During the market study, while investigating the procurement of road vehicle number plates production and supply, organised by state owned company “Road Traffic Safety Directorate” (CSDD), the Competition Council of Latvia (the CC) detected competition restrictive requirements in the procurement. As a result of such requirements, only one company participated in the procurement, and the offered price, calculating costs per one number plate, was up to three times higher than the price offered by other companies in similar procurements in Estonia and up to five times higher than offered in Lithuania. The CC holds a view that competition is significant in a procurement in order to receive the most favourable offer; therefore, CSDD should revise the procurement requirements, when organising the new procurement this year.
Long-standing cooperation with one competitor
Registration of vehicles and issuance of number plates to car owners or vehicle holders is a task delegated exclusively to CSDD in accordance with the Road Traffic Law and the Cabinet of Ministers Regulations No.1080. While supply of number plates is ensured by market participants, who can mutually compete in competitions with their price and quality.
In 2016, CSDD organised a public procurement for the first time, where only one candidate submitted its tender – German company J.H. Tönnjes E.A.S.T. GmbH & Co, obtaining exclusive rights to supply number plates for the total contract sum of 10,831,992.60 euros for a period of five years - until the end of this year. The company attracted three sub-contractors for performance of the contract, including the company's representative in Latvia SIA “Latsign”. At the same time, the said German company and its representative in Latvia SIA “Latsign” produced and supplied number plates to CSDD already since 2002, based on a mutually concluded cooperation contract.
After surveying the potential competitors in Lithuania and Estonia, the CC concluded that also other competitors could potentially participate in the procurement organised by CSDD, if several restrictive requirements would not exist in the procurement regulations. The CC considers that this cooperation with one company for 14 years may have influenced the customer to set inadequately high requirements for the procurement, which, logically, could be fulfilled by only one company.
The most expensive number plates in the Baltic states
International procurements have been organised in all three Baltic states, but procurements organised in the neighbouring countries involved competition among candidates, and the contract was concluded for three, not five years as in Latvia. Considering that an exclusive contract with one supplier was concluded in Latvia. In the opinion of the CC, it is significant to set a reasonable term of the contract. For example, a term of the contract up to three years would allow setting the most objective price and would promote competition in procurements.
Although the procurements organised in all Baltic states are not identical due to requirements included in the procurement regulations, but the procurement subject – acquisition of number plates – is identical. After comparison of the completed procurement procedures, sums of concluded contracts and the quantity of number plates to be supplied, it was concluded that costs per one number plate in Latvia constituted 7.06 euros, whereas in Lithuania – 1.39 euros, and in Estonia – did not exceed 2.15 euros. It follows that costs per one number plate in Latvia are significantly higher than in other Baltic states, namely, approximately three times higher than in Estonia and five times higher than in Lithuania. Although the Latvian procurement procedure involves more specific requirements than in the neighbouring countries, the CC holds a view that such requirements cannot justify such a significant increase in price.
Advantages for a long-standing lessee of premises
As a result of survey of companies that provide equivalent services in the neighbouring countries, the CC found out that these companies did not participate in the procurement announced in Latvia in 2016 because of several specific requirements.
One of such requirements was supply of express number plates or number plates produced upon an individual order in a very short term – within 30 minutes, while the vehicle registration service is received. Such number plates are demanded in Latvia – 15.4% of all number plates produced. The CC considers that such a requirement in a procurement, without offering the winning company to lease CSDD premises, is competition restrictive, because such a service can be offered only by a company, which operates in the premises of CSDD central office in Riga at Bauskas Street 86. Otherwise, such speed of production of number plates is impossible.
It is remarkably that the procurement winner and its attracted sublessee SIA “Latsign” lease CSDD premises at Bauskas Street 86 already since 1992, and it had an effective premise lease contract also at the moment of the procurement. In the view of the CC, while preparing the new procurement regulations, the CSDD has to provide that the procurement winner will have a possibility to use the premises required for provision of services, thus offering equal conditions for lease of premises to all candidates, which would allow ensuring equal competition opportunities in the procurement.
Other restrictive requirements in the procurement organised in 2016
Another restrictive requirement mentioned by entrepreneurs was the short term – 45 days – for supply of first number plates to CSDD after conclusion of the contract. Contrary to a company that operates on the market already for years, performance of works for a new supplier of number plates also depends on commencement of lease of new premises and placement of equipment in these premises. The CC considers that CSDD should set a reasonable term for the first supply in order to ensure a larger number of candidates in the procurement.
Entrepreneurs also admitted that an additional obstacle for participation in the procurement was a requirement to develop a system of centralised production and accounting of number plates with software provision for receipt and processing of data from the State Register of Vehicles and Drivers within a term of 30 days. The CC detected that the software provision for the Vehicle Register is ensured and maintained by CSDD, whereas the merchant has to ensure compatibility of own accounting system with the existing system of CSDD. To avoid causing a misleading impression for the potential procurement candidates regarding the tasks to be performed before supply of number plates, while preparing the new procurement regulations, CSDD should describe in details and clearly all requirements, including the information system required for performance of works. The CC considers that also a solution, where the system belongs to CSDD itself, but access to the system is granted to the winning candidate, is worth considering.