Municipal Approved Vendor Concentration

Introduction

Municipal Approved Vendor Concentration refers to a situation where a municipality, municipal authority, or public procurement body restricts procurement to a small group of pre-approved, registered, certified, or empanelled vendors, thereby concentrating a substantial portion of demand in those suppliers.

The arrangement is not automatically unlawful. Municipalities may legitimately use approved-vendor systems to ensure quality, safety, technical capability, financial reliability, continuity of supply, and administrative efficiency. The competition concern arises where approval criteria are unnecessarily restrictive, incumbent vendors receive preferential treatment, new suppliers cannot obtain approval on objective terms, or the approved-vendor system is used to facilitate exclusion, bid coordination, or concentration.

This issue is particularly significant in municipal healthcare, utilities, construction, IT, waste management, transport, energy, medical devices and other recurring municipal procurement markets.

1. Meaning of Municipal Approved Vendor Concentration

A typical structure is:

Municipality → Approved-vendor list → Restricted tender → Small group of eligible suppliers → Repeated municipal contracts

Concentration may arise at several levels:

1. Supplier concentration – only a few vendors are approved.
2. Contract concentration – most municipal contracts repeatedly go to the same vendors.
3. Product concentration – only products of approved manufacturers can be supplied.
4. Geographic concentration – vendors from a restricted area receive approval.
5. Technical concentration – certification requirements exclude alternative suppliers.
6. Institutional concentration – a municipal authority effectively creates a closed procurement ecosystem.
7. Vertical concentration – an upstream manufacturer also participates in municipal tenders through a preferred distributor or consortium.

The important competition-law question is therefore not simply "How many vendors are approved?", but:

Does the approval mechanism materially restrict effective competition without objective and proportionate justification?

2. Legal Framework

For a Danish/EU competition-law analysis, three areas are particularly relevant.

A. Article 101 TFEU / Danish Competition Act

Article 101 addresses agreements or coordinated conduct between undertakings that restrict competition.

An approved-vendor market becomes problematic if suppliers use their restricted status to:

• coordinate bids;
• divide municipal contracts;
• fix prices;
• allocate customers;
• exchange commercially sensitive information;
• rotate winning bids; or
• collectively exclude new suppliers.

B. Article 102 TFEU / Danish Competition Act

Where a dominant undertaking controls an important product, technology, certification, distribution channel or supplier network, discriminatory or exclusionary conduct can constitute abuse of dominance.

The European Commission's current Article 102 framework expressly treats exclusionary conduct by dominant undertakings as a competition concern.

C. Public Procurement Principles

Municipal procurement generally requires:

• transparency;
• equal treatment;
• proportionality;
• non-discrimination;
• objective qualification criteria;
• meaningful access to procurement opportunities.

Consequently, a municipality should normally be able to demonstrate why approval is necessary and why its requirements are proportionate.

3. When Does Vendor Concentration Become a Competition Concern?

3.1 Excessively small approved-vendor pool

Suppose a municipality requires ten vendors for a service but approves only three.

Even where those three are technically qualified, the system can produce:

• reduced competitive pressure;
• higher prices;
• coordinated bidding;
• capacity constraints;
• reduced innovation;
• increased dependency.

The CCI has specifically identified pre-selection through approved-supplier lists as a potential barrier to entry because only shortlisted suppliers may be allowed to participate in procurement.

3.2 Difficult or discriminatory approval procedure

A vendor-list system is especially problematic where:

• applications are accepted only occasionally;
• incumbent vendors receive automatic renewal;
• new entrants face disproportionate documentation requirements;
• approval standards are vague;
• approval decisions are not reasoned;
• technical requirements are designed around incumbent products;
• there is no effective appeal mechanism.

A genuinely competitive system should ordinarily permit qualified suppliers to seek entry on objective terms.

3.3 Repeated awards to the same vendors

Concentration becomes more significant where the municipality repeatedly awards contracts to the same vendors.

For example:

High concentration alone does not establish an infringement. The authority would need to investigate whether concentration results from:

• superior efficiency;
• legitimate qualification;
• economies of scale;

or instead from:

• discriminatory approval;
• exclusion;
• collusion;
• artificial tender restrictions;
• preferential access.

4. Approved Vendors and Market Definition

Competition authorities would normally identify the relevant market.

Possible markets include:

Product market

For example:

• municipal ostomy products;
• waste collection;
• street lighting;
• municipal IT systems;
• water meters;
• construction materials.

Geographic market

The market might be:

• one municipality;
• several municipalities;
• Denmark;
• a wider Nordic/EU market.

The geographic scope is particularly important because a municipality may represent a small share of the overall market but a very large share of municipal procurement demand.

5. Municipalities as Purchasers

A municipality can possess substantial buyer power even when it is not a dominant seller.

A municipality may aggregate demand across:

• hospitals;
• schools;
• elderly-care facilities;
• public housing;
• utilities;
• transport;
• waste management.

Consequently, an approved-vendor system can create a powerful procurement gatekeeper.

The competitive effect may therefore be:

Municipality's purchasing power → restricted vendor eligibility → concentrated supplier access → reduced rivalry → possible higher prices

6. Important Case Laws

1. Coloplast Danmark A/S – Danish Competition Council / Danish Competition Appeals Tribunal

This is the most directly relevant modern Danish example.

Coloplast participated directly in municipal tenders for ostomy products and entered a consortium with wholesaler Abena. The Danish Competition Council found that Coloplast's pricing arrangements created a margin squeeze affecting competing wholesalers. The problem was particularly significant because wholesalers effectively needed access to Coloplast products to compete for municipal contracts.

In March 2026, the Danish Competition Appeals Tribunal upheld the finding that Coloplast had abused its dominant position. The Tribunal accepted that the relevant upstream market could be defined around Coloplast's products and that the company had a dominant position there.

Principle

A supplier controlling an essential product required to compete for municipal contracts cannot use its position to disadvantage competing wholesalers.

Relevance

This illustrates the vertical dimension of municipal approved-vendor concentration:

Manufacturer dominance + municipal procurement dependence + discriminatory pricing = potential foreclosure.

7. KMD – Municipal IT Contracts

The Danish Competition Council examined KMD's strategy concerning municipal IT contracts.

KMD had encouraged four municipalities to enter IT contracts without conducting the legally required tender procedure and offered discounts in connection with those arrangements. The Competition Council ultimately did not find a competition-law infringement because the legal obligation to conduct the tender rested with the municipalities.

Principle

The case demonstrates an important distinction:

Encouraging a municipality to avoid competitive procurement ≠ automatically an Article 102 infringement.

The precise legal responsibility and statutory procurement obligation must be established.

Relevance

For an approved-vendor concentration analysis, investigators should distinguish:

• conduct of the municipality;
• conduct of suppliers;
• procurement-law violations;
• competition-law violations.

8. Western Electric & Others v Competition Commission of India

This Indian competition case concerned railway procurement and approved suppliers.

The RDSO system classified suppliers into Part I and Part II approved suppliers. The case involved allegations that approved suppliers coordinated bids. Evidence included communications between suppliers and arrangements concerning tender pricing and market allocation.

The tribunal ultimately dealt with the conduct as bid rigging under the Competition Act.

Principle

An approved-vendor system does not immunize participating suppliers from cartel liability.

Indeed, where the eligible supplier pool is already small, communication among approved suppliers can have a particularly significant effect because the procurement authority may have few alternatives.

Relevance

Small approved pool + coordinated bidding = heightened cartel risk.

9. RMG Polyvinyl / RDSO-Approved Suppliers

Another Indian procurement case concerned RDSO-approved suppliers of PVC flooring sheets.

The allegations involved several approved suppliers allegedly coordinating bids and increasing prices. The case illustrates how a technically restricted supplier pool can become relevant to bid-rigging analysis.

Principle

Technical approval is legitimate for procurement purposes, but approved suppliers remain competitors and cannot use the procurement structure as a mechanism for:

• price coordination;
• tender allocation;
• output restriction;
• bid rotation.

Relevance

Municipal authorities should therefore monitor repeated identical bids, suspicious bid rotation and parallel pricing, particularly where only a handful of vendors are approved.

10. Horsfield Materials, Inc. v City of Dyersville

In Horsfield Materials, Inc. v City of Dyersville, a construction-material supplier challenged its exclusion from a city's list of preapproved material suppliers.

The Iowa Supreme Court considered the supplier's challenge to the city's preapproval process and concluded that the supplier lacked standing under the applicable public-bidding statute, while its constitutional claims failed on the merits.

Principle

A preapproved supplier system is not automatically unlawful merely because some suppliers are excluded.

The legality depends upon:

• the governing procurement statute;
• the approval procedure;
• the supplier's legal rights;
• the basis for exclusion;
• the applicable constitutional and administrative-law standards.

Competition relevance

This case is useful for distinguishing:

legitimate qualification screening from anticompetitive foreclosure.

11. M/S Nathu Ram Gupta & Co. v North Delhi Municipal Corporation

The Delhi High Court considered deletion of a contractor from the municipal approved-contractor list.

The Court dealt with procedural fairness surrounding removal from the approved list and emphasized the significance of natural justice before blacklisting/de-registration.

Principle

A public authority cannot ordinarily use an approved-contractor system without observing procedural safeguards.

Competition relevance

Procedurally arbitrary exclusion can indirectly affect competition because removing one supplier from a municipal supplier pool can:

• reduce the number of bidders;
• increase concentration;
• strengthen incumbent suppliers;
• reduce competitive price pressure.

Thus, procurement fairness and competition may overlap.

12. Shree Durga Industry v Union of India

The Calcutta High Court considered the Government's registered/approved-supplier system.

The Court discussed the advantages attached to registration, including eligibility for limited tender enquiries and exemption from certain bid-security requirements. It also considered the permissible duration of de-registration/removal from the supplier list.

Principle

Approved-supplier status can confer substantial commercial advantages.

Consequently, the criteria for:

• admission;
• continuation;
• suspension;
• de-registration;

must be administered according to the governing rules.

Competition relevance

Where approved status materially determines access to public demand, approval itself can become an economically valuable asset.

13. Additional Relevant Authority: Official Approved-Supplier Lists

EU procurement legislation has historically recognized official lists of approved economic operators, but the system is structured around objective qualification requirements rather than arbitrary exclusion.

The EU framework expressly contemplated official lists of approved suppliers and contractors while regulating how registration could be used in procurement.

This supports an important distinction:

Approved-vendor lists are permissible procurement mechanisms; closed or discriminatory vendor lists can raise competition and procurement-law concerns.

14. Competition Risks Created by Municipal Approved-Vendor Concentration

A. Entry foreclosure

New vendors cannot obtain municipal contracts because they cannot obtain approval.

Effect:

Approval barrier → no tender access → no customer references → inability to enter → incumbent protection.

B. Bid rigging

If only four vendors are approved, coordination among those four can eliminate most meaningful competition.

Typical indicators include:

• identical bids;
• predictable winner rotation;
• suspiciously consistent margins;
• complementary bids;
• withdrawal of bids;
• geographic allocation;
• communication immediately before tenders.

C. Market allocation

Approved suppliers may divide municipal contracts:

Vendor A → northern municipalities
Vendor B → southern municipalities
Vendor C → healthcare contracts

Such arrangements may constitute serious cartel conduct where competitors agree to allocate markets.

D. Exclusive dealing

A municipality may require all departments to purchase only from approved vendors.

This becomes particularly sensitive where:

• the approved list is closed;
• alternative suppliers satisfy the same technical standards;
• approval is difficult to obtain.

E. Discriminatory technical specifications

A municipality might specify:

"Equipment must be compatible with Brand X's proprietary interface."

If Brand X is not objectively necessary, the specification may effectively create an artificial vendor monopoly.

15. Approved Vendor Concentration and Essential Facilities

The issue can become especially serious where the municipality controls an essential facility or access point.

Examples include:

• municipal waste infrastructure;
• charging infrastructure;
• district heating networks;
• water infrastructure;
• public transport terminals;
• municipal digital platforms.

If suppliers require access to that infrastructure to compete, discriminatory access can reinforce supplier concentration.

16. Concentration Metrics

Authorities may use standard concentration indicators.

Herfindahl-Hirschman Index

HHI=∑si2HHI = \sum s_i^2

where sis_i is each supplier's market share.

For example:

• Vendor A = 50%
• Vendor B = 30%
• Vendor C = 20%

HHI=502+302+202=3800HHI=50^2+30^2+20^2=3800

This indicates substantial concentration.

However:

High HHI is an indicator, not proof of an infringement.

The authority must investigate why concentration exists.

17. Legitimate Reasons for Vendor Approval

Municipalities can have legitimate reasons for restricting supplier eligibility.

Examples

Safety

Medical equipment may require certified suppliers.

Quality

Construction materials may require compliance with technical standards.

Continuity

Emergency services may require suppliers capable of immediate delivery.

Financial capacity

Large infrastructure projects may require minimum financial resources.

Cybersecurity

Municipal IT suppliers may need security certification.

Environmental standards

Waste or energy suppliers may need environmental qualifications.

Professional licensing

Certain services require legally recognized professional qualifications.

The competition question is whether the requirement is necessary and proportionate.

18. Disproportionate Approval Requirements

A requirement becomes particularly questionable where:

• it has little connection to the contract;
• it excludes otherwise qualified suppliers;
• it is tailored to an incumbent;
• it requires prior municipal experience when equivalent private-sector experience would suffice;
• it requires proprietary technology;
• approval is expensive relative to contract value;
• approval is available only during a narrow registration period;
• the municipality refuses to explain rejection.

19. Municipal Procurement Concentration vs. Cartel

These concepts must be separated.

Concentration

A small number of firms receive most contracts.

Not automatically illegal.

Collusion

Firms agree to manipulate competition.

Potential Article 101 / cartel infringement.

Exclusion

A dominant undertaking prevents rivals from accessing necessary inputs or customers.

Potential Article 102 infringement.

Procurement discrimination

The public authority imposes unjustified restrictions.

Potential procurement-law problem and, in appropriate circumstances, competition concern.

20. Remedies

Possible remedies include:

1. Open vendor registration

Permit qualified suppliers to apply periodically or continuously.

2. Objective qualification criteria

Publish measurable approval standards.

3. Independent review

Create an appeal mechanism for rejected vendors.

4. Periodic review

Review whether existing suppliers continue to satisfy qualification requirements.

5. Multiple-vendor procurement

Avoid unnecessary single-source procurement.

6. Lotting

Divide contracts into lots so smaller suppliers can participate.

7. Framework agreements with multiple suppliers

This preserves competition while reducing administrative burden.

8. Anti-collusion safeguards

Use:

• electronic tendering;
• confidential bidding;
• bid analytics;
• conflict-of-interest declarations;
• communication restrictions.

9. Interoperability

Avoid unnecessary proprietary standards that lock municipalities into a particular supplier.

10. Access commitments

Where an incumbent controls an essential input, require non-discriminatory access where legally justified.

21. Compliance Test

A municipality can use the following framework:

Step 1: Identify the relevant procurement market.

↓

Step 2: Determine the number of approved vendors.

↓

Step 3: Calculate procurement concentration.

↓

Step 4: Examine admission criteria.

↓

Step 5: Determine whether new vendors can realistically obtain approval.

↓

Step 6: Examine repeated contract awards.

↓

Step 7: Analyse bid patterns.

↓

Step 8: Investigate communications among suppliers.

↓

Step 9: Determine whether any supplier has a dominant position.

↓

Step 10: Examine exclusionary or discriminatory conduct.

↓

Step 11: Assess objective justifications and proportionality.

↓

Step 12: Select procurement/competition remedies.

22. Key Case-Law Principles — Consolidated

23. Application to Denmark

For Danish competition law, the strongest practical scenario would be:

Municipality creates a small approved-vendor pool → one supplier becomes particularly important → incumbent supplier or approved vendors engage in exclusionary conduct or bid coordination → rivals cannot effectively compete for municipal contracts.

The Coloplast proceedings are especially instructive because municipal procurement represented a significant competitive context, and the Danish Competition Council found that the dominant supplier's pricing could make it extremely difficult for competing wholesalers to win municipal tenders. The Appeals Tribunal upheld the abuse finding in 2026.

The Danish authority has also recently demonstrated scrutiny of concentration in municipal medical-supply markets: in 2025 it required notification of the OneMed/Kirstine Hardam merger despite the transaction falling below the ordinary turnover thresholds, citing a potential risk of significant impediment to competition. Both companies supplied, among other products, ostomy-care products to municipalities.

24. Hypothetical Example

Assume a municipality establishes a list of five approved waste-management suppliers.

The municipality accounts for 70% of demand in the relevant local market.

After five years:

• Supplier A receives 40%;
• Supplier B receives 25%;
• Supplier C receives 20%;
• Supplier D receives 10%;
• Supplier E receives 5%.

A new supplier applies for approval but is rejected because it lacks "municipal experience."

At the same time:

• A and B repeatedly submit nearly identical bids;
• C frequently submits the second-highest bid;
• A and B exchange information through an industry association;
• the municipality refuses to reopen its vendor list.

There are now three separate competition concerns:

1. Vendor-access foreclosure;
2. possible bid coordination;
3. high procurement concentration.

The appropriate legal analysis would therefore examine procurement law, Article 101-type cartel concerns, and—if a dominant undertaking is involved—Article 102-type exclusionary conduct.

25. Conclusion

Municipal Approved Vendor Concentration is not unlawful merely because a municipality uses an approved-vendor list or because procurement becomes concentrated. Approved-supplier systems can be legitimate and necessary for safety, quality and administrative efficiency.

The principal competition concern arises when:

approval becomes a gateway to a substantial portion of market demand, the gateway is difficult or discriminatory to access, and the resulting concentration reduces effective competition.

The most important risk categories are:

• foreclosure of new entrants;
• discriminatory approval;
• exclusive dealing;
• proprietary technical specifications;
• bid rigging;
• market allocation;
• dominant-supplier exclusion;
• repeated procurement concentration;
• vertical foreclosure; and
• lack of transparent vendor-review procedures.

The Coloplast Danmark proceedings are particularly important for understanding how dominance and municipal procurement can interact, while Western Electric/RDSO, Horsfield Materials, Nathu Ram Gupta, and Shree Durga Industry demonstrate different dimensions of approved-supplier systems, tender competition and procedural access.

Core proposition:

A municipal approved-vendor system is competition-compatible when approval is objective, transparent, proportionate and contestable; it becomes competition-sensitive when it unnecessarily closes access to municipal demand or facilitates exclusion or collusion among the limited approved suppliers.