Prohibited joint tender for timber transport

The Competition Authority found that the large-scale joint tender submitted by OÜ Prenton in the public procurement for the road transport of round logs organised by the Estonian State Forest Management Centre (RMK) was anti-competitive. Consequently, the Authority issued a precept to the representative of the joint tenderers OÜ Prenton to cease co-operation between them at the request of the manager of the state forest.

In the procurement organised in 2018, the majority of the orders placed by RMK were won by a joint tender comprising 11 companies, including the biggest of the timber transport undertakings in Estonia. The undertakings that participated in the joint tender were OÜ AT Transwood, Expertline OÜ, OÜ HANT, Iriscorp Transport OÜ, Kanniku OÜ, AS KaroTrans, OÜ Kolmestar, OÜ NLLW, Sumros Grupp AS, Vikingmodum OÜ, and their representative OÜ Prenton.

Smaller companies made up the majority of other tenderers in the public procurement organised by RMK and, in terms of both the number of vehicles and the transport volumes offered, their combined share was less than one third. Although the price offered by OÜ Prenton was on average about 1/4 higher than the price offered by other tenderers in the procurement, the volume offered by other tenderers was too low to compete and OÜ Prenton was awarded the majority of the contract. As the 11 companies had decided not to compete with each other when submitting their joint tender, the state forest manager did not receive any competing offers from them.

The Public Procurement Act provides for the submission of joint tenders in public procurement to promote competition. However, according to the Competition Act, competitors are only allowed to conclude agreements with each other under strict conditions. In particular, competitors are only allowed to submit joint tenders if they are unable to submit a competitive tender individually. In the Authority’s view, the joint tender in the present case extended well beyond what is considered reasonable. The undertakings participating in the joint tender were the top timber transport undertakings in Estonia, and it is unlikely that they would not have been able to submit competitive tenders individually or in smaller groups. The joint tender could, therefore, not be regarded as anything other than a means to end the competition among them.

According to OÜ Prenton, the agreement between joint tenderers only provided for their joint participation in the procurement. Other joint tenderers are alleged to have entrusted the entire submission process of the tender to OÜ Prenton, with all communication taking place orally. The Competition Authority determined that, in those circumstances, the joint tender was in violation of competition law based on its excessive size alone. The delegation of price-setting to one central decision-maker by undertakings is as detrimental to competition as explicit price fixing. An agreement on a jointly offered price can be presumed in a joint tender, obviating the need for the Authority to identify such an agreement separately.

The Authority refined the definition of the relevant goods market on the basis of the feedback received after the hearing of the undertaking. The Competition Authority is of the view that the road transport of timber, specifically round logs, between loading sites (where timber is loaded onto trucks at the edge of forest), ports, and other destinations, is a separate service with certain demand. The supply of this service has adapted to meet the demand. As a customer, RMK is characterised by a relatively high and stable demand for the road transport of timber as well as the fact that the pool of service providers has been determined by contracts awarded for five years following a public procurement. The geographic scope of the goods market is limited to Estonia. The 11 undertakings concerned accounted for more than half of the goods market.

The joint tenderers provided explanations for how their joint action allegedly contributed to the security of supply, logistical efficiency, and other such factors. The Competition Authority took the view that such benefits of a joint tender either did not exist in reality or were insufficient to justify such extensive co-operation.

OÜ Prenton contested the precept issued by the Competition Authority in the Administrative Court.