The CNMC approves the criteria that will govern the prohibition of companies from contracting with the public sector when they distort competition
The CNMC has approved Communication 1/2023, of 13 June, which establishes the general criteria that the CNMC will take into account to determine the scope and duration of the prohibition to contract with the public sector.
The Public Sector Contracts Act (Ley de Contratos del Sector Público, LCSP) includes a prohibition on contracting with companies and individuals sanctioned for having committed serious infringements of competition. Furthermore, it establishes that this prohibition is set by the Minister of Finance or the CNMC.
Until now, the CNMC did not the scope and duration of the prohibition to contract with the public sector. On 28 September 2022, the High Court of Justice of Catalonia (TSJC) confirmed in rulings 3273/2022 and 3289/2022 that the Catalan Competition Authority (ACCO) was competent to set the scope of the prohibition to contract, in that case, an 18-month prohibition imposed on the offending companies Adasa Sistemas, SAU and MCV, S. A: “it is precisely the competition authority that is best placed to jointly assess the globality of the measures of imposition and sanction that may be adopted in view of the facts established and which is in the best position to weigh up the consequences on the market of the conduct sanctioned“.
The CNMC has therefore published the criteria it will apply to set the duration and scope of the prohibition to contract and, thus, provide legal certainty to operators and guarantee the transparency of its actions. These criteria must guarantee “the necessary balance between the principles of deterrence, effectiveness and proportionality, also taking into account the appropriate examination of the impact of the measures adopted on the markets affected by the conduct“.
Objective, subjective and temporary scopes of application of the prohibition to contract
The prohibition to contract for distortion of competition is regulated by article 71.1.b) of the LCSP. Although this provision refers to “serious infringements”, the CNMC understands that the prohibition to contract with the public sector applies equally to those classified as “very serious”, since otherwise the principle of legality would be underminded.
The CNMC’s communication also addresses the question of whether the prohibition should apply only in case of infringements of competition in public procurement procedures or bid rigging but it concludes that the LCSP does not limit the scope of the prohibition to bid rigging cases.
With regard to the subjective scope of application, the CNMC understands, taking into account the provisions of article 63.2 of the Defence of Competition Act, that natural persons cannot be excluded from the prohibition. Therefore, it applies to both natural and legal persons.
Finally, the prohibition on contracting for distortion of competition will apply from its entry into force on 22 October 2015, with no sanction for cases prior to that date.
Principles and parameters for determining the scope and duration of the prohibition to contract
The CNMC establishes as a first principle the weighing of all relevant elements in order to ensure compliance with the principles of proportionality, legal certainty and the protection of Public Administrations. Likewise, it is necessary to take into account the existence of fraud or manifest bad faith on the part of the employer and the extent of the harm caused to public interests.
However, the regulator recalls Supreme Court ruling 1115/2021 of 14 September 2021, according to which “prohibitions on contracting, like all limitations, cannot be indefinite or unlimited”.
Another important element is the structure of the affected market in which the eventual prohibition will be projected, taking into account, among others, the number of active operators that will determine the feasibility of its application and the effect on competition in the short and medium term, the homogeneity of the product or the existence of entry barriers.
In any case, in accordance with article 72.6 LCSP, the maximum duration of the prohibition to contract for firm administrative infringements is 3 years.
To determine the duration and scope of the prohibition, the CNMC establishes the following specific parameters:
- Geographic scope: the geographic market where the infringement has occurred.
- Product (good or service) scope: the product market affected by the infringement.
- Duration of the infringement: as an objective circumstance, it allows a rule of proportionality to be established between the duration of the infringement committed and the duration of the prohibition on contracting, within the maximum legal limit.
- The gravity of the infringement: the greater the gravity, the longer the duration. Similarly, the greater the economic impact of the infringement in terms of the volume of the market affected by it, the longer the duration. The lower the frequency of tenders, the longer the duration of the prohibition in order to be dissuasive.
- Degree of participation of the offender in the infringement.
Exemption from the prohibition
Article 72.5 LCSP provides for exemption from the prohibition when, cumulatively, the following is accredited:
- The payment or commitment to pay the fine established in the administrative resolution from which the cause of prohibition to contract derives.
- The adoption of appropriate technical, organisational and personnel measures to avoid the commission of future administrative infringements.
Companies’ compliance programmes, on which the CNMC published a “Guide on compliance programmes in relation to antitrust rules” (2020), are therefore of particular relevance.
Review, effectiveness and registration of the prohibition
The CNMC Communication recalls that article 72.5 LCSP provides that this prohibition may be reviewed if the sanctioned person fulfils the requirements for exemption, and so accredits it.
It should also be borne in mind that the prohibition to contract becomes firm with the approval of the CNMC’s resolution that establishes it, regardless of whether it is judicially challenged. It can be suspended by the court in contentious proceedings. Any decision imposing a prohibition on contracting must be communicated to and registered in the Official Register of Tenderers and Classified Companies in the Public Sector (or its regional equivalent, in the absence of this and depending on the territorial scope covered by the prohibition and the body that declared it).
Link communication: https://www.cnmc.es/sites/default/files/4755383.pdf
