Bidding Agreements and Bidding Power of Attorney – Definition, Legal Classification, and Practice-Relevant Aspects
Definition and Classification
The term “bidding agreement” (also called bidder agreement) refers to legal arrangements between multiple parties who coordinate their bid submission, abstention, or bid amount during a procurement process or auction. A “bidding power of attorney,” by contrast, refers to the formal authorization of a person (authorized agent) to make legally binding bids on behalf of another during the bidding process.
Bidding Agreement
Definition and Types of Bidding Agreements
Bidding agreements are understandings between potential bidders or participants in a tender or auction. The objective of such agreements can be to achieve a certain course or outcome of the procurement procedure or auction. The most common types are:
- Collusive Agreements: Multiple participants coordinate their bids to unfairly influence competition.
- Open or Concealed Cartel Arrangements: Formation of bidding cartels with the aim of keeping price levels artificially high or low.
- Consortia (ARGE) and Other Forms of Cooperation: In individual cases, it must be examined whether a legitimate cooperation model or an unfair agreement exists.
Legal Assessment of Bidding Agreements
Competition Law Basics
Under German and European law, bidding agreements are subject to strict restrictions:
- Antitrust Law: Art. 101 TFEU as well as §§ 1 and 2 GWB (Act Against Restraints of Competition) prohibit anti-competitive agreements. Cartel-infringing bidding agreements can result in severe fines and the nullity of the affected contracts.
- Procurement Law: In public procurement procedures, bidding agreements are explicitly prohibited (§ 124 para. 1 no. 4 GWB, § 123 GWB), as they endanger fair and transparent competition.
- Criminal Law Aspects: Certain bidding agreements fulfill the criminal offense of anti-competitive arrangements in tenders (§ 298 StGB). Participation in such an agreement is punishable as a criminal offense by imprisonment of up to five years or a fine.
Civil Law Consequences
An unlawful bidding agreement may lead to the nullity of contracts pursuant to § 134 BGB (violation of a legal prohibition). Injured competitors or contracting authorities may, under certain circumstances, assert claims for damages.
Legitimacy of Consortia
Not every joint participation in tenders or auctions constitutes a prohibited bidding agreement. It must be examined on a case-by-case basis whether a consortium (e.g., bidder consortium in construction) is actually necessary to ensure service provision (for example, due to technical, economic, or personnel resources), or if the sole purpose is to restrict competition.
Bidding Power of Attorney
Concept and Scope of Application
The bidding power of attorney is the formal—either written or verbal—authorization of a natural or legal person to submit legally binding offers in place of the principal during a tender, auction, or other bidding process. It is especially common in real estate auctions, auctions, company sales, as well as public or private procurement procedures.
Requirements and Formalities
The requirements for a bidding power of attorney are generally determined by the respective procedural law and the agreements made between the parties.
- Written Form: Often (particularly for judicial auctions and legal auctions), a power of attorney in written form is required.
- Personal Signature: In certain procedures, for example in forced sales of real estate, a personal signature is mandatory.
- Notarial Certification: In special cases, such as the auction of real estate, notarization may be required (§ 29 GBO analogously) to ensure identity and authority of disposal.
- Proof to Third Parties: The bidding power of attorney must regularly be presented to the respective organizer or court, especially if representation rights are disputed.
Legal Effects
Declarations made via a bidding power of attorney are attributed directly and in full to the principal (§§ 164 ff. BGB). The authorized agent acts as a representative; all legal acts—especially binding bids—have immediate effect for and against the principal.
Exceeding and Abuse of Power of Attorney
If the representative acts outside the scope of or in excess of the granted bidding power of attorney, the principal is generally not bound, unless approval is given retrospectively (§ 177 BGB). In cases of obvious abuse, the representative may also be liable for damages to the principal.
Revocation and Expiry
A bidding power of attorney may be revoked at any time according to general rules (§ 168 sentence 2 BGB) unless it was granted as irrevocable. It also expires upon submission of a binding bid, completion of the specific bidding process, upon the death of the principal (unless otherwise provided), or upon successful award.
Practical Relevance and Significance
Significance in Business and Legal Transactions
Bidding agreements and bidding powers of attorney are highly relevant in business practice. While lawful bidding powers of attorney facilitate efficient participation in formal bidding procedures, bidding agreements in competition and procurement are typical subjects of antitrust scrutiny and sanctions.
Compliance and Prevention Duties
Companies and organizations have extensive compliance obligations to ensure adherence to antitrust and procurement law in tenders and auctions. This includes especially:
- Transparent documentation of agreements and powers of attorney
- Review and training regarding antitrust and procurement law requirements
- Internal control and approval procedures to prevent bidding agreements
Conclusion
Bidding agreements and bidding powers of attorney are central terms in tenders, auctions, and procurement processes. While bidding agreements (as arrangements between multiple bidders) are regularly prohibited and sanctioned, the bidding power of attorney is a permissible and regular instrument for representation in the bidding process. Arrangements among bidders are legally prohibited if they restrict or exclude competition, whereas the bidding power of attorney may be used with legal certainty provided the relevant formal requirements are met. Knowledge of the legal framework and regular review of internal company processes ensure lawful and efficient use of these instruments in day-to-day business.
Frequently Asked Questions
What legal consequences are threatened in the event of violations of the prohibition of bidding agreements?
Violations of the prohibition of bidding agreements, especially in the context of public tenders and procurement procedures, can have significant legal consequences. According to § 298 German Criminal Code (StGB), so-called bidding agreements to the detriment of the contracting authority constitute a criminal offense punishable by imprisonment for up to five years or a fine. Additionally, antitrust nullity of the affected contracts may occur, so that concluded contracts can be challenged or may be invalid from the outset. Participants in bidding agreements also risk exclusion from future procurement procedures (§ 124 (1) no. 4 Act Against Restraints of Competition – GWB) and may also be held civilly liable for damages. Authorities and competitors can initiate criminal and civil proceedings by disclosing the circumstances, and the company may suffer severe reputational damage that can adversely affect further business activities.
When is the granting of a bidding power of attorney legally permissible and when not?
The granting of a bidding power of attorney is generally permitted if it aims to authorize a third party—typically a representative of a bidder—to submit or receive legally binding offers on behalf of the bidder within a procurement process. The power of attorney must be sufficiently specific and transparent so that the organizer of the procurement process can clearly identify who is acting in the name and for the account of the bidder and what powers have been transferred. A bidding power of attorney becomes impermissible if it is misused to conceal prohibited influence, secret cooperation, sham bids, or other arrangements between bidders. In public procurement law, this can lead to the invalidity of offers and, if applicable, exclusion from the procurement process.
Can several companies appear together as a bidding consortium, and what legal requirements apply?
Several companies may jointly appear as a bidding consortium (consortium, ARGE), especially to jointly fulfill major contracts. Legally, this is permissible provided the cooperation is transparently disclosed to the client and no anti-competitive agreements are made. Members of the consortium are generally jointly and severally liable unless otherwise stipulated in the consortium agreement. It is important that the formation of the consortium does not solely aim to restrict competition or exclude other bidders. When submitting bids, a joint declaration signed by all members is usually required. The consortium must also comply with the requirements of antitrust and procurement law in order to exclude anti-competitive conduct.
What must contracting authorities do in the course of a procurement process to detect and prevent bidding agreements?
Contracting authorities in public procurement law are obligated to take appropriate measures to detect and prevent bidding agreements. This includes careful analysis of the submitted bids for irregularities, such as identical wording, conspicuous price agreements, or involvement of companies with close personal or economic ties. Clear guidelines and documentation requirements regarding bid submissions should be established. Furthermore, suspicious circumstances must be reported immediately to the procurement chamber or antitrust authorities. Consistent application of compliance programs and conducting training for employees are among the preventive measures, as are documentation requirements and declarations regarding the anti-competitive conduct of bidding companies.
What formal requirements apply to the granting of a bidding power of attorney?
The formal requirements for a bidding power of attorney usually result from the specific tender documents and conditions. Public contracting authorities often require a written power of attorney, which must be submitted in the original or as a certified copy together with the offer. The power of attorney must clearly and unambiguously state the scope of the representative’s authority and include a legally binding signature of the principal(s). In individual cases, further requirements—such as notarial certification—may apply. In electronic tendering procedures, qualified electronic signatures or special digital forms of power of attorney are regularly required. If the power of attorney is not submitted correctly, the offer may be excluded.
Are there differences between bidding agreements and permissible forms of cooperation between companies?
Yes, it is legally crucial to distinguish between prohibited bidding agreements and permissible forms of cooperation such as bidding consortia or legitimate subcontractor relationships. While bidding agreements aim to restrict competition to the detriment of the client or the market (e.g., by price-fixing, market allocation, or sham bids), cooperation is permissible if it is necessary for the joint provision of a service and is properly disclosed as well as notified to the client. Permissible cooperation always requires transparency and distinction from anti-competitive behavior, as provided for in § 1 GWB and Art. 101 TFEU. Ultimately, however, the specific design and purpose of the cooperation determine its legal admissibility.
