PeliPartners analysis: Competition in public procurement procedures and what should economic operators pay attention when they intend to form a consortium?

Public procurement rules allow economic operators to jointly participate in public procurement procedures by forming consortiums. However, the Competition Council, the authority which oversees the functioning of the market in unrestricted competition in order to promote the interests of consumers, may autonomously analyze the conditions and the necessity of forming such consortiums from the perspective of competition law.

“Forming consortiums in order to jointly participate in public procurement procedures may become a common solution among economic operators, in a context where Romania benefits from opportunities to finance public authorities’ investment projects. In this respect, it is important for economic operators to ensure that they pay particular attention to competition rules as well” explained Cătălina Burcă-Andonie, Associate PeliPartners.

When is a consortium allowed?

Generally, forming a consortium in order to jointly participate to a public procurement procedure does not raise competition concerns when:

the consortium is formed by economic operators who are not (potential) competitors; or
the association is formed by economic operators which are affiliated undertakings (affiliated economic operators must comply with the competition rules if they participate separately in the same public procurement procedure through individual offers).

Under what conditions can (potential) competitors form a consortium?

A consortium formed by (potentially) competing economic operators does not automatically raise competition concerns. In order for such a consortium to not fall under the competition authority’s umbrella, economic operators must verify that it passes the test of the following conditions, which must be met simultaneously:

no economic operator could have individually fulfilled the conditions laid down in the tender specifications or the framework agreement;
a sub-group of the members of the consortium would not have been able to individually fulfill the conditions laid down in the tender specifications or the framework agreement;
the members of the consortium only exchange a minimum level of information when drafting the tender offer and throughout the performance of the agreement;
the members of the consortium compete under normal conditions in other circumstances.

The analysis of the above conditions must be carried out by the participants of the consortium each time they intend to jointly participate in a public procurement procedure.

“If the exchange of information between participants of the consortium can be addressed contractually, the analysis of the ability to individually fulfil the conditions of the tender specifications and to compete under normal conditions in other circumstances might require a reasoned assessment from the perspective of the applicable competition rules”, explained Cătălina Burcă-Andonie, Associate PeliPartners.

Generally, a consortium formed by (potentially) competing economic operators could be allowed when, due to the complexity of the public procurement agreement, it could not be executed individually (for example, the operators do not benefit from all the technologies, know-how, economic and technical resources needed to execute the agreement).

On the one hand, the participants of the consortium can prove that by joining forces they are able to submit a more competitive offer, to execute the public procurement agreement more efficiently and to offer lower prices by reducing certain costs compared to when submitting individual offers.

On the other hand, consortiums formed by more economic operators than the necessary number for the submission of a joint offer for the execution of the public procurement agreement could be subject to sanctions applied by the competition authorities. Such consortiums are not considered beneficial either for consumers, nor for those economic operators who comply with the competition rules.

Accordingly, the French competition authority sanctioned a consortium formed in the transport sector in order to submit a joint offer in a public procurement procedure on the grounds that the economic operators were in fact able to individually participate in that procedure. The competition authority concluded that:

the consortium constituted a market-sharing agreement which restricted competition by object (therefore, the participants of the consortium have been sanctioned by the competition authority without it having proved a concrete negative effect on the market);
each of the economic operators had the possibility to submit an individual offer;
there is no objective justification for the undertakings to submit a joint offer.

Situations where consumer benefits outweigh negative effects on competition

A consortium between (potential) competitors may be permitted under the competition rules when the benefits to consumers resulting from the agreement outweigh the negative effects on competition.

The concept of “consumers” covers both the clients of the products or services targeted by the consortium and the contracting authority organising the public procurement procedure.

“Such advantages may take the form of lower prices, better product quality or a wider range of products or services covered by the tender. Economic operators must objectively document and justify that the benefits to consumers at least outweigh the restrictive effects on competition that the consortium may have”, explained Ionelia Anton, Associate PeliPartners.

In this respect, the European Commission initially considered that the consortium formed by several economic operators in the United Kingdom for the development of digital interactive television services restricted competition because the economic operators were potential competitors. However, taking into account the benefits to direct consumers (a better television service was developed in a much shorter time than if only one of the undertakings had been contracted) as well as to retailers (a new supplier in the television market emerged as a result of the development of a new product), the European Commission decided that the positive effects of the association outweighed the restrictive effects on competition.

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