Very often in our practice, our clients find it difficult to determine which legal entities are related?
For the purposes of awarding public contracts it is assumed that related legal entities are as follows:
– the entities, one of which controls the other or its subsidiary;
– the entities whose activity is controlled by a third party and
– the entities who jointly control a third party.
The definition of „control“ adopted by the legislator is the presence of one of the following hypotheses, in which an entity:
– owns, including through a subsidiary or by virtue of an agreement with another entity, more than 50 percent of the number of votes in the general meeting of a company or other legal entity or
– may determine directly or indirectly more than half of the members of the management or control body of a legal entity or
– may otherwise exert decisive influence on decision-making in connection with the activity of a legal entity.
A common hypothesis of related legal entities within the meaning of the Public Procurement Act is the participation of companies through their legal representatives in the management body of a third company. However, whether persons are related has to be checked in particular. Depending on the stipulated order of decision-making by the management body, it is possible to be assumed that commercial companies control the third party as they can exert a decisive influence on the decision-making process in relation to the activity of this third party. In this case, related legal entities will be prevented from participating independently in the same public procurement procedure, and accordingly their suspension will follow if independent bids have been submitted.
Whether two companies could be defined as a single economic unit, the concept of „decisive influence“, which is related to the possibility one company to exercise control over the market behavior of another company, is of significant importance.
Even in cases of close legal relations between two companies, the existence of a single economic unit can only be presumed if one of those companies owns 100% of the property of the other company. In the event that the presumption does not apply, the elements that are relevant in assessing whether two companies form a single economic unit are the economic, organizational and legal relations between those two companies and whether one of them conducts its market behaviour fully in accordance with the instructions given by the other.
When examining the question whether two companies are related, it should be established whether one of these two companies can exercise a decisive influence on the decision-making process in relation to the activity of the other.
It should be noted that when establishing a relation due to the exercise of decisive influence on the decision-making process concerning the activity of a legal entity, it is not necessary to be proved that specific facts concerning the circumstance that a company has exercised decisive influence on the decision-making process related to the activity of another legal entity have actually occurred. The grounds for suspension of related entities refer to the definitions provided by the legislator, which determine the framework within which the prerequisites for exercising decisive influence related to the management of a third legal entity are present. Given this, it is sufficient to be established only the possibility of exercising such influence, regardless of whether this possibility was actually realized in the specific case or not.
The legislator also introduces a definition for related natural persons
Related natural persons are spouses, direct relatives without restrictions in terms of the degree, the lateral branch of the family up to the fourth degree inclusive and relatives connected by marriage up to the fourth degree inclusive.
The existence of matrimonial or family relations between the sole owners of the capital or partners in the companies is not a sufficient reason to be considered that the enterprises form a single economic unit, since only on the basis of these relations the presence of decisive influence, exercised by either company on the other, cannot be presumed.
According to Art. 101, para. 11 of the Public Procurement Act, related persons cannot be independent participants in the same procedure. The fact that two natural persons are related persons does not in any way mean that the legal entities in which these natural persons participate (as partners or sole owners of the capital) are also related persons and therefore cannot be independent applicants or participants in the same procedure.
It is of utmost importance when examining the existence of a connection between natural persons to be borne in mind that it does not determine a connection between the commercial entities that the persons represent.
In this sense, the connection of two natural persons cannot be a reason to restrict the legal entities in which they participate and/or represent from participating in the same procedure, since in this way the principles of equality, free competition and proportionality, laid down in Art. 2, para. 1 of the Public Procurement Act, will be violated. A conclusion for the existence of a prohibited connection within the meaning of the Public Procurement Act between commercial entities – legal entities with a view to kinship between their representatives, is illegal.
Therefore, according to the permanent and uncontroversial practice of the Commission on Protection of Competition and the Supreme Administrative Court, placing a sign of equality between a participant and the persons/entities from whom/which the latter was formed in the procedure, as well as between a participant (legal entity) and its representative body, is inadmissible.
Due to the above, whether there is a connection between the participants is only examined if the persons/entities in respect of which such connection is alleged submitted an offer independently.