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JOINT BIDDING IN PROCUREMENT

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INTERNATIONAL PUBLIC PROCUREMENT CONFERENCE PROCEEDINGS 21-23 September 2006

JOINT BIDDING IN PROCUREMENT

G. L. Albano, G. Spagnolo and M. Zanza*

ABSTRACT. Joint bidding is the practice of two or more independent suppliers

submitting a single bid. In Europe, the regulation of joint bidding in
procurement varies a lot across countries, and is in several cases related to the
inability of an individual firm to be admitted as a solo bidder. In the first part of
the paper we analyse the basic economics of bidding consortia and the effects
that these can have in terms of coordination among firms, risk management and
exploitation of synergies. In the second part we compare several practical
criteria for limiting bidding consortia in a consistent way by assessing their
relative degrees of restrictiveness.

INTRODUCTION
Joint bidding, be it in auctions or in procurement tendering, is the
practice of two or more similar firms submitting a single bid. Bidding
consortia among potential competitors, whether or not temporary, were
customary in auctions for offshore leases and are currently observed in
procurement. i In late 1975, however, the U.S. Department of the Interior
forbade the eight largest crude-oil producers worldwide to submit joint
-----------------
* Gian Luigi Albano, Ph.D., is Senior Economist at the Research Unit of
Consip, the Italian Public Procurement Agency, and has been lecturing at the
Department of Economics, University College London since 1999. His research
comprises contract theory, collusion in auctions and information economics.
Giancarlo Spagnolo, Ph.D., is Head of Research at the Italian Public
Procurement Agency (Consip) and Associate Professor at the Stockholm School
of Economics. He is also affiliated to the Center of Economic Policy Research,
London. His teaching and research interests are in procurement, industrial
organization, game and contract theory, corporate finance and banking. Matteo
Zanza, M.S., is a consultant for Arthur D. Little S.p.A. and has worked for more
than two years at the Research Unit of Consip. His working and research
interests are in procurement.

Copyright © by G. L. Albano, G. Spagnolo and M. Zanza

748 ALBANO, SPAGNOLO & ZANZA

bids for outer continental shelves leases. The presumption was that joint
bidding aimed at lowering prices, thus harming competition. Bidding
consortia were then considered price-fixing devices. In Europe, the
regulation of joint bidding in procurement varies across countries. It is in
several cases related to the inability of an individual firm to be admitted
as a solo bidder. Thus the criteria inspiring the restriction of bidding
consortia mirror the ones regulating individual participation. This is the
case in Italy, Austria and Romania. ii In other cases, such as Belgium and
Denmark, there exist almost no constraints to the formation of bidding
consortia. In France, even those firms that can participate as solo bidders
are allowed to form bidding consortia as long as the aim or the effect of
the grouping is not a restriction of competition. This is equivalent to say
that the procurement agency (PA) bears the burden to prove the harmful
effect of the grouping when it aims at imposing some restrictions.
The variety of practices, sometimes contradictory, calls for an
economic analysis of the consequences of bidding consortia on the
degree of competition in procurement, and, ultimately, on the buyer’s
expected savings. We hold that some restrictions on the formation of
bidding consortia have to be adopted. The absence of legal constraints
would simply make “bidding rings” legal. Thus, although joint bidding
must always to be restricted, limitations should rely on sound
economic principles.
The analysis of (horizontal) bidding consortia in procurement bears
some resemblance with horizontal mergers in oligopolistic markets.
Mergers typically lead to a fewer number of competitors, higher market
power of merging firms and thus higher prices for consumers. However,
merging firms may exploit complementary assets, or cost “synergies”,
that enable the merged entity to achieve production costs below those of
either firm before the merger. The overall effect on welfare, as first
illustrated by Williamson (1968), is then the net sum between the loss in
consumer surplus, due to higher prices, and the enhanced production
efficiency due to cost synergies.
Although the same forces are at work in procurement markets,
greater emphasis seems to be put on the market-power consequences of
bidding consortia in the form of reduced participation. iii The latter is
somewhat misleading since it is unclear whether it refers to the number
of distinct submitted bids or, rather, the number of participants in
procurement competitive process. Obviously, the two concepts do not
JOINT BIDDING IN PROCUREMENT 749

necessarily coincide if potential participants can form bidding consortia.

It is then useful to label “number of bids” (NoB) the numerousness of
distinct bids submitted by either solo bidders or bidding consortia to the
procurement agency; and “number of participants” (NoP) the
numerousness of participants regardless of whether they bid as solo
bidders or as members of a bidding consortium.
The difference between NoB and NoP can be illustrated by the
following example in which two scenarios are considered. In the first
scenario, 4 suppliers compete independently for 2 homogeneous lots. In
the second, 15 suppliers form 3 bidding consortia of equal size that
compete for 2 homogenous lots. It is immediate that NoB is higher in the
first scenario (4 bids vs. 3), whereas NoP is higher in the second (15
participants vs. 4). Assessing whether or not bidding consortia are anti-
competitive requires an estimate of their impact on both NoB and NoP.
However, we will hold that the objective of fostering competition in
procurement is not always well served by pursuing neither of the two.
We will emphasize that synergies arising from bidding consortia (mainly
through cost savings) may enhance competition in procurement
competitive processes even if joint bidding lowers the number of distinct
bids. A centralized procurement agency, unlike almost all antitrust
authorities, is typically in a position to estimate cost savings likely to
originate from bidding consortia since it acts mainly as a regulator owing
to the presence of specialized managers and to the repeated nature of the
relationship with existing firms. Thus a PA should take synergies into
proper account in order to evaluate the pro-competitive effects of bidding
consortia in procurement auctions.
The remainder of this paper is organized as follows. In Section 2, we
discuss some pro- and anti-competitive effects of bidding consortia. In
Section 3, we analyze in more detail the nature of synergies arising when
several firms join a bidding consortium. The main conclusion we draw is
that if a centralized procurement agency is able to assess synergies
among firms of different size it can design the procurement process and,
in particular, restrict bidding consortia so as to maximize savings and/or
efficiency. Finally, in Section 4, we discuss the main consequences of
linking the constraints on bidding consortia to an individual firm’s ability
to participate in a competitive procurement as a solo bidder.
750 ALBANO, SPAGNOLO & ZANZA

2. BASIC ECONOMICS OF BIDDING CONSORTIA

Bidding consortia allow firms to pool resources that are crucial in
formulating a valid bid. They may share information about the likely
value of the contract (e.g., forecasts about final demand, geophysical
surveys on tracts in oil-lease auctions), jointly bear fixed costs, or even
combine production facilities. Surprisingly, however, the economic
literature on joint bidding has almost exclusively explored the aspect
concerning information sharing. This point can be grasped by
considering oil-lease auctions. When firms bid for the drilling right on a
particular tract, the value of the object (i.e., the market value of the
quantity of crude oil) is common to all participants, but unknown at the
time the auction takes place. In such an environment each bidder is
typically assumed to hold only one piece of information about the value
of the object. Such a bidder’s information is captured by a signal that is
correlated with the unknown common value and, conditional on the
latter, independent from all other bidders’ signals (e.g., geophysical
surveys on tracts). Thus, conditional on the true value of the object, it is
likely that some bidders will receive a private signal above the true value
while some others receive a signal below the true value. Ex ante, each
bidder’s signal is an unbiased estimate of the common value. If bidders
submit offers that are an increasing function of the signal, then, ex post,
the winning bidder learns that she has been overly optimistic. The event
of winning informs her that she had received the highest among all
signals. Thus in formulating her bid each bidder has to take this
information into account. Failing to do so may cause the bidder to suffer
from the “winner’s curse,” that is, to incur losses.
Imagine now that bidders are allowed to form bidding consortia.
What would be the effect of bidding consortia on expected prices? Joint
bidding generates mainly two opposite effects.
1. Bidders joining a bidding consortium rely on better information on
the common value before submitting a joint offer. Using more than
one signal, due to more than one geophysical survey, generates a
more accurate estimate of the common value, thus reducing the risk
of incurring in the winner’s curse, which in turn implies a more
aggressive bidding and higher prices.
2. Bidding consortia reduce NoB and thus lead to lower competition
and prices.
JOINT BIDDING IN PROCUREMENT 751

Although clear-cut theoretical results are difficult to establish due to the

interplay of opposite forces, some recent experimental evidence iv seems
to point towards the same prediction in both first- and second-price
auctions: Joint bidding leads to more aggressive bidding but lower
prices. The impact of a reduced number of bidders (lower NoB)
outweighs the more aggressive bidding induced by the better
information each bidding consortium relies on.
The economic analysis of bidding consortia based on information
sharing is admittedly restrictive. Since bidding consortia bear some
similarities with mergers in oligopolistic markets, we find it worthwhile
investigating such a link in order to fine-tune the predictions concerning
the impact of joint bidding on expected prices in procurement auctions.
Establishing a link between bidding consortia and mergers in
oligopolistic markets leads us to consider the following dimensions:
Asymmetry.
Consider a procurement market in which suppliers are heterogeneous
with respect to their capacities (so they differ in marginal costs).
Suppliers submit price-quantity schedules to a buyer, as in a first-price
multi-unit auction, and procurement is split. Firms are paid prices
submitted for the quantities the buyer purchases. If we keep NoP fixed,
bidding consortia obviously induce a lower NoB. Does this automatically
imply higher purchasing prices for the buyer? The answer depends upon
the composition of bidding consortia. For instance, when only a subset of
firms merge, competition may become tougher if the asymmetry between
the two firms with the highest market shares is reduced. Thus the buyer
pays lower prices after the merger takes place. v The intuition is similar to
the prediction in a standard two-firm, asymmetric Bertrand game. When
the distance between firms’ costs diminishes, the low-cost firm becomes
more aggressive. The resulting lower market price benefits the buyer.
Coordinated Effects.
Coordinated effects arise because bidding consortia may either
facilitate the operation of an existing cartel or favor the emergence of a
new one. The decline in the number of competitors (lower NoP) may
make it easier to adopt a strategy of “splitting the market.” Each bidding
consortium may (tacitly) agree to submit bids only on a limited number
of objects/contracts, thus limiting competition and keeping prices high.
752 ALBANO, SPAGNOLO & ZANZA

Risk Management.
A bidding consortium insures the buyer, at least partially, against
procurement risk, that is, the risk arising when a unique supplier finds it
impossible to procure a service due to an unexpected averse shock to
productions costs. A bidding consortium allows its participants to pool
individual linked to unforeseeable events, thus making it more likely that
the procurement contract is successfully carried out.
While reduced asymmetries among participants and a reduced risk
have pro-competitive effects, bidding consortia may increase the
likelihood that participants reach (tacitly) collusive agreement, thus
generating anti-competitive outcomes.
The final dimension we will dwell on is the emergence of synergies
in bidding consortia. As briefly discussed in the Introduction, assessing
synergies in horizontal mergers is a difficult task for any antitrust
authority since the latter is unlikely to have access to those pieces of
information (e.g., complementarities in the cost structures of merging
entities) that may prove the existence of such synergies. A centralised
procurement agency, instead, finds itself in the privileged position of
being a regulator that is most likely to interact over time with a fairly
stable set of competitors in procurement markets. Assessing synergies
among those competitors is easier for the agency and is a crucial
dimension for deciding the extent to which bidding consortia should be
restricted.

SYNERGIES IN BIDDING CONSORTIA

Bidding consortia may enhance competition if firms can exploit
synergies. In (horizontal) bidding consortia, synergies often are
generated by reduction in fixed costs. Suppose, for instance, that
suppliers are highly concentrated in two different geographical regions,
north and south. If the procurement contract consists of one single
national lot and requires firms to set up administrative offices in both
regions, then solo bids force participants to duplicate their fixed office
costs and might lead to higher purchasing prices for the buyer. vi
It is worth reiterating that bidding consortia induce a lower NoB
under the assumption of a fixed NoP, that is, under the assumption that
the number of suppliers potentially interested in the contract is given. It
JOINT BIDDING IN PROCUREMENT 753

would be misleading, however, to analyze the impact of bidding

consortia on expected prices without investigating how the magnitude
and the nature of synergies among firms determine both the set of
competitors potentially interested in the procurement contract (NoP) and
the number of independent bids (NoB). We will argue that restricting
bidding consortia does have different impacts on NoP and NoB
depending on the nature of synergies arising among firms.
In order to analyze these interacting forces we consider a scenario in
which the set of potential participants is composed of small and big
firms. We will make the assumption that transaction costs related to the
formation of a bidding consortium are increasing in the number of its
members and decreasing in their asymmetry. vii Since firms are
heterogeneous in their sizes, synergies may have different magnitudes
depending on the composition of bidding consortia. It will be then useful
to explore each possible scenario in turn.
High/Low Synergies among big firms, low synergies among small
firms
If a procurement agency opts for restrictive criteria for the formation
of bidding consortia (among big firms), then NoP and NoB may increase
as a consequence of a potentially higher number of solo bidders
(especially big firms). Indeed we should not even expect the emergence
of mixed bidding consortia since there are no synergies to be exploited
while transaction costs are positive.
The overall impact on expected prices and efficiency depends upon
two opposite forces. Higher NoP and NoB are likely to increase expected
buyer’s savings. This is just an effect induced by a higher number of
competitors. However, big firms, forced to participate as solo bidders,
are likely to be less aggressive than what they would have been had
bidding consortia been allowed. Since they cannot exploit synergies they
have to be more cautious in bidding, thus negatively affecting the buyer’s
expected savings. We can then derive the following conclusion.
When synergies among big firms are small, limiting bidding
consortia in order to increase participation is likely to have a
positive effect on the buyer’s expected savings. When synergies
are substantial and the number of big firms is high, restricting
bidding consortia among big firms may negatively affect savings
and efficiency.
754 ALBANO, SPAGNOLO & ZANZA

High/Low Synergies among big firms, high synergies among small

firms
Restricting bidding consortia among big firms, but not the ones
among small firms, may spur both NoP and NoB even to a greater extent
than in the previous scenario. New small ‘entrants’ would now be willing
to participate, and this for two main reasons. First, since big firms cannot
regroup in bidding consortia, some new small ‘entrants’ (possibly the
most efficient ones) may consider themselves in a position to compete
with big firms that participate as solo bidders. Second, some small firms
(new entrants or even existing ones) may participate by forming bidding
consortia given the existence of positive synergies. Thus a higher number
of small firms whether new efficient entrants or regrouped in bidding
consortia may enhance competition, thus increasing the buyer’s expected
savings. We can then conclude the following:
When synergies among small firms are high, restricting bidding
consortia among big firms may have a positive impact on the
buyer’s expected purchasing price through an enhanced
participation of small firms given that big firms are forced to
participate as solo bidders.
When positive synergies arise among both small and big firms,
permissive rules for bidding consortia between large firms may
crowd out the participation of small firms.
We are finally left to consider the situation in which positive
synergies arise both in bidding consortia composed by big firms only and
bidding consortia with big and small firms. viii Suppose that the
magnitude of synergies is higher when firms are homogenous for a fixed
number of members. ix Restricting bidding consortia among big firms is
then likely to (i) increase the number of big firms participating as solo
bidders; (ii) facilitate the formation of mixed bidding consortia, thus
increasing the participation of small firms (both those already operating
in market and new entrants). Thus
If transaction costs arising from the size of mixed bidding
consortia are moderate then limiting bidding consortia among
big firms may have a positive impact on the buyer’s expected
purchasing price via a higher participation of big firms as solo
JOINT BIDDING IN PROCUREMENT 755

bidders and a more aggressive bidding of mixed consortia with

an increased number of small firms.
The analysis undertaken so far highlights that limiting bidding
consortia (mainly among big firms) does not always generate identical
consequences in terms of number of active participants and number of
independent bids. More importantly, it may have different impacts on the
buyer’s expected savings depending on the nature and magnitude of
synergies among small and big firms. Nonetheless, our discussion allows
us to draw two main conclusions that should guide the regulation of
bidding consortia in procurement auctions.
Conclusion 1. The decision of restricting joint bidding should be taken
on the basis of an evaluation of the optimal composition of bidding
consortia, that is, an assessment of which types of firms are most
likely to achieve the strongest synergies.
Conclusion 2. If a centralized procurement agency is able to assess
whether or not synergies are likely to arise among potential
participants, then it can fine-tune lot size and/or rules for bidding
consortia in order to maximize savings and, possibly, efficiency. x

SOME CRITERIA FOR RESTRICTING BIDDING CONSORTIA

Having discussed the economic consequences of limiting bidding
consortia, we now analyze which criteria might be used in the practice of
procurement to determine such limits. In some European countries, for
instance, it is customary to link the criteria for restricting bidding
consortia with those regulating an individual firm’s ability to participate
in a procurement competitive process. xi Any firm potentially interested
in a procurement contract is normally allowed to submit a bid on a
specific lot whenever the firm’s size is high enough with respect to the
economic value of the lot, where the firm’s size is typically measured by
the turnover realized over a predetermined period of time. Thus a broad
rationale for limiting bidding consortia could be phrased as follows:
(C.A) Whenever two or more firms realize a yearly turnover greater than
or equal to the value of a subset of lots those same firms cannot form
a bidding consortium.
756 ALBANO, SPAGNOLO & ZANZA

The criterion as stated is too broad in that it leaves the size of the
subset of lots unspecified. We will then explore different scenarios that
differ in the number and nature of lots.
One lot
In this simple case, applying (C.A) produces an immediate limitation
of bidding consortia. If, say, three firms achieve individually a yearly
turnover at least equal to the value of the single lot they cannot form a
bidding consortium. Notice, however, that (C.A) does not forbid any firm
with a turnover above the value of the lot to form a bidding consortium
with any number of firms whose turnover is below the value of the lot.
Several lots with different economic values
In this case, (C.A) must also specify which particular subset of lots to
consider. We consider four possible criteria:
(C.Aa) The relevant subset of lots is the lot with the lowest value;
(C.Ab) The relevant subset of lots is the lot with the highest value;
(C.Ac) The relevant subset of lots is the lot with the highest value for
which the bidding consortium submits an offer;
(C.Ad) The relevant subset of lots is the one for which the bidding
consortium submits an offer.
(C.Aa) is clearly the most restrictive criterion from an ex-ante
perspective, that is, the one that most limits bidding consortia for any
given composition of lots and sizes (yearly turnover) of firms. It is not
possible, however, to determine which criterion is the least restrictive
since for two out of four criteria the extent to which a bidding
consortium is restrictive depends upon the actual offers of its members
that are not known ex ante. To see this last point consider the following
Example 1. There are 3 lots, A, B, and C whose values are 10, 20 and 40
million Euro. Consider two distinct scenarios. In the first one, a bidding
consortium is willing to bid on lots A and B. In the second one, the same
consortium is willing to bid on lots B and C. In the table below, we
compute the critical value with respect to which to compare the firms’
yearly turnover.
JOINT BIDDING IN PROCUREMENT 757

TABLE 1
Relevant Rule Scenario 1: Bidding Scenario 2: Bidding
consortium bids on A consortium bids on B
and B and C
(C.Aa) 10 10
(C.Ab) 40 40
(C.Ac) 20 40
(C.Ad) 30 60

It is immediate that criterion (C.Ab) is the least restrictive under

scenario 1, whereas (C.Ad) is the least restrictive under scenario 2.
Moreover a limited pairwise comparison leads to the following
Result 1. (C.Ac) always dominates (C.Ab).
Argument. In order to prove the statement, we will argue that (C.Ac)
achieves the same objectives as (C.Ab), but at a lower cost. Suppose
without loss of generality that five small/average-sized firms are
interested in the lowest-valued (LV) lot for which they would also be
able to bid as solo bidders. Moreover, assume that the same firms are not
interested in the highest-valued (HV) lot for which they would not be
able to bid as solo bidders (that is, individual participation criteria are not
fulfilled). If (C.Ab) were used, those firms would be able to form a
bidding consortium to bid only for the (LV) lot. Thus (C.Ab) would
imply a cost in terms of reduced NoB since five firms would submit only
one bid. If (C.Ac) were to be used, the same firms would still bid for the
(LV) lot, but they would be forced to do so as solo bidders, thus
increasing NoB on that lot. In this case, (C.Ac) increases NoB with
respect to (C.Ab). Suppose now that the same firms are interested in the
(HV) lot and consider forming a bidding consortium to bid for that lot.
(C.Ab) and (C.Ac) would generate the same outcome, that is, those five
firms would be able to submit a joint bid. The two criteria induce the
same NoB, and our argument is complete.
A fifth criterion may also be designed that would consist in fixing
ex-ante the maximum number of firms that are allowed to form a bidding
consortium whenever either (C.Aa), or (C.Ab) or (C.Ac) or (C.Ad) is
used. It could be phrased as follows:
758 ALBANO, SPAGNOLO & ZANZA

(C.Ae). For any criterion among (C.Aa), (C.Ab), (C.Ac) and (C.Ad), N
firms, among those that satisfy individual participation criteria, can enter
a bidding consortium.
By fixing ex ante the maximal size of a bidding consortium, even if
each individual member can participate as a solo bidder, any of the
criteria (C.Aa)-(C.Ad) may achieve different degrees of permissiveness
towards joint bidding. This can be illustrated by the following examples.
Example 2. (C.Ae) makes joint bidding easier.
This can be achieved by choosing, for instance, (C.Aa) together with
(C.Ae) and by fixing N = 2. Although two firms may participate as solo
bidders, they are allowed to form a bidding consortium.
Example 3. (C.Ae) makes joint bidding more difficult.
Consider a procurement competitive tendering with two identical
lots of 3 million Euro each. Criterion (C.Ad) is used together with (C.Ae)
and with N = 3 among those firms with a yearly turnover between 3 and
6 million Euro. For those firms with a yearly turnover of at least 6
million Euro, only (C.Ae) applies. In this case (C.Ae) limits the
formation of bidding consortia since (C.Ae) alone would have allowed
any number of firms with yearly turnover between 3 and 6 million Euro
to join a bidding consortium.
Several Heterogeneous Lots
When lots differ with respect to their economic value and to other
technical aspects, the criteria defining a firm’s ability to be admitted to
the tender may vary across lots, due to the presence of two distinct
dimensions. Consequently, defining criteria for restricting bidding
consortia based on an individual firm’s ability to participate as a solo
bidder on one specific lot (as for criteria (C.Aa)-(C.Ac)) cannot be
optimal since lots are very likely to differ at least with respect to their
technical requirements. We propose the following criterion
(C.H) Two or more firms can form a bidding consortium only for those
lots for which they do not satisfy individual participation requirements.
The rationale behind (C.H) is to rule out all bidding consortia in
which one or more members satisfy both the economic and the technical
requirements to participate as solo bidders. Given that it is quite unlikely
that a high number of firms are able to participate as solo bidders,
JOINT BIDDING IN PROCUREMENT 759

criterion (C.H) leaves the door open to the formation of potentially

numerous bidding consortia especially if they are interested in bidding
for a large number of lots. This (potentially anti-competitive) scenario
might be counterbalanced by imposing a rule that links the maximum
number of firms that can join a bidding consortium to the number of lots
for which members of each consortium can participate as solo bidders.
We can illustrate this principle by using
Example 4.
Suppose that a procurement contract consists of 3 (more generally N)
heterogeneous lots. There are 10 potential participants. One firm satisfies
all requirements to participate as solo bidder on the 3 lots; 3 firms can be
solo bidders on 2 lots; 6 firms on 1 lot only. The adoption of (C.H)
would allow an all-inclusive bidding consortium, thus leading to a
potentially high purchasing price for the buyer.
The counterbalancing constraint that would restrict the formation of
bidding consortia in this scenario might be stated as follows:
The maximum size of a bidding consortium should be: 1 firm if
the latter can participate as a solo bidder on all lots for which it
plans to submit a bid (generally N); 2 firms if they can
participate as solo bidders on 2 lots (generally N-1); 3 firms if
they can participate as solo bidders on one lot (generally N-2).

CONCLUDING REMARKS
We have stressed that the PA’s objective to maximize savings and/or
efficiency should lead to a more careful consideration of the pro-
competitive consequences of bidding consortia. Restricting bidding
consortia on the basis of a lower number of bids may be
counterproductive, since firms’ enhanced market power might be
counterbalanced by a higher aggressiveness due to the presence of strong
synergies. We have held that the PA’s knowledge of the characteristics
of potential participants is crucial in assessing the nature and the
magnitude of synergies among types of firms that should guide the
criteria to limit the formation of bidding consortia.
When the limitation of bidding consortia is linked to an individual
firm’s ability to participate as solo bidder, there exist several criteria
limiting joint bidding. The analysis developed in last section of the paper
760 ALBANO, SPAGNOLO & ZANZA

shows that general rules are difficult to state although it is possible to

spot the most crucial economic forces that should guide any PA in a
case-by-case approach.

APPENDIX
A COMPARATIVE ANALYSIS OF PARTICIPATION
REQUIREMENT(S) AND BIDDING CONSORTIA

Country Requirement Bidding Consortia

Criteria defined on article 20-23 Yes. Firms can be aggregated into a
of 93/36/EEC Directive. larger entity in order to submit
common offer. Once firms are
grouped together and submit
common offer they are considered
Greece – as a single participant. Firms can
Ministry of been aggregated into a larger entity
Developm. before expiry of the time limit for
receipt of offers, fixed by
contracting authority. Each member
of the group must meet the criteria
of article 20 and 21 of 93/36/EEC
Directive.
• Cumulative specific budget A firm that is able to participate
revenues (i.e. relative to the alone can form an enterprise group
good/service object of the w ith firms that can not participate
contract) of the last two years that alone. If two firms can participate
does not need to be greater than alone they can not group. Once
the whole value of the frame- firms are grouped together they are
contract. This allows SMEs to considered as a single participant.
Austria- enter the auction but permits each Austrian cartel law also covers
BBG firm to win only a number of lots grouping of firms whereby grouping
that can be covered by that should be prevented between two or
cumulative specific budget more firms able to bid individually.
revenue. BBG did not impose any restrictions
• Bank warranties; except in one particular case. Until
• Ability to execute the contract now there has been made very
(adequate network of outlets); limited use of this possibility by
• Quality certificates. SME.
Cumulative specific budget A firm that is able to participate
revenues (i.e. relative to the alone can form an enterprise group
good/service object of the with firms that can not participate
Consip
contract) of the last two years that alone. If two firms can participate
does not need to be greater than alone they can not group. Once
the whole value of the frame- firms are grouped together they are
JOINT BIDDING IN PROCUREMENT 761

contract. This allows SMEs to considered as a single participant.

enter the auction but permits each Italian and European laws do not
firm to win only a number of lots establish particular restrictions to
that can be covered by that grouping. Restrictions we
cumulative specific budget eventually impose are discretionary,
revenue. and may vary from auctions to
Bank warranties; auctions. However, Consip followed
Ability to execute the contract the indication provided by the
(adequate network of outlets); Italian Antitrust Authority during
Quality certificates. 2003, which noted that, in order to
obtain sufficient levels of
competition in the auctions,
grouping should be prevented
between two or more firms able to
bid individually.
Financial standing and integrity of A firm that is able to participate
financial dealings alone can form an enterprise group
Technical capability and capacity with other firms that support their
to execute the contract (adequate bid, typically in terms of capacity or
network of outlets); expertise. Once firms are grouped
Quality certificates. together they are considered as a
OGC
single participant. Genuine
consortia bidding is allowed
whereas collusive bidding in an
attempt to distort the market is not
and subject to challenge and legal
proceedings.
no restriction of participation of small firms that have special
firms. All firms are welcome to competence in certain areas may
Sweden participate. However, they must group together and submit a joint
meet certain standards. No bid. In Sweden they do not regulate
bankruptcy, no taxdebts, etc. this in any special way.
For public works candidates The French code rules that
must prove their technical "companies may submit their
qualifications, either with a application or tender in the form of
system of certificates delivered by joint grouping … subject to
professional organisations or by adherence to rules relating to free
providing written testimonies that prices and competition" So even
they have successfully delivered two( or more) firms able to
similar works in a recent past. participate alone can group as long
France
For services the requirement is as the aim or the effect of the
basically past similar experiences. grouping is not a restriction of
For goods we specify a minimum competition, that is to say that it is
revenue only for very large the PA which has to prove the
contracts because courts have harmful effect of the grouping if it
judged that nothing legally wants to bar it. The code allows
prevent a firm from multiplying 3 groupings so the contracting
or 4 times its revenues with one authorities may not bar them. They
762 ALBANO, SPAGNOLO & ZANZA

public contract, unless the PA can sometimes mandate that tenders

have solid technical reasons to should be submit by groupings. For
think the firm will not be able to example for a contract dealing with
do it. For national frame the design and realisation of a
contracts the most important building only groupings with (at
requirement is the ability to least) one architect, one technical
deliver the goods all over the consultancy, one public works firm
territory, that is about 7 000 … can compete.
different addresses. Candidates There are two kinds of groupings:
can prove the disposition of the - The grouping is said to be joint
necessary network with their own when each of the members of the
structure but also with the grouping undertakes to perform,
intervention of subcontractors. within the context of a contract
divided into lots, the lot or lots that
During the execution of a contract he is likely to be entrusted with.
the MINEFI can’t notify to a - The grouping is said to be of a
poorly performing contractor that joint liability when each of the
it will be excluded from future members of the grouping is liable
tenders (this is not a penalty you for the performance of the entire
can write in the specifications), contract, whether or not the
but in a future tender when they operation is divided into lots.
check the qualifications of
candidates we can use evidences
of poor performances in a
previous contract as evidences of
insufficient qualifications (you
need a convincing file). It is not
clear in case-law how long a
contracting authority can legally
refuse to accept candidatures from
previously failing contractors.
Bidding enterprises may not have Enterprises can group together to
outstanding debts to the public participate.
sector. There are no regulations of this
They must certify that they do not kind. There are not many instances
use child labour, that they respect of grouping of firms in relation to
Denmark
equality between sexes, races and auctions initiated by SKI A/S. A
religions and respect the UN’s rough estimate would be that less
declaration of human rights and than 1 in 20 auction bids are from a
so on. group of firms. Usually only two or
three firms to form a group.
Qualification criteria or pre- enterprises can group together to
qualification based on legal, participate to the auction but one
financial and technical capacity Supplier must take overall
Ireland (the latter would include relevant responsibility for the tender/bid.
experience and references). Each member of a consortium must
meet the minimum legal, financial
and technical capacity requirements
JOINT BIDDING IN PROCUREMENT 763

as appropriate. Each member must

be in a position to produce a Tax
Clearance Certificate and must
confirm their standing vis-à-vis the
Ethics in Public Office Act
Bank warranties; A firm that is not able to participate
Ability to execute the contract alone can set up, together with other
(adequate network of outlets); companies, a group. Although
Quality certificates; minimum criteria are required for
Official papers of the company each company separately. Once
for the issuing of the digital firms are grouped together they are
certificate. considered as a single participant. In
most of these requirements are this case a leader of the group would
also to be shown to the be defined. Romanian and European
contracting authority when the laws do not establish particular
contract is sign and / or the restrictions to grouping. Restrictions
Romania
goods/services are provided. we eventually impose are
discretionary, and may vary from
auctions to auctions. However,
SEAP followed the indication
provided by the Romanian
Competition Authority, which noted
that, in order to obtain sufficient
levels of competition in the
auctions, grouping should be
prevented between two or more
firms able to bid individually.
Barriers are placed as low as In the Belgian regulations the
possible, with account taken of grouping of companies into a
the competition aspect. To obtain temporary trading company or a
an auction with a good result on main contractor/subcontractor is
the price level, ABA only want to provided for. It is up to the
allow the firms that have the tendering authority to verify
competence that guarantees a whether the bidders are abusing a
perfect execution of the contract. monopoly or oligopoly or not. The
To obtain that result, they best solution to this is a reliable
selection seriously. The right market survey. The main
Belgium level of barriers can only be contractor/subcontractor
obtained after a thorough market relationship and a temporary
investigation. selection criteria company are provided for in the
always are justified in a written Belgian regulations on government
document meant for the contracts. By doing so, small firms,
functionaries who have to when registered as one entity, can
approve the tender. ABA contacts enjoy a range of advantages, i.e. the
a lot of suppliers or firms and turnovers can be combined, the
show them some fragments of the references of the various companies
tender. They can give their can be taken into account, etc. This
opinion. ABA always ask them to means a consortium can be selected
764 ALBANO, SPAGNOLO & ZANZA

justify their answers. For big for the government contract and can
tenders (for delivering goods of make a better bid thanks to the
executing services of more than € bundling of efforts. As already
500.000,00) ABA do a stated, agreements between various
publication in the Belgian and bidders that lead to a disruption of
European journal in which ask for competition are also forbidden in
reaction of interested firms on Belgium.
their possibilities and Example: contract for the IT-
competences. Only at the end of platform for the Belgian identity
the discussion with those firms, card. Eight Belgian companies went
ABA start the redaction of the together in one concern. It was a
technical specifications and the negotiated procedure. ABA
selection and awarding criteria. negotiated till the moment that
ABA always watches that the obtained normal prices and normal
tender isn’t written on the body of conditions (terms, quality of the
the firms contacted. products and services,…). It is clear
that releasing a big contract in one
lot is very dangerous to stimulate
the creation of monopoly situations,
because the number of companies
that are able to execute the contract
in that case is very limited. In the
future those kind of contracts will
be cutted in many lots. The
advantage is that the chances of the
SME’s will increase.
It sometimes happens that various
selected candidates group together
and submit a joint bid. This is
permissible as long as all candidates
are selected, unless the schedule of
conditions states otherwise. It has
already occurred (especially with
complex government orders for
services) that ultimately only one
bidder remains, because all selected
candidates have grouped themselves
into a consortium. It is self evident
that the time of the price formation
must be closely viewed and that the
discounts which can then be
achieved will be rather minimal. If
the contracting authority notices that
the price develops unfavourably due
to the lack of competition, it can
always opt not to follow up the
current procedure and decide to
launch a new government order,
while taking account of the elements
JOINT BIDDING IN PROCUREMENT 765

that have led to inadequate

competition.
Usually it required by participants Once firms are grouped together
to provide bank warranties and they are considered as a single
certificates that they have no participant.
outstanding obligations with No regulations exist for the
VAT, Social Security and Tax. grouping of firms
Then depending on the nature of
Cyprus the item auctioned, additional
requirements may include some
sort of financial information,
previous experiences
demonstrating ability to execute
the contract, quality certificates
etc.
The Czech Act for public According to the Act it is possible to
contracts (40/2004) makes it make consortia of firms - applicants
possible to restrict a number of for contract. There are conditions
tenderers using other criteria then for certification of qualification in
technical, economical and legal these cases in this Act. However,
Czech
qualification. This possibility is the institution haven’t registered
Republic
applicable for restricted such a tendency yet. there aren’t
procedures only. The institution any national regulations for
will recognize the advantages and grouping of firms.
disadvantages of this possibility
in the future.
the Hungarian law not just Several bidder may establish a
provide the possibility to use group in order to add their capacity
“restriction” on the base of together, and to fulfil the
financial-economical standing requirements they should to
and/or technical-professional participate in the procedure.
capacity, but it is an obligation for On the one hand, in accordance with
the contracting authorities. the EU directives, the bidders may
Generally the followings are used group together freely to take part in
in Hungary: yearly balance, a procedure. This “phase” isn’t
yearly revenue (from the activity specially regulated in the national
which is concerned in the given law (only the bid should contain the
Hungary
award procedure), similar relevant information on the group,
contracts from the previous or in Hungary rather called:
years/experiences, bank statement consortium).
from the bidder’s financial
condition, quality control On the other hand, if the group wins
measurements and – especially in the contract they may be required to
works contracts – the establish a company. This is
demonstration of the regulated in the national company
professionals and the machines law.
which will be involved during the The contracting authorities usually
execution of the contract. don’t request specific information
766 ALBANO, SPAGNOLO & ZANZA

regarding the group, giving the

relevant information is the interest
of the bidders. The contracting
authority should know whether the
bidders have joined together in a
consortium or their relation is
contractor-subcontractor. (The
name, the co-ordination among the
tenderers, the leader of the group,
any other information which is
necessary for the contracting
authority in order to “realize” that
this is a consortium are usually
given by the groups.)
The awarding authority may According to the Public
request from contractors only Procurement Law contractors may
documents necessary to conduct a compete for a contract jointly. The
procedure, specified in the notice, contractors shall appoint a
specification of essential terms of plenipotentiary to represent them in
the contract or invitation to the contract award procedure or in
submit tenders. the procedure and conclusion of a
Where the value of the contract public procurement contract.
exceeds 60 000 Euro, the
awarding authority shall request Participants forming a group shall
from the contractors documents be jointly responsible for the
proving that they satisfy the execution of the public contract and
conditions for participation in the provision of security on due
procedure. For the contracts performance of the contract.
below 60 000 Euro the awarding
authority may request those There are no particular regulations
documents. for grouping of firms in Polish legal
Poland The categories of documents are system. The consortia are
specified in the Regulation of established on the basis of civil law
Prime Minister of 7 April 2004 contracts between the entities
and are related to the candidate’s:
- economical and financial
standing;
- technical capacities;
- experience and knowledge.
The awarding authority shall also
require the candidates to pay a
deposit where the value of the
contract exceeds 60 000 Euro. If
the value of the contract is below
60 000 Euro, it may do so.
As the execution of the contract is
concerned the awarding authority
shall require a security. Security
shall serve to cover claims in
JOINT BIDDING IN PROCUREMENT 767

respect of non-performance or
improper performance of a
contract. If a contractor is at the
same time a guarantor, this
security shall also serve to cover
claims in respect of quality
guarantee.
The awarding entity shall require
the contractor to provide security,
if :
- the contract value exceeds 60
000 Euro for works;
- the contract value exceeds 5
000000 Euro for supplies and
services;
- a procurement contract is to be
concluded for a period longer
than 3 years.
Participation by firms is not Firms are allowed to group together
usually restricted other than by and participate in an auction as a
bank guarantees (bid bond) in single participant. Usually there are
Malta auctions exceeding a certain no restrictions to the grouping of
amount. firms unless this gives rise to a
cartel, which would be against
competition law.
• Cumulative specific budget Yes. There are no special conditions
revenues (i.e. relative to the for the establishing of bidding
good/service object of the communities (group of firms). The
contract. The revenue depends bidding community has to fulfil all
on the amount of the purchase); requirements in the same way a
• Bank warranties; single firm has to.
Germany - • Ability to execute the contract In procedures without a reverse
BESCHA (adequate network of outlets if auction the bidding community
necessary); must be established until the end of
• References (if useful) the time limit for receipt of tenders.
• Authority attestations about the In procedures with reverse auctions
payment of taxes and social the group must be founded before
insurance contributions the auctioning procedure.
• Quality certificates.
According to Article 29 and 30 of
the Act, tenderers or candidate
interested in participating in
contract award, must fulfil some
Slovakia* requirements – mandatory (§29)
and not mandatory, as financial
and economic standing and
technical capacity in executing
supply contracts, in awarding
768 ALBANO, SPAGNOLO & ZANZA

contracts for works and to provide

a service (§30).

NOTES
i
Our focus in this paper is on “horizontal” bidding consortia, among
similar firms that are normally competing with each other, so we
disregard “vertical” consortia between firms specialized on different
components of – say -- a bundled procurement contract.
ii
In the Appendix, we provide a detailed comparative analysis of both
the criteria for individual participation and for the formation of
bidding consortia in some European countries.
iii
The Italian Antitrust Authority, for instance, recommends that “[…]
a properly designed procurement procedure should guarantee the
highest level of participation of undertakings interested in the
selection process. Pursuing such an objective requires … the correct
adoption, from a competitive perspective, of such institutions as
bidding consortia.
iv
See, for instance, Mares and Shor (2003).
v
This point is developed in Chiesa (2004).
vi
Suppose that 25 firms are located in the north and other 25 in the
south. If cost-reducing synergies are strong enough, 25 two-firm
consortia would be likely to bid more aggressively than 50 solo
bidders, thus reducing the buyer’s expected purchasing price.
vii
The presence of a big player may facilitate the solution of co-
ordination problems in the formation of consortia.
viii
In most procurement auctions, bidding consortia regroup indeed
firms of different sizes.
ix
That is, a consortium (Big, Small) generates lower synergies than a
(Big, Big) one.
x
When synergies arise among lots (e.g., fixed production costs for
geographical lots), rather than being firm-specific, higher levels of
 JOINT BIDDING IN PROCUREMENT 769

efficiency and savings may be achieved by allowing for package

bidding (see Dimitri, Pacini, Pagnozzi and (2006).
xi
Austria, Italy and Romania adopt explicitly such a link. In other
countries the admissibility of bidding consortia is decided on a case-
by-case basis by Antitrust Authorities following a procedure that
resembles the one adopted in merger cases. France adopts an
extremely permissive stance in that firms can form bidding consortia
even if each one of them possesses all the prerequisites to participate
as a solo bidder. The burden of the proof of possible harmful
consequences of bidding consortia relies on the PA.

References
Chiesa, G., (2005), “Multi-Unit Procurement Auctions and the Effects of
Mergers”, University of Bologna, mimeo. Preliminary version
presented at the second International Industrial Organization
Conference (Chicago, April 23-24, 2004), ESEM 2003, and EARIE
2003.
Dimitri, N., Pacini, R., Pagnozzi M., & G. Spagnolo, (2006). Multi-
contract Tendering Procedures and Package Bidding in Procurement
in N. Dimitri, G. Piga and G. Spagnolo (Eds.), “Handbook of
Procurement”, Cambridge University Press, forthcoming.
Mares, V. & M. Shor, (2003), Joint Bidding in Common Value Auctions:
Theory and Evidence, available at
http://ideas.repec.org/p/wpa/wuwpga/0305001.html
Williamson, O. (1968), “Economies as an Antitrust Defense: The
Welfare Tradeoffs,” American Economic Review, 58, p. 18-36.

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