Consortium Bidding Guide
Consortium Bidding Guide
Consortium Bidding Guide
BIDDING
How to comply with
competition law
when tendering as
part of a consortium
December 2014
Table of Contents
Summary of this Guide........................................................................................................ 1
1.
Introduction .............................................................................................................. 2
This guide is aimed at small and medium sized businesses (SMEs) who want to
form a consortium to tender for a public contract. A consortium involves a number
of independent firms coming together to submit a consortium bid, i.e. joint bid,
for a contract. This guide is designed to help SMEs involved in consortium bidding
to make sure that they comply with competition law.
A consortium bid will not breach competition law if (i) the consortium members
are not actual or potential competitors (subject to the caveats discussed in
paragraph 1.9 below), or (ii) the consortium members are all owned by the same
parent company. For further detail, see paragraph 3.4 below.
In all other cases, consortium members who are actual or potential competitors
should carry out a self-assessment as to their compliance with competition
law. This means that the consortium members must identify the pro-competitive
benefits that result from joint bidding and assess whether those pro-competitive
benefits outweigh any anti-competitive effects. There are four specific factors
that all need to be examined as part of this assessment. For further detail, see
paragraphs 3.6 and 3.7 and the accompanying text box below.
1.
Introduction
1.2
1.3
1.4
This guide is based on relevant Irish and EU legislation and guidelines, including
the Competition Act 2002 (as amended)2 and the European Commissions
Guidelines on horizontal cooperation agreements.3
assessing your position, we suggest that you take a look at the European
Commissions Guidelines on horizontal cooperation agreements, which provide
more detail on the legal and economic principles which apply.
1 On 31 October 2014, pursuant to the Competition and Consumer Protection Act 2014, the Competition Authority and the
National Consumer Agency were amalgamated and became the Competition and Consumer Protection Commission. In this
Guide, the Commission refers to the Competition and Consumer Protection Commission, while the European Commission
refers to the Commission of the European Union.
2 This refers to the Competition Act 2002, as amended by various subsequent Acts including the Competition (Amendment)
Act 2006, the Competition (Amendment) Act 2010, the Competition (Amendment) Act 2012 and the Competition and
Consumer Protection Act 2014.
3 http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2011:011:0001:0072:EN:PDF.
1.5
While this guide relates specifically to public procurement, the same competition
principles apply to all tender processes, including those run by private firms.
1.6
This guide covers cases where a number of firms want to form a consortium to bid
for a public contract, i.e., the firms come together openly to submit a joint bid to
a purchasing body. It is not intended to address bid-rigging or collusive tendering,
e.g., where a number of competitors agree in secret on who will win a particular
tender competition. Such activity involves serious infringements of competition
law which, if detected, will be investigated by the Commission and may expose
the participants to criminal prosecution. The Competition Authority published a
separate guidance booklet in 2009 on The Detection and Prevention of Collusive
Tendering.4
This guide does not constitute legal advice. You must decide for yourself whether
your conduct, and that of your firm and its staff, complies with competition law.
However, this guide should assist you in making that assessment. If you have
doubts about whether a planned consortium complies with competition law, you
should seek independent legal advice.
There are various legitimate reasons why firms might decide to create a
consortium in order to submit a joint bid for a public contract. For example
The firms taken individually do not have the necessary scale to service the
requirements of the contract.
4 All of the Competition Authority guidance booklets referred to in this document are available at: http://tca.ie/EN/News-Publications/Information-Booklets.aspx. Guidance produced by the Competition Authority remains relevant unless and
until replaced by guidance from the Competition and Consumer Protection Commission.
The firms individually do not have all of the plant, equipment or other
technical resources required to perform the contract.
The firms individually do not have all of the necessary skills or expertise to
perform the contract.
The terms consortium bidding and joint bidding are used throughout this guide
to refer to a situation where two or more parties choose to submit a joint bid in a
public procurement competition. A consortium may comprise two or more SMEs,
or it may, for example, consist of one large firm together with one or more SMEs.
The guidance contained in this document applies irrespective of the composition
of the consortium.
1.9
competitors, for example, between companies that are active in different markets
entirely, or that are active in the same product markets but operate in different
geographic markets and are not potential competitors.5 In certain circumstances,
sub-contracting arrangements involving non-competitors can also cause
competition problems (for example, where there is a specialist sub-contractor
participating in multiple tenders in a tender competition). This document
therefore also contains guidance to assist joint bidders in ensuring that subcontractors are not used as conduits for exchanging sensitive information
between different consortia in the same tender competition.
1.10
5 If you are considering a joint bid with firms at different stages of the supply chain, referred to as vertical agreements,
guidance is available in the Competition Authoritys Declaration and Notice in Respect of Vertical Agreements and Concerted
Practices and in the European Commissions Guidelines on Vertical Restraints.
contract. The guidance applies regardless of the specific legal form that the
consortium takes.6
The public sector is a major purchaser of goods and services in Ireland. In 2013,
the public sector spent in the region of 8.5 billion on purchasing goods and
services, in addition to expenditure on public works. This level of expenditure
offers significant business opportunities for firms that can provide the goods and
services required by public bodies.
1.12
The Office of Government Procurement (OGP) has been tasked with centralising
public sector procurement arrangements for common goods and services. The
trend towards centralised buying in the public sector is designed to improve
efficiency and value for money in public purchasing. The OGP wants to encourage
SMEs to participate in public procurement competitions on a fair and equal basis.
However, SMEs can sometimes find it difficult to tender for larger scale or
aggregated contracts for the reasons described above (e.g., the SME on its own
has insufficient scale, geographic reach or financial capacity to tender for the
contract).
1.13
1.14
Consortium bidding offers an opportunity for SMEs to pool their knowledge and
expertise and submit joint bids that offer higher quality products and more
innovative solutions to the purchasing body. Consortium bids involving larger
6 It should be noted, however, that this guide does not cover situations where joint bidders decide to create a full function
joint venture going beyond limited co-operation such as is involved in consortium bidding. A full function joint venture is a
joint venture which performs (on a lasting basis) all the functions of an autonomous economic entity (e.g., because it has its
own dedicated day-to-day management team, and access to resources such as finance, staff and assets). Full function joint
ventures may need to be notified to the Competition and Consumer Protection Commission for a formal review under the
merger control regime set out in Part 3 of the Competition Act 2002 (as amended).
firms and SMEs may allow significant efficiencies to be realised if the SME can
reduce the consortiums costs in particular geographic areas or in specific product
lines.
The DPER
guidelines also promote sub-dividing larger contracts into lots, where possible, to
enable SMEs to bid for these opportunities. The guidelines encourage SMEs to
form consortia where they are not of sufficient scale to tender in their own right.
The OGP standard tender documents also encourage SMEs to explore the
possibility of forming consortia with other SMEs or with larger firms in order to
submit joint bids.
1.16
1.17
However, consortium bidding must be carried out in a way that ensures that the
firms involved comply with competition law, both in the tendering process itself
and in the market generally. Consortium bidding often involves firms that are
actual or potential competitors coming together to submit joint bids for public
contracts. Consortium members must make sure that their collaboration on a joint
bid does not spill over into their activities in the market more generally and
7 http://www.procurement.ie/sites/default/files/circular_10-14_0.pdf.
8 Directive 2014/24/EU of the European Parliament and of the Council of 26 February 2014 on public procurement and
repealing Directive 2004/18/EC (Directive 2014/24/EU).
This guide deals only with how to comply with competition law when tendering
as part of a consortium. If you are looking for general information on forming a
consortium, there are State agencies that offer support and advice to SMEs on
issues such as consortium development and public procurement opportunities,
including
InterTradeIreland (www.intertradeireland.com)
2.
All businesses in Ireland, whether small, medium or large, are obliged to comply
with Irish and EU competition law and to refrain from anti-competitive behaviour.
2.2
Competition law protects the competitive process to ensure that products and
services are competitively priced, of good quality and innovative. This benefits
everyone: consumers, businesses and the economy as a whole. It is important to
understand the types of behaviour that are prohibited by competition law. In
summary, Irish and EU competition law forbid two broad types of behaviour:
(i)
(ii)
2.3
See Appendix A for further information on the role of the Commission in enforcing
competition law and on the penalties that apply for breaching competition law.
2.4
9 In the unlikely event that a SME has a particularly strong market position by virtue of the fact that it has, for example,
proprietary technology or other significant intellectual property rights, the SME may have a special responsibility to ensure
that it does not abuse that power. Where such SMEs want to enter a consortium bid, they should think carefully before
entering into consortium arrangements that prevent others from competing without objective justification. Such SMEs may
wish to seek legal advice, in particular, before entering into exclusive arrangements.
Competition Law - How it helps you and what you need to know, and Complying
with Competition Law - A guide for businesses and trade associations.
Consortium bids are commonly used in tendering for public contracts in Ireland
and elsewhere throughout the world. Consortium bids do not necessarily breach
competition law. However, since a consortium bid may involve actual or potential
competitors coming together to discuss the terms of a joint bid and potentially
sharing commercially sensitive information relevant to that bid, it is very
important to ensure that (i) the joint bid itself complies with competition law, and
(ii) the cooperation between the consortium members does not lead to anticompetitive collusion outside the scope of the joint bid.
2.6
2.7
As discussed in paragraph 3.4, a consortium bid will not breach competition law if
(i) the consortium members are not actual or potential competitors (subject to
the caveats discussed in paragraph 1.9), or (ii) the consortium members are all
owned by the same parent company.
2.8
2.9
In all other cases, consortium members who are actual or potential competitors
should carry out a self-assessment as to their compliance with competition law.
This means that the consortium members must identify the pro-competitive
benefits that result from joint bidding and assess whether those pro-competitive
benefits outweigh any anti-competitive effects. Under competition law, there are
four specific factors that need to be examined when deciding whether the procompetitive benefits of joint bidding outweigh any anti-competitive effects.
2.10
Further guidance on how to apply these four factors and the approach that you
should take when weighing up the pro- and anti-competitive effects of joint
bidding is provided in paragraphs 3.6 and 3.7 below.
What are the four factors you should examine when assessing whether the procompetitive benefits of joint bidding outweigh any anti-competitive effects?
1.
2.
3.
4.
2.12
10
11
3.
This section contains practical guidance on how to submit joint bids in compliance with
competition law. The guidance set out below does not constitute a checklist which can
be applied mechanically in every case. Each case must be assessed on the basis of its own
facts. If you have doubts about whether a planned consortium bid complies with
competition law, you should seek independent legal advice.
No, competition law does not forbid consortium bids. Consortium bids can often
be organised in a way that complies with competition law.
3.2
3.3
Consortium bidding, particularly between SMEs, often involves firms that are
actual or potential competitors coming together to submit a joint bid for a public
procurement competition. As already indicated (see paragraph 1.7 above), there
may be good reasons why competitors decide to participate in a consortium bid.
In many cases (as discussed in paragraphs 3.5 to 3.7), a consortium bid involving
SMEs who are actual or potential competitors may not breach competition law.
However, as mentioned above and in paragraphs 3.8 and 3.9, it is important in
such cases that the joint bidders take care to ensure that their involvement in the
consortium does not lead to collusion or other anti-competitive activity in areas
outside the scope of their joint bid. In the following sections, we set out practical
guidance on how to ensure that your consortium bid complies with competition
law.
12
What is a competitor?
The term includes actual (i.e., current) competitors as well as potential
competitors. A competitor is therefore someone who supplies the same
goods or services as you do, in the same geographic market, or who could
easily adapt its existing business to do so.
For example, a company producing confectionery is unlikely to be a
competitor of a company producing packed sandwiches. However, a
company producing ready meals might be a competitor of a company
producing packed sandwiches if it is economically viable for the company
producing ready meals to tweak its production process to produce
sandwiches. It is therefore a potential competitor of the company producing
packed sandwiches.
Similarly, a SME in Cork would be a potential competitor of a SME in the same
field in Donegal, if it would be relatively easy (i.e. would not incur significant
additional costs or risks) for the Cork-based SME to deliver its goods or
services to Donegal.
The consortium members are all owned by the same parent company, i.e.,
the consortium members all form part of a single economic entity, or
undertaking, for the purposes of competition law. To come under this
heading this must be the case before you start discussing your joint bid.
The fact that a merger or takeover is planned is not enough.
What is a single economic entity?
In essence, this relates to whether the parties to the bid are independent of
each other. Generally speaking, if two firms can make their own business
decisions independently of each other and any third party, they are separate
entities. By contrast, if one company can exercise effective and decisive
influence, or control, over anothers activities, then the two are a single
economic entity. Similarly, if two subsidiary companies are wholly owned by
the same (parent) company, then they are part of a single economic entity.
Competition law does not apply to agreements within a single economic
entity because the members of the entity are all part of the same corporate
group (or other similar entity) and are not competitors. (The entity itself is, of
course, subject to competition law).
3.5
13
Even if your consortium bid does not satisfy all of the requirements set out in
paragraph 3.4 or paragraph 3.5 above, it may still be allowed under competition
law. In such cases, you will need to examine whether the consortium bidding
arrangement results in benefits to competition that outweigh any competition
concerns.
Each consortium member should consider its position carefully before entering
detailed discussions with bidding partners. Try to weigh up the positive and
negative effects on competition that cooperating on a consortium bid is likely to
have. The discussion that follows will help you to do that.
Does your company independently meet all of the requirements of the tender
competition?
14
What effect will the consortium have on prices and product quality?
Participation in a consortium bid must not, when all effects are balanced against
each other, result in anti-competitive effects in the specific tender competition or
elsewhere whether by increasing prices, or by reducing output, product quality,
product variety or innovation. For example, two firms with complementary
technologies coming together in a consortium might result in a more innovative
product offering. However, if the only product the consortium offers is more
expensive than their individual offerings that is not a good outcome for the
purchasing body or for end consumers.
15
accurate awareness of the degree of competition in your own market, this should
allow you to judge the effect a consortium bid is likely to have on competition.
Unless the
16
2.
3.
(ii)
For example, where two firms with complementary skills come together
to tender for a contract, it is perfectly permissible for them to agree not
to submit independent bids. However, they could not successfully argue
that it was also necessary for them to agree never to compete
independently for any other contracts with the relevant purchasing body.
17
3.9
18
lead to consortium members agreeing on the prices or other terms they will
individually offer in future procurement projects. If that happens, you should
extract yourself from any discussions of the consortium bid. If a competitor
divulges sensitive commercial intentions during such a meeting you should also
extract yourself from any discussions of the consortium bid.
competitor, even if this information was not requested, can represent a breach of
competition law if a firm subsequently changes its behaviour on the market on
the basis of the information it received. This is known as a concerted practice.
You can reduce the risk of this occurring by, for example: limiting dissemination
of information within the bid team, or ensuring that, when you are discussing how
to price the bid, you do not discuss your general commercial strategy, do not
provide detailed information on your cost base and do not share pricing models.
A firm that is simultaneously a member of more than one consortium must ensure
that it does not end up acting as a conduit for sensitive information between
competitors. Many purchasing bodies prohibit a firm from participating as a main
contractor in more than one tender or prohibit the firm from doing so without the
consent of the purchasing body. The issue of participation in more than one
consortium more commonly arises in sub-contracting arrangements where a
specialist sub-contractor participates in multiple tenders. For example, companies
A and B are competitors and your firm, company C, is acting as a specialist subcontractor in two separate consortia involving companies A and B in the same
tender competition. If company A provides you with sensitive information about
its business strategy (e.g., its future pricing intentions), you should ensure that
this information is not passed on to company B. In such a case there is no need
to remove yourself from the conversation but you should say that you will not
19
The following is a list of practical steps to help you reduce the risk that a
consortium bid breaches competition law:
Notify the purchasing body of the fact that you are submitting a consortium bid.
The template Request for Tenders for Goods and Request for Tenders for
Services developed by the OGP require tenderers to set out clearly in their
tenders the names of all consortium members who it is proposed will be involved
in performing the contract.
If you are aware that a member of the consortium will be participating in more
than one consortium in the same tender competition, notify the purchasing body
of this as the purchasing body may want to impose information-sharing
restrictions or take other appropriate measures to resolve any actual or potential
conflict.
Be clear what the scope of cooperation will be before you start discussions. It
should be specific to the products, services and customers involved in the
procurement competition. It should not encourage you or others to compete less
vigorously.
Keep discussions limited to what is needed to put together the consortium bid.
Limit access to materials and information relating to the tender at issue and
dispose of them after completion of the bid or delivery on the contract as
appropriate.
20
Consider
requiring
specialist
sub-contractors
or
consortium
members
You should ensure that the people within your company working on the
consortium bid treat all information related to the bid formation as strictly
confidential and subject to need to know restrictions. You should also ensure
that information learned in the bidding process does not affect how you compete
in other parts of your business before, during, or after the consortium bidding
process.
If discussions stray outside the scope of what is permitted for example, to prices
generally, customer sharing, or future commercial strategy
o
seek independent legal advice and/or contact the Competition and Consumer
Protection Commission to tell us about what has happened.
If in doubt about the competition law implications of any consortium bid, seek
independent legal advice.
Email: info@ccpc.ie
21
22
If Murphy, OLeary and Egan agreed to continue operating as a consortium for smaller
local tenders where previously all three companies would have made individual bids.
Bidding together for one tender should not affect how firms compete for other work.
CASE STUDY 2:
For the purposes of this case study, a number of local authorities require the construction
of new waste water treatment plants over a five year period. Lets say that there are three
large Irish firms that typically bid for such projects. These firms all provide integrated
construction, engineering and architectural services under one roof.
In addition, there are a number of small Irish-based construction and engineering firms in
our example that would like to bid for these contracts. However, none of these smaller
firms taken individually could fulfil the requirements of the tender. Specifically, the prequalification criteria require that interested parties should be able to demonstrate that
they have the required level of construction, engineering and architectural skills to
complete the project successfully.
Imagine that Byrne Construction and Ryan Engineering are considering entering a
consortium to bid for contracts being advertised by Cork County Council and Limerick
County Council. Similarly, Delaney Construction and Wilson Engineering are considering
entering a consortium to bid for contracts being advertised by Waterford Country Council
and Wexford County Council.
However, both of the consortia require specialised architectural skills to meet the prequalification criteria. These specialised skills are difficult to source. There is one small
architectural firm FH Architecture based in the Midlands that specialises in the design
of waste water treatment plants and has an excellent reputation. Both of the consortia
Byrne/Ryan in the Southwest and Delaney/Wilson in the Southeast request that FH
Architecture provide architectural services as part of their consortium bids.
Lets say FH Architecture accepts the requests to join the Byrne/Ryan and Delaney/Wilson
consortia. Individually, none of these firms could have fulfilled the requirements of the
tender on its own. The establishment of these consortia would place greater competitive
pressure on the three large integrated firms that usually win these contracts. The creation
of the consortia is unlikely to raise any competition concerns once bidding together does
not affect how the firms compete for other work.
Concerns could arise in our hypothetical example if a condition of the agreement between
Byrne/Ryan and FH Architecture were that FH Architecture would not offer its services to
any other parties to the procurement competition. Because FH Architecture holds a
position of some market power by virtue of its specialist skills it should consider
carefully the implications on competition if it were to agree to a restriction that would
substantially eliminate the possibility of competition from others.
Serious concerns would certainly arise in this example if FH Architecture were used as a
conduit in order to share commercially sensitive information between two consortia. For
23
24
A.2
Under the Competition and Consumer Protection Act, the Commission has the
following powers of investigation:
A.3
power to enter and search: authorised officers may enter and search a
business premises or home with a valid warrant issued by the District Court.
Businesses or individuals that breach competition law may be subject to civil and
criminal sanctions. The most serious types of anti-competitive conduct are often
referred to as hardcore breaches of competition law. The following are examples
of hardcore breaches of competition law and are subject to the most severe
penalties:
25
A.5
fixing or agreeing prices with competitors for goods and services, including
the level of price increases or discounts.
In the case of these hardcore breaches of competition law, the criminal fines and
prison sentences are as follows:
A.6
A.7
Firms convicted of a criminal offence under competition law may also be excluded
from participating in future public procurement competitions.10
A.8
A.9
An individual or business that assists a cartel can also be found guilty of a criminal
offence. In Ireland, there have been convictions for aiding and abetting cartels
where individuals did not work for the firms engaged in price-fixing but took on a
co-ordinating or facilitating role in the cartel.12
10 See Recital 101 and Article 57(4) of the EU Public Procurement Directive (Directive 2014/24/EU).
11 This was established by the Supreme Court in DPP v Hegarty [2011] IESC 32.
12 There have been three such convictions to date. See for example http://www.tca.ie/en/Enforcing-CompetitionLaw/Criminal-Court-Cases/Irish-Ford-Dealers-Association.aspx.
26
A.10
27