Spain: CNMC clarifies criteria to prohibit contracting with the Public Administration

On 23 November 2022 the Spanish Competition Authority (the “CNMC”) published its Draft Communication on the criteria for the prohibition of contracting with the Public Administration due to infringement of competition rules. 

The CNMC has opened a public consultation on the Draft that remains open until 23 December 2022.

Context and background

Since 2015, Spanish Public Procurement Law provides that infringements of competition law rules can result in the imposition of a ban from contracting with the Public Administration.
Such a prohibition can be imposed either by the competent competition authority in the final decision closing an investigation procedure or, in case no statement has been made by the competition authority regarding the scope and duration of the prohibition, the Ministry of Finance, following a proposal from the State Procurement Advisory Board through separate legal proceedings. 

To date, the CNMC has always left this decision to the discretion of the Advisory Board, whereas the regional competition authority in Catalonia (“ACCO”) has opted to directly determine the terms of the prohibition that would be applicable to the sanctioned companies in some of the proceedings ended within the last three years^[1].

General principles and parameters outlined by the CNMC

The CNMC’s Draft Communication addresses the need to clarify the criteria for preventing companies from contracting with the Public Administration, but there are still many uncertainties regarding the practical implementation of the prohibition.

The Spanish Supreme Court has stated that the duration and scope of the prohibition must respect the principles of proportionality and legal certainty. Therefore, the circumstances of each case must be carefully taken into consideration, including market structure, barriers to entry, or possible effects of the prohibition.

The CNMC recognises that there are some cases where the prohibition could hardly be imposed (e.g., abuse of dominant position by a monopolist, anti-competitive agreements reached among the majority of the market operators etc.). However, according to the Draft, a valid alternative in those situations could be the establishment of stronger control measures set forth in the bidding terms and conditions.

Despite the above, and to create greater legal certainty, the CNMC provides some parameters for the duration and scope of the prohibition:

1. Geographical scope: generally, the prohibition will be limited to the geographical market in which the infringing conduct took place. However, other facts — such as the active involvement of other entities of the group — may overcome that limitation.
2. Product scope: the first criteria to define the contracts to which the prohibition applies must be the product market affected by the anticompetitive practice. However, it might also apply to the products of other entities in the same group which have been actively involved in the practice.
3. Duration: the duration of the prohibition should be proportionally established in relation to the duration of the anticompetitive practice. To this extent, the gravity and nature of the infringement, as well as its economic effects, assume particular importance. The level of participation and the existence of aggravating and mitigating factors should be also considered. In any case, the prohibition cannot last longer than three years.

Exemption from the prohibition

Regarding article 72.5 of the Public Sector Procurement Law, an exemption from the prohibition applies if, during the hearing process, two requirements are cumulatively satisfied:

1. Full payment of any fines, or at least a commitment to pay any fines; and
2. Adoption of technical, organisational and personnel measures appropriate to avoid future infringements, including participation in the leniency programme. 

To this extent, in 2020, the CNMC published some guidelines containing indications that companies should take into account when evaluating the adequacy of their compliance programmes to prevent competition law infringements.

There can be no doubt that when an infringement ended before entry into force of the prohibition (i.e., on 25 October 2015), such a prohibition would be inapplicable. Otherwise, it would be contrary to the principle of not applying the law retrospectively to impose penalties which may be unfavourable or restrictive of rights. 

However, the CNMC states that, when a continued infringement started before entry into force of the prohibition but continued post-entry, that circumstance should be considered when determining the duration and scope of the prohibition, in application of the proportionality principle. 

Conclusions

Even though the prohibition of contracting with the Public Administration entered the Spanish legal system in 2015, there are still considerable uncertainties regarding its implementation in practice.

The CNMC’s Communication sheds some light on the factors and specific circumstances that will be considered when determining the duration and scope of the prohibition arising from a competition infringement. 

Clear guidance on the concrete parameters taken into account would help companies know what to expect in relation to the prohibition, particularly those whose activity depends to a large extent on public contracts. 

However, the text of the Communication is not yet final and the CNMC will be consulting on the Draft until 23 December 2022. Therefore, further modifications to the current Draft may be expected, aiming to achieve a clearer and more enforceable framework for the implementation of the prohibition.

For more information, please contact Candela Sotes.

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[1] See ACCO’s decisions on 21 July 2020, Case file 100/2018 Aerobús; on 19 May 2021, Case file 103/2019 Servicios visitas médicas; or 23 December 2019, Case file 94/2018, Licitaciones Servicio Meteorológico de Cataluña.