Contracting authorities are often faced with decision of what to do if different bids are submitted in a single procurement by tenderers who are related to each other (for example, they belong to the same group of companies, one company is a subsidiary of another, the tenderers have the same board member, the owners of the tenderers are spouses, etc.). Under such circumstances, a contracting authority may have doubts as to whether the tenders submitted by the affiliated companies have been coordinated (i.e., whether they have actually been prepared individually and independently) and whether accepting such tenders would violate the principles of fair competition and equal treatment.
In that regard, this article provides practical guidance on the correct conduct in such cases for both contracting authorities and tenderers.
Case law of the CJEU
In July 2015, the Šiauliai Regional Waste Management Centre (contracting authority) announced a public procurement procedure for household waste collection services. Four tenderers submitted bids. Two of them, Specializuotas transportas UAB and Specialus autotransportas UAB, were subsidiaries of Ecoservice UAB and had the same board members.
The applicable Lithuanian law and the tender documents did not require any candidate to disclose the links between affiliated companies, nor did they require the contracting authority to verify such links.
Specialus autotransportas was excluded from the procurement procedure on the grounds of non-compliance with emissions data, and the contracting authority awarded the contract to Specializuotas transportas. The competitor, VSA Vilnius, lodged a complaint, arguing the two companies were in fact operating as a single economic entity and that their participation in the procurement procedure constituted a violation of the prohibition on submitting variants of the same tender.
The Lithuanian Supreme Court submitted a request to the Court of Justice of the EU (CJEU) for a preliminary ruling on the following main questions:
The CJEU first emphasised the findings of the previous case-law that underlined EU law does not impose a general prohibition on affiliated companies from submitting tenders in a single public procurement procedure. Furthermore, it follows from the case-law that, given the EU’s interest in ensuring as many tenderers as possible can participate in a tender procedure, the effective application of EU law would not be ensured if undertakings linked to each other were systematically prohibited from participating in the same public procurement procedure.[1]
The CJEU further highlighted that affiliated companies are not automatically required to disclose their links unless this is expressly provided for by law or in the tender documents.[2]
On the other hand, the contracting authority must act if there are doubts about possible concerted action, even if the law or regulations do not impose an obligation to disclose the tenderers’ links. Otherwise, the fundamental principles of public procurement law, namely equal treatment and transparency, may be infringed.[3]
The CJEU further stated, if a contracting authority has objective evidence that casts doubt upon the independent and autonomous nature of a tender, it must assess all relevant circumstances that led to the submission of the tender in order to prevent and detect elements that may lead to a breach of the procurement procedure and to remedy the consequences thereof, including, where necessary, by requesting the parties to submit additional information and evidence.[4]
Regulatory framework
Under Article 57(4)(a) of EU Directive 2014/24/,[5] one of the optional exclusion criteria provides for sufficiently plausible indications of collusion. This provision of the Directive was transposed into the Latvian Public Procurement Law by way of amendments that entered into force on 1 January 2023.
Article 42(2)(7) of the Public Procurement Law stipulates that the contracting authority shall exclude a tenderer from further participation in the procurement procedure if the contracting authority has sufficient evidence to conclude the tenderer has concluded an agreement with other suppliers aimed at preventing, restricting or distorting competition.
In turn, Article 42(7)(2) stipulates that the contracting authority may exclude a candidate on the grounds of exclusion referred to in Article 42(7) if, when evaluating the tender or other available information, there are indications that may prove the existence of an agreement aimed at preventing, restricting or distorting competition in the specific procurement procedure and the Latvian Competition Council has issued an opinion that the indications found by the contracting authority may prove the existence of such an agreement. The Competition Council shall deliver its opinion within 10 business days from the date of receipt of the request from the contracting authority.
European Commission guidelines
During 2021, the European Commission (EC) published guidelines on the possible remedies against collusion in public procurement.[6] On the question of how contracting authorities should act in cases where affiliated companies participate in a single procurement procedure with different tenders, the EC detailed the following:
‘According to [the CJEU’s] case-law, the contracting authority must avoid making general assumptions that could lead to automatically rejecting such tenders. Instead, it should allow the operators in question to demonstrate, by whichever proof they consider appropriate, that their tenders are truly independent and do not jeopardise transparency or distort competition in the award procedure. This could include, for instance, facts proving that the respective tenders were drawn up independently, that different persons were involved in their preparation, etc.
The contracting authority has the right to judge whether such explanations provide sufficient proof that affiliation of the operators did not influence their conduct in the award procedure or the content of the respective tenders within the meaning of Article 57(4)(d) of Directive and to decide whether to allow the operators concerned to participate in the award procedure.’[7]
Explanation provided by the Competition Council
During 2022, the Competition Council of Latvia published a market investigation report concerning the procurement procedures organised by AS “Latvijas valsts meži”,[8] focusing specifically on the issue of tenders submitted by affiliated companies. The conclusions and recommendations of the report are applicable more broadly, not only in the context of AS “Latvijas valsts meži” procurements.
The Competition Council underlined there are several signs that may indicate companies that are considered to be one market participant have not prepared their bids independently, for example: (i) the same official decides on the participation of several companies in procurement procedures; (ii) the same official signs the tenders submitted by several companies or signs for their submission in the electronic procurement system; (iii) one of the companies in the group does not own any means of transport to provide the service required by the contracting authority, and it leases vehicles from another company in the group that also participates in the same procurement; and (iv) there are reasonable grounds to suspect that the companies have informed each other of their future plans regarding participation in the procurement before submitting their bids.
Similarly, if independent market participants, for example, are located in the same premises, have employees in common, cooperate regularly, e.g., in mutual vehicle rental activities, the contracting authority may have concerns about the possible exchange of information relating to the companies’ participation in the procurement and whether the companies have prepared their tenders independently.
The Competition Council emphasised it is essential for companies forming a single economic entity to take additional measures to restrict the mutual exchange of commercial information relating to procurements in which they compete or may compete. In practice, for example, parent companies in some cases issue orders or conclude agreements with the members of the management board of a subsidiary stipulating that activities related to participation in procurement shall be carried out by the subsidiary independently of the parent company and other subsidiaries. However, in such situations, it is important that such orders are not merely formal.
At the same time, in order to prevent or reduce the risk that tenders are not prepared independently, related companies should consider formalising their cooperation, for example by participating in the same procurement as a group of persons and involving subsidiaries as sub-contractors, thereby reducing uncertainty for both the contracting authority and other market participants in the specific market.
On the other hand, independent market participants who are related (e.g., the owners are spouses or close relatives) and each submit their own tender should, first, assess whether their cooperation exceeds the limits of permitted cooperation and, secondly, it is advisable to proactively ensure the contracting authority has access to information on the relation between independent market participants, explaining why this does not jeopardise the independence of the tenders.[9] It should be remembered that concerted action by independent competitors in a procurement procedure may lead not only to exclusion from the procurement procedure, but also to a decision on a cartel infringement and a substantial fine.
Latvian case-law
The leading Latvian court case on the issue of bids by affiliated companies in a single procurement procedure is also related to a procurement by AS “Latvijas valsts meži”.
In May 2020, AS “Latvijas valsts meži” announced an open tender for the “Provision of timber transport services under a general agreement for 2020-2022”, through which bids were submitted by SIA “STIGA RM Transports” and SIA “PATA”, as well as the latter’s affiliated companies AS “PATA Strenči” and AS “PATA Saldus”, which withdrew their bids on 6 October 2020.
The contracting authority decided to grant 46 tenderers, including “PATA”, the right to conclude a framework agreement. “STIGA RM Transports” challenged this decision before the Latvian Procurement Monitoring Bureau. By way of decision No. 4-1.2/21-107, 21 May 2021, the complaint was rejected. “STIGA RM Transports” appealed against the decision of the Procurement Monitoring Bureau in court.
It is important to note, at the time when the contracting authority assessed the independence of the bids, the provision of Article 57(4)(d) of Directive 2014/24 had not yet been transposed in Latvia. Therefore, one of the main issues in the case was whether the contracting authority was obligated to assess the independence of the tenders at all.
However, in its judgment of 22 December 2023, the Latvian Supreme Court upheld that: “According to the case-law of the Court of Justice of the European Union, the principle of equal treatment and the objective of ensuring fair competition, which is inextricably linked to that principle, preclude the retention in a procurement procedure of tenders which have not been prepared independently. The fact that national legislation does not provide for such a ground for exclusion of a tenderer (or its tender) does not remove the obligation on the contracting authority to examine the information in its possession and to assess whether there are grounds for considering that the tenders submitted have not been prepared independently. The fact that the law does not provide for such a ground for exclusion does not, therefore, prevent the contracting authority from excluding from the tender procedure a tender which it has concluded has not been prepared independently”.[10]
The Supreme Court decided to overturn the court of first instance’s ruling, which was in favour of the contracting authority and referred the case back for reconsideration. This is due to the fact that when reviewing the legality of the Procurement Monitoring Bureau’s decision, the court had to address the substantive issue of whether “PATA”’s bid had been prepared independently, but the court had failed to do so because it had not applied the correct legal provision – the principle of equal treatment – but had erroneously considered the contracting authority had no legal basis for excluding the tenderer from the procurement procedure.
When re-examining the case at first instance, the court considered the Supreme Court’s judgment and reviewed the legality of the Procurement Monitoring Bureau’s decision on the independence of “PATA”’s bid. Namely, the court assessed in detail the verification of the independence of “PATA”’s bid as reflected in the minutes of the contracting authority’s procurement committee, taking into account the arguments put forward by the applicant and found no errors in this verification.
The Supreme Court refused to initiate cassation proceedings following the applicant’s repeated cassation appeal. The Supreme Court agreed with the court of previous instance, recognising that: “[I]n the specific case, the contracting authority had properly assessed the circumstances that could give rise to concerns about the possible coordination of tenders, and had reasonably concluded that the explanations and evidence provided by the related companies, taken together, did not give grounds to conclude that the tenders had not been prepared independently.”[11]
Summary
Contracting authorities are required to monitor the available information and verify whether tenderers who have submitted separate tenders in a single procurement procedure are not linked to each other. In such instances, the contracting authority must request additional explanations and evidence from the tenderers proving that the tenders have been prepared independently. If the contracting authority suspects the tenders have been coordinated, it must seek the opinion of the Competition Council before excluding the tenderers.
Affiliated companies are not obliged to refrain from submitting separate tenders in a single procurement procedure, but they must provide evidence the tenders have been prepared independently. Companies with overlapping board members or representatives located at the same legal address that plan to use the same resources necessary for the performance of the procurement contract risk being excluded.
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[1] Judgment of the CJEU of 17 May 2018 in Case C-531/16, Ecoservice projekti, paragraph 21 and the case-law cited therein.
[2] Ibid., paragraphs 23 to 26.
[3] Ibid., paragraphs 31–33.
[4] Ibid., paragraph 33.
[5] Directive 2014/24/EU of the European Parliament and of the Council of 26 February 2014 on public procurement and repealing Directive 2004/18/EC (OJ L 94, 28.3.2014, p. 65/242).
[6] European Commission: Communication on remedies against collusion in public procurement and on guidance on the application of the related exclusion grounds (2021/C 91/01).
[7] Ibid., point 5.5.
[8] Competition Council public report: Supervision of the procurement organised by AS “Latvijas valsts meži” for timber transport services, 2022.
[9] Summary of the Competition Council’s report: https://www.kp.gov.lv/lv/jaunums/kp-tirgus-uzraudziba-skaidro-saistitu-uznemumu-dalibas-iepirkumos-riskus-un-sniedz-priekslikumus-savstarpeji-saskanotu-darbibu-risku-mazinasanai.
[10] Senate ruling of 22 December 2023 in case A420182121, SKA-247/2023, point 10.
[11] Decision of the Senate of 6 February 2025, point 6.
August 26, 2025 by Debora Garanča, Partner
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