The CNMC publishes the criteria for determining the prohibition to contract for distortion of competition

The Public Sector Contracts Act (Ley de Contratos del Sector Público LCSP) establishes that persons who have been firmly sanctioned for a serious infringement in the area of antitrust may not contract with public sector entities.

The legislation, which was introduced in October 2015, allows the prohibition to be established directly in the administrative resolution – in this case, the sanctioning resolution of CNMC or of the regional competition authority. However, the scope and duration can be established directly in the resolution, or through a separate procedure conducted by the Ministry of Finance and Public Administration.

The law contemplates these two possibilities, but the CNMC – although it did establish in its sanctioning resolutions the prohibition to contract when sanctioning for serious antitrust infringements – did not determine its scope and duration, for which it referred the resolution to the State Public Procurement Advisory Board (JCCE), so that it could instruct the procedure to that effect.

Unlike the CNMC, the Catalan Competition Authority (ACCO), with a different criterion to that of the CNMC, has determined the scope and duration of the prohibition to contract in its sanctioning resolutions, which it has done to date in three resolutions. The ACCO in these resolutions set the duration of the prohibition at 12, 18 and 24 months respectively. The ACCO's position has been confirmed by several rulings handed down by the High Court of Justice of Catalonia. However, these could be annulled by Spain's Supreme Court, which has admitted two appeals in cassation against two of the rulings of the Catalan High Court, and which, ultimately, could determine that Communication 1/2023 will not be applied in the end.

Consequently, on 24 November 2022, the CNMC submitted for public information a communication in which, adopting a change of criterion with respect to its actions to date, it assumed the competence to establish the scope and duration of the prohibitions to contract and established the criteria it would follow for their determination.

Communication 1/2023

At the end of the public exhibition period, on 23 June, the CNMC published Communication 1/2023, of 13 June, on criteria for determining the prohibition to contract for distortion of competition. This established that it is now the best placed to assess and set the duration and scope of the prohibition to contract and established the criteria and principles that it will follow to determine its scope and duration in the sanctioning procedures it initiates.

The CNMC justifies the timeliness and necessity of the change of criteria, as it is the institution that is in the best position to assess the overall effects of the prohibition to enter into contracts. This is given that, in defining the scope and duration of the prohibition, it will also have to consider how the exclusion of competitors derived from the imposed measures affects competition in the market. It will also guarantee, through the publication of the criteria for its decisions, the necessary legal certainty and transparency in administrative action.

These prohibitions on contracting can reduce or even eliminate competition in the market. It is, therefore, essential that when determining their scope and duration, an appropriate balance between the principles of deterrence, effectiveness and proportionality is made, being fully aware of the impact that this may have for the entity sanctioned and for the affected market itself. This requires balancing the defence of competition as the ultimate good to be protected and the exclusion of competitors in certain tenders as a proposed measure.

The communication clarifies that the prohibition to contract will be agreed in serious and very serious infringements (despite the fact that the Contracts Law does not expressly mention very serious infringements), and that natural persons, and not only legal entities, who have been firmly sanctioned, may also be subject to this prohibition. It also clarifies that, although the prohibition to contract is not applicable to infringements that ended prior to 22 October 2015, conduct that began before that date but continues beyond that date may be classified as conduct that is punishable by a prohibition to contract.

Extent and duration criteria

With regard to the maximum duration, the communication recalls that, in accordance with article 72.6 of the LCSP, this may not exceed three years regardless of the seriousness of the infringement.

The parameters to be used by the CNMC to set the scope and duration will be as follows:

• Geographic scope. The geographic market where the infringement took place will be the main reference for defining the geographic scope of the prohibition, although this may be wider or narrower depending on ad hoc circumstances.
• Product scope. Again, the product market affected by the infringement will serve to determine the scope of the prohibition, but may also be extended to other products, where appropriate.
• Duration of the offence. A rule of proportionality is applied between the duration of the offence and the duration of the prohibition, although limited, as indicated above, by the three-year maximum.
• Seriousness of the infringement. The more serious the infringement and the greater the economic impact on the affected market, the longer the duration of the ban.
• Degree of participation of the offender: depending on the position as perpetrator, instigator, residual, etc. and also on the aggravating or mitigating factors that apply to the case, a more or less severe prohibition will be imposed.

Finally, the communication distinguishes between two main types of exemption from the prohibition to contract:

• An exemption from prior assessment (automatic by leniency exemption or optional by reduction of leniency fine).
• An exemption from subsequent assessment (accreditation by the infringer, at the hearing, of the appropriate technical, organisational and personnel measures to prevent the commission of future infringements, which will be examined in accordance with the "Guide on regulatory compliance programmes in relation to antitrust rules" drawn up by the CNMC to promote these policies in companies).

Last CNMC resolution on prohibition to contract

In relation to these compliance programmes, a recent sanctioning resolution of the CNMC Council on 19 July 2023 declared two very serious infringements constituting cartels relating to tenders for military equipment (File S/0008/21).

In this resolution, the CNMC did not establish the scope and duration of the prohibition on contracting, as the Communication is not applicable for temporary reasons. It refers to the JCCE but does express its opinion. This indicated that it considers that the compliance programmes of some of the sanctioned companies, together with a hypothetical payment or commitment to pay the fine, would constitute the two requirements established by article 72.5 LCSP, and therefore, in the CNMC's opinion, both companies could be exempted from the prohibition on contracting.

Osborne Clarke comment

The CNMC's communication produces a paradigm shift. As of 23 June, the competition authority itself will be in charge of determining the scope and duration of the prohibition on contracting on the basis of a series of very general criteria – and it will be interesting to see how they evolve and are applied in practice.

Moreover, it will be both interesting to see how the CNMC manages to maintain and balance its role as the ultimate defender of competition and the free market, while at the same time having to apply certain restrictions on contracting, which in some cases may have a great influence and impact on certain markets.

Should you wish to know more about the content of the Communication or any other industry issues, please do not hesitate to contact one of our experts listed below or your usual contact at Osborne Clarke.