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The Galician Competition Commission analyses the impact on competition of the extension of public service concessions by local entities

The Galician Competitioncom Commission (CGC) has published a working document in which it analyses how public action, through public service concessions and extensions of such administrative concessions, can affect competition and sets out a series of guidelines to achieve adequate tendering. This document has been published in the framework of an initiative launched by National Markets and Competition Commission (CNMC), called “Municipalities and Competition”, together with regional competition authorities with the aim of improving the quality of regulation and municipal intervention through the analysis of the most common barriers to competition in the actions of municipalities. In the context of this initiative, the Catalan Competition Authority (ACCO) published a working document on shared mobility and its impact on competition which you can find here.

A concession contract is a contract whereby the Public Administration entrusts the management of a public service to a third party. It is a long-term contract, with a high amounts and transfer of operational risk to this third party. Under the current legislation, it is possible to extend the contract if the following conditions are met: that the failure to conclude a new contract with a third party is the result of unforeseeable events in the award procedure, that it can be justified for reasons of public interest, and that the notice of the new tender has been published at least three months before the end of the previous contract. However, in principle, the extension of the contract will only take place until the execution of the new contract begins and will maintain the same conditions as set out in the contract itself and in the tender specifications.

Issue of concern

The CGC has analysed the water supply, solid urban waste management and urban passenger transport services of seven municipalities in the region and has observed that, in most cases, either the services do not have a contract in place, or they are in an extension period and, therefore, deficiencies and dysfunctions have been found in the awarding processes. For example, some reasons for extension that have been observed are the lack of service planning, foresight, or lack of knowledge of the state of the art.

General aspects to be taken into account

As established in articles 29.4 and 288.a) of Law 9/2017 of 8 November on Public Sector Contracts, the justification for extensions lies in the need to maintain continuity of the public service in question. From the point of view of competition, it is advisable to analyse whether there are more efficient alternatives that do not imply having a single economic operator providing the service.

In any case, the document points out preliminary aspects to be taken into account for tenders in relation to competition:

  1. The need to establish an adequate programming and planning of services as they normally respond to periodic and previously known needs.
  2. Establish preliminary market consultations with the aim to obtain information from economic operators for future tenders as long as they do not restrict competition, do not distort competition, and do not violate the principles of non-discrimination and transparency.
  3. Once the contract period has expired, the service can continue to be provided for up to 9 months on the condition that the new tender has been published at least three months in advance. As the document describes, this is an exceptional extension.
  4. Once the duration of point 3 has expired, due to the need to continue with the provision of the service, it is common that the service continues without a contract. The document wonders whether this would lead to a case of nullity under article 47.1.e) of Law 39/2016, of 1 October, on the Common Administrative Procedure of Public Administrations, which establishes the full nullity of those acts issued totally and absolutely disregarding the legally established procedure, but the same article 43.2 of the aforementioned Law allows the continuity of the provision if there is no serious disruption to the public service until the adoption of new measures.

Indeed, long-term concessions with their respective extensions may restrict competition, insofar they do not allow new economic operators to enter the market. It is therefore of utmost importance to justify that the extension is not only in the general interest, but also aims to ensure the continuity of the service and that there is no less restrictive alternative.

The role of the CNMC is to safeguard free competition and, consequently, both contracting bodies and the State Public Procurement Advisory Board or their regional counterparts and bodies competent to resolve the special appeal in procurement matters, are obliged to notify any fact that may be likely to restrict competition.

Procedure for proper tendering

The document sets out guidelines for proper tendering and stresses that the Town Hall must be responsible for designing a public tendering procedure that guarantees the efficiency of the service, offers the best value for money and is capable of detecting collusive practices between the different bidders in the contracting process. In the event of detecting them, the LCSP imposes the obligation to give prior notice to the CNMC or, failing that, to the corresponding regional competition authority.

Subsequently, the document focuses on “Phase III Design of specifications” of the LCSP, since this is the phase that determines who can access the tender once the requirements of Article 74 LCSP have been met (capacity to act, not being subject to any prohibition to contract, and economic, financial and technical solvency) and, therefore, where cases of restriction of competition may occur. It is mentioned that they must be designed in accordance with the principles of non-discrimination and free competition and must take into account the following aspects:

  1. Access to the tender will be determined by: prohibitions on contracting, solvency and classification requirements, legal forms, reasons of territory, certifications, etc. It is recommended that solvency be determined on the basis of a plurality of criteria.
  2. Award criteria that best meet price-quality
  3. Duration of contracts: establish an appropriate term that does not restrict competition and that allows the recovery of operational risk and, where appropriate (and exceptionally), the possibility of providing for extensions in the specifications

Finally, the GCC lists procurement rationalisation techniques that may promote collusive practices or foster competition. Among others, we highlight the following:

  • The short duration of contracts may facilitate collusive agreements through the rotation of bids.
  • Technical requirements should aim to promote competition and reduce the possibility of collusion.
  • The requirement of provisional guarantees can make participation in the tender process more difficult
  • Avoid meetings of companies that are potential suppliers to avoid collusive practices.
  • Avoiding the use of subcontracting to disguise contractual profit-sharing.

The fundamental issue is that if tender specifications are not properly designed, collusive practices and deficiencies in tenders cannot be detected and therefore carry over into extensions, adversely affecting competition.

For more information, please visit:

https://www.cnmc.es/ambitos-de-actuacion/promocion-de-la-competencia/municipios-y-competencia