With Lithuania’s defence budget increasing, the Lithuanian Competition Council (LCC) has identified the defence sector as one of the key enforcement priorities for 2025. As a result, the LCC will closely monitor procurement processes to prevent anti-competitive agreements, and is working with the Ministry of National Defence to ensure compliance with competition laws. This follows a broader trend of heightened regulatory attention to the defence sector, highlighted in 2023 by the first-ever prosecution of a defence industry cartel by the European Commission (EC).

Risks and Sanctions for Competition Law Violations

Companies operating in the Lithuanian defence sector must carefully assess agreements to avoid severe penalties, including:

  • Fines of up to 10% of group worldwide turnover
  • Disqualification from public tenders for up to three years
  • Bans on general managers from managing roles (from three to five years), and personal fines
  • Private claims for damages from various parties
  • Reputational harm

Public Tenders Under Review

Public tenders will be a key focus for the LCC, with scrutiny of:

  • Coordination of actions: Any agreements between competitors to pre-determine bid outcomes, suppress bids or allocate contracts are strictly prohibited and void from the outset.
  • Joint Bidding: Allowed only if individual companies did not have a realistic opportunity to participate separately, considering their experience, qualifications and capacities. Improper joint bidding can lead to anti-competitive agreements and significant fines, as well as disqualification from public tenders in the future.
  • Illegal information exchange: Under competition law, disclosure of commercially sensitive information to a competitor is considered a prohibited agreement. Such a potential risk exists in joint bidding and subcontracting situations, as well as when companies discuss participation in public tender plans.

Scrutiny of Public Tenders May Reveal Other Restrictive Clauses

The LCC may uncover restrictive clauses, such as non-solicitation, non-compete, market allocation or exclusivity, that could lead to standalone competition law violations if not carefully structured in advance. The EUR 1.2 million fine imposed by the EC on German defence firm Diehl for a cartel with RUAG serves as a cautionary example. The companies had signed cooperation agreements to supply and distribute grenade components but unlawfully divided national markets across Europe within these agreements.

Information Exchange Risks in Trade Associations

Sharing sensitive commercial information, including pricing, costs or production capacities, directly or through intermediaries, e.g. trade associations can constitute illegal collusion if not properly safeguarded, even when requested by government authorities. The record EUR 72 million fine imposed by the LCC on the pharmaceutical sector for allegedly coordinating a joint proposal on medicine pricing based on allegedly misleading data, with the government relying on the data submitted for decision-making, highlights this risk.

Merger Control Considerations

In the context of cooperation with other companies, merger control requirements may also play a significant role. Certain forms of cooperation, such as the establishment of joint ventures, may qualify as concentrations requiring prior clearance from the LCC or the EC. Failure to obtain necessary approvals could lead to multiple significant fines (of up to 10% of overall turnover worldwide), transaction unwinding, or other legal consequences, making early regulatory assessment essential. The EC and the LCC have previously communicated that unnotified mergers will be one of their top enforcement priorities. The enforcement focus on unnotified mergers is evident from past cases, such as the EUR 124.5 million fine imposed on French telecommunications company Altice for implementing the acquisition of PT Portugal before notifying them of the transaction and for closing the deal before receiving clearance.

Next Steps for Defence Sector Businesses

Given the LCC’s heightened focus and potential sanctions, businesses must ensure compliance with competition law. We advise companies to:

  • review procurement strategies and joint bidding arrangements
  • assess cooperation agreements for anti-competitive clauses
  • ensure secure information exchange and implement appropriate safeguards
  • when structuring joint venture arrangements, always consider merger control rules

Please contact our competition law experts for tailored legal advice on navigating these regulatory challenges.