Comments to Danish Draft Guidelines on Joint Tendering

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The Danish Competition and Consumer Authority has published draft guidelines on joint bidding under competition law and invited comments by 1 September 2017. The following are the comments I have provided in the context of this public consultation. It will be interesting for me to see if the Authority takes any of these issues into account in the final version of its guidance.

The document provides a useful overview of the issues involved in an analysis of the compatibility of undertakings’ collaboration for the submission of joint tenders for public contracts with Article 101 TFEU (and domestic equivalents). The guidance is largely applicable to subcontracting arrangements as well, and it usefully incorporates recent examples of competition investigations in Scandinavian jurisdictions—with special attention given to the recent EFTA Ski Taxi Judgment.[1] It is particularly welcome that the Danish Competition and Consumer Authority has made the effort of publishing the guidelines in English, which can position them as an important point of reference in all EU/EEA jurisdictions after their official adoption.

The draft guidelines pivot centrally around the consideration of whether undertakings seeking to collaborate in the submission of a joint tender could bid independently for a given contract. That is, they follow the standard approach of considering that collaboration in the form of joint bidding (or subcontracting) is problematic where it reduces the level of competition that could otherwise exist for a public contract, unless it generates net efficiencies that are passed on to the contracting authority.[2] From that perspective, the draft guidelines send some useful clear messages, such as the need:

  1. for undertakings to conduct objective self-assessments of their own capacity to individually perform the contract prior to engaging in discussions with potential consortium partners;
  2. to tailor the analysis to the size and requirements of the lots in which a contract can be divided, rather than limiting the assessment to a holistic view in relation to the execution of the whole contract;
  3. to carry out case-by-case assessments of that capacity and the ensuing warning against stable joint tendering arrangements that fail to meet the thresholds for the creation of a full functioning joint venture; and
  4. to keep adequate records of those assessments for the purposes of enabling full and considerate responses to requests for information in the context of a competition investigation.

Given the complexity of the topic, however, there are some aspects of the draft guidelines that are less clear cut and where, in my opinion, there is scope for improvement and further clarification in the guidance finally adopted by the Authority. The assessment of relationships of potential competition in the context of restrictions of competition by object and the treatment of risk-driven collaborations deserve some careful consideration. These are issues that have spillover effects on the treatment of exchanges of information between undertakings considering bidding jointly for a public tender. This contribution addresses these three issues.

1. Treatment of potential competition

 The guidelines concentrate on the analysis of joint tendering by competitors and, implicitly, recognise that non-competing undertakings can freely cooperate in the context of public procurement (as in any other area of economic activity). This could be said explicitly, but there is no indication to the contrary in the draft guidelines. However, given the broad approach to the consideration of potential competition relationships between consortium members, and the assumption that joint bidding can be assessed as a restriction of competition by object because it involves price setting (following the EFTA Ski Taxi Judgement, above, in p. 20, box 2.11), the guidelines create some uncertainty.

On the one hand, because they indicate the possibility of joint tendering benefitting from block exemption regulations (BERs, see p. 30, para 3.2), despite the fact that price fixing is a hardcore restriction that excludes the applicability of the BERs. It would thus need to be clarified whether the Authority considers joint tendering as a restriction by object structurally involving price fixing or not, as well as the consequences of the position taken on this point. On the other hand, the guidelines create uncertainty because they do not address the tricky boundary issue of joint tendering by potential competitors as clearly as it would be possible.

The ambivalence or lack of clarity of the guidelines on this issue permeates the analysis and sometimes results in confusing expressions, such as the indication that chapter 3 assesses “the conditions that must be fulfilled for a consortium (including between competitors) to be exempted from the prohibition against agreements that restrict competition” (p. 23, introduction, emphasis added). Literally, this statement is incorrect, as joint bidding by consortia between non-competing undertakings does not run against the prohibition of Article 101(1) TFEU. In this case, it is possible that some word (such as “potential” competitors) is missing, but it is also possible that the guidelines are not too clearly set on the limits to the extension of the prohibition of Article 101(1) TFEU to (theoretically) potential competitors for a public contract.

This is an issue that has been recently discussed to some length,[3] and one which affects different aspects of the analysis under Article 101(1) and 101(3) TFEU that do not appear explicitly interconnected in the draft guidelines. In my view, there are two aspects that can be clarified.

First, the guidelines are not explicit in indicating how to carry out the analysis of an undertaking’s condition of potential competitor for a contract. There is just a mention to the effect that, in the assessment of “whether a company [rectius, undertaking] could [potentially] be able to bid individually, the Authority looks at whether this could constitute a sustainable economic strategy for the company (sic). This means firstly that a mere theoretical possibility of carrying out a contract is not enough; the possibility must be real and is shall include assessing that the offer must be profitable. The assessment shall be made on an objective basis” (p. 9, para 2.2).

This triggers two issues. One concerns the relevance of economic sustainability where the execution of a public contract is a one-off instance or involves a short to medium term project, where sustainability does not seem to raise particular issues or be the prime consideration. Another one concerns the assessment of profitability, in terms of the existence of economic incentives that justify potential additional investments, which requires a complex analysis of risk (discussed below 2). It seems clear that it is not sufficient to simply establish that an undertaking could have invested in additional resources to tender for the contract individually, but that it is necessary to establish that such investment was the rational economic decision to make under the circumstances (rather than engaging in a joint tender), which is always an ex post facto determination. In my opinion, great caution needs to be exercised here to avoid creating disincentives for joint tendering.

The guidelines could be improved by sketching, at the minimum, the circumstances in which the Authority would be willing to accept that an undertaking is justified in foregoing the potential investment to participate in the public tender, and the extent to which this can (and how it should) be documented. Logically, the same conditions need to justify a decision not to tender at all. If an undertaking is justified in not tendering (i.e., that is considered as the economically rational strategy), then it should also be justified in seeking collaboration. As mentioned below, this relates to an implicit duty to tender or else have a good rational for the tender hold-up, which seems more adequate for analysis under Article 102 TFEU than under Article 101(1) TFEU. In any case, difficult issues arise around any expectation or duty to participate in public tenders and the undertakings’ freedom to conduct a business under Art 16 of the EU Charter of Fundamental Rights, so careful consideration is necessary.

Second, the guidelines could be clearer in terms of the place for the establishment of counterfactual assessments. It seems that the guidelines do not consider the possibility of establishing an undertaking’s condition of potential competitor for a contract on the basis that it could have jointly tendered with undertaking(s) other than the one(s) it is eventually collaborating with. Such a possibility is only mentioned in relation with the assessment of the indispensability of an existing joint tendering agreement, where the draft guidelines indicate that, for an anticompetitive joint tender between (potential) competitors to be justified under Article 101(3) TFEU, “[t]here shall be no other economically viable and less restricting ways of achieving the efficiencies. This can be either in the form of bidding instead individually or forming a consortium with undertakings other than the ones in the current consortium” (p. 29, para 3.1.3, footnote omitted and emphasis added).

The fact that the existence of potential alternatives for collaboration is not use both to establish potential competition and the existence of potentially less restrictive forms of competition (ie, that it is not used both under an assessment of the Art 101(1) prohibition and the Art 101(3) exemption) should be welcome.

However, in my view, its use for the purposes of Art 101(3) is problematic. Once an undertaking has expressed its preference in collaborating with given consortium partner(s), it is difficult to accept the Authority’s role in second-guessing that an alternative collaboration would have been preferable (not only in competition terms, but also in business terms). The analysis of Art 101(3) TFEU should not involve this type of speculation, and it should suffice to establish that the joint bidders have not exceeded the limits required for the generation of the efficiencies derived from their agreement.

The possibility of having partnered with other undertakings seems to belong to the same logical plane as the decision not to partner with anyone (ie bid solo), or whether to tender at all. This is indicated in the draft guidelines itself themselves (see quote above), by linking the assessment of the undertaking’s ability to tender individually or to partner with other undertakings to do so. Those two decisions are equivalent in terms of establishing the undertaking’s condition of potential competitor for the contract, but they are not equally suitable for an assessment of whether less restrictive means existed, for the following reasons.

Where two potential competitors team up, then it can be argued that none of the restrictions was necessary at all and thus the assessment under Article 101(3) TFEU must fail. Conversely, where the agreement is between undertakings that would not have been potential competitors by themselves, the fact that a theoretically superior joint bidding arrangement could be conceived is irrelevant because the analysis under Article 101(3) TFEU must be limited to whether the arrangement in place generates efficiencies by the least restrictive means concerning the undertakings involved in the consortium. Considerations concerning third parties should be limited to an assessment of the fourth condition, concerning the consortium’s ability to eliminate competition for the contract—or, eventually, issues concerning infringements of Article 102 TFEU by the tenderer that could have participated solo and rather decided to ‘grab’ a partner that could have been strategic for a third party.

Therefore, it would seem more appropriate to move the assessment of the counterfactual consisting in the potential teaming with third party undertakings to the analysis of Art 101(1) TFEU with the sole purpose of establishing whether the joint tendering agreement is anticompetitive to begin with. In that setting, the circumstances in which a theoretically potential collaboration that is foregone is anticompetitive should also be clarified (as mentioned above) and, in my view, the clarification should be that such theoretical third arrangement is irrelevant.

Overall, taken together, these two issues point towards the need for more clarity in the guidelines concerning the assessment of situations where an undertaking is considered a potential competitor for a given public contract because it could have tendered for it (either individually, or in collaboration with third parties) but rather decides to team up with another potential competitor. As mentioned above, this seems to fit the framework of the rules applicable to a tender hold-up, which could be functionally assimilated to refusals to deal. In my view, developing the draft guidelines along these lines would improve them.

2. Treatment of risk-driven collaborations

The second main area where the draft guidelines could benefit from some clarification concerns the treatment of risk assessments carried out by undertakings considering the possibility to tender for a contract (either at all, or as part of a given consortium).

The first issue concerning risk-assessments that could be clarified is the extent to which they will actually be taken into account by the Authority. It seems contradictory or, at least confusing, that the draft guidelines indicate that “risk spreading is an element of the overall assessment of whether an undertaking can complete a contract on its own or whether it is objectively necessary to work with one or more undertakings” (p. 10, para 2.2) and at the same time that “[i]t will be difficult for a competition authority to make an ex post objective assessment of the risk taking on a contract … In this context, the issue of risk spreading will not necessarily be considered as an element when the Danish Competition and Consumer Authority assesses an undertaking’s capacity” (p. 11, same para). I find this difficult to understand and can see how the undertakings to which the draft guidelines are addressed may be confused. More clarity on the conditions in which the Authority will use or not internal documentation concerning risk-assessments would be desirable.

A second issue concerns the extent to which simultaneous tendering for different public contracts and their impact on the undertaking’s productive capacity features in the analysis. The draft guidelines usefully include a section on the analysis of the undertaking’s available capacity to undertake a contract and they recognise that, in some circumstances, foreseeable (recurring) commitments can be taken into account to establish that an undertaking does not have sufficient capacity to individually participate in a tender (pp. 14-15, para 2.2.4).

However, the guidelines do not seem to take into due consideration that undertakings active in procurement markets may (regularly) be tendering simultaneously for various contracts, which prospects of award are difficult to establish. In these cases, it is possible that a prudent business strategy requires the reservation of certain capacity in case the undertaking is successful in all of the simultaneous tenders (and this includes tenders which process of evaluation is live at the time of preparing the next tender), or at least a mitigation of that risk via cooperation with third parties (either by forming consortia, or through subcontracting).

Given the relevance (and, I would say, practical prevalence) of this circumstance, it would be desirable that the guidelines addressed it explicitly. Not only due to its impact on the assessment of the condition of potential competitor for a contract under Article 101(1) TFEU, but also due to the relevance that the draft guidelines give to this issue in terms of exemption under Article 101(3) TFEU (p. 26, para 3.1.1.1). In that regard, the guidelines indicate that “[i]n many cases, the risk of taking on a specific contract cannot in itself justify that companies shall not be considered competitors with regards to the contract. In such cases, risk considerations will only determine that the agreement is lawful under the competition rules if risk diversification leads to or contributes to companies submitting a better bid together than they would have been able to individually”. However, it could be that sometimes a joint bid is the only bid that potential competitors are willing to consider because their second best option is not a solo tender, but rather to withhold a tender for a contract that, if awarded, could tip them over their maximum capacity. In my view, more nuance could be introduced in relation with this aspect.

A third issue concerning risk assessment relates to the relevance given in the draft guidelines to the consortium’s expectation of competition for the contract. It is not clear to me why it would be relevant or adequate to consider that “[i]f a consortium that (sic) for instance participates in a public call for tenders where there are many participants and therefore there is effective competition for the contract, there will be greater likelihood that efficiencies are passed on to consumers in terms of lower offer price than if the consortium expects for example only another participant in the call for tenders” (p. 28, para 3.1.2). I find this inconsistent with economic theory. What is important to test the consortium’s incentives to tender aggressively (or the constraints to a limit pricing strategy) is whether they anticipate any (including only one) tender by an equally or more efficient tenderer. And, in any case, I struggle to envisage a legal test that could determine the extent to which the consortium was anticipating more or less competition for the contract. In that regard, I think that this element of risk management / strategic bidding should be clarified in the final version of the guidelines.

3. Spillover effects on exchanges of information

Given the issues surrounding the assessment of risk and the uncertainties concerning the effectiveness of using risk assessments to exclude the consideration of potential competitors of the consortium members or the existence of acceptable efficiencies in their joint tendering, the way in which the illegality of information exchanges is presented could constitute a significant disincentive for undertakings considering joint participation in public tenders.

In particular, the dissuasive effect can derive from the drafting of the paragraph that indicates that “[i]f it turns out that the undertakings that have considered entering into a consortium will themselves be able to bid for the contract and, thus, they are competitors, the information exchange that has taken place, will in fact constitute information exchange between competitors. This will be a criminal offence if the information is sensitive from a competition perspective. It is therefore important that each undertaking clarifies beforehand whether it can complete the contract individually and thus whether the undertakings are competitors” (p. 31, para 4.1, emphasis added).

It is possible that this dissuasion is mitigated by introducing more clarity concerning aspects of risk assessment identified above, in particular concerning the possibility of having teamed up with third parties and the assessment of potential capacity constraints. Otherwise, it could be advisable to provide more detail of the circumstances in which such exchange of information could lead to a prosecution.

In that regard, it would also be necessary to avoid statements that could be potentially misleading. In particular, in my view, it would be necessary to reconsider the indication that seeking legal advice could reduce the likelihood of an investigation or prosecution, not least because that could potentially run contrary to the interpretation of Article 101 TFEU by the Court of Justice of the European Union in its Schenker Judgment,[4] where it clearly indicated that “legal advice given by a lawyer cannot, in any event, form the basis of a legitimate expectation on the part of an undertaking that its conduct does not infringe Article 101 TFEU or will not give rise to the imposition of a fine”.[5]

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[1] For discussion, see here and A Sanchez-Graells, “Ski Taxi: Joint Bidding in Procurement as Price-Fixing?” (2017) 8(6) Journal of European Competition Law & Practice, forthcoming, available at https://academic.oup.com/jeclap/article-lookup/doi/10.1093/jeclap/lpx043, last accessed 07/07/2017.

[2] This is, in my view, the right general approach. See A Sanchez-Graells, Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015) 336-340.

[3] E.g. see here, here, C Thomas, “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; C Ritter, Joint Tendering Under EU Competition Law (February 1, 2017), available at https://ssrn.com/abstract=2909572, last accessed 07/07/2017; and most recently, and with a consolidation of all previous debates, I Herrera Anchustegui, “Joint Bidding and Object Restrictions of Competition: The EFTA Court’s Take in the ‘Taxi Case’” (2017) European Competition & Regulatory Law Review (CoRe) 174-179, available at https://ssrn.com/abstract=2966374, last accessed 07/07/2017.

[4] Judgment of 18 June 2013 in Schenker & Co. and Others, C-681/11, EU:C:2013:404.

[5] Idem, para 41.

New analysis of joint tendering under EU competition law: a few comments on Ritter (2017)

Cyril Ritter has made a new contribution to the analysis of joint tendering for public contracts under EU competition law in this interesting recent paper. Ritter's paper goes beyond previous discussion of the topic [eg my critical remarks on Thomas (2015), see here] and proposes an alternate analytical approach in many points. I find his analysis of different 'theories of harm' applicable to joint tendering interesting and insightful, and the special criteria he suggests for negotiated procedures and for tenders where one contractor is indispensable to two or more tenderers are thought-provoking. However, there are also aspects of Ritter's proposals which I do not see entirely clear, and where I do not think his paper goes much further than previous discussion of the topic.

One of the key issues that require clarification for the purposes of assessing whether join tendering breaches EU competition law (Art 101 TFEU) as an instance of anticompetitive joint selling concerns whether the members of the joint tender are competitors or not. On that point, Ritter emphasises that "what matters here is whether they are competitors for the purpose of the particular procurement procedure at issue" (p 4). After a review of the relevant ECJ case law, Commission's guidelines and administrative practice in the area of EU competition law enforcement, he proposes that the relevant question is to assess whether a firm has "real concrete possibilities" to bid for the contract being tendered (see p. 6). In his view, the burden of proof rests with the authority, but it can be shifted where the "authority brings substantial evidence that the parties are potential competitors" (ibid). Substantively, his main test requires assessing whether the firms have independent ability to bid for the contract, which is determined by the "ability to meet the tender specifications -- in terms of having sufficient spare capacity, equipment, staff, regulatory permits, quality certifications, etc" (p. 7). Interestingly, Ritter excludes the possibility of carrying out an analysis of the undertakings' intention to bid for the contract (pp. 9-10).

At this point, Ritter reaches the need to assess the extent to which it can be objectively determined that an undertaking had the ability to bid independently for a contract for which it has decided to bid jointly with others. He points out at the disagreement between Thomas an myself (see here) concerning whether the possibility of giving up alternative projects can/should (not) be included in the analysis. Ritter considers that the discussion may be beside the point, and that the issue rather requires an assessment of "what happens when a party to the joint tender would not be able to bid on its own (perhaps because capacity is allocated to other projects), but could have done so by hiring more staff, buying or renting more equipment, or teaming up with someone else? Should it be considered a potential competitor?" (p. 8).

Interestingly, this brings Ritter's proposed test very close to Thomas', where the latter indicates that it is important not to 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". And, more specifically, when Thomas 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?".

As I said when I commented on Thomas' paper, 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 (including the need to source additional capacity from elsewhere), which fundamentally and in itself proves the point that they were unable to submit bids individually or with a total independence from third parties (including suppliers or providers of services, as well as employees, although this raises the tricky issue of the need to contain the analysis within the limits of the concept of undertaking for the purposes of EU competition law enforcement). Once this is clear, I see no good reason for the assessment to rely on whether there were alternative potential partners that joint bidders could have (independently?) teamed up with, 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 query business decisions ex post facto.

Indeed, the difficulty with this line of assessment is that it would require second-guessing business strategies and preferences actually revealed by the undertaking -- which decided to participate in the joint bid with its specific partners, rather than engaging in any of the other (theoretically) possible alternative business strategies -- and compare them with an alternative scenario envisaged by the enforcement authority. Even if Ritter advises against extracting hard and fast conclusions from such an analysis (p. 9), he does indicate that "the rule of thumb is that the parties to a joint tender are competitors if it reduces the number of tenders that realistically could have been made otherwise" (ibid).

Overall, this comes to indicate the difficulties in excluding the applicability of Art 101(1) TFEU to cases of joint tendering, which are likely to be considered potentially restrictive of competition in most instances if a strict objective assessment of the joint tenderers' ability to have tendered for the contract (independently, or with others) is carried out, as proposed by Thomas and Ritter. However, this does not necessarily eschew the analysis (although it does effectively reverse the burden of proof) towards the finding of infringements, provided that the possibility of declaring prima facie restrictive joint tendering agreements exempted under Art 101(3) TFEU properly concentrates on the analysis of their efficiency. Ritter addresses this issue towards the end of his paper (pp. 15-16).

In that regard, Ritter considers that the parties to the joint tendering agreement need to be able to show that

  • the joint tender improves the value proposition to the customer, e.g. in terms of price, or, more likely, in terms of quality (first and second conditions of Article 101(3); this assessment may require giving a monetary value to non-price factors);
  • achieving those efficiencies would not have been possible through a less restrictive alternative, such as hiring personnel or equipment, or teaming up with another firm which is not a competitor (third condition of Article 101(3); this assessment may entail an element of counterfactual analysis); and
  • the joint tender does not "afford such undertakings the possibility of eliminating competition" with respect to the procurement procedure at issue, i.e. the joint tender is unlikely to be the only tender (fourth condition of Article 101(3)) (Ritter (2017) 16, emphasis added)

Once more, this test also seems rather stringent and, in particular, its second aspect can be rather problematic. In its literal reading, the equivalent condition of Art 101(3) TFEU requires that the agreement does not "impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives". A strict reading, such as Ritter's, to the effect that this requires that "achieving those efficiencies would not have been possible through a less restrictive alternative, such as hiring personnel or equipment, or teaming up with another firm which is not a competitor (third condition of Article 101(3); this assessment may entail an element of counterfactual analysis)" would create the effect of conflating the test for the application of Art 101(1) TFEU and the exemption of Art 101(3) TFEU with the logically circular and perverse implication that any teaming agreement that is found prima facie restrictive and in breach of Art 101(1) TFEU because the parties could have sought additional personnel or equipment, or teamed up with a third party (itself not a competitor), is also necessarily excluded from exemption under Art 101(3) TFEU precisely because of those reasons.

The need to distinguish the elements for an analysis under Art 101(1) and Art 101(3) TFEU when the assessment includes the need to consider potential competition triggers some difficult issues. In the context of public procurement, this requires settling whether the assessment of the need for the (potential) competitive restriction implicit in the joint tender to generate the claimed efficiencies is, either (a) limited to the agreement under analysis, or (b) should also include the potential alternative business strategy which (theoretical) existence brought the joint tendering agreement under scrutiny in the first place. Existing European Commission Guidelines on  the application of Article 101(3) of the Treaty can provide a framework for this analysis.

The key part of the Art 101(3) TFEU Guidelines is para [76] and, more precisely, the consideration that "It is particularly relevant to examine whether, having due regard to the circumstances of the individual case, the parties could have achieved the efficiencies by means of another less restrictive type of agreement and, if so, when they would likely be able to obtain the efficiencies. It may also be necessary to examine whether the parties could have achieved the efficiencies on their own" (emphasis added). Applied to the specific point, I read this to require an assessment of whether a less restrictive agreement between the same parties would have allowed the joint tender and, potentially, whether they could have generated the same efficiencies (strictly) on their own, quod non because of the previous determination that they would have needed "hiring personnel or equipment or teaming up with a non-competitor" -- which in my view does not fit the counterfactual of an analysis of the ability of the party to bid for the tender all things being equal, which would have determined its classification as an actual competitor. My objection is that proceeding in the way Ritter suggests (ie considering the potential scenario of alterative business strategy both at Art 101(1) and Art 101(3) stages) would create, if not a circular or self-referential logic, at least a double whammy for the joint tenderers because their condition of potential competitors would not only be used to bring their agreement under Article 101(1) TFEU, but also to exclude its exemption under Article 101(3) TFEU -- which does create substantive analytical conflation in my view.

In my opinion, an alternative analysis is preferable, to the effect 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, or that the terms of their 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. For their part, contracting authorities will need to be on the lookout for potential negative impacts on competition in the market, as well as the inclusion of unnecessary restrictions in the teaming and joint bidding documents (A Sanchez-Graells, Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015) 339, footnote omitted and emphasis added).

Or, in other words, I think that -- for the purposes of the application of Art 101(3) TFEU -- the analysis needs to rest on whether the joint tenderers have limited their collaboration to what was necessary to create the efficiency of their joint bid, or have rather improperly taken that chance to further restrict competition amongst them. But it should not revisit the same theoretical counterfactual analysis that brought the agreement under Art 101(1) TFEU scrutiny to begin with.

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.