Hungary has introduced strict new legislation which will automatically disqualify companies from public procurement tenders as a result of competition infringement. This marks a change from previous legislation where only serious crimes such as bid-rigging could result in exclusion. Previous infringements would not result in automatic disqualification, with contracting authorities having being able to decide whether or not to disqualify a tender. The new Hungarian Public Procurement Act (PPA) came into force on November 1, meaning many companies will have to reassess their competition compliance strategies to satisfy the new rules.
According to an article in Lexology, companies can get debarred as a result of competition infringements in three ways. Any company fined by competition authorities for any kind of restrictive agreement will also be hit with a three-year automatic disqualification. The company faces a ban regardless of why the fine was imposed. This may include anti-competitive information exchange and anti-competitive horizontal cooperation arrangements, such as specialisation, R&D, joint production, purchasing or commercialisation agreements.
Companies can also be disqualified for all types of vertical agreements such as vertical price fixing, parallel trade restrictions, as well as violations where conduct is considered unlawful only due to high market shares and/or an excessive duration. The exclusion applies to fines triggered by the Hungarian Competition Authority, the European Commission or any other EU or even non-EU competition authority.
Companies may face a five-year disqualification if directors, board members, other employees with powers of representation or the sole shareholder of a company has been convicted in a Hungarian or foreign court for bid-rigging in a public procurement tender. The company will be disbarred even if the convicted employee made the infringement with a previous employer, or if the convicted person has left the company. A company can be automatically excluded in the absence of a court if the contracting authority can prove the violation.
To avoid disqualifications, companies will now have to prioritise competition compliance, including uncovering any potential past infringements that could result in fines. Companies may be able to gain leniency and avoid fines for past anti-competitive conduct by whistleblowing and cooperating with competition authorities. New rules state that companies that could be disbarred for violations may be able to request “self-cleaning”, which allows them to recover eligibility to participate in tenders and escape disqualification. A formal request must be sent to the PPA with sufficient evidence to show that a company is reliable and can be allowed to participate in public procurement procedures. A company must prove that it has paid (or has plans to pay) any compensation for damage caused by past violations, has actively cooperated with public authorities to clarify the facts of the violation, and has introduced concrete measures to prevent future violations. The more serious the original violation, the more comprehensive the compliance measures must be to achieve self-cleaning. The public authority will then make a formal decision – either ‘positive’ or ‘negative’ – within 15 days of the request.
The new legislation will act as a strong deterrent to companies with relaxed compliance strategies and encourage them to improve or otherwise face tough sanctions. Not only will companies prioritise future competition compliance, but those that have infringed in the past will be inclined to request self-cleaning procedures in order to continue participating in public procurement procedures.