AGREEMENT BETWEEN COMPETITOR FIRMS BEFORE THE TENDER
Pre-Tender Agreements Between Competing Firms: Legal Risks, Penalties, and Preventive Strategies for Companies
Entrance
Tenders, whether in the public or private sector, present significant opportunities for companies. However, pre-tender agreements between competing firms (cartels or secret agreements) are strictly prohibited under both Turkish Competition Law and the Public Procurement Law . Such behavior not only results in legal penalties but also damages companies' brand value, investor confidence, and long-term commercial sustainability.
This article will detail the competition law aspect , public procurement legislation , sanctions , international comparisons , and preventive strategies for CEOs
1. What is an agreement between competing firms before a tender?
Prior to the tender, competing firms;
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Pre-determining the price quotes,
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Not offering to quit work together,
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Colluding to submit bids,
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Sharing information on a regional or business basis,
Such actions eliminate competition . This situation is considered a "cartel agreement" under Article 4 of the Turkish Competition Law .
📌 Example: If five companies bidding for a tender agree to win it in turn, or if one company wins the tender while the others bid "higher prices" to create a facade of competition, this is considered "pre-tender agreement."
2. Legal Grounds
2.1 Competition Law (Law No. 4054)
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Article 4: Any agreement that restricts competition between competitors is prohibited.
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Article 16: If a violation is found, a fine of up to 10% of the company's annual gross revenue may be imposed
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Article 17: Managers and employees may also be held personally responsible.
2.2 Public Procurement Law (Law No. 4734)
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Article 17: Under the heading "Prohibited acts and behaviors," collusion is explicitly prohibited.
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Article 58: in tenders for a period of one to two years may be imposed.
2.3 Turkish Penal Code (TCK)
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Article 235: The crime of rigging a tender a prison sentence of 3 to 7 years .
3. Scope of Sanctions
When pre-tender agreements are detected, companies;
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Financial sanctions (fines of up to 10% of annual turnover),
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Ban from bidding (1-2 years for public tenders),
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Criminal cases (risk of imprisonment under the Turkish Penal Code),
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Loss of business reputation (loss of trust from investors and business partners),
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Excluded from international tenders (blacklisted in projects financed by the World Bank, etc.)
This leads to multifaceted consequences.
4. International Dimension
In the European Union, the US, and OECD countries, pre-tender agreements "bid rigging" and are considered one of the most serious competition violations.
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EU Competition Law (Article 101 TFEU): High fines relative to turnover.
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US Antitrust Law: Severe fines and imprisonment for executives.
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OECD Guidelinesrecommend that public institutions design "competition-friendly tender procedures".
5. Risk Management and Preventive Strategies for CEOs
A CEO's job is not only to increase company profitability but also to manage legal and ethical risks. Here are some key measures that can be taken:
5.1 Competition Law Training
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All sales, marketing, and tendering department employees competition law awareness training .
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It should be clearly stated that sharing price and offer information with competitors through communication methods such as email, WhatsApp, and phone calls is prohibited.
5.2 Compliance Programs
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Ethical codes and competition law compliance procedures should be established within the company .
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A "compliance checklist" should be applied before entering each tender.
5.3 Transparency in Tender Processes
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The proposal preparation process must be documented, and authorization must be clear.
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The pricing process should be conducted independently.
5.4 Internal Audit Mechanisms
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Independent audit units should regularly review tender processes.
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Unusual price similarities or bid withdrawals should be reported.
5.5 Sense of Responsibility for Managers
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CEOs and senior executives personal liability (administrative fines, bans, criminal proceedings).
6. Case Study: Competition Board Decision
📌 Scenario: Four major construction companies operating in Turkey have colluded to pre-determine their bids and take turns winning a public infrastructure tender. The Competition Board detected the violation through email correspondence and meeting recordings, and fines totaling 7% of the companies' annual turnover . Furthermore, the companies were banned from participating in public tenders for two years.
7. Process for Determining Agreement Before Bidding
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Reporting/Complaint: Complaints can be filed by competitors, employees, or public institutions.
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Preliminary Investigation: The Competition Board or the public prosecutor's office conducts a preliminary investigation.
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Evidence Gathering: Emails, messages, meeting records, and price lists are reviewed.
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Decision and Punishment: If a violation is detected, administrative and criminal sanctions will be applied.
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Appeal and Judicial Process: Appeals against the decision can be made through administrative courts and the Council of State.
8. The Final Message for CEOs
Any agreement with rival companies before a tender process, even if it provides short-term gains, can destroy a company's reputation, financial sustainability, and legal security in the long run . CEOs should understand that the "anything goes" mentality has no place in today's business world. Instead , companies that operate according to principles of ethical competition , transparency , and compliance with the law gain the trust of both investors and customers.
Conclusion
Collusion between competing firms before a tender is considered one of the most serious competition violations, both in Turkish law and internationally . The penalties, including criminal, administrative, and commercial sanctions, are very high. CEOs must implement competition law compliance programs to protect the future of their companies and conduct tender processes in a transparent and well-documented manner
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