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.
