Can a Contracting Authority Grant De Minimis Aid to One Tenderer Before Initiating a Procurement in Order to Increase Competition?

Abstract

The purpose of the thesis is to examine, whether it is possible for a contracting authority to grant de minimis aid to one potential tenderer before initiating a procurement, in order to increase competition and how this will affect the tenderer’s pricing incentives? In the legal analysis it is found, that de minimis aid complies with the state aid rules and therefore the measure is examined on the basis of the principle of equal treatment in Directive 2014/24/EU. It is found, that the purpose of the directive is, to open up competition for public contracts, which is ensured by the application of the principle of equal treatment, which is supported by a number of other principles. Therefore it is concluded, that the principle of equal treatment does not allow the contracting authority to grant de minimis aid to one potential tenderer in order to increase competition. In the economic analysis, it is examined how de minimis aid in the form of operating or investment aid can affect the tenderer’s pricing incentives. It is concluded, that if the contracting authority grants investment aid to one potential tenderer, the usual tenderer will lower his price. Furthermore it is found, that the investment will pay interests if there is at least two tendering rounds. This is found by using the theories of limit pricing and contestable markets in a game. It is also concluded, that it is efficient for the society and the contracting authority, if the potential tenderer is able to carry out the investment by himself, under the assumption that the potential tenderer’s costs are lower than the usual tenderer’s costs. Note, that this will only be efficient to society, if the net present value of the social savings is greater than the investment, which depends on the number of tendering rounds. In the integrated analysis it is examined, whether it is possible to change the current law in order to increase competition. This is done by, analysing whether the economic model found in the economic analysis can be realized. It is concluded, that although the economic model shows that the competition can be increased under certain conditions, it is found that the economic model cannot be realized, because of certain conditions in the model cannot be met in practice.