The CNMC’s final criteria for determining the scope and duration of the ban on contracting

On June 23, the CNMC published Communication 1/2023, adopting the definitive text on the criteria for determining the scope and duration of contracting bans for distorting competition. Althought there are no major changes with respect to the Draft Communication published on November 24 (see our previous post), the CNMC seeks that bans on public tenders would not only encourage the implementation of compliance programs, but also the consolidation of a true competition culture.

Background

Since October 2015, the Spanish Public Procurement Act prevents those who are sanctioned for serious infringements regarding distortion of competition from contracting with public bodies. There are two mechanisms to establish the scope and duration of such bans on public tenders: either (i) the sanctioning decision expressly sets them or (ii) through an ad hoc procedure under the jurisdiction of the Minister of Finance and Public Administration upon proposal from the State Public Procurement Advisory Board.

Since its first decision imposing a ban on public contracting (S/DC/Electrificación y Electromecánicas Ferroviarias, of March 14, 2019), the CNMC had never established, to date, their scope and duration – merely referring the decisions to the State Public Procurement Advisory Board-. However, some regional competition authorities, such as the Catalan (“ACCO”) or the Galician (“CGC”), had indeed set the scope and duration of contracting bans in their sanctioning decisions. Following the publication of the Draft Communication, the Andalusian Competition and Economic Regulation Agency (“ACREA”) issued two sanctioning decisions (S/04/2023, TRANSPORTE ESCOLAR MÁLAGA, of March 2, 2022, and S/07/2023, CONSERVACIÓN CARRETERAS 2, of April 21, 2023), also setting the scope and duration of the contracting ban.

This context has changed for the CNMC after two judgments of the High Court of Catalonia (see our previous post). Although the Supreme Court’s decision on appeal is pending, these judgments confirmed the ACCO’s jurisdiction to set the scope and duration of procurement bans because of a distortion of competition.

The CNMC has decided to continue on the course set by the Draft Communication. Thus, it seems to be willing to determine the scope and duration of contracting bans in its resolutions, considering itself best placed to assess the benefits and drawbacks.

Communication 1/2023

The CNMC’s Communication seeks to ensure transparency and provide legal certainty to operators regarding the scope and duration of contracting bans in sanctioning proceedings, which, as indicated in the Communication with respect to its Draft, are initiated after its publication on June 23, 2023.

Although the Communication sets out a list of criteria that the CNMC will take into consideration when setting the scope and duration of this prohibition, it clarifies that it is not exhaustive. A case-by-case analysis is therefore required. The Communication points out certain general principles that the CNMC will take into consideration to ensure compliance with the principles of proportionality, legal certainty, or protection of public authorities. It also includes a set of parameters directly related to the sanctioned conducts and their context.

By implementing these criteria, the CNMC ultimately wishes to strike a balance between the principles of deterrence, effectiveness and proportionality in the markets affected by the sanctioned conducts.

General principles

First of all, the Communication calls for modulating the scope of contracting bans on public tenders—i.e., the public sector entities that the sanctioned party will not be able to contract, in which territories, the products or services excluded from tendering, and the duration of this prohibition (with a maximum of 3 years under public procurement regulations).

Unlike the ACCO and the ACREA (who have been limiting the scope of the ban only to public bodies affected by the sanctioned conduct) the CGC has set a more generic scope, extending the prohibition to any public entity in Galicia (Decision 5/2021 - LICITACIÓN SUMINISTRO USC).

Another aspect that the Communication urges to analyze is the structure of the market that will be affected by the prohibition, and more specifically: the number of active operators; the homogeneity of the product; the transparency; or the existence of barriers to entry. The CNMC thus intends to modulate its decisions based on the existence or not of alternative operators (even potential ones) to the sanctioned parties, lest the sanction result in a worse scenario competition-wise.

According to the Communication, this situation could arise from infringements involving most of the market operators (article 1 of the Law for the Defense of Competition or “LDC”), or infringements involving monopolistic companies or companies that hold essential assets (either because of an infringement of article 1 or 2 LDC). In this sense, the Communication cites the example of Decision S/0028/20 Leadiant, of November 14, 2022, which ruled on Expte. S/0028/20 (see our previous post). Despite there being grounds to exclude the company from public tenders, the CNMC prioritized in its decision the supply of the product in Spain and concluded that eliminating the only existing supplier would give rise to shortages.

Conduct-related parameters                            

According to the Communication, the geographic market where the infringement has taken place should be the main reference for setting the geographic scope of the ban on public contracting. However, a case-by-case assessment may result in a greater (for example, due to the involvement of other companies of the same group) or lesser scope.

Similarly, the Communication considers that the product market affected by the infringement should determine the contractual scope of the prohibition, considering the specific circumstances of each case for setting a greater (for example, the participation of facilitators not operating on the relevant market, or the involvement of other companies of the same group) or lesser scope.

The Communication also refers to the parameter of the duration of the infringement as a relevant objective consideration that will inevitably affect the duration of the ban.

Likewise, the greater the seriousness of the infringement or its economic impact in terms of market volume, the longer the duration of the prohibition. In the specific case of joint ventures (UTEs), the extent of involvement of each party in the infringement may be taken into account.

Finally, the Communication calls for assessing the extent of involvement of the infringing party (e.g., perpetrator, instigator, active vs. residual involvement) as well as the existence of aggravating and mitigating circumstances.

Procedure

Unlike the Draft published last November 24, the Communication includes a section on procedure. It stablishes that the resolution proposal prepared by the Competition Directorate may include a recommendation on the duration and scope of the contracting ban based on the above criteria, with the aim of allowing parties to submit observations.

Exemptions and review of contracting bans

Finally, the Communication explains the two ways to obtain an exemption from contracting bans. On the one hand, an exemption may be granted beforehand where the Proposed Resolution has already indicated that the ban should not apply to beneficiaries of the leniency program (either automatically for beneficiaries of the exemption under article 65 LDC, or on an optional basis for beneficiaries of the reduction under article 66 LDC).

On the other hand, an exemption may be granted at a later date if, during a hearing of the parties concerned to determine the scope and duration of the ban, the infringer pays the fine imposed (or commits to doing so) and, in addition, adopts “appropriate technical, organizational and personnel measures to prevent future administrative infringements.”

The CNMC seeks to encourage companies to adopt competition compliance programs that, in the words of its “Antitrust Compliance Programmes Guidelines”, reflect “a work culture that respects the regulation of legal persons, translated into ethical codes, policies and the resulting procedures, oversight to verify that they function properly, internal and external reporting channels, etc.”, that manages to establish in the company “a true culture of compliance in general and compliance with competition law in particular.”

The relevance of compliance programs has already been confirmed, for example, by the Basque Competition Authority (“AVC”) in its decision 516-SAN-2021, PUBLICIDAD AYUNTAMIENTO DE BILBAO, of last November 23. In this case, several companies were exempted from the contracting ban due to the implementation of a competition compliance program, although their acknowledgement of the infringements may have also influenced the decision.

Compliance programs play an even more relevant role when the scope and duration of the contracting ban have already been defined. In this regard, the Communication notes that the prohibition from contracting with public Administrations may be reviewed at any time during its term (ex officio or at the request of a party) and, where appropriate, lifted upon proof of the above—i.e., payment of (or commitment to pay) the fine, and the adoption of measures to prevent future competition infringements (compliance programs).

Effectiveness of procurement bans

Finally, the Communication specifies that upon adoption of a resolution defining the scope and duration of the procurement ban, it will take full effect without prejudice to its possible challenge by appeal and its interim suspension. This is in contrast to the criterion set forth in the Draft, according to which exclusion from public tenders would not take effect until registration in the Official Registry of Bidders and Classified Public Sector Companies (“ROLECE”) or its regional equivalent.