Competition authorities in Central and Eastern Europe are increasingly turning their focus to infringements of public procurement procedures, particularly bid rigging. Bid rigging typically occurs when bidders illegally collude by taking turns being the designated successful bidder (“bid rotation”), agreeing to refrain from submitting a bid (“bid suppression”) or deciding not to compete in certain geographic areas or for certain clients (“market allocation” or “client allocation”).
In its Guidelines for Fighting Bid Rigging in Public Procurement, the OECD has outlined recommendations for combatting bid rigging by public authorities. The OECD stresses that public procurement represents a significant share of GDP and government expenditure, and bid rigging generally raises prices and lowers quality, the cost of which taxpayers incur. Overall, the destructive potential of bid rigging has made its eradication a priority in CEE.
All over the region, competition authorities are actively pursuing and cracking down on bid rigging. Although their attention appears to focus on key sectors such as construction, IT and healthcare, smaller industries and players are also facing investigations. Since the prevention of public-procurement cartels can lead to significant savings in government spending, competition authorities are likely to increase their vigilance in the near future. Hence, if your firm is active in CEE, reviewing internal processes and guidelines, implementing compliance programs, and updating training systems are more important than ever as these steps may help your company avoid associations with public-procurement cartels.
Please find below more information about the current actions and enforcement in each of the CEE jurisdictions:
In Bulgaria, the Competition Protection Commission (“CPC”) is the authority, which reviews public procurements for possible infringements. Such cases represent approximately 85% of its decisions. Concerning bid rigging, the CPC adopted its own ‘Guidelines for Fighting Bid Rigging in Public Procurement’ and a checklist of suspicious actions. Bid rigging has been the CPC’s focus in recent years, and it has recommended criminal liability for cartel infringements, although this has not yet been adopted as law in Bulgaria. The CPC’s most recent decisions concerning bid rigging have been in the area of tourist services.
In the Czech Republic, fighting bid rigging is the priority of the Czech Competition Office (“CCO”). In 2015, after a large investigation into construction contracts in South Bohemia between 2006 and 2008, the CCO fined a group of companies, including Skanska, Strabag and Eurovia, more than CZK 1.6 billion (EUR 61 m) for bid rigging. However, the verdict was appealed in the Brno Regional Court, which cancelled the CCO’s decision in May 2017 in part because it ruled that key evidence was obtained illegally during the investigation. The CCO has appealed and the case will be heard by the Supreme Administrative Court.
In Hungary, the Hungarian Competition Office (“HCO”) has opened 16 public-procurement investigations over the last five years and constantly monitors suspicious bidding patterns. The largest overall fine imposed exceeded EUR 23 m, heavily targeting rail-construction companies. If found guilty, companies active in Hungary may also face criminal charges and exclusion from future public tenders. The HCO warns market players to stay away from public-procurement cartels and is raising awareness and promoting cooperation through the publishing of guidelines aimed at assisting SMEs and tendering authorities on public tendering.
In Poland, the Office of Competition and Consumer Protection (“UOKiK”) investigates bid rigging. Over the last five years, 50% of all antitrust decisions issued by the UOKiK each year concerned this type of infringement. The UOKiK also cooperates and shares information with other public institutions combatting bid rigging, such as the Public Prosecutor’s Office and the Public Procurement Authority, which oversees the entire public-procurement system. The UOKiK has implemented a new system that encourages whistle blowers.
Targeting the public procurement sector is also a top priority of the Romanian Competition Council ("RCC"). The RCC recently fined two software development companies EUR 1.75 m for colluding in a tender. (The companies had submitted non-competitive bids to ensure the minimum number of bidders for a competition that favoured a third party.) Other examples include a EUR 5.6 m fine against bidders for exchanging sensitive information, and a EUR 2.3 m fine against companies in the gas distribution market. The RCC has alerted market players on the pitfalls of anticompetitive conduct when bidding by issuing guidelines on how to detect and prevent anti-competitive behaviour in public tenders, and on how to best follow competition rules when bidding in a consortium. The RCC is currently investigating the Romanian road-signalling sector for alleged fictitious bids, market sharing, and price fixing.
The Slovak Antimonopoly Office (“AMO“) recently issued a decision decreasing the fines imposed on seven car dealers for bid rigging in the sale of Škoda passenger cars. The fines were reduced to a total of EUR 320,000 following leniency applications and settlements. Nevertheless, some of the affected car dealers also face exclusion from public tenders for up to three years. In 2006, the AMO fined six construction companies EUR 45 m for bid rigging surrounding the construction of a section of motorway in northern Slovakia. Most recently, the Constitutional Court rejected the appeal of three construction companies against the Supreme Court decision that upheld the AMO’s bid-rigging ruling against them.
In 2016, Ukraine’s Antimonopoly Committee (“AMC”) investigated 225 bid-rigging cases and levied fines of up to EUR 1.3 m against companies selling cash registers to the state postal company Ukrposhta. The AMC focuses its investigations on anti-competitive breaches in public procurement, and scrutinises tenders in all areas of economy. It highlights its efficiency in upholding the competitive environment, promoting standards and raising awareness of unlawful competition (e.g. cartels) through its annual reports on bad practices in public-procurement tenders.
For more information, please contact Nóra Jekkel
or the key CMS competition contacts in CEE