12 Oct 2020

The New Public Procurement Act: How Does it Help in the Fight Against Bid-rigging

The New Public Procurement Act (“new Act”) was adopted in December 2019 and came into force on January 1, 2020.  The key objectives of the new act are increased transparency within the public procurement procedure, elimination of the administrative burden and increased competition between the participants in the procedure.

If conducted legally, the public procurement process should result in the acquisition of the highest possible quality of goods or services for the lowest possible price.  However, collusion between bidders, i.e. “bid-rigging”, eliminates genuine competition and hinders the interests of both purchasers and taxpayers.

Bids can be rigged through secret coordination between bidders, who can agree which one of them will offer the lowest bid or who will refrain from participating in the procurement, thus eliminating price competition.  Such coordination between bidders is sanctioned under the Act on Protection of Competition (“Competition Act”).

Bid-rigging already gained the attention of the Serbian competition authority (“NCA”). NCA has already completed several cases which encompassed collusive tendering.  Thus, in this context, is it necessary to ask whether and how the new Act is capable to help in the fight against bid-rigging.

Duty to inform the NCA

The new Act does not stipulate a duty for the contracting authority to inform the NCA if it doubts the truthfulness of a statement on an independent bid, where bidders declared under full financial and criminal liability that they had submitted the bid independently, without any agreement with competing bidders.

The mentioned legal solution can be problematic from the aspect of protection of competition taking into account that the NCA has conducted four cases in the last five years in which it found a competition infringement immediately after the complaints of the contracting authority.

It is worth noting that contracting authorities still have the option to use the Competition Act as a legal basis to submit complaints to the NCA when they suspect that bidders agreed their bids.

Negative References

Under the new Act, the contracting authority is entitled to exclude a bidder from the public procurement procedure in case the NCA has established that the bidder was involved in anti-competitive collusion that took place within the period of three years from the day the deadline for submission of bids expired.  This provision implies that the established collusive conduct must constitute a restrictive agreement within the meaning of the Competition Act.

Apart from bid-rigging, several other forms of anti-competitive practices, such as price-fixing or resale price maintenance, may be considered as restrictive agreements, and thus bidders should be aware that all these types of infringements may result in their exclusion from future public procurement procedures.

It should be noted that the new Act did not explicitly indicate what kind of decisions fall under the scope of the NCA decisions on collusive practices – final (srp. konačna) or finally binding (srp. pravosnažna). In that regard, it will be interesting to learn how the contracting authorities will handle cases where the NCA decision is final but not finally binding due to the ongoing proceedings before the Administrative Court.

Joint Bid

Under the new Act, a group of bidders may submit a joint bid without restraints.  To be lawful under the Competition Act, such cooperation between competitors has to meet the conditions set out in the NCA opinion on joint procurement bids in the public procurement procedures (“NCA Opinion”).  

The NCA Opinion outlines the rules on the submission and lawfulness of joint bids.  If the joint bid does not fulfill these requirements, competitor collaboration accounts is considered an anti-competitive agreement.  

Valid Evidence of Competition Infringement

The new Act lists the cases in which the contracting authority is obliged to reject the bid as unacceptable.  If there is valid evidence of distortion of competition” the contracting authority has to reject the bid. The wording of this provision leads to legal uncertainty since each contracting authority may interpret the notion of “valid evidence” differently.  

Whatever the legislator’s intent regarding this stipulation on the evidence of distortion of competition was, it should be noted that the NCA is the only authority empowered to conduct infringement investigations and to examine the “valid evidence of distortion of competition“. 

Measures Prohibiting Participation in Public Procurement Procedures

The NCA can still prohibit participation in a public procurement procedure if it ascertains that the bidder was already involved in anti-competitive practices regarding public procurement.  In this regard, bidders should keep in mind that in addition to a fine for violating competition, they could also face a ban on participating in future public procurement procedures.

Conclusion

Given that it is the NCA’s practice to initiate investigations of bid-rigging, potential bidders will have to strictly adhere to competition rules.  Moreover, the NCA is known to have a rather rigid approach to bid-rigging probes.  It considers bid-rigging to be an infringement “by object”, meaning that it does not need to prove effects on the relevant market.  

Finally, the NCA tends to define the relevant market so as to encompass the public procurement where bid-rigging took place, making it easy to meet the requirement of “significant restriction, distortion, or prevention of competition in the territory of the Republic of Serbia”.

Author: Vuk Leković