Public entities – the State, municipalities, and their capital companies – are prohibited from imposing requirements on tenderers in procurements that unreasonably reduce the number of market participants that could participate in the tender. The Competition Council (the CC) investigated the procurement of container seedlings organised by SIA Rīgas meži from the end of 2022 until the spring of this year, where only one tenderer applied, and negotiated with SIA Rīgas meži to increase the number of potential tenderers in the future.
Prior to the procurement, SIA Rīgas meži conducted a price inquiry, which included the acquisition of a supplier who had won previous equivalent procurements organised by SIA Rīgas meži. The previous cooperation partner was also the winner of the 2022 procurement.
The CC received a complaint about the procurement procedure and the tenderers’ inability to qualify for the procurement, as the contracting authority had stipulated that the tenderers should supply two types of planting material cassettes at the same time, for both deciduous and coniferous trees, without dividing them into separate procurements. The complaint also referred to unreasonably short time limits for the submission of tenders.
Juris Gaiķis, chairman of the CC: “When operating on the market, a capital company of a public person has a special responsibility to ensure free and fair competition so as to prevent its conduct from impeding, restricting or distorting competition in the public interest. Such conduct may lead to unjustified price increases and wasteful use of resources. Thus, one of the most important tasks of the contracting authority at the procurement planning stage is to carry out a qualitative market investigation, as a result of which the information gathered by the contracting authority on the specific nature of the subject-matter of the procurement, potential suppliers, and the likely level of competition in the procurement procedure will in fact be the basis for the future procurement procedure. At the same time, if the contracting authority has concerns about the quality of the goods to be supplied, the contracting authority shall be entitled to take all necessary steps to objectively verify the quality of the goods in the context of the procurement concerned, but it shall not be permitted to restrict a tenderer’s participation in the procurement without justification.”
To prevent possible risks of competitive neutrality in the activities of SIA Rīgas meži, it is necessary for SIA Rīgas meži to conduct a full market investigation prior to the procurement, providing all market participants with an equal amount of information about the planned procurement, and to record and store the progress of the market investigation, for example in the form of electronic correspondence. Also, a procurement involving the purchase of different types of container seedling cassettes should be divided into lots, with the possibility for tenderers to apply only for individual lots.
Taking into account the CC’s comments during the negotiation procedure, on 5 May 2023 SIA Rīgas meži confirmed that it will take into account the CC’s recommendations to ensure competitive neutrality when planning future procurement of container planting cassettes.
Public entities – state and municipal authorities, as well as their capital companies – are prohibited from impeding, restricting or distorting competition. The prohibition entered into force on 1 January 2020 and is laid down in Section 14.1 of the Competition Law.
To ensure compliance with the law, the CC negotiates with the public person or its holding company. If the negotiations do not result in compliance with the requirements of the Law, ensuring a pro-competitive outcome, the CC may continue the investigation of the infringement in respect of capital companies owned by public persons by adopting a decision on the finding of an infringement, the imposition of a legal obligation and a fine.
A capital company owned by a public person may be fined up to 3% of its net turnover in the last financial year, but not less than EUR 250.