Introduction
In accordance with the well-established main rule, a bidding consortium does not restrict competition if it allows the parties to participate in projects that they would not be able to undertake individually, e.g., due to the size or complexity of the project. In its decision of 22 November 2023, the Finnish Market Court interpreted this rule strictly and decided that certain bus companies were not allowed to submit a joint bid since they were potential competitors. Six bus companies participating in the bidding consortium were imposed penalty payments in amounts ranging between EUR 120,000 and 380,000, in total EUR 1.5 million.
Background
In the early 2010s, local bus transport was opened up for competition in accordance with Regulation (EU) No 1370/2007 on public passenger transport services by rail and by road. In this context, the City of Turku together with surrounding municipalities in Southwest Finland organised public tender processes under the Regulation.
Six bus companies, which already owned a joint company Turun Linja-autoilijain Osakeyhtiö (“TLO”), decided that TLO shall participate in two public tender processes in 2013 and 2014 on behalf of the companies. In both tender processes, only one competing tender was submitted.
Four of the six companies established also another joint company LS-Liikennelinjat Oy (“LSL”), which participated in a tender process organised in 2016. In this tender process, two competing tenders were submitted, one of which was submitted by the largest company among the owners of TLO.
Position of the Competition and Consumer Authority
The Finnish Competition and Consumer Authority (“FCCA”) considered that the six bus companies were potential competitors and, therefore, the joint bids consisted in a restriction of competition. According to the FCCA, the companies could have, with certain exceptions, submitted individual tenders. Therefore, Article 101 TFEU (and the corresponding Section 5 of the Finnish Competition Act, 948/2011 as amended) prohibited the cooperation in the form of bidding consortia.
According to Chapter 5.4 of the Commission’s Horizontal Guidelines (Communication from the Commission – Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements, 2023/C 259/01), a bidding consortium agreement does not restrict competition within the meaning of Article 101(1) if it allows the parties to participate in projects that they would not be able to undertake individually. In that scenario, the parties to the bidding consortium agreement are neither actual nor potential competitors for the implementation of the project.
Based on the investigation, the FCCA made a proposal to the Finnish Market Court to impose a fine of EUR 1.9 million on the bus companies. (In Finland, the FCCA may not impose fines. Instead, the Market Court decides, as a first instance, on the existence of an infringement and the consequences thereof.)
Position of the bus companies
The bus companies’ main argument was that separately they were all too small to be able to submit tenders. The annual turnover of the companies varied between EUR 2.5 and 7 million except one which generated annual turnover of approx. EUR 30 million.
The bus companies argued that none of the companies had buses or drives available, i.e. buses which would not already have been reserved for the service of existing contracts and other operations. Thus, the participation in the tender processes (or some parts of them) would have required an investment in at least five new buses as well as the hiring of new employees. The companies should also have invested in depots. Also, the largest company participating in TLO argued that the company was fully occupied with obligations based on other recently concluded service contracts and could not have submitted an independent tender.
Further, the bus companies submitted that including necessary investment costs in the separate tenders would have resulted in considerably higher prices than a joint tender, which enabled flexible use of existing resources. Possible new investments could have been made by the joint company (TLO/LSL) instead of the individual companies. The risks involved in the investments were aggravated by the conditions, according to which the contracting authorities preserved the right to make changes to the routes and service frequency during the contract period.
Decision of the Market Court
The Market Court stated, first, that TLO and LSL were not full-function joint ventures (to be assessed under the merger control rules) since they could not discharge the obligations under the contracts autonomously. Instead, they were dependent on the resources of the owners which operated most of the routes included in the contracts concluded by TLO and LSL.
The Market Court also found that it was a common practice in the bus transport sector that bus companies invest in new vehicles after having been awarded the contract and that the risks involved in the contracts were not exceptional in nature. The Market Court also confirmed the FCCA’s position that the companies were – with some exceptions – able to carry the risks involved in the required investments.
As regards efficiency gains, the Market Court noted that the bidding consortia could have produced cost savings and economies of scale. However, this line of argumentation was rejected by the Market Court, since the bus companies had not demonstrated that the restrictions on competition were necessary in order to achieve the efficiency gains or that the companies had considered different options in order to find the measures which had the least restrictive effect on competition on the relevant market.
Conclusions
The Market Court’s judgment confirms that actual or potential competitors must exercise utmost care when considering the participation in a bidding consortium even in cases where the individual companies do not have all required resources for implementing the project at the time of the tendering. The Market Court’s assessment of the existence of potential competition may be seen as rather strict since, according to the judgment, potential competitors are not allowed to submit a joint tender e.g. in order to reduce the risks involved in the investments that are necessary in order to fulfil the contractual obligations, or to submit a more competitive tender (unless they manage to satisfy the test of Article 101(3) TFEU).
It might be seen as problematic that competition law prescribes, under penalty of a heavy fine, the risk level and investments companies are required to assume when submitting tenders and, thus, driving the price level up which is in contrast with the general aim of the procurement rules. The concept of “potential competitors” has been developed to determine whether companies operate on the same relevant market rather than to be used for assessing whether it is reasonable, from commercial perspective, to assume the risk involved in the proposed contract and investments required.
However, in the interpretation of the decision the specific circumstances of the case must be taken into account, which may (at least to some extent) in this case explain the strict findings of the Market Court. First, the tendering processes took place during a period when the public transport market was being opened up for competition. It appears from the facts of the case, that one of the reasons for submitting the joint tenders was an intention of the six bus companies to continue business as before, i.e. avoid changes in the market situation, thus, indicating cartel behaviour. Second, it was not established that the participation of all the six companies (or four companies in case of LSL) was necessary in order to obtain the efficiency gains and necessary resources for the operation of the routes in question. Alternatively, the companies could have formed bidding consortia consisting of two or three companies.
Sami Hartikainen