Submission of Joint Offers in Tenders
When competing entities join forces to submit a tender offer, it reduces the overall number of entities competing for a tender. Reducing the number of competing entities may increase the market power of those participating entities against the tender holder and enable them to make less attractive offers.
Competitors merging to submit a tender offer constitutes a restrictive arrangement, even if the entities joined forces before the preliminary selection process rather than during the tender stage itself.
According to a draft opinion recently published by the Director General of the Israeli Competition Authority, competitors in a tender are, inter alia, those entities who meet or may meet the tender’s threshold requirements.
The practice of Competitors merging together to submit joint tender offers is especially common in large tenders, such as those in the infrastructure and energy fields (constructing desalination facilities, trains, railroad tracks, platforms, ports, large public buildings, power stations, military bases, etc.).
The reasons participants generally join forces for a tender are:
- The need to meet financial standards and overcome financing challenges.
- Allocation of risk.
- To form a stronger joint entity that increases the chances of winning the tender.
To determine if they should submit to the Director General an application for a restrictive arrangement exemption, parties to a joint venture ought first to examine if the relevant tender is a tender for the purchase or the supply of a good or service.
For a tender for the purchase of a good or service, it is possible the joint venture meets the law’s requirements and submitting an application for an exemption is unnecessary. On the other hand, for a tender for the supply of a good or service or to perform a project, the various types of exemptions do not necessarily cover a joint venture made up of competitors.
Therefore, such joint venture would require, in many cases, submitting an application to the Director General for a restrictive arrangement exemption.
According to the draft opinion, the considerations the Commissioner will take into account when examining applications for exemptions are:
- Number of competitors – The fewer competitors, the greater the risk of limited competition due to entities merging, and vice versa.
- Relative weight – An entity of great weight and rich experience in winning or reaching final stages of tenders merging with an entity that has yet to establish itself in winning tenders or has yet to even submit to a tender has less relative potential to limit competition. On the other hand, two entities with a significant history of winning similar tenders joining forces would raise concern, in the absence of special circumstances, about a limitation on competition.
- Level of similarity between the competitors – When the expertise of the entities competing in the tender is disparate, the potential harm to competition caused by their merging is mitigated. When the competitors are more similar in the nature of their operations and expertise, there is higher concern for competition by their joint offer.
- Competitive scene outside of the tender – There are two primary concerns resulting from cooperation between competitors. The first is reducing their incentives to compete with each other. The second is the exchange of sensitive competitive information. Therefore, an agreement must include mechanisms to address the issue of information transfers in a manner that prevents the transfer of sensitive competitive information. Alternatively, the agreement should put contractual mechanisms in place to eliminate concerns for limitations on competition because of information transfers.
- Pro-competition benefit – If the pro-competition benefit expected because of the arrangement does not significantly exceed the arrangement’s expected harm to competition, such an arrangement meaningfully limits competition. On the other hand, an arrangement expected to cause little harm to competition but that holds proven and significant pro-competition benefits that, taken together, outweigh the expected limitation on competition is an agreement that does not meaningfully limit competition.
Though at this point, the opinion is only in its draft stages, it emphasizes the need for competing entities considering the submission of joint tender offers to consult with experts as early as the stage of outlining the cooperation. They should do so, inter alia, to create proper mechanisms in the agreement and to evaluate the Director General’s chances of approving an application for exemption.
The above does not constitute legal advice and is not a substitute for such advice. We recommend examining all cases individually on their merits.