Serbian Competition Authority imposes EUR 460,000 fine for formation of a consortium

Investigation and conclusions of the Commission

Five companies – MITECO Kneževac, Yunirisk, Modekolo, Brem and Kemeko – formed a consortium in order to submit a joint offer in the public procurement procedure announced by the Ministry of the Environment for the disposal of hazardous waste produced by Magnohrom d.o.o. The investigation was launched ex officio, and the Commission conducted a dawn raid and seized and copied electronic correspondence and other documentation related to the formation of the consortium.

The Commission found that the consortium restricted competition, because the members could form two, instead of one, groups of bidders. A key piece of evidence showing that a restrictive agreement existed is that the members divided the profit into five equal parts, even though not all members had the same costs related to the implementation of the public procurement contract. According to the decision, two participants did not incur any expenses and did not participate in the implementation of the public procurement contract, thus, their participation in the consortium was not necessary.

The Commission did not accept the consortium members' claims that they could not submit an offer independently and that is was necessary to form a consortium, nor their arguments that the consortium did not lead to negative effects (e.g. consortium members pointed out that the offered price was 17 % lower than the planned budget for the service in question). The Commission stated that it did not examine whether each member of the consortium could have participated independently, but whether two competing groups of bidders could have been formed from the existing consortium. The Commission took the position that this consortium represents a cartel agreement, i.e. the most serious form of competition infringement, and that its effects do not need to be analysed.

Rules for assessing a consortium in terms of the application of competition rules

In the Opinion from 2021, the Commission provided guidance on when a joint offer can be considered a restrictive agreement. According to the Opinion, a consortium will not constitute a restrictive agreement if:

• the members of the consortium are not competitors;
• the members of the consortium belong to the same group of companies (affiliated companies); and
• the members of the consortium are competitors, provided that none of the participants could participate independently in accordance with the conditions of the tender documentation or that none of the participants in the agreement could participate in the procurement procedure by submitting a special joint offer.

In addition to the above, there are also rules regarding the exchange of data and non-compete provisions, which the members of the consortium are obliged to respect.

If the above conditions are not met, the consortium constitutes a prohibited agreement and, as stated in the Opinion, the only way to "legalise" it is to apply to the Commission for an individual exemption.

How to reduce the risk that participation in the consortium will be sanctioned

Companies in Serbia should bear in mind that the formation of a consortium carries the risk of a potential investigation by the Commission and high fines if it is found that the consortium constitutes a restrictive agreement. To reduce the risk, it is necessary to establish clear internal rules on when companies can participate in a consortium and how they will negotiate and implement the joint bid. In view of the Commission's Opinion and its practice, the following aspects should be addressed in the internal guidelines for the formation of a consortium:

• assessment of the company's capacity: whether it can submit an independent offer (for the entire procurement or for individual lots) and whether there is a realistic possibility for additional investments in order to reach the required level of capacity for an independent offer;
• how communication and negotiations are conducted with potential partners in the consortium, as well as the scope of information exchanged;
• assessment of the appropriate number of members of the consortium;
• exchange of information with members of the consortium for the purposes of preparing the offer and during the execution of the contract;
• preparation and storage of documentation/correspondence arising in connection with the preparation of the joint offer.

If the internal analysis cannot assess with certainty whether the consortium would violate competition law, the members of the consortium can submit a request to the Commission for the exemption of the consortium agreement, which would ensure legal certainty and remove potential risk.

It should be noted that the rules on the protection of competition regarding the formation of a consortium apply not only in the case of a joint bid, but also in the case of a bid with a subcontractor. Also, the setting up of tenders and the formation of a consortium can represent a competition violation in the implementation of procurement by contracting authorities who are not obliged to apply the Public Procurement Act.

This Commission's decision indicates that a joint offer, i.e. a consortium, an institute that is allowed by the Public Procurement Act, can represent the most serious violation of competition – a cartel agreement. Therefore, any negotiation and conclusion of such a contract must be fully aligned with the rules on the protection of competition.

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author: Zoran Soljaga