CNMC’s proposed criteria for setting the scope and duration of bans on public contracting

On November 24, the Spanish Commission for Markets and Competition (“CNMC”) published a Draft Communication developing the criteria for setting the scope and duration of the prohibition from contracting with public Administrations for distorting competition. At the same time, the CNMC launched a public consultation of the Draft Communication to gather input prior to adopt a final text.

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 tender: either (i) the sanctioning decision expressly sets them; or, otherwise, (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 (Decision of March 14, 2019, S/DC/Electrificación y Electromecánicas Ferroviarias), the CNMC had never established 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.

This context has changed for the CNMC after two judgments of the High Court of Catalonia that we discussed in a previous post. Even if they are not final —appeal before the Supreme Court is possible— and despite a dissenting opinion issued by two judges, these judgments confirmed the ACCO’s competence to set the scope and duration of contracting bans for distorting competition. Thus, the CNMC has decided to take a step forward by publishing the criteria it will consider for setting the scope and duration of such bans —which, from now on, it seems to be willing to define in its decisions.

CNMC’s Draft Communication

The CNMC’s Communication seeks to ensure transparency and to provide legal certainty to operators regarding the scope and duration of the prohibition from contracting with public Administrations.

The Draft clarifies that its proposed criteria are not exhaustive. A case-by-case analysis is therefore required. In this regard, the Draft 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, in addition to a series 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 Draft Communication calls for modulating the scope of bans on public tenders. That is, with which public sector entities the sanctioned party will not be able to contract, in which territories, with respect to which products or services and for how long (with a maximum of 3 years under public procurement regulations). In this regard, the ACCO has been limiting the scope of the contracting ban only to public bodies affected by the sanctioned conduct. On the other hand, the CGC has even set a more generic scope, extending it to any public entity in Galicia (DECISION 5/2021 - LICITACIÓN SUMINISTRO USC).

Another aspect that the Draft 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 entry barriers. 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.

The Draft Communication notes that this situation could occur after infringements involving most of the market operators (article 1 of the Law for the Defense of Competition or “LDC”), or other infringements involving monopoly companies or companies with essential assets (either for an infringement of article 1 or 2 LDC).

Conduct-related parameters                            

According to the Draft 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 of the circumstances may result in a greater (for example, due to the involvement of other companies of the same group) or lesser scope.

Similarly, the Draft considers that the product market affected by the infringement should be the reference for defining the contractual scope of the prohibition. Again, the specific circumstances of each case may point to a greater scope (for example, due to the participation of facilitators not operating on the market affected by the infringement, or due to the involvement of other companies of the same group).

The Draft also refers to the duration of the infringement as a relevant parameter that will inevitably affect the duration of the ban on public contracting.

Likewise, the more serious the infringement or the greater its economic impact in terms of the market volume affected, the longer the duration of the contracting ban.

Finally, the Draft urges to evaluate the degree of involvement of the infringing parties as well as the possible existence of aggravating and mitigating circumstances.

Exemptions and review of contracting bans

The Draft Communication provides two exemptions from the exclusion from public tenders: one for beneficiaries of leniency programs (automatically for beneficiaries of the exemption under article 65 LDC, or facultative for beneficiaries of the reduction under article 66 LDC); and another for those who prove, at the hearing to determine the scope and duration, that they have paid the fine imposed (or agree to do so) and “adopted appropriate technical, organizational and personnel measures to prevent the commission of future administrative infringements.”

The CNMC seeks to encourage companies to adopt competition compliance programs that, in the words of its “Antitrust Compliance Programmes Guidelines,” guarantee “the existence of a true commitment to compliance that is transferred to the day-to-day decision-making process of both natural persons who are involved in commercial activity for and on behalf of the company, de facto or de jure, and all employees of the company, enabling them, within the scope of their respective duties, to detect or prevent practices restricting competition.”

The CNMC grants a considerable importance to such competition compliance programs. They not only open the door to exemptions from bans on public contracting (before setting their scope and duration), but also (once both are defined) the contracting bans can be reviewed —or excluded— by proving the above elements.