Supreme Court follows EFTA Court ruling, but on different grounds
In a landmark judgment, Norway’s Supreme Court has ruled that joint bids submitted by two local taxi cooperatives for public contracts were anti-competitive ‘by object’. Since the two cooperatives could have bid separately for the contracts, they were considered as potential competitors.
The court unanimously held that no assessment was necessary of the likely effects of the parties’ choice to team up and bid jointly. Subject to the narrow exception for efficiencies – under the national provision corresponding to Art 101(3) TFEU – the joint bid was deemed a per se infringement.
The case is part of a wider trend of national competition authorities gradually expanding the ‘by object’ category to escape the more onerous task of demonstrating likely effects on competition. Using this “object shortcut” for joint bidding is questionable.
The taxi cooperatives, Ski Taxi SA and Follo Taxi SA, had previously set up a jointly held company, Ski Follo Taxidrift AS, to handle administrative and operational issues for its owners. In the past this company had on several occasions submitted bids on behalf of its owners.
The case involves bids submitted through the jointly held company in the context of the public procurement by a public hospitals operator. The procurement involved contracts for the transportation of patients to and from hospitals. The bids were explicitly submitted on behalf of the owners and involved pooling taxis from each of the cooperatives.
The procurement process took place in two stages. At the first stage, the parties were the only bidder for one of the geographies under tender. As a result, the procurement was cancelled for this geography. A new invitation was made for this geographical area, which was now sub-divided into smaller areas. The parties’ bids for these areas resulted only in contracts at second priority, behind other players.
The Norwegian Competition Authority took the view that the two cooperatives could have bid separately for some of the contracts and that the cooperation implied that they would not do so. On this basis, the authority concluded that agreeing to bid jointly was anti-competitive ‘by object’ under the national provision corresponding to Art 101(1) TFEU and fined the companies. The authority was so confident in this position that they did not carry out any assessment of the effects on competition. The authority briefly discussed the exception corresponding to Art 101(3) TFEU, but concluded that the high threshold applicable to ‘object’ infringements was not met.
The district court disagreed with authority’s strict approach and annulled the decision. The appeals court, however, sided with the authority and upheld the decision, although it reduced the fines (see this post on the judgment of Borgarting appeals court).
The appeal to the Supreme Court concerned whether the joint bids could be labelled a by object infringement. Whether or not the parties could in fact have bid separately, was not subject to appeal.
There are no precedents from the EU courts on joint bidding specifically. An old Commission decision involving a bidding consortium also did not address the ‘by object’ issue: in Konsortium ECR 900, the Commission accepted a bidding consortium on the basis that the participants were unlikely to bid separately (the decision is available here).
As a result, the Supreme Court requested a preliminary ruling from the EFTA Court (see this post). In its ruling delivered on 22 December 2016, the EFTA Court in essence placed bidding consortia between competing players on par with price-fixing.
The EFTA Court’s simple point was that by bidding jointly, the two taxi cooperatives agreed on the price offered to the public contracting authority. In the court’s view this constituted price-fixing.
While saying that it agreed with the EFTA Court, the Supreme Court in its judgment of 22 June 2017 approached the question from a different angle. The Supreme Court’s key argument was that absent the cooperation, none of the parties could know whether the other party would bid. The agreement to bid jointly eliminated this uncertainty and hence it was liable to reduce competition.
The Supreme Court unanimously took the view that this effect of joint bidding is so obviously anti-competitive that the agreement to bid jointly was an infringement by object.
In the Supreme Court’s view, the anti-competitive object was further supported by certain statements which indicated that the parties had a subjective intent to restrict competition between themselves. However, the Court’s conclusion does not seem to rest on these statements, which were found in a shareholders’ agreement and a strategy document, both of which dating back several years.
The fact that the parties had not cooperated secretly, but instead made clear that they had teamed up in a consortium, did not sway the court. The court took the view that cooperating secretly on a bid will be even more likely to be deemed an infringement ‘by object’. However, the fact that the cooperation took place in the open did not affect its anti-competitive character.
Moreover, the fact that one of the parties was unlikely to bid alone absent the cooperation was not decisive. As long as that party could potentially bid alone, it was a potential bidder. A consortium that removed a potential bidder was in itself anti-competitive.
It also did not help the parties that by pooling their resources they could offer better capacity and a more competitive bid. The Supreme Court took the view that this could only be considered under the exception corresponding to Art 101(3) TFEU as a potential efficiency. This advantage of teaming up was not part of the ‘legal and economic context’ that must be considered before a by object infringement can be established. It did not prevent the joint bid from revealing a “sufficient degree of harm to competition”. This is the high bar established for ‘by object’ infringements by the ECJ in CB (case C-67/13 P).
The object shortcut
The Supreme Court’s reasoning is arguably more defensible than that of the EFTA Court. The problem with joint bidding is indeed that, depending on the circumstances, it may remove a real competitive force (although this is not always the case, even if a party could in theory place a separate bid).
The problem is not one of price-fixing. If two competitors have chosen to team up for a bid, it does not matter much whether they calculate the offer together or whether one party uses the other as a sub-supplier and calculates its bid alone.
Irrespective of the differences in reasoning, however, labelling joint bidding as an object infringement is problematic. The fact that another player could in theory be able to bid alone for a contract is at most an indication that a consortium may potentially lessen competition. Particularly in more complex projects, teaming up with a competitor may lead to a more competitive bid and may be the only realistic way to have a fair shot at winning a contract.
To assess the likelihood of restrictive effects, a more detailed assessment is necessary. How complex is the project? How risky? On what basis will the contract be awarded? Do each of the parties have realistic prospects of winning the contract alone?
The ‘by object’ approach ignores these issues and proceeds instead on the basis that teaming up looks bad. It would perhaps be unfair to say that this amounts to shooting first and asking questions later, but at the very least it’s a questionable shortcut.
The Supreme Court judgment has now been made available in English.
Cooperation between bidders in public tenders has been a hot topic in the Nordic countries in recent years. In a recent Swedish case, an appeals court held that cooperation agreements between healthcare companies were not restrictive by object, see this post.