CMS Expert Guide: Right Bidding vs Bid Rigging in Hungary

The bidding process is regulated by Act CXLIII of 2015 on Public Procurement (the “Public Procurement Act”). However, this legislation only covers public procurements; that is, bidding processes conducted mainly by governmental and other public bodies. This act aims to ensure the efficiency and transparency of public spending as well as to facilitate fair competition in public purchases.

As for bidding in private tenders, Act V of 2013 on the Civil Code (the “Civil Code”) may be applicable; however, it only contains a few provisions related to the bidding process.

Bid rigging may amount to a cartel infringement, which is regulated by Act LVII of 1996 on the Prohibition of Unfair Trading Practices and Unfair Competition (the “Competition Act”).

Criminal liability for bid rigging is regulated by the Act C of 2012 on the Criminal Code (the “Criminal Code”).

In cases of bid rigging, the Hungarian Competition Authority (“HCA”) can impose a fine of up to 10% of the company’s (group-level) net turnover generated in the financial year preceding the year when the HCA’s decision is adopted.

If by bid rigging the related companies also infringe public procurement rules, the Public Procurement Dispute Board may also impose a fine up to 10–15% of the procurement value, apart from other public procurement related consequences.

Bid rigging may also entail criminal sanctions (please see under answer 9 below).

Contracts, including public procurement contracts, affected by bid rigging (i.e. a cartel infringement) may be considered null and void under the law. In the case of public contracts, the infringement of public procurement rules (e.g. fair competition) lead to invalidity only if, regarding the severity and nature of the given infringement, the validity of the contract would be incompatible with the aims and basic principles of the Public Procurement Act.

Bid rigging is considered an exclusion ground in public procurement procedures:

• where the contracting authority can prove that a company engaged in bid rigging concerning a given public procurement tender (i.e. entered into an agreement restricting competition with another company concerning that tender), in which case it must exclude the relevant companies from the procedure.
• Additionally, companies sanctioned for bid rigging are subject to a three-year tender ban (exclusion from all public procurement tenders, please see in detail under answer 3 below).

Exclusion from the public procurement procedure is possible from the bid submission deadline until the 20^th day from sending a summary of the tender result to the bidders. If the contracting authority learns about the infringement later, it may turn to the Public Procurement Dispute Board to rectify the situation. If the public contract is already concluded, the contracting authority must terminate it.

Apart from excluding the bid rigging companies, the contracting authority can also declare the entire public procurement procedure unsuccessful.

Additionally, at any stage of the public procurement procedure, the contracting authority is required to notify the HCA if it has reasonable reasons to suspect bid rigging.

If a company is found to have infringed the prohibition of restrictive agreements (Article 101 TFEU or Section 11 of the Competition Act, including but not limited to bid rigging) and is fined for such infringement, then it is subject to a three-year tender ban. A company subject to the tender ban is excluded from all public procurement tenders and cannot participate either as a bidder or as a sub-contractor or external capacity provider.

Under the currently prevailing authority and court practice, the tender ban starts from the issuance of the relevant HCA decision, irrespective of whether it is challenged before the courts. Nevertheless, in the framework of the court procedure the company may request immediate legal protection from the court. If the court grants immediate legal protection, the company will be exempted from the tender ban for the duration of the court procedure. Nevertheless, immediate legal protection is considered as an extraordinary measure granted only in exceptional circumstances, e.g. if the company could substantiate that it would suffer serious and irreparable harm.

Additionally, a company subject to the tender ban may be exempted before the expiry of the full three-year duration by a decision of the Public Procurement Authority under a “self-cleaning procedure”. A self-cleaning procedure may be initiated at any time during the tender ban. In the framework of the procedure, the company is required to verify the following to be exempted: (i) cooperation with the HCA; (ii) the establishment of a compliance programme that is capable of preventing future infringements; (iii) undertaking to pay damages resulting from the infringement.

No, the HCA has not issued any specific guidelines concerning bid rigging or lawful joint bidding/consortia in a tender process. Nevertheless, the HCA has published information leaflets for both contracting authorities and bidders (especially SMEs) concerning bid rigging. In these leaflets, on the one hand the HCA provides tips and recommendations for contracting authorities on how to prevent bid rigging by the appropriate formulation of the tender as well on as how to identify potential bid rigging and how to proceed in such cases, and, on the other hand, for bidders on how to conduct themselves in public procurement procedures, and what to do and what not to do in their relations to contracting authorities and other bidders. The relevant leaflets are available at: *file (gvh.hu) and file (gvh.hu) (in Hungarian).

The Public Procurement Authority published a communication on its website from the Prime Minister’s Office summarising the inspection practice related to public procurements to evade situations that infringe fair competition. The communication summarises the most common practical issues and describes authority and court decisions that may provide an insight regarding the reigning legal interpretations.

The HCA does not always publish information specifically regarding the number of bid rigging cases (within the larger group of cartel cases), therefore the numbers below are partially based on sporadic publicly available information.

2020: six cases have been opened by the HCA concerning agreements restricting competition. At least one of these cases concerned bid rigging in public procurement tenders (as per the HCA’s press release).

2021: nine cases have been opened by the HCA concerning agreements restricting competition. Three of these concerned bid rigging in public procurement tenders.

2022: in the first half of 2022, the HCA opened four cases concerning agreements restricting competition. No information is available as to whether any of these cases concerned bid rigging.

2020: the HCA closed four cases concerning agreements restricting competition; however, none of these cases concerned big rigging.

2021: the HCA closed four cases concerning bid rigging. In all cases, an infringement was found and a fine was imposed.

2022: in the first half of 2022, the HCA closed five cases concerning agreements restricting competition. As per the HCA’s press releases, two of these cases concerned bid rigging in public procurement tenders.

2020: none of the four cases closed by the HCA concerning agreements restricting competition involved bid rigging.

2021: four of the eight cases closed by the HCA concerning agreements restricting competition were cartel cases involving bid rigging in public procurement tenders, two further cartel cases did not involve bid rigging, and two cases did not concern cartels but other agreements restricting competition. Therefore, the percentage of bid rigging cases was 66% in all cartel cases and 50% of all cases concerning agreements restricting competition.

2022: no aggregated data was available as of the date of this publication

2020: the HCA imposed fines in two cases concerning agreements restricting competition amounting to a total of HUF 1.075 billion (approximately EUR 2.7 million). However, none of these cases concerned bid rigging, so no fine was imposed for bid rigging.

2021: the HCA imposed fines in six cases concerning cartels amounting to a total of HUF 16.2 billion (EUR 40.9 million). Four of the six cases involved bid rigging, in which cases the total fines were for HUF 1.256 billion (EUR 3.2 million).

2022: no aggregated data is available as of the date of this publication. Nevertheless, as per the HCA’s press releases, the HCA imposed fines in three cases concerning cartels amounting to a total of HUF 2.5 billion (EUR 6.3 million). Two of the three cases involved bid rigging, in which cases the total fines were for HUF 712.8 million (approximately EUR 1 million).

Yes, under the Competition Act bid rigging cases are included in the scope of leniency.

Additionally, there have been instances where leniency was actually applied by the HCA in bid rigging cases. See e.g. Decision No. Vj/19-1405/2016, where one undertaking was not fined and another undertaking received a 40% reduction in consequence of their leniency applications. Another recent example is Decision No. Vj/80-442/2016, where one undertaking received a 50% fine reduction due to leniency.

Yes, Section 420 of the Criminal Code contains a specific criminal offence called agreement restricting competition in public procurement or concession procedure which criminalises bid rigging, however only in cases of public procurement and concession tenders. Accordingly, any person who enters into an agreement aiming to manipulate the outcome of a public procurement or concession tender by fixing the prices, charges, or any other term of the contract, or to divide the market, or takes part in any other concerted practice resulting in the restriction competition, may be subject to criminal liability.

The above offence carries a prison sentence between one and five years. Nevertheless, disclosure of the offence before the authorities or the submission of a leniency application may lead to an exemption from or mitigation of any criminal penalties.

Additionally, in specific circumstances even the company involved in the bid rigging may be prosecuted in a criminal procedure. In this case, the criminal court may impose penalties on the company itself, including a fine, a limitation of the company’s activities for a given period, or liquidation. A limitation of the company’s activities can specifically include a prohibition on participation in public procurement tenders.

Yes. Taking strict action against cartels is one of the primary objectives of the HCA, particularly against those concerning public procurement tenders. In 2022, one of the main topics of the annual Competition Law Forum, a large Hungarian competition law conference, was the fight against cartels, including bid rigging cartels (see e.g. https://www.gvh.hu/en/press_room/press_releases/press-releases-2022/this-years-competition-law-forum-focused-on-the-fight-against-cartels-and-consumer-protection). Additionally, in 2021 the HCA dedicated a separate part to bid rigging with specific statistics in its annual report (see in Hungarian: https://www.gvh.hu/pfile/file?path=/gvh/orszaggyulesi_beszamolok/gvh_ogy_pb_2021.pdf1&inline=true).

In the last ten years many sectors have been affected by bid rigging. The most affected sectors include construction, electricity, pharma and medical devices as well as agriculture.

The HCA has established an anonymous online messaging platform called “Cartel Chat” where anyone can report suspected competition law infringements to the HCA. In 2021, there were 14 such reports through Cartel Chat.

Additionally, in 2021 60–65% of market signals, complaints and notifications related to cartels were received by the HCA in the context of various public procurement procedures, mainly regarding public procurements related to EU-funded programmes.