Joint Bidding and Subcontracting under EU Competition Law: Some critical comments on Thomas (2015)

Christopher Thomas has recently published the paper "Two Bids or not to Bid? An Exploration of the Legality of Joint Bidding and Subcontracting Under EU Competition Law" (2015) 6(9) Journal of European Competition Law & Practice 629-638. It is interesting to read the paper, particularly while we await the decision of the CJEU in a pending matter where issues of public restrictions to subcontracting and their impact on competition for the public contract need to be addressed--Wrocław - Miasto na prawach powiatu, C-406/14 (for discussion of the Opinion of AG Sharpston, see here). 

Thomas' paper attempts to apply to the public procurement setting the general criteria used in competition law to assess joint bidding and subcontracting arrangements [something that I address in Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 336-340 and 353-355]. The arguments are grouped around two issues: (1) the subjection or not of joint bidding and subcontracting agreements to the prohibition of Art 101(1) TFEU, and (2) the possible exemptions to the prohibition under Art 101(3) TFEU.

(1) Applicability of Art 101(1) TFEU prohibition to joint bidding agreements
After providing some background on the international competition law approaches to joint bidding and subcontracting in procurement, Thomas tries to establish a test to assess whether those arrangements run contrary to EU competition law, and Art 101(1) TFEU more specifically, or not.

Thomas critically considers the general guidance offered by the European Commission regarding horizontal commercial cooperation agreements that are excluded from the application of Art 101(1) TFEU, whereby "consortia arrangements that allow the companies involved to participate in projects that they would not be able to undertake individually. As the parties to the consortia arrangement are therefore not potential competitors for implementing the project, there is no restriction of competition " (emphasis added). I interpret this guidance to mean that undertakings concluding joint bidding and teaming agreements should be able to prove that they can only submit a compliant tender if they participate together. Thomas takes the mirroring position.

He argues that the Commission's guidance is quite limited in practical terms because it "is simplest to apply in the situation of undertakings with expertise only in different products, all of which are required in order to bid for the contract in question. Clearly, such undertakings are not competitors, and their joint bid cannot raise competition concerns." However, he stresses that this is not the usual situation. 

Remarkably, he submits that the Commission's position "would ignore the possibility that each undertaking might nonetheless be able to submit an independent bid, by bringing in specialist resources from outside. If it were in fact feasible for each undertaking to submit a tender in this way, then surely it cannot be excluded that a joint bid would restrict competition. The real question is rather whether, in the absence of the joint bid, there could in fact have been two or more independent bids" (emphasis added). And, more specifically, he clarifies that "One possible approach to this issue would be to ask whether, in the ordinary course of business, each undertaking would normally bring in such resources from outside. Alternatively, and more precisely, are such resources demonstrably available on reasonable terms and in time to prepare and submit the tender, from an undertaking that is not a competitor in the procurement procedure?"

I find this line of argument exceedingly restrictive. Conceptually, because it relies on an assessment of whether the parties of the teaming/joint bidding agreement could have cooperated with other undertakings or complemented their capacities in a different way, which fundamentally and in itself proves the point that they were unable to submit bids individually or with a total independence from third parties. Once this is clear, I see no good reason for the assessment to rely on whether there were alternative potential partners, not least because this would require an excessive amount of second-guessing by procurement and competition authorities, who may not be the best placed to ex post query business decisions.

Discussing this issue further, Thomas emphasises that "it should be noted that the test is whether an independent bid is objectively possible, and demonstrating this does not require proof that it is easy, or even achievable without substantial sacrifices (such as giving up other projects to which relevant capacity is currently dedicated). Second, it is arguably sufficient in principle for the competition authority to demonstrate that the contract is of the general type carried out by the undertaking in the ordinary course of its activities" (emphasis added).

In my view, once again, his analysis of the type of joint bidding agreements not covered by Art 101(1) TFEU is too narrow and restrictive. It would be clearly excessive to consider undertakings 'objectively' able to submit an independent bid if, for instance, they need to give up alternative projects. Thus, generally, I disagree with his interpretation of the European Commission's guidance and the implicit requirements for a team/joint bidding arrangement not to be covered by Art 101(1) TFEU. 

I also disagree with his assessment of whether the joint bidding agreement needs to be analysed as either a restriction by object or by effect, particularly under the Cartes bancaires test. Given that the boundaries of that test are unclear and that it would only carry issues of burden of proof of anticompetitive effects (which need to be addressed anyway in view of the potential exemption of Art 101(3) TFEU, as discussed below), the discussion seems very superficial and practically unhelpful to me (for assessment of the by object/by effect division, see here). In any case, particularly under his approach, most cases will depend on the assessment of the applicability of the exemption of Art 101(3) TFEU to agreements caught by the prohibition of Art 101(1) TFEU.

(2) Applicability of Art 101(3) TFEU exemption to joint bidding agreements
As Thomas stresses, "Once the analysis has reached this stage, an approach needs to be found to balance the loss of competition with the objective benefits deriving from cooperation between the undertakings concerned." In my view, the test needs to be whether the joint bidders could actually submit a bid (ie there is an expansion of the pool of competitors for the given contract), or whether the terms of the joint tender are substantially better for the public buyer than those they could offer independently—ie, that there are specific and measurable efficiencies derived from the teaming or joint bidding strategy and that they are passed on to the public buyer. He generally agrees by stressing that "Where the joint bid offers no tangible performance benefit for the customer, when compared with the provision of the relevant products by one of the bidders acting alone, then the cooperating undertakings should be put to the full burden of proof."

Going beyond this, he engages in an interesting assessment of whether "the consent of the customer is either a necessary or a sufficient indicator of legality. After all, if the assessment is designed to balance the objective benefits of the cooperation with the loss of competition, who is better placed than the customer to make that judgement? It is submitted that the consent of the customer, while relevant, is neither necessary nor sufficient in itself". This is an interesting issue. However, Thomas' analysis is almost impossible to bring to practice under the applicable EU public procurement rules.

Thomas gives the following example:
It is therefore inappropriate for legality to depend on the discretion of the customer. Indeed, were this to be the case, then the customer might threaten to withhold its consent as a means of imposing commercial pressure precisely in the form of exposure to investigation by a competition authority. Thus customer consent should not be, in itself, a prerequisite for exemption under Article 101(3). On the other hand, if, before actually coordinating their intentions and exchanging any confidential information, two potential bidders approach the customer, explain the benefits that might be achieved from combining their efforts, and offer the customer the choice between a joint bid and two independent bids, and if the customer considers those alternatives and indicates that its preference is for a joint bid, then this is surely very relevant evidence for the purposes of Article 101(3). Indeed, in such circumstances, a court or competition authority would need to be very confident indeed if it envisaged forming a different view of the balance between the benefits from cooperation and the loss of competition (emphasis added).
This would simply infringe such a large number of EU public procurement that it is not worth engaging in the detail. In my view, this is one of the main risks of uncritically trying to extrapolate competition principles and criteria developed in a scenario of free bargaining inter privatos to settings of regulated tendering for public contracts. Therefore, most of what Thomas submits in his paper is actually of little or no relevance to public procurement practitioners, which should avoid engaging in too complex competition-related issues that, in reality, bear no relevance in the regulated setting. Generally, this shows a continued need for more procurement-specific guidance, and competition practitioners would be well advised to double check their arguments within the constraints created by the EU and domestic public procurement rules.