public procurement

Following our story, HUF 11 million fine imposed on tenderers for anti-competitive practices

Last autumn, we filed a public interest report with the Integrity Authority and the Public Procurement Authority after we examined hundreds of public procurement procedures with a public procurement expert and discovered familiar patterns and signs of systemic corruption in connection with the winning tenders of a company called, Tömb 2002 Ltd. The Authority investigated all the cases we presented and initiated 15 appeals procedures at the Public Procurement Arbitration Board. The decisions were published recently: a total of HUF 11.2 million in fines were imposed on the tenderers.

Tömb 2002 Ltd. has been winning public contracts for years. Within these, it has participated in a total of 79 restricted procedures (Kbt. 115), of which it has won 58. This represents an outstanding success rate of 73%. But this was not the only anomaly in the tenders examined. Although, the contracting authorities (municipalities, school districts, universities, etc.) could have chosen from hundreds of firms, they always invited almost the same firms. And even though the estimated value of the projects was mostly unknown, the Tömb 2002 Ltd. hit the mark several times. As it turned out, it was precisely this phenomenon that the Public Procurement Authority, for its part, ultimately found most problematic.

After analysing the cases, the Public Procurement Authority concluded that some of the tenders were in breach of public procurement rules, and therefore initiated legal remedies at the Public Procurement Arbitration Board in 15 cases. The Public Procurement Arbitration Board has recently published their decisions taken in the appeal procedure.

According to the documents, all contracting authorities concerned were fined a total of HUF 11.2 million.

In each case, the reason was that the winning bid deviated by a minimum amount from the value previously estimated by the contracting authority and from the amount of the financial guarantee. The main problem for the authorities was that the estimated value was not public, so that no tenderer could know from an official source exactly how much money the tenderer had. Nevertheless, Tömb 2002 Ltd. often hit this amount.

There are three possible explanations for this „phenomenon”:

  1. the company has based on its previous experience and the information available produced a perfect quotation every time,
  2. the amount was leaked to the prospective winner by the designer who determined the estimate,
  3. or the tenderer himself “passed the buck” to the subsequent contractor.

In any case, the Public Procurement Authority and the Arbitration Board, which launched the appeal following our submission, went as far as it could in this case and found that the situation „raises the possibility of conduct which prevents, restricts or distorts competition”, and should therefore have been notified to the Hungarian Competition Authority (GVH).

The state and local authorities were therefore fined not because the Arbitration Board clearly found a breach of competition (which it has no power to do), but because the tenderers failed to report the reasonable suspicion to the GVH.

The exclusion of the company would have been a real deterrent

„As welcome as the outcome of these cases is, the case highlights the extent to which the institutional system is not prepared to deal with this type of infringement,” said Átlátszó’s procurement expert.

„One of the most fundamental problems seems to be that

the cases uncovered have slipped through the EU funding and control bodies without any problems,

which highlights serious anomalies in the functioning of the system. There may also be a lack of accountability. For although the Public Procurement Authority has been exemplary in its thoroughness in detecting possible public procurement infringements, it has only been able to impose fines of 1% of the total value of the projects – which, moreover, are paid by the tenderers from public funds.

The winning company is not yet facing any consequences, even though it played an active role in the infringement” he pointed out.

He added that, in his opinion, it would have been more dissuasive if the authorities had also investigated the conflict of interest in the case, as the winner is suspected to have obtained confidential information (the estimated value) which gave him an undue advantage in the procurement procedure. Alternatively, it could be assumed that competition may have been distorted as a result of prior involvement in the preparation of the procurement procedure.

And if the above had been ruled by the Arbitration Board, it might have opened the way for the apparent beneficiary of the infringing public procurement,

Tömb 2002 Ltd. is excluded and should not be allowed to bid for public contracts in the future.

This could presumably have had a real impact on preventing similar infringements from occurring.

It is not yet clear what will happen to public procurement financed by EU and national tenders: will the funds (or part of them) be recovered because of the infringement found? And, if so, will the state and municipal institutions try to pass on the resulting damage to Tömb 2002 Ltd.?

It also remains to be seen what the Hungarian Competition Authority and the Integrity Authority will do in these cases. We will report when the outcome of the investigations is known.

Written and translated by Eszter Katus. The Hungarian version of this story can be found here. Photo: