Exclusion grounds in public tenders: corporate links and control

Preparing to participate in a public tender involves many pitfalls due to the complexity of the rules contained in the “Public Contracts Code”.

It is not enough to fill in the simple application on plain paper as some would like to make us believe. The dangers in fact lie in the rules and in their interpretation, often (rather, always) not univocal and full of questions.

Surely participating in a public tender means firstly contending with the admission requirements and verifying that the company has them.

The phenomenon of business networks, Consortia and participation in larger groups is often an excellent opportunity for SME growth, but when one comes into contact with the Public Administration, the public interest in transparency and respect for competition rules entail the need for preliminary assessments — at the cost of exclusion from the tender so well prepared in technical terms.

This is the case of the objective concept of control between participating (and non-participating) companies that the national legislator has decided to adopt among the grounds for exclusion from public tenders.

It disregards the direct or indirect form in which it manifests itself, provided it is suitable to bring out the existence of a dominant influence of one party over others for the purposes of awarding a public tender, thus entailing a violation of the rules of “fair” competition that must preside in the case.

In order to give an example of the complexity of the issue, we present below an analysis of the case law on the matter, specifying that each case must be assessed in concrete terms — at the cost of inevitable imprecision and the risk of drawing erroneous conclusions.

State of the art

Article 34 of the Contracts Code, paragraph 2, recalls art. 2359 of the Italian Civil Code.

In this sense, for the purposes of exclusion from the tender, what is relevant has become that control which materialises through dominant influence (Cass. sez. VI, no. 2950 of 4 June 2007), or which consists even only in a link such as to presume a notable influence exercised by one company over the other (Cass. sez. V, no. 4285 of 8 September 2008).

Where typical hypotheses ex art. 2359 c.c. occur, there is immediate application of the prohibition to participate in public tenders.

But also in the case where there is no direct relationship between the companies participating in the tender, but the relationship exists between them and another company — extraneous to the same tender, but nevertheless able, as holder of majority stakes of the various participants, to exercise that control or that influence such as to trace back to the “Holding” the decision-making centre that determines the content of the offers — there should be elimination from the tender.

Article 34 of the procurement code provides at paragraph 2 that “contracting stations also exclude from the tender competitors for whom they ascertain that the relative offers are attributable to a single decision-making centre, on the basis of unequivocal elements”.

In this regard the ruling of the Campania TAR, Naples, no. 99/2009 of 14 January is to be noted, according to which:

“the provision of the contracting station is legitimate that provides in the call further facts and/or situations deemed capable of altering the seriousness and secrecy of the offers, to which consequently to correlate the exclusion from the tender”.

Such clauses, however, do not constitute hypotheses of absolute presumption of violation of the principles of par condicio between competitors and of secrecy of offers, requiring case-by-case ascertainment of serious, precise and concurring indicators.

If what is provided occurs, the companies are “able to set offers coordinated with each other in order to influence the outcome of the tender to their advantage” and therefore “lacking the necessary independence, seriousness and reliability” (Cons. Stato, Sez. VI, 23/6/2006, no. 412).

Also for what is said above, it seems necessary to receive the principles of the Council of State ruling no. 1529/2006, aimed at preventing situations of substantial control between consortium and consortium members (in stable consortia) given the common business structure and the inevitable interweavings between the consortium’s bodies and the consortium members — an aspect we will discuss in the following paragraphs.

The very recent Council of State ruling 12 March 2009, no. 1459 concerns the participation in the tender of multiple controlled companies. The Council essentially held that the total control of multiple competing companies (in distinct formations) at a public tender, by a single company not participating in the same tender, is not in itself sufficient to constitute the violation of the rule above, where it is not accompanied by concrete indices of substantial link such as to bring out the existence of a single centre of interests.

Trying to bring order, attention must be paid to art. 2359 of the Civil Code, as recalled by paragraph 2 of art. 34 of the Procurement Code, a mandatory rule placed to protect economic public order.

According to the combined provisions of the rules indicated, cases of relevant control are those in which the following participate in the tender:

1. companies in which another company has the majority of votes exercisable in the ordinary general meeting (Direct and effective control of decisions)
2. companies in which another company has sufficient votes to exercise dominant influence in the ordinary general meeting (de facto internal control)
3. companies that are under the dominant influence of other companies by virtue of particular contractual ties with them (external or contractual control; it is configured in cases where there is a contractual relationship between two companies with an exclusivity tie — e.g. franchising — or a contractual relationship by which the controlled activity is economically subordinated by the will or decisions of the controlling company).

The control above refers not only to direct control but also to indirect, based on the principle of transitivity, whereby if one company controls another and this in turn a third, it follows that the first also controls the third.

Paragraph 3 of art. 2359 c.c. outlines the case of corporate link and considers as linked “companies over which another company exercises notable influence”. Such is presumed the influence thanks to which at least one fifth of votes can be exercised in the ordinary general meeting, or one tenth if the company has shares listed on regulated markets.

The rationale of the rule is to be found in the protection of the free comparison between offers, in respect of the principles of correctness and transparency, which would be prejudiced by the presentation of offers that — even though coming from different companies — are attributable to the same centre of interests. Inevitable in such cases would be the occurrence of a distortion in the regularity of the awarding procedures.

The matter has been examined by the Council of State with not entirely converging solutions; in fact:

1. a first orientation is constituted by rulings nos. 2950/2007 and 4285/2008, according to which the prohibition of participation in the tender of mutually linked companies applies not only when controlling and controlled companies participate in the tenders, but also when the situation of control of the participating companies is objectively relevant with respect to a third non-participant, but able nevertheless — as holder of majority stakes of the various participants — to exercise the dominant influence described by art. 2359 c.c.
2. a second orientation is instead constituted by Council of State ruling no. 6037/2008, according to which the provision of the first part of paragraph 2 of art. 34 cannot be applied, entailing:
   1. the automatic exclusion from the tender of the controlled, since under art. 2497-sexies c.c., the possession even at 100% of the shares of the controlled constitutes only “…a presumptive index of an activity of direction and coordination of the controlled companies, save proof to the contrary…”;
   2. it is therefore necessary the admission and assessment of contrary proof to be able to deem the existence of a single centre of interests and decision and therefore to be able, in application of the prohibition provided by the provision contained in the second part of paragraph 2 of art. 34, to proceed with the exclusion from the tender of the party or parties who find themselves in such a situation.

Furthermore… reading Council of State ruling 848/2009 it emerges that:

“precisely the concentration of each of the linked firms on different lots constitutes the expression of that unitary decision-making centre that the primary and special legislation intends to avoid by setting the prohibition of participation of linked companies in the same tender”.

Contracting stations must exclude from the tender those competitors for whom they ascertain that the relative offers are attributable to a single decision-making centre based on unequivocal elements: the possible attributability of offers to the same decision-making centre entails the risk that the same — even if not previously agreed — are known before their presentation, with the consequent violation of the principles of secrecy, par condicio between participants and free competition.

The discipline has regulated cases not only of presumed control but also of specific hypotheses of link, because the provision of a clause within the tender call that decides the prohibition of participation of linked companies would be illegitimate, since the link in itself is an organisational structure and consequently cannot be considered suitable to alter the equilibria of the procedure.

However the PA may insert clauses to warn competitors about the consequences they may incur if situations harmful to par condicio between competitors and to the secrecy of offers emerge.

Elements that may prove the existence of such violations may be:

1. offers presented on the same day/hour, with identical methods
2. drafting of tender documents with similar formal characteristics
3. identity of fax numbers, of the location of company offices
4. interweaving between subjects with administration/representation powers and technical management of the companies
5. family connections between the subjects above

Continuing further in the exclusion discipline, it seems appropriate to also recall more specific cases that pertain to what is provided regarding stable and ordinary consortia, the first outlined in art. 36 of the Procurement Code, the second — together with temporary groupings whose discipline follows — in art. 37.

The difference characterising them concerns the organisational mode whereby the stable consortium, established through resolution of the respective deliberative bodies in order to operate jointly in the public sector, sets up a common business structure, thus determining a tie between the entrepreneurs; the ordinary consortium provides instead for the creation of common organisation “for the discipline or for the carrying out of certain phases of the respective companies”.

As regards the participatory discipline, paragraph 5 of art. 36 — regarding stable consortia — provides that they “are required to indicate at the offer stage for which consortium members the consortium competes; the latter are forbidden to participate, in any other form, in the same tender; in case of violation both the consortium and the consortium member are excluded from the tender”.

From the reading of the provision it does not seem clear to whom the prohibition extends; in fact, if the consortium decides at the offer stage to participate with companies A, B, C, can company D — not declared as participant — compete alone or not?

To answer this question, it is necessary to dwell on the nature and discipline of the stable consortium; what characterises it and distinguishes it from the ordinary consortium is the common business structure, which is an indispensable element for the existence of the consortium itself: in fact it identifies the consortium company through which the consortium can directly execute the works, and for this organisational characteristic the stable consortium is considered an autonomous legal and economic operator capable of providing for the direct execution of the public works awarded.

Given the presence of the common business structure, the consortium members cannot participate in the same tender in which the consortium subject competes, with regard to:

• the common business structure
• and the purpose of operating jointly in the public works sector

This is what the Council of State affirmed with ruling 1529/2006, whereby “a consortium-member company can never participate in a tender in which the stable consortium of which it is part also competes, neither in single form nor in associated form”.

From what has been seen, there is therefore a disparity of treatment with the other types of consortia, because even if in the latter there is a common organisation for the discipline and carrying out of certain phases of the respective activities, the consortium members maintain their negotiating autonomy, so they do not constitute a single new company with an autonomous and common business structure, as instead happens for stable consortia.

In fact, although paragraph 7 of art. 37 — regarding ATI and ordinary consortia — provides for a prohibition of participation in the tender, this extends only to those companies for which participation has been declared at the offer stage, without prejudicing instead the participation for those companies not declared as participants with the consortium. This explains the different applicable discipline, although a clarifying intervention by the legislator remains necessary.

In conclusion… it must be held that the need to ensure the effective and efficient protection of the regularity of the tender prevails — and in particular par condicio among all competitors as well as the seriousness, completeness, comprehensiveness and independence of offers — so as to avoid that, through corporate influence mechanisms (even if not integrating links or controls under art. 2359 c.c., but falling for example into the cases outlined by paragraph 5, art. 36 and paragraph 7, art. 37 of the Procurement Code), the competition can be altered, endangering the public interest in the choice of the “right” contractor.

Therefore, even apart from the inclusion of a specific clause in the tender notice, in the presence of serious, precise and concurring indicators of provenance of the offers from a single decision-making centre, exclusion of the companies is allowed, even though they are not in a situation of control under art. 2359 c.c. but fall into other exclusion hypotheses provided by the same Procurement Code.

In general, public bodies are required to acquire information before stipulating, approving or authorising contracts of an amount above the EU threshold. To be remembered on this point is decision no. 6212/2006 of the Council of State regarding public-evidence procedures, whereby:

1. the choice of the party must take place through a procedural series regulated by public-law rules predetermined to the identification of the best possible party both from the subjective point of view and from the objective one, and in any case always respecting the principles of legality, good performance and impartiality of the public administration (art. 97 of the Italian Constitution).
2. the procedure therefore is anchored on principles of transparency and impartiality which in turn are concretised in the principle of par condicio among all contracting parties, realised through the preparation of the tender call, and in the principle of competitiveness, secrecy, seriousness, completeness, authenticity and comprehensiveness of the offers formulated with respect to the prescriptions and provisions of the lex specialis, as well as in the prior preparation, by the administration, of criteria for evaluating the offers in particular regarding link between companies.