Understanding Submission Agreements: A Guide for Identification
Recognizing and Preventing Submission Agreements in Public Construction Projects
In an effort to combat cartel activities in public construction projects, the Cartel Office in Germany has created a checklist to help tendering authorities identify and prevent submission agreements among bidders.
The objective of such agreements is often to fix customer allocation, prevent price and discount competition, and manipulate the bidding process to favour certain parties. Such activities can cause significant financial damage, with the Cartel Office estimating that submission agreements result in losses of several billion euros annually in public construction projects.
The checklist for tendering authorities involves several key elements:
1. Thorough Analysis of Additional Terms and Conditions (ATC): Tendering authorities should carefully review all ATC clauses as these often include critical compliance points unique to each construction project. Understanding delivery schedules, payment terms, warranties, site conditions, worker insurance, and environmental clearances is vital to identifying irregular or collusive requirements that might favour certain bidders or exclude others.
2. Verification of Tenderer Credentials and Conformity: Checking tenderers’ legal competences, technical data, conformity to tender specifications, and authorized representation helps ensure transparency and fairness in the submission process and flag possible collusion attempts.
3. Scrutiny of Bid Patterns: Authorities should look for suspicious bidding behaviors in the submissions, such as identical pricing, rotating winning contractors, or patterns consistent with bid rigging.
4. Use of Qualification-Based Evaluation: For complex government projects, evaluating contractors based on performance, reputation, credentials, and adherence to specified qualifications helps prevent cartel activities and unfair bid manipulation.
5. Mandatory Bidder Declarations: Requiring bidders to confirm competence, legal authorization, and non-involvement in collusion or anti-competitive agreements under penalty of disqualification or legal consequences is another crucial step.
6. Cross-check Subcontracting and Supplier Transparency: Ensuring subcontractors and quoted components are transparent can reveal indirect cartel links or agreements.
7. Utilization of Pre-construction and Final Acceptance Checklists: Although primarily for project execution, these checklists can help tendering authorities follow consistent procedures and review compliance documents that might uncover irregular subcontracting or contract award practices.
While there is no standardized checklist specifically for cartel detection in the public construction tendering process, combining detailed ATC review, bidder qualification and compliance verification, and monitoring bid patterns constitutes a practical approach. Authorities might also integrate specific anti-cartel declaration clauses and enforce strict contract terms regarding fair competition to strengthen detection.
If a dedicated cartel detection checklist is required, authorities may consider adopting or adapting guidelines from antitrust regulatory bodies that specialize in competition law, in conjunction with the tender-specific compliance steps detailed above.
The existence of cartels can have severe consequences for both the bidders and the tendering authorities. In 2011 and 2012, the Federal Cartel Office uncovered the so-called firefighting cartel in Germany, where fire-fighting vehicle manufacturers had agreed for years to allocate certain sales shares in municipal tenders for fire-fighting vehicles. The members of the cartel had to pay fines in the millions and compensate the affected municipalities.
Tendering authorities are encouraged to remain vigilant for offer patterns that may indicate market division, especially on markets with few providers. Peculiarities in offer prices, such as identical unit prices, inflated lump sum prices, identical final prices for "losers", or similar cost increases among different bidders, can indicate agreements. Additionally, similarities in the offers of bidders, such as identical typing, calculation errors, handwriting, layout, or performance lists, should be carefully examined.
In case of doubt, tendering authorities should inform the Federal Cartel Office or the locally responsible state cartel office. Bidders and cartelists can face severe penalties, including imprisonment of up to five years or a fine, according to Section 298 of the Criminal Code.
For more information on this topic, tendering authorities can refer to the Staatsanzeiger-Vergabeblog. The Cartel Office relies on the cooperation of tendering authorities to uncover this socially harmful behavior. For further inquiries, Wolfgang Leja's contact information is available.
- Recognizing the severe financial consequences and general-news implications, tendering authorities must diligently use the checklist for cartel detection in public construction projects, as failure to do so could lead to losses similar to the billions euros estimated by the Cartel Office, with crime-and-justice penalties for non-compliance under Section 298 of the Criminal Code.
- In response to the existing cartel activities hindering fair business competition, tendering authorities should consider the integration of specific anti-cartel declaration clauses and enforce strict contract terms promoting general-news transparency, as demonstrated by the 2011 and 2012 firefighting cartel case, where cartelists had to pay fines in the millions and compensate affected municipalities.
