BID RIGGING IN PUBLIC PROCUREMENT ICN 2015 CONFERENCE PROGRAM SYDNEY, APRIL 30TH, 2015 CANI FERNÁNDEZ

BID RIGGING IN PUBLIC PROCUREMENT: THE SPANISH CASE

BID RIGGING IN PUBLIC PROCUREMENT - SPAIN INDEX i.An introduction to bid rigging practices in Spain. ii.CNMC precedents. iii.Relevant Case Study: S/0316/10 Paper Envelopes. iv.Public procurement regulation and practical issues. v.Future development and recommendations in public procurement in Spain. 33

44 BID RIGGING IN PUBLIC PROCUREMENT - SPAIN AN INTRODUCTION TO BID RIGGING PRACTICES IN SPAIN Public procurement in developed countries exceeds 15% of GDP, accounting for approximately 18,5% of GDP in the case of Spain. That is, €194 billion a year, or more than €4,100 a year per capita, but… …the absence of the necessary competitive pressure may lead to average overshoots of (estimated) 25% of the budget in public procurement. In Spain, in aggregate, this could mean as much as 4.6% of annual GDP, approximately €47.5 billion a year, or more than €1,000 a year per capita is inefficiently spent. Sources: “Evaluation Report Impact and Effectiveness of EU Public Procurement Legislation”, European Commission, 2011; “Public Procurement Indicators 2011” and “Public Procurement 2012”, European Commission 2012 and Data from Spain’s Procurement Observatory, Spain’s National Statistics Institute (INE) and Transparency International.

55 BID RIGGING IN PUBLIC PROCUREMENT - SPAIN CNMC (SPANISH COMMISSION FOR MARKETS AND COMPETITION) PRECEDENTS  S/0329/11 Asfaltos de Cantabria  S/0453/12 Rodamientos Ferroviarios (*)  S/0429/12 Residuos  S/0473/13 Postes de hormigón  S/0226/10 Licitaciones de carreteras  S/0316/10 Sobres de Papel (*) (*) Application of the leniency program Common characteristics i.All were mature markets. Mostly related to the construction sector. ii.The lifespan of the cartels was long (averaging 17 years per cartel). iii.Cartels facilitated market allocation and helped crystallize the status quo. iv.None of the files originated from a complaint by a public administration.

BID RIGGING IN PUBLIC PROCUREMENT - SPAIN RELEVANT CASE STUDY: S/0316/10 PAPER ENVELOPES The companies that took part in the cartel shared out the Spanish paper envelopes market amongst themselves between 1977 and The cartel affected: (i) Public tenders for both electoral envelopes and envelopes for the mail shots delivered by the political parties. (ii) Tenders and contracts with large public customers (i.e. The State Tax Agency, The General Social Security Treasury, The Directorate General of Traffic, The Directorate General for the Police, most of the Ministries, etc). (iii) Tenders and contracts with large private customers (i.e. financial institutions, electricity companies, telecommunication companies, etc). (iv) Blank envelope customers. 66

BID RIGGING IN PUBLIC PROCUREMENT - SPAIN RELEVANT CASE STUDY: S/0316/10 PAPER ENVELOPES Particularities of the case: The leniency program was essential to exposing the cartel, but… i.The case demonstrated that cartels of such significance can go unnoticed during decades (33 years in this particular case). ii.It’s not just a public sector problem: both public and private bid processes were rigged. iii.Other antitrust mechanisms failed in detecting the cartel (collaboration from public administrations, for instance). 77

BID RIGGING IN PUBLIC PROCUREMENT - SPAIN PUBLIC PROCUREMENT REGULATION AND PRACTICAL ISSUES The Spanish Law on Public Sector Contracts states that all contracting public entities and public contract supervisors are obliged to notify the competent Competition Authorities of any facts that may constitute an infringement of competition legislation. Main concerns: i. Public entities lack experience and specific knowledge in detecting anticompetitive behavior. ii. The contracting public entities cannot reject bids nor desist from contracting on the basis that the bids are rigged. iii. There are no clear incentives for the contracting public entities to contact Competition Authorities. Uncertainty with regards: - How existing contracts should be treated if investigated by the Competition Authorities. - How to deal with companies which are being investigated for alleged bid rigging. - Contacting the Competition Authorities may hinder the bidding process. 88

99 BID RIGGING IN PUBLIC PROCUREMENT - SPAIN FUTURE DEVELOPMENT AND RECOMMENDATIONS IN PUBLIC PROCUREMENT IN SPAIN Some recommendations to ensure competition in the public procurement process: i.Intensify antitrust awareness amongst public administrations acting as contracting bodies and promote cooperation with Competition Authorities. ii.Establish cost audits to estimate competitive market prices when preparing tender budgets. iii.Set up a specialist outside body that could evaluate the economic efficiency and level of competition of procurement procedures. iv.Establish and design massive databases for the purpose of overseeing public procurement. v.Implement a more extensive use of electronic procedures in public procurement.

THANK YOU FOR YOUR ATTENTION Este documento es meramente expositivo y debe ser interpretado conjuntamente con las explicaciones y, en su caso, con el informe elaborado por Cuatrecasas, Gonçalves Pereira sobre esta cuestión This document is merely a presentation and must be interpreted together with any explanations and opinions drafted by Cuatrecasas, Gonçalves Pereira on this subject Este documento é uma mera exposição, devendo ser interpretado em conjunto com as explicações e quando seja o caso, com o relatório/parecer elaborada pela Cuatrecasas, Gonçalves Pereira sobre esta questão