Competition Council discovers a road construction cartel

On 1 June, the Competition Council (the CC) issued an official decision regarding the discovery of three road building companies’ (AS A.C.B, AS ‘Ceļu pārvalde’, and SIA STRABAG) prohibited agreement in the context of participation in public tenders organised by state entity VSIA ‘Latvijas Valsts ceļi’ for the construction of national and other roads in Latvia. The companies were fined a total of 4,451,649.77 euro for this breach of competition law.

Information provided by the Corruption Prevention and Combating Bureau (CPCB) and additional evidence obtained as part of an investigation made it possible for the CC to detect a breach of the prohibition defined in Section 11(1) of the Competition Law and Article 101(1) of the Treaty on the Functioning of the European Union.

Meeting at a restaurant

The agreement was chiefly arranged verbally. CC received information that at least two meetings between members of the cartel had taken place at the ‘32. augusts’ restaurant of the ACB tennis club in Mārupe. On 9 December 2016, the restaurant was the location of a meeting between a representative of AS A.C.B. and a representative of SIA STRABAG. On 25 January 2017, a representative of AS A.C.B. met a representative of AS ‘Ceļu pārvalde’ to negotiate the terms for participating in the tenders organised by ‘Latvijas Valsts ceļi’ and announced between 21 November 2016 and 18 October 2017. These meetings involved discussions of tenders that had already been announced at the time, and tenders that were still being planned, with the aim of splitting the tenders between the members of the cartel.

During the meetings, the competitors agreed on whether or not to participate in specific tenders, on the intended winner, and on the preparation of fictitious bids; they also shared information about the bid prices to be submitted and the business strategies and future plans of companies and groups, thus sharing commercially sensitive information.

These market participants were aware of the unlawful nature of their actions, with the topic of wiretapping coming up in the conversation: ‘Your phone isn’t here, I hope? Is it in the car?’

The CC found that the parties also used spreadsheets in paper format to record the division of procurements at some meetings, as part of implementing the prohibited agreement. Using these spreadsheets made it possible for the parties to supervise and ensure compliance as part of the cartel in a transparent and convenient way.

Procurements identified

The CC identified seven tenders with a total contract value of 24,762,272.11 euro. Four tenders had to do with the rebuilding and resurfacing of national roads, two with the rebuilding or resurfacing of regional roads, and one with the renovation of a local road. These tenders encompassed road works that took place in various locations in Latvia, for example, near Riga, Cēsis, Ogre, Tukums, Jaunjelgava, and other populated areas.

The smallest project had a contract price of just over 1 million euro, and the largest, more than 8 million. 43% of all the tenders included co-financing by EU funds.

Locations of the agreed road constructions

Having assessed the opinions and evidence provided by the parties in the case, the CC identified the following procurements for which there were prohibited agreements between the companies:

1. Resurfacing of the A10 Riga–Ventspils national road, kilometre marks 79.500–85.770 (2016);
2. Resurfacing of the V13 Tīraine–Jaunolaine local road, kilometre marks 0.000–7.300 (2016);
3. Reconstruction of the P5 Ulbroka–Ogre regional road, kilometre marks 20.54–25.00 (2016, EU co-financing);
4. Resurfacing of the A4 Riga bypass national road (Baltezers–Saulkalne), kilometre marks 12.48–19.66 (2017, EU co-financing);
5. Resurfacing of the A6 Riga–Daugavpils–Kraslava–Belarus border national road, sections: kilometre marks 77.87–80.28 and 116.40–118.50 (2017);
6. Reconstruction of the P132 Riga–Mārupe (Jaunmārupe) regional road, kilometre marks 1.80–4.14 (2017);
7. Reconstruction of the A2 Riga–Sigulda–Estonia border (Veclaicene) national road, kilometre marks 88.10–95.20 (2017, EU co-financing).

A prohibited agreement was conducted between SIA STRABAG and AS A.C.B. in the A10, V13, and P132 tender. Between AS A.C.B. and SIA ‘Ceļu pārvalde’, there was a prohibited agreement for the A4, A6, and A2 tender. All these parties arranged a prohibited agreement for the P5 tender.

Available information about planned tenders

The CC found that a representative of AS A.C.B. played a special role in the implementation of the prohibited agreement, splitting the tenders between the companies at certain meetings and typing information about the tenders in spreadsheets. The representative of AS A.C.B. also regularly communicated with a former representative of state entity ‘Latvijas valsts ceļi’, discussing tenders, among other topics. The representative of AS A.C.B. had access to information about planned tenders as well as tenders that the contracting authority decided not to proceed with.

However, having assessed the role of the representative of ‘Latvijas valsts ceļi’ in the cartel, the investigation did not find the facts and circumstances that would sufficiently and logically explain and unambiguously indicate the involvement of the contracting authority in the organisation, activities, or support of the cartel.

Substantial fines and settlements

The combined share of the national and other road building market that the parties in this case held in 2016–2018 is around one third, that is, a significant market share.

Duration in the cartel

Given the duration of the prohibited agreement and the significant damage caused to the public, the CC imposed substantial fines on the companies involved. The fine is calculated as a percentage of the net turnover of the company for the preceding financial year, taking into account the duration and severity of the infringement.

Fine amount as a percentage of turnover and total fine amount (EUR)

Additionally, a settlement was arranged with AS A.C.B. and SIA STRABAG on the termination of the legal dispute in the case. Companies accepted the facts and circumstances found and committed not to appeal the final decision by the CC in the Court. The settlement prescribes a 10% reduction in the fine.

The fines imposed on the cartel members by CC must be paid jointly with their parent companies, meaning that the parent company of AS ‘Ceļu pārvalde’, AS RĪGAS SANITĀRĀ TRANSPORTA AUTOBĀZE, is jointly liable for the fine imposed on the company.