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Joint bidding and horizontal subcontracting

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Bidding consortia in many countries must pass a “no-solo-bidding test”: if the consortium members can perform the contract on their own, joint bidding reduces the number of bidders and is prohibited unless there are significant efficiencies. In the US, joint bidding agreements between competitors that do not integrate their operations are challenged as per se illegal (Federal Trade Commission, 2000). In a similar spirit, in Europe, non-full-function joint ventures (JVs) are assessed under TFEU Articles 101(1) and 101(3). The guidelines on joint bidding issued by the Danish Competition and Consumer Authority (2020) are a recent example.

Our economic analysis challenges this approach for sectors where subcontracting among competitors is common practice:

• Temporary bidding consortia/JVs, which dissolve after submitting a losing bid, produce pro-competitive effects. They can submit a more competitive bid as their demand for contracting ex post goes down. Moreover, outsiders are less called upon as subcontractors. They thus forego a smaller amount of profits when winning, leading them to hand in more aggressive bids as well.

• Structural bidding consortia/JVs, which do not dissolve after submitting a losing bid, deserve more scrutiny, as they reduce competition in the ex post subcontracting market. This finding is supportive of the current legal approach treating structural consortia as mergers.

Our practical recommendation is that

(i) the subcontracting market and (ii) the consortium-format

deserve much more attention in judging joint bidding. We question the “no-solo-bidding” test as it does not consider cost savings from subcontracting.

References:
- Danish Competition and Consumer Authority (2020). When companies bid jointly - guidelines for joint bidding under competition law. Retrieved from https://bit.ly/3tlz9Aq on March 15 2021.
- Federal Trade Commission. Antitrust guidelines for collaborations among competitors 2000. Retrieved from https://bit.ly/2kKT0Gq on October 8 2019.

Disclaimer: Bouckaert thanks the Flanders Research Foundation (FWO) for financial support (Grant #G080912N). Van Moer is grateful to FWO for funding Grant #11V5915N. Both authors also thank Engie for financial support (Grant #FFP160134).

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