competition and the impartiality of procurement procedures to be reviewed.[33] Objectivity where two basic criteria exist: the lowest price and the most economically advantageous offer. Mutual recognition signifies that contracting authorities may not exclude technical specifications which are recognised at European level or which are permissible according to Union Law. And lastly Proportionality which encapsulates that all requirements imposed must be linked to the subjectmatter of the contract and that no excessive requirements shall be allowed.
For further reference please see 2 (b) above.
Competition Law Perspective
This is a horizontal agreement or collusive practice between GB and FB. GB can be held responsible as this form of anti-competitive behaviour is not allowed under the treat or TFEU 101. From the wording of the case there seems to collusive practice between the parties to the case i.e. GB and FB. “The sales manager at GB emphasizes that this is a win-win situation with much better profit margin for both companies, giving the limited availability of electric boats. FB replies that it will think about it. 4 GB does not hear anything from FB, but the Danish company does not submit a bid, and GB's bid is eventually evaluated as the most economically advantageous tender by Region Skåne.”
Article 101 TFEU distinguishes between agreements whose object is the restriction of competition and those which have as an effect the restriction of competition. In considering infringements by object, there are reference to the object of an agreement
As already mentioned above there seems to be a breach of TFEU 101. In Commission v. Anic Partecipazioni SpA, (-49/92 , ECLI:EU:C:1999:356 It was held that The list in Article (101(1)) of the Treaty is intended to apply to all collusion between undertakings; whatever the form it takes. Also, by characterising the infringement of 101 TFEU as a single conspiracy, a cartel is responsible for all of the cartels actions therefore all the parties in the question at hand may be responsible form a competition law perspective, even if it did not take part in all of them. This means that a cartel is a conspiracy by its members. Even Anic with a small market share, contributed to the conspiracy. In sum the policy behind The Court of Justice case law is to send a message to parties to a cartel that once they agree to conspire against the interests of the Union, they will be held responsible for the entirety of the conduct to which they have assented.
Non-exhaustive guidance on what constitutes restrictions by object can be found in Commission block exemption regulations, guidelines and notices. Restrictions that are black-listed in block exemptions or identified as hardcore restrictions in guidelines and notices are generally considered by the Commission to constitute restrictions by object. In the case of horizontal agreements restrictions of competition by object include price fixing, output limitation and sharing of markets and customers.[34]
The case facts of the problem question clearly indicate retraction by object as well.
For further reference involving competition law please see answer to Question 2 (a).
See WTO homepage https://www.wto.org/english/tratop_e/gproc_e/gp_gpa_e.htm
[14] Case C-41/90 Höfner and Fritz Elser v Macrotron GmbH [1992] ECR I-1979, para 21. [15] D Chalmers et al, European Union Law (4th edn, Cambridge University Press 2019) [16] Case T-41/96, Bayer AG v Commission [17] Case 48/69, Suiker Unie v Commission, para 64 [18] D Chalmers et al, European Union Law (4th edn, Cambridge University Press 2019) 925 [19] D Chalmers et al, European Union Law (4th edn, Cambridge University Press 2019) 925 [20] Commission v. Anic Partecipazioni SpA, (-49/92 , ECLI:EU:C:1999:356 para 112. [21] D Chalmers et al, European Union Law (4th edn, Cambridge University Press 2019) 925 [22] Eturas UAB and Others v. Lietuvos Respublikos konkurencijos taryba, C - 74/14 [23] https://www.concurrences.com/en/dictionary/anticompetitive-objet-or-effect#:~:text=In%20other%20words%2C%20for%20the,of%20competition%20as%20its%20object.&text=Restrictions%20of%20competition%20by%20object,the%20potential%20of%20restricting%20competition. [24] ECJ - Judgments of 3 October 2000, University of Cambridge, C-380/98, EU:C:2000:529, paragraph 16; of 18 October 2001, SIAC Construction, C-19/00, EU:C:2001:553, paragraph 32; and of 24 January 2008, Lianakis and Others, C-532/06, EU:C:2008:40, paragraph 39). [25] C-513/99 Concordia Bus [2002] ECR I-7213 [26] C-513/99 Concordia Bus [2002] ECR I-7213 [27] Case C-368/10 Commission v Netherlands (“Dutch coffee” /Max Havellaar) [28] Case C-368/10 Commission v Netherlands (“Dutch coffee” /Max Havellaar) [29] C-513/99 Concordia Bus [2002] ECR I-7213 [30] Commission v Germany (C-17/09). [31] (C-324/98, Telekom Austria) [32] (C-71/92, Commission v. Spain) [33] C-324/98 Telecom Austria, para 62) [34] https://www.concurrences.com/en/dictionary/anticompetitive-objet-or-effect#:~:text=In%20other%20words%2C%20for%20the,of%20competition%20as%20its%20object.&text=Restrictions%20of%20competition%20by%20object,the%20potential%20of%20restricting%20competition.
Comments