Competition Council’s sector inquiry may rattle market for road repairs

Paul George Buta
Paul George Buta

The very recent draft Report of the Romanian Competition Council’s sector inquiry into services for the modernization, maintenance and repairs of roads and streets in large municipalities in Romania raises questions in respect of some core aspects of the existing model and could spill-over into more specific and targeted investigations for infringement of the competition law.

Long-term contracts are the biggest issue

The sector inquiry’s most important finding refers to the duration of contracts concluded by the local public authorities for such services. Thus, the Romanian Competition Council notes that the contracts as now concluded (especially delegation contracts) are concluded for a too long period of time. Moreover, the report suggests that the excessive duration of the contracts is likely to have anticompetitive exclusionary effects, likely to also affect the quality of the works.

The report could therefore cause a shift in the existing model by, first, causing some of the existing long-term contracts to be reviewed and limited in their duration (which would open up competition for these services in the relevant markets concerned) and, secondly, by generating possible risks for the parties who have been involved in such long-term contracts up to now (with the Competition Council able to investigate such undertakings either under art. 5 and/or art. 8 of the Romanian Competition Law, as applicable). In fact the Romanian Competition Council has, in the past, viewed the conclusion of long-term contracts as a sufficient ground for the initiation of investigations into possible infringements of competition law (e.g., as in the investigation which led to Decision no. 82/2015 of the Romanian Competition Council).

Compliance in procurement procedures

The Council also notes the risks that could arise, from a competition law standpoint, in the numerous public procurement procedures which are conducted in respect of the maintenance and repair of roads and streets in large Romanian cities. Although the report seems to favor an even bigger shift to more competitive public procurement awarding of such works, it also notes the significant competition law risks that these procedures entail. Whether the concerns lie with the designing of the tender documents, with the conclusion of consortia for different tenders, or with the conduct of competitors in these tenders, infringement of competition law in these scenarios falls neatly into theories of harm the competition authority is well accustomed to sanctioning, having done so numerous times, across industries.

Vertical integration – a specific concern

One of the more understated concerns in the report is that there appears to be a high degree of vertical integration in the undertakings active on these markets (NOTE: for the purpose of the report, the Council has defined the relevant market at the level of the award, but, historically, this has not impeded the Council from extending the market to multiple tender procedures if the agreement/practice it has identified refers to more than one specific award). This could create additional risks for these undertakings as, on the one hand, their behavior could be analyzed (and sanctioned, if the case), at group (or, at least, at a higher turnover) level and, on the other hand, as their activity is spread across more markets, an effect could be found in any of these.

Possible additions to legislation and changes to its application by the local authorities

The report also recommends that framework regulations for the application of Government Ordinance no. 71/2002 be adopted and that local authorities change their application of the provisions of this Ordinance so as to construe the limits (in time and scope) of the contracts by reference to the purpose of the Ordinance, including by reference to the level of investments required from the operator.

Bad omens

The sector inquiry started in 2018 and some of the most important participants on the markets the Council has looked at in this sector inquiry have already, at the middle of this year, been announced as the subjects of an (apparently) unrelated investigation for the infringement of Art. 5 in the context of a public tender (Romanian Competition Council’s Press Release of 24 May 2021).

What’s to be done?

As the Romanian Competition Council is well-known for its high level of enforcement, for the high level of the fines applied and for its high percentage of success in maintaining these fines even after court challenges to its decisions, the clear objective for any undertaking active in this sector is to avoid being investigated altogether.

In order to achieve this, timely legal advice and a comprehensive review of all the interactions of the undertaking both with local authorities and with other competitor/supplier undertakings should be sought. Moreover, given the high risks involved, proper review of both the tender documents and procedures and a review of the company’s behavior and communications within the framework of the tender procedures is recommended.

Finally, because these sector inquiries are fertile grounds for future investigations, playing an active part in the Council’s sector inquiry can be an efficient manner to avoid future problems: actively offering information and guidance and seeking to assuage the Council’s reservations can serve both the market and, much more, the specific undertaking who will not only be able to play a part in the re-framing of the sector but also avoid being primarily targeted for future investigations.

Paul-George Buta, Deputy Managing Partner Musat & Asociatii

Related posts