Affiliated companies that form an economic unit and each want to participate in a procurement procedure of a public contracting authority with their own bid, must also submit their bids independently of each other despite the group privilege that applies to them. Otherwise, they must be excluded due to violation of the principle of equal treatment under public procurement law. This was decided by the Bavarian Supreme Regional Court (Bayerisches Oberstes Landesgericht (“BayObLG”)) in its decision on the 11 January 2023 (case no. Verg 2/21) in application of the principles announced in this regard by the European Court of Justice (ECJ, judgment of 15 September 2022, case no. C-416/21 – Landkreis Aichach-Friedberg).
On 15 September 2022, in a so-called preliminary ruling by the BayObLG, the ECJ made an important fundamental decision on the question of whether bidders affiliated in an economic unit may each participate in a public tender procedure with their own bid despite mutual knowledge of the bid content. According to the ECJ, this can in any case be a reason to exclude the affiliated companies from the tender procedure (see our article published on the 16 September 2022).
The BayObLG now had the task of implementing the ECJ decision in national public procurement law and adjudicating on the specific case. The decision of the BayObLG is likely to be groundbreaking for future decisions of the public procurement review bodies on comparable case constellations of parallel participation of affiliated companies in public procurement procedures.
On 19 December 2019, the district of Aichach-Friedberg published a notice for the award of a public contract for public bus transport services, in an EU-wide open procedure. J is a merchant operating under his company name; K. Reisen is a bus transport company with limited liability, of which J is the managing director and sole shareholder. Insolvency proceedings had previously been opened against J’s assets, and the insolvency administrator had released J’s self-employed activities from those proceedings by decision dated 1 December 2019. Both J and K. Reisen submitted bids through the same person, namely J, before the deadline. In addition, other transport service providers participated in the tender, including E. GmbH & Co. KG.
After evaluating all bids, the contracting authority informed J and K. Reisen that their bids – since they had been made by the same person – had been excluded due to a violation of competition rules and that the contract in question should be awarded to E. GmbH & Co. After their objections had been rejected, J and K. Reisen filed a so-called application for review with the competent appeal body, the Southern Bavaria Procurement Chamber (Vergabekammer Südbayern). This appeal leads to a review of the legality of the contracting authority’s award decision.
In a decision of 12 January 2021, the Public Procurement Tribunal granted the application and obliged the district to reinstate the bids of these bidders in the award procedure at issue. In the opinion of the Public Procurement Tribunal, their conduct was not to be assessed as an inadmissible agreement restricting competition within the meaning of Section 124 (1) no. 4 of the German Competition Act (ARC), as they formed an economic unit and could claim the so-called “group privilege”. This provision provides for an “optional ground for exclusion”, i.e. the possibility for the contracting authority to exclude certain bidders if there is sufficient evidence that the bidding company has entered into agreements or concerted practices with other companies which have the purpose or effect of preventing, restricting or distorting competition. If the group privilege applies, however, there are no “other” companies with which one could coordinate, so that this ground for exclusion does not apply.
In the opinion of the Procurement Chamber, exclusion could also not be based on the general principle of equal treatment, because this principle was not applicable in addition to the conclusive optional grounds for exclusion pursuant to Section 124 (1) ACR.
The district of Aichach-Friedberg lodged an immediate appeal against this decision with the BayObLG. It argued that it was against the interests of the other bidders and violated the principle of equal treatment as well as the competition rules if two bidders forming an economic unit were allowed to participate in the award procedure, in particular because these bidders were able to coordinate their respective bids and undisputedly did so in the present case.
The BayObLG stayed the proceedings and referred several questions relevant to the decision to the ECJ for a preliminary ruling on the interpretation of the provision of Article 57(4) of the EU Public Procurement Directive, which essentially corresponds to Section 124(1) of the ARC.
The ECJ has ruled on the following:
The BayObLG now had the task of implementing the ECJ decision in national public procurement law and classifying it in the dogmatics of the – in itself conclusive – grounds for exclusion pursuant to Sections 123 and 124 ACR. Applying the fundamental decision of the ECJ, the BayObLG, which is the competent court of last instance, confirmed in its decision of 11 January 2023 (case no. Verg 2/21) the award decision of the contracting authority originally made in favour of the bus company E. GmbH & Co. KG. The contracting authority had been justified in excluding the coordinated bids of the bidders J and K. Reisen, which were connected in an economic unit and interwoven in terms of personnel. The BayObLG ruled that the principle of equal treatment pursuant to Section 97 (2) ACR precluded consideration of these bids which, although submitted separately, were neither independent nor autonomous. The fact that the optional grounds for exclusion are listed exhaustively in Section 124 ACR does not mean, when interpreted in conformity with the EU Procurement Directive, that the principle of equal treatment could not preclude the award of the contract in question to economic operators who form an economic unit and whose tenders, despite being submitted separately, are neither independent nor autonomous. In the case of interconnected bidders, the principle of equal treatment would be violated if these bidders were allowed to submit concerted or coordinated bids, i.e. bids that were neither independent nor autonomous, and which might therefore give them unjustified advantages over the other bidders. An important aspect for the BayObLG was that the applicants, who form an economic unit, here submitted their coordinated bids in competition, i.e. acted like competitors, although they did not actually compete with each other.
However, an exclusion of the applicants’ bids pursuant to Section 124 (1) no. 4 ARC, on the grounds of an agreement restricting competition, cannot be considered due to the lack of an agreement between two economic operators aimed at distorting competition. The application of this exclusionary provision necessarily requires a concurrence of wills between at least two different economic operators. According to the ECJ (judgment of 15.09.2022, para. 50), it cannot be assumed in a case such as the one at issue here that two economic operators, whose decision-making essentially takes place via the same natural person, can conclude “agreements” between themselves, since it is not evident that there are two different expressions of will that could coincide. The decisive factor was not that the applicants were legally two different legal entities, but that the formation of wills was also possible for the second applicant exclusively via the first applicant, who as managing director was its representative body (Section 35 (1) sentence 1 of the German Act on limited companies (GmbHG)) and as sole shareholder determined the general meeting of shareholders (Sections 45 et seq. GmbHG).
Following ECJ case law, the BayObLG addresses the principle of proportionality. According to this principle, it must be possible for companies that are related to each other to prove that their tenders were prepared independently and autonomously from each other. In the specific case, however, due to the personal identity of the signatory of the two tenders, it was undisputed that the applicants had not submitted their tenders independently and autonomously.
With the ECJ’s decision of 15 September 2022 and that of the BayObLG of 11 January 2023, it is now clarified that in comparable constellations of parallel participation of affiliated companies in an award procedure, an exclusion of these bidders can be based on the principle of equal treatment pursuant to Section 97 (2) ACR. The conclusive character of the grounds for exclusion under public procurement law pursuant to Sections 123, 124 ACR does not preclude this if interpreted in conformity with the EU Procurement Directive.
In future, contracting authorities must carefully examine in comparable constellations whether the tenders of the affiliated companies have been prepared autonomously and independently of each other. In case of doubt, the companies concerned must be heard. In any case, exclusion must not be automatic (cf also Higher Regional Court (OLG) Düsseldorf, decision of 16.03.2022 – Verg 28/21). However, if the contracting authority comes to the conclusion that the tenders were not prepared independently of each other, then the exclusion of both tenders is mandatory.
In view of this severe legal consequence, affiliated companies should take precautions if they intend to participate in an award procedure with their own bids. A number of technical and personnel measures must be taken (including the establishment of “Chinese walls”) in order to be able to provide clear proof of the independence of the bids even after the award procedure in case of doubts.
In the proceedings before the BayObLG and the ECJ, the undersigned authors represented the respondent (E. GmbH & Co. KG), which it has now been confirmed will be awarded the contract according to the award decision of the contracting authority.
Dr Sebastian Felix Janka, LL.M. (Stellenbosch)
+49 89 23714 10915
München: +49 89 23 714 12129, T Stuttgart: +49 711 9338 12129
+49 511 5458 17627
Dr Henning Holz, LL.M.
+49 511 5458 15021