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Joint bidding in public procurement procedures

The ability to submit joint tenders (often called “project cooperations”) is an ongoing topic of concern for suppliers in public procurement procedures. A new judgment from the Danish Supreme Court confirms that joint tendering may easily be illegal. The judgement is of relevance for both suppliers, and the contracting authorities designing the tender invitations.

The case concerned the Danish road authorities’ procurement of road marking services. In an attempt to achieve lower prices, the contracting authority divided the tender into three different contracts for various geographical areas. Tenderers could bid for one or more contracts. If a tenderer were to be awarded two or all three contracts, the tenderer could offer discounts of between five and twenty percent. The award criteria was the lowest price.

In the two previous procurement procedures, all three contracts had been awarded to one supplier based on this discount scheme. In the procurement procedure in question, two Danish contractors agreed to submit a joint bid, which led to the award of all three contracts. A competitor filed a complaint, and the Danish competition authorities found that the joint bid constituted an anti-competitive agreement in breach of the competition rules. After being found not guilty in the Danish Maritime and Commercial Court, the parties were convicted by the Danish Supreme Court in a judgment handed down on November 27, 2019.

When a procurement is divided in several contracts, the decisive factor is whether the tenderer would be able to bid for at least one of the contracts on an individual basis.

There was no dispute that the parties individually had the capacity to bid for at least one of the three contracts. According to the Supreme Court, the contractors were thus considered to be competitors in relation to the procurement in question, and the cooperation amounted to an illegal cooperation between competitors. Contrary to the Maritime and Commercial Court who considered that a joint offer in such a situation could also be pro-competitive, the Supreme Court did not accept that the invitation to tender was structured in such a manner that it favoured bids that encompassed all three contracts together in such a way that it allowed the tenderers to cooperate, or that joint offerings could result in more competitive bids for the entire procurement.

In its judgement, the Danish Supreme Court confirms the approach taken by the Norwegian Competition Authority and Norwegian courts. The assessment of whether or not companies are to be considered as competitors in relation to a public procurement is strict. When a procurement is divided in several contracts, the decisive factor is whether the tenderer would be able to bid for at least one of the contracts on an individual basis. The fact that joint offers would allow companies to bid for more contracts than they would be otherwise capable of alone, or on different terms, could not justify a cooperation.

Another factor worth noting for companies taking part in tender procedures is the Supreme Court’s strict approach to what may be regarded as joint production agreements, which in principle could justify joint bidding. In the Danish case, the contractors argued that the cooperation was not illegal, since they would cooperate on the execution of the contract. The court did not agree, since the parties would not cooperate on the actual execution of the work. Rather, they had agreed in advance which geographical areas in which each of them would perform the road marking services if awarded the contract. The situation could have been viewed differently if the parties in fact needed to cooperate on the actual execution of the road marking services.

The judgement is also worth noting for the contracting authorities issuing tender invitations. In this case, the manner in which the invitation was designed and the prior award of similar contracts, were interpreted by the suppliers as an incitement to submit joint offers for all three contracts. The contractors thought that offers for individual contracts were not likely to succeed, due to the rebate scheme described by the procurer. It is not in a contracting authority’s interest that serious tenderers misinterpret their invitations for tenders, and without intending to, enter collaborate in an illegal manner in order to submit what they believe is a competitive bid. Therefore, contracting authorities should be clear and unambiguous when drafting tender invitations in order to avoid misunderstandings.

Procurement regulations require that contracting authorities, when publishing contracts above the EEA financial threshold, consider whether the contract can be divided into subcontracts. The purpose is to enable small and medium sized enterprises to provide bids, thus enabling more companies to participate in the tendering. However, dividing a contract into several subcontracts, may on one side enable more companies to submit individual bids, but will also limit the scope for smaller companies to cooperate on joint tenderers. Dividing a contract into several subcontracts may thus not always be the most economically advantageous option. Neither is it any guarantee of competition for all subcontracts. In some cases, offering fewer and larger contracts may be a more appropriate strategy for attracting competitive bids. A contracting authority that wants to attract competitive bids, must thus carefully consider the design of the invitation for tenders. Sometimes it may actually be more advantageous to design the invitation for tenders in such in a manner that it allows smaller companies to cooperate on submitting joint bids without infringing the competition rules.

When a procurement is divided in several contracts, the decisive factor is whether the tenderer would be able to bid for at least one of the contracts on an individual basis.