Organisations subject to the EU procurement rules may be
wondering how to respond to the high profile Office of Fair Trading
(OFT) investigation into bid rigging in the construction industry.
Many will find that their tender lists include contractors who are
on the list of firms found by the OFT to have been guilty of
'cover pricing'.
Cover pricing involves one tenderer giving an artificially high
"cover" price to another tenderer for them to submit.
This gives the client a misleading impression of the real extent of
competition and may encourage the client to accept the bid from the
tenderer who has given the cover price to the other
tenderer(s).
There are two provisions in the EU procurement rules that are
relevant to the decision whether to exclude a tenderer from a
tender process for cover pricing or other bid rigging
activities.
Regulation 23(1) says that a tenderer must be excluded where the
tenderer has been convicted of certain offences such as:
- "corruption within the meaning of section 1 of the Public Bodies Corrupt Practices Act 1989 or section 1 of the Prevention of Corruption Act 1906; or
- "the offence of bribery".
The offences committed by the tenderers involved in cover
pricing do not fall within this category of seriousness and
therefore do not justify 'mandatory exclusion'.
Under Regulation 23(4) a tenderer may be excluded (but does not
have to be) where they have:
- been convicted of a criminal offence relating to the conduct of his "business or profession"; or
- "committed an act of grave misconduct in the course of business or profession."
The offences committed by the contractors fined by the OFT for
cover pricing would fall within both of these grounds.
European case law confirms that the decision to exclude a tenderer
should not be taken lightly. The European Court1 has
stated that a procurer:
"may exclude a bidder....as long as it is necessary and
proportionate to ensure the fairness of the bidding
process"
Any decision to exclude a tenderer must be proportionate to the
seriousness of the circumstances leading to the exclusion. Care
should be taken to ensure that all tenderers are treated equally
so, if one tenderer on the list is excluded, all of them must
be.
Guidance issued by the OFT in conjunction with the Office of
Government Commerce (OGC) recommends that procurers should not
exclude the infringing firms from future tenders. It says that the
practice of cover pricing was widespread in the construction
industry and those that have already faced investigation can now be
expected to be particularly aware of the competition rules. This
guidance is available at:
http://www.oft.gov.uk/shared_oft/business_leaflets/general/Information-Note2.pdf
The OFT/OGC guidance also states that, before excluding a
tenderer the procuring authority should give the tenderer the
chance to outline any remedial steps it has taken since the finding
of an offence.
There are additional steps that procurers can take to protect
themselves. Procurers should continue to watch out for evidence of
collusion. Guidance is available at:
www.ogc.gov.uk/documents/CP0144MakingCompetitionWorkForYou.pdf
www.oecd.org/dataoecd/27/19/42851044.pdf
In addition, all tenderers should be required to sign a
non-collusion certificate. This should include a clear statement
that if they are found to have breached its terms they can be
excluded from the procurement process. If such a certificate is
signed fraudulently, the procurer may also be able to set aside any
contract that has been entered into on the basis of the
misrepresentation in the certificate.
Footnote
1 Michaniki AE v Ethniko Symvoulio Radiotileorasis a.o., case C-213/07
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