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The Council of the Spanish Commission for Markets and Competition (“CNMC”) recently published a decision closing sanctioning proceedings against a consortium created by four companies (Applus, SYC, Itevelesa and Veiasa) (the “Consortium”) to participate in several tenders for the commercial vehicles roadside inspection service (“ITV”) arranged by the Directorate-General of Traffic between 2015 and 2017, considering that it did not restrict competition.
The decision is particularly relevant as it is the second time the CNMC conducts an in-depth analysis on the compatibility of a temporary consortium with competition law and resolves to close the proceedings.
The Directorate-General of Traffic had combined in a single tender the provision of these services throughout peninsular Spain, except for the Basque Country and Catalonia. This had led the Consortium companies to agree in advance on an allocation of the territoriescovered by the tender according to the geographic areas in which each of them operates.
Based on the internal documents seized during the inspections, the companies were aware of the low probability of alternative bidders, given the configuration of the tender and the characteristics of the market, which is highly concentrated and with a certain degree of geographic compartmentalization. Indeed, the Consortium proved to be the only bidder in the tenders.
After a detailed analysis of the Consortium’s structure and the context of the tenders, the CNMC concluded that the companies did not have the capacity to provide the services individually for several reasons:
- The regulations on ITV services require the possibility of continuing an inspection started on the road in a fixed station, which requires having physical facilities close to the roadside inspections.
- The market for the provision of ITV services is divided by autonomous regions, and there are no companies established throughout the national territory. The provision of the services individually would, therefore, entail very high travel costs for the companies to be able to render services in the territories where other companies were already established, while entering into a temporary consortium allowed them to take advantage of the synergies derived from the geographic location of each of them.
- Only one of the Consortium companies had the mobile units required for the tender, which it leased to the other companies.
It should be noted that the Contracting Committee (mesa de contratación) had warned the Directorate-General of Traffic of the risks to competition entailed by some of the tenders’ specifications, and it had recommended dividing them into lots. However, the Directorate-General of Traffic ignored its recommendations and, in fact, it referred the matter to the CNMC.
This led both the Council and the Competition Directorate of the CNMC to conclude that the Consortium did not restrict competition. Indeed, as stated in the decision, the Competition Directorate, responsible for investigating the case, recognized that the decision to enter into a joint consortium was “an economically rational option in view of the characteristics of such tenders and the market in which the contract is to be executed,” given the companies’ inabilty to guarantee adequate performance of the contract if bidding individually.
In recent years, Consortiums and joint bidding agreements have been in the spotlight of national and international competition authorities. This is because, although they are perfectly lawful and even encouraged by public procurement laws as a means to allow companies to participate in large projects and achieve efficiencies based on cooperation, they also entail fixing the prices and other commercial terms of a joint bid between two competitors and, under certain circumstances, can reduce the number of bids in a tender.
In general, both the CNMC and other competition authorities base their analyses of a temporary consortium’s compatibility with competition law on the criterion of objective need, according to which all agreements necessary to allow companies to participate in projects that they would not have been able to carry out individually are lawful.
This analysis must be performed on a case-by-case basis and, although there are no clear guidelines or criteria on the factors that must be taken into account, decisions such as that of the CNMC help clarify the legal framework applicable to this type of agreement.
Furthermore, although some authorities and courts have adopted a highly formalistic approach such as the one we addressed in this blog several weeks ago, classifying Consortiums as restrictions of competition by “object”, causing legal uncertainty for companies interested in forming these alliances, the CNMC’s decision will help reduce the stigmas generated by excessively restrictive interpretations of joint bidding agreements.
Authors: María López and Alexandre Picón
This post is also available in: Español