Public Contracts: Abolition of the Fee for a Motion Filed with the Office for the Protection of Competition Can Be Considered as Appropriate

In November 2019, the Constitutional Court abolished the fee for a motion to initiate proceedings at the Office for the Protection of Competition. This step was even nominated in the current year of the Act of the Year survey. What were the most negative aspects of this controversial fee? What was its actual impact in practice? And what are the other pitfalls in relation to public contracts?

This year, nominations for the Act of the Year include the judgment of the Constitutional Court which relates to public contracts; the Constitutional Court abolished the fee for
a motion to initiate proceedings at the Office for the Protection of Competition, set by law to CZK 10 thousand. The intention to introduce this fee had been rather controversial from the beginning and it was integrated in the text of the act only through an amendment. Even though we may understand, to some extent, the efforts of the legislature to regulate the numbers of motions filed with the Office for the Protection of Competition that may sometimes be of a vexatious nature, we should not forget that the fact that the Office for the Protection of Competition is obliged to initiate the proceedings ex officio any time it obtains reasonable suspicion that the contracting authority broke the law is entirely contrary to the obligation to pay the fee, regardless of the manner in which the Office arrived at the suspicion. The plenum of the Constitutional Court referred to the absurdity of the fee for the motion, since the failure to pay the fee entirely prevents the Office from dealing with the case, while the Office is obliged to deal with the case under another provision, which constitutes a fundamental contradiction.

In addition, it is necessary to consider the unprecedented amount of the fee itself, which serves rather as a deterrent and basically sanctions anyone who draws attention to violations of the law. Furthermore, the Court pointed out the principle of precedence of an individual over the state; the state serves citizens rather than citizens the state. The ruling of the Constitutional Court can thus be considered as clearly appropriate.

The controversial fee in practice

In terms of statistics, 1,014 motions were received in 2015 in respect of public contracts according to the data of the Office for the Protection of Competition. In 2018, there were only 254 motions, and the fee was paid only for 98 of them. This shows a significant decrease in the number of investigated motions after the introduction of the obligation to pay the fee.

Consequently, the judgment of the Constitutional Court will surely have a considerable impact on the possibility to control procurement procedures by the public and we can expect a renewed increase in the use of motions.

Acquisitions in public contracts: transparency vs. strategic secrecy

Numerous difficulties persist in the area of public contracts, from excessive administrative burden in various procurement issues to certain ambiguities in interpretation. If we were to emphasise one specific matter, it would be the fact that the public contract issues have recently appeared in the area of acquisitions of equity investments in companies or acquisitions of businesses, where, according to a resolution of the Office for the Protection of Competition, it is necessary to purchase equity investments in companies and businesses in accordance with the Act on Public Procurement. An equity investment in a limited liability company, shares or a business are seen as a subject matter of the supply and, according to the Office for the Protection of Competition, they are subject to the standard procurement procedure. This means that the purchase of a strategic equity investment, for example in a municipal water company, is treated similarly to a purchase of office furniture.

Those who are active in acquisitions know that one of the important elements of the acquisition process is secrecy. On the other hand, principal aspects in public procurement are transparency and openness, and these two opposite principles clash. If a state-owned enterprise or a joint-stock company owned by the state wants to buy an equity investment in a competitor, it should openly communicate it to the entire market in accordance with the rules of public procurement – and this is no way to make acquisitions. After all, this is not the approach to acquisitions in other EU countries where the same EU Directive on public procurement has been transposed. The prepared amendment to the Act on Public Procurement takes this problem into account and the relevant amendment to the wording of the act, if successfully passed in the legislative process, will once again allow for the acquisition of shares, equity investments in limited liability companies, and businesses outside of the procurement procedure.

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