Recent case law on EU Institutional Procurement under the Financial Regulation (I): Self-Cleaning

Before the summer recess, the General Court adopted two interesting decisions on public procurement carried by the EU Institutions. One concerns the debarment of tenderers that have been found to breach EU procurement rules and negatively affect the financial interests of the Union (T-151/16). The other concerns the obligation to state reasons in the context of allegations that a tender is abnormally low (T-392/15). This blog discusses the first case, while a subsequent post comments on the second.

Judgment of 27 June 2017, NC v Commission, T-151/16, EU:T:2017:437, is concerned with the registration in the Early Warning and Detection System database (ie the registry of tenderers and contractors debarred from EU Institutional procurement, currently relabelled as Early Detection and Exclusion System, EDES) of tenderers that have been found  to have committed serious breaches of contractual obligations--in this case, as established by OLAF, the simulation of procurement procedures for the acquisition of equipment ultimately funded by the EU. The case is affected by the additional difficulty that the rules controlling EU Institutional procurement (ie the Financial Regulation and its Rules of Application) were modified in the period between the irregularities were committed (2008 and 2009) and the time of the imposition of the sanction of debarment by the Commission (which crossed over between 2015 and 2016). This triggered two legal complications in terms of retroactivity of most favourable/lenient substantive rules: first, the effect that needed to be given to a reduction in the maximum period of debarment from 5 to 3 years; second, the possibility to neutralise a ground for exclusion on the basis that the affect undertaking had taken sufficient remedial measures demonstrating its reliability (ie had self-cleaned). On top of that, there were procedural complications due to the revised procedures leading to registration in EDES, which currently require a panel opinion that was not part of the pre-2016 procedure for the registration in the Early Warning and Detection System database.

On the procedural point, which the GC examines first, the dispute hinges on the fact that the debarment decision was adopted on 28 January 2016 (which would have required an involvement of the EDES panel, active from 1 January 2016; see para 32), but the Commission considered the administrative procedure 'completed' on 17 December 2015 (thus subjecting it to the 'no-panel' procedure in force until 31 December 2015; see para 34). This ground is ultimately dismissed by the GC on the basis that there is no reason to establish the retroactive application of the procedural rules to investigations started before 1 January 2016, which would 'imply recommencing the preliminary procedure completed properly before that date, in particular having regard to compliance with the adversarial principle' (para 43).

This decision goes against the general principle that new procedural rules that do not contain specific transitional provisions accompanying the fixing of their general application date also apply to on-going/pending procedures (see para 36). The decision is based on an exception to such created in the Judgment of 8 November 2007, Andreasen v Commission, F-40/05, EU:F:2007:189, whereby that rule can be excluded to avoid 'the retroactive annulment of procedures or procedural steps which complied with the rule in force when they were completed' (para 38; see also para 43 of T-151/16).

What I find interesting, though, is that the GC considers that such assessment is not altered '[e]ven if the introduction of that panel was intended to strengthen the rights of the defence of parties contracting with the Union who may be subject to a penalty under the Financial Regulation' (ibid). In my view, this is a very ad hoc finding, which the GC reaches only because it considers the pre-2016 rules already sufficiently protective of individual rights of the affected undertaking, and to have been adequately followed in the specific instance. Had this not been the case (eg, had the previous procedure been seen to fall short of complying with the adversarial principle), the decision by the GC may well have been the opposite. Thus, on this point, the decision of the GC seems difficult to extrapolate to other contexts and the exception that seems to derive from Andreasen and now NC needs to be taken with a pinch of salt.

On the substantive points, first concerning the retroactivity of a more lenient rule allowing for self-cleaning, the GC takes the view that the possibility to self-clean and thus exclude debarment makes the new rules clearly more favourable (para 57). On that basis, the GC takes issue with the fact that the Commission took into account remedial measures for the purpose of setting the duration of the exclusion below the maximum exclusion period (initially at 2 years, later reduced to 18 months) but did not assess it with a view to completely exclude the debarment on the basis of satisfactory self-cleaning. As the GC put it: 'Although the contested decision shows that the remedial measures taken by the applicant were taken into account to determine the duration of the exclusion imposed, no reason is given in that decision as to why those measures were insufficient to satisfy the conditions' for an operator that has taken certain remedial measures demonstrating its reliability not to be excluded from the contracts and grants of the Union (para 58). Second, and along the same lines, on the assessment of the implications of a reduction the maximum debarment period from 5 to 3 years, the GC considers that the new spread of debarment times should have been explicitly taken into account by the Commission (paras 59-60). This eventually leads to an annulment of the debarment decision (para 63).

In my view, this strict approach adopted by the GC on the basis of the guarantees enshrined in Article 49 of the Charter of Fundamental Rights of the EU and interpretive case law (paras 53-55) comes to strengthen the procedural guarantees involved in the adoption of debarment decisions. Extrapolating this to procedures not covered by the rules on EU Institutional procurement, but rather by the 2014 Public Procurement Package and its transposition at domestic level by the Member States, it seems clearer than ever to me that there is a need for the revision of the remedies directive in order to ensure the effectiveness of the same level of protection--as discussed, over a year ago, in A Sanchez-Graells, '"If It Ain't Broke, Don't Fix It"? EU Requirements of Administrative Oversight and Judicial Protection for Public Contracts' (August 11, 2016), to be published in S Torricelli & F Folliot Lalliot (eds), Administrative oversight and judicial protection for public contracts (forthc). Available at SSRN: https://ssrn.com/abstract=2821828.

Transparency in Procurement by the EU Institutions

The next collaboration of the European Procument Law Group (EPLG) will be on 'Transparency in public procurement'. Thanks to Dr Kirsi-Maria Halonen, we will meet in Helsinki on 4-5 September 2017 to discuss comparative reports on 11 jurisdictions, including 10 EU Member States and the rules applicable to the procurement of the EU Institutions. I was tasked with the last topic, and my draft report on 'Transparency in Procurement by the EU Institutions' is here: https://ssrn.com/abstract=3020168. Comments most welcome: a.sanchez-graells@bristol.ac.uk.

The curious case of the open envelope inside the envelope - a propos GC's Gfi PSF v Commission Judgment (T-200/16)

The General Court of the Court of Justice of the European Union (GC) has issued Judgment in case Gfi PSF v Commission, T-200/16, EU:T:2017:294 (available in French only). This is a curious case about the physical formalities imposed in a procurement procedure carried out by the European Commission (Publications Office), which required a set of envelopes to be enclosed in multiple layers so as to avoid their tampering prior to the official opening of bids. It is also interesting because it raises some issues around the difficulties in the fact finding of processes dominated by formal documentary evidence.

I am also afraid that the factual circumstances of the case are probably rather common in practice (they remind me of the submission of a tender for a multi-million concession contract that had to be submitted in suitcases locked with padlocks in Mexico some 10 years ago), and I guess that the case also reflects some of the advantages that could be gained by a proper migration to e-procurement (or at least to electronic submission of tenders).

In the case at hand, tenderers had to prepare their tenders in two separate envelopes. An envelope (a) containing their technical offer and an envelope (b) containing their financial offer. Both envelopes then had to be enclosed in a third envelope (c) marked as "Tender - not to be opened by the internal mail service" and placed in a fourth envelop (d), which had to be sent by registered mail or courier service, or be submitted in the offices of the European Commission as indicated in the letter of invitation to tender.

Gfi PSF prepared its tender in accordance with these instructions and sent it to the European Commission via UPS. However, t is worth noting that, inside envelope (c), Gfi PSF did not only include envelopes (a) and (b), but also several binders including additional information. The tender was submitted in time and there is an electronic receipt issued by UPS with a signature from a Commission official. However, an acknowledgement of receipt was also prepared by the mail service of the European Commission indicating that the offer had been received, but not in good state, and also including the following:

two headings, relating respectively to the "first container" and the "second container". In the section on the first container, the pre-printed indications "open" and "damaged" have both been checked. In the section on the second container, the same information was also checked. This last heading also contains the words "did not include the words "Do not open by the mail office"" and "there were no double envelopes", which were not checked (T-200/16, para 7, own translation from French).

After proceeding to the formal opening of the tenders, Gfi PSF's was rejected on the basis that the tender was already open when the contracting authority received it, which is a cause for rejection under Art 111(4)(b) of the Financial Regulation. After Gfi PSF challenged this decision and asked for additional details, the European Commission wrote a letter indicating that

even if the electronic receipt [issued by UPS] did not contain any remarks as to the status of the consignment containing the applicant's tender, this was because of the technical constraints of the terminal used by the courier acting for UPS. The [Commission's] note of receipt acknowledging the damage of the consignment was signed jointly by the same courier and a representative of the [Commission]. Copies of this note and a photograph of the said item were annexed to the" Commission's letter (T-200/16, para 13, own translation from French).

After inspecting the envelopes still in the custody of the Commission, counsel for Gfi PSF challenged the time, the content, and the probationary value of this acknowledgement of receipt issued by the Commission. It also sought to prove that the document had been issued unilaterally by the Commission because it was not clear that UPS had signed the note (which is however later proven wrong by the GC, see paras 53-54), and submitted that in any case the state of the offer resulted from improper handling by the Commission's mail services, rather than as a result of defective compliance with the physical requirements for the submission of the offer by Gfi PSF at the time of its expedition.

The Commission opposed this interpretation of the documents (in particular the lack of signature by a UPS representative) and the physical evidence (ie damaged envelopes), and provided additional evidence downloaded from UPS' tracking webpage, where the following remarks appeared from entries logged in the weeks following the delivery of the package to the Commission:

"[t] he goods are lacking. UPS will notify the additional details to the consignor / goods entrusted to the consignee "; and ... " [t]he damage to the contents of the packages has been reported [;] We will notify the consignor / We are investigating the claim for damages" (T-200/16, para 18, own translation from French).

Overall, then, the dispute concerns the factual circumstances of the delivery, the documentation of its receipt, as well as the ensuing investigation of the Commission's claim that the package was delivered by UPS. It is hard to imagine the physical state of the envelopes (it would have helped to have the pictures attached to the GC's Judgment), but it is certainly plausible that the envelopes where stacked in such a way that opening envelop (d) also ripped envelop (c) (particularly if they were of similar sizes). Be it as it may, the reasoning of the GC is interesting beyond the specific issues leading to the discrepancy in the state of the offer at the time of submission and of the formal opening of the tenders, which exonerates the Commission from any responsibility.

In the GC's view

... the acknowledgement of receipt is of significant probative value, since its content is attested by the signatures, on the one hand, of a person subject to the contracting authority and, on the other hand, by a third party not directly involved in the procurement tender, but rather acting indirectly on behalf of the tenderer whose tender is considered irregular by the contracting authority. However, the acknowledgement of receipt contains indications that both the first and second containers were both open and damaged, and that the second container displayed the words "Not to be open by the mail office" and contained a double envelope (T-200/16, paras 57-58, own translation from French).

This would create a difficulty in establishing the moment in which envelop (c) had been opened despite including the prescribed label against it. However, given the very peculiar circumstances of the case, where envelop (c) contained not only envelops (a) and (b)--which may not have been compromised--but also the binders including additional information, the GC found a way out by adopting a functional approach to the rules in Art 111(4)(b) Financial Regulation from the perspective of the integrity of the process. In that regard, it stressed that the submission instructions and Art 111(4)(b) aimed to ensure the confidentiality of all tenders until they are simultaneously open. From that perspective, the factual circumstances of the case led to the assessment that

On the one hand, the applicant does not claim that the binders were themselves placed in a closed envelope, the binders being visible in the photograph to which it refers, annexed to the letter of [the Commission sent during the debriefing and complaints procedure]. Furthermore, the fact that the binders were placed by the applicant in an envelope on which it indicated that it had affixed the words 'invitation to tender - not to be opened by the courier' [ie envelop (c)], which is established by the acknowledgment of receipt, shows that in the applicants' own view, the binders contained documents constituting its tender. Consequently, and due to the fact that it must be held that the outer envelope and the intermediate envelope of the item containing the applicant's tender had been presented open on the premises of the [European Commission], it must be found that certain data forming part of the applicant's offer were directly accessible. Consequently, it appears that the applicant's tender was submitted in such a way that its confidentiality, as required by Article 111 (1) of the Financial Regulation, was not guaranteed, as it was "already open" within the meaning of paragraph 4 (b) of that Article. Consequently, this offer was regularly rejected (T-200/16, paras 65-66, own translation from French).

This is important because the GC has no interest in (and probably no possibility to) establishing the way in which envelope (c) came to be open despite it being labelled as not to be open by the mail service. This fits with the burden of proof derived from a claim for damages based on Art 340 TFEU, which was the relevant underlying legal basis for this case. However, this leaves important questions unanswered, such as what would have happened if the binders were sealed in envelops, so that the opening of envelope (c) would not have made any of the contents of the offer directly accessible. In that case, the rejection of the offer on the basis that it had already been opened would be very problematic and would probably have required further investigation of how this came to be.

On balance, it seems that the GC places the burden of ensuring that the offers remain confidential on the tenderers, at least implicitly, by supporting a broad approach to the rejection of offers which confidentiality may have been compromised. As a matter of general trend, this seems preferable to the opposite. However, this also shows the unavoidable limitations of paper-based procurement procedures. Had the Commission been running an e-procurement (or at least electronic submission) process, this situation could have been easily avoided. It seems that, once more, the adaptation of procurement (and administrative activity, more generally) to new technologies cannot come quickly enough.

A second look at the CJEU's public procurement activity--and a reflection on its implications in terms of remedies and the effectiveness of eu judicial activity

The Court of Justice of the European Union (CJEU) has now published the final version of its Judicial Activity 2015 Annual Report. The release of these final statistics on the CJEU activity for the past year provides a chance to take a second look at the evolution of procurement cases over a long(ish) time period--statistics are now available for a full decade regarding the General Court (GC) and for the period since 2010 for the Court of Justice (ECJ). A quick look at the the statistics shows a continuation of the trend of increasing backlog in this area (see here), and a closer look reveals how the backlog at the ECJ level has been deteriorating rather quickly in recent years.

There are some limitations of the statistical information that need to be stressed from the outset. First, as with previous editions of the judicial activity report (see previous comments of the 2012 and 2014 reports), having had more information on the status of pending cases would have helped gain a better understanding of the situation, particularly at ECJ level. It is still hard to understand why the GC explicitly reports on pending cases, while the ECJ does not. Second, not all cases are exactly comparable. While the activity at GC level is limited to challenges to procurement procedures carried out by the EU Institutions, the activity of the ECJ includes a mix of preliminary references (the vast majority of new cases) and appeals against GC decisions. In 2015, of the 26 new cases before the ECJ, 22 were preliminary references and 4 were appeals. This makes the assessment of the overall evolution of public procurement activity not very meaningful. Thus, I will rather discuss the evolution at the GC and ECJ level separately.

Evolution of procurement cases at GC level--what are the implications in terms of the effectiveness of remedies for eu institutions' procurement?

The GC has been managing to slightly reduce its backlog of pending cases in the last 5 years and the trend seemed to roughly remain stationary in 2015, when it opened 23 new cases and completed another 22. Provided that no cases are "left at the bottom of the pile", it would thus seem that the GC is in a position to manage and cope with its public procurement docket.

However, this should not be too surprising, given the low pressure that being the review court for all the procurement activities developed by the EU Institutions creates. According to the recent Special Report No 17/2016 of the European Court of Auditors (ECA) on EU institutional procurement (see here), the EU Institutions carried out procurement for a value of €4.2 bn in 2014. According to ECA: "In the 6‑year period from 2009 to 2014 the General Court completed 3,419 cases of which 106 dealt with public procurement by the EU institutions (3.1 %), or on average 17.6 cases per year. The 106 cases relating to public procurement gave rise to a total of 123 decisions: 66 judgments and 57 orders" (p. 44).

The Commission generally estimates that it awards more than 9,000 contracts per year. However, on average, there are less than 20 challenges of those procurement decisions per year. This would roughly indicate that less than 0.25% of procurement decisions of the EU Institutions get challenged before the GC. This is a very low caseload for a court in charge of reviewing procurement activity of a value of €4.2 bn. Searching for valid comparators is difficult because each jurisdiction organises procurement remedies in different ways and there are important cultural and practical factors that can determine very different litigation rates (going from the possible extreme of high litigation in Italy, where around 40% of the cases in the administrative courts are public procurement cases, to the UK, where there is only a handful of public procurement cases every year).

However, one gets the sense that 20 cases per year is a very low litigation rate by taking into consideration that EU Member States with similar or lower estimated procurement expenditure show more intense litigation. For example, based on the Commission's data, Bulgaria has over 1,000 cases per year (estimated procurement covered by the EU rules of €2.83 bn), Latvia has over 200 cases (€3.55 bn), Luxembourg has over 50 cases (€0.56 bn), and the Slovak Republic has over 1,000 cases (€3.98 bn). If we calculate the incidence of litigation by volume of (estimated) expenditure (covered by the EU rules), we would get the (very, very) rough measure of cases by billion Euro of expenditure. Using the information available (which is far from ideal), we can construct the table on the left-handside column.

This information should be taken with immense caution, and none of the specific figures for any of the countries of the list should be used as an indication of the actual intensity of litigation in that jurisdiction. However, I think that his serves to make the broader point that the level of litigation of procurement decisions adopted by the EU Institutions is indeed very low, at least by an order of magnitude.

The implication of this insight in terms of a potential review of the remedies mechanisms available to challenge procurement decisions by the EU Institutions--which has been advocated by ECA and should be strongly supported (see here)--is that the GC (in its current configuration and without a significant expansion of resources) is probably incapable of digesting any relevant increase of procurement litigation to a level in line with the jurisdictions of the Member States, except those with a lower intensity of procurement litigation. 

In my view, thus, it would seem advisable to explore suitable alternatives, such as the creation of a procurement review agency in charge of the oversight of the procurement carried out by the EU Institutions, the submission of the procurement of the EU Institutions to the procurement remedies system of the relevant Member State, or some other similar option--including the possibility of creating a specialised chamber within the General Court, in case the provision of additional resources to this entity was considered preferable than a more substantial reform of the remedies system.

Evolution of procurement cases at ECJ level--will a new wave of preliminary references flood the court and dampen the papers?

The ECJ has been accumulating a significant backlog of procurement cases over the last 5 years (no earlier statistics are available). What seems worrying is that, for the last 3 years, the backlog has been increasing at a pace of approximately 10 cases per year, and the total backlog at the end of 2015 trebled the level in 2010.

In view of the expiry of deadline for the transposition of the 2014 Public Procurement Package in 2016 (and even if a significant number of Member States are delayed), it seems reasonable to expect a new wave of preliminary references for the interpretation of the ever so complex new rules and their coordination with the previous case law in this area of EU economic law. Thus, it would seem reasonable to expect the ECJ to consider strategies to cope not only with the existing backlog, but also with the likely increase in referrals in the period between now and, say, 2020.

Of course, it is difficult to develop a strategy that prioritises public procurement over other areas of judicial activity, and there may be good reasons to consider other types of cases (including within EU economic law, such as tax avoidance cases) equally or more relevant or urgent. However, the advantage of procurement is that, it being a very specialistic and relatively self-contained area, it would not be too difficult to create a task force to deal with procurement cases in a swift manner. This would require an investment in human capital for a temporary period.

The European Commission did this in the wake of the financial crisis in order to deal with the increased volume of State aid cases [for discussion, see A Sanchez-Graells, “Digging itself out of the hole? A critical assessment of the Commission’s attempt to revitalise State aid enforcement after the crisis” (2016) Journal of Antitrust Enforcement, forthcoming]. The possibility of introducing similar flexibility at ECJ level could help boost the effectiveness of EU law (and public procurement law in particular) through a swifter process for the clarification of new rules that, otherwise, may remain in legal limbo for quite some time.

In terms of looking for resource to do so, of course, the elephant in the room is the issue of the cost of language management (as in translation and interpretation) at the CJEU. This is probably heretical, but I think that a reduction of the resource dedicated to language management would be the easiest and quickest way of boosting the ability of the CJEU to deal with a larger docket of legal issues. The Management Report in the 2015 Annual Report makes this overwhelmingly clear. To my mind, the fact that 37.4% of the posts at the CJEU are judicial (including Cabinets, Registries, Research and Documentation, Library, Protocol, Communication and Publications), while 51.0% of the posts are languages positions (including Translation and Interpretation), is troubling. Basically, because this heaviness of language management has the combined effect of: a) draining resource that could be put to a different use and, b) delaying the functioning of the CJEU.

Overall conclusion

It is probably not surprising that a look at the statistical information on judicial activity shows that the CJEU is not prepared for the likely developments in litigation in the area of public procurement law. It may well be overwhelmed by developments at the EU level that triggered a higher intensity of procurement litigation--should the remedies system for EU Institutional procurement be developed along the lines proposed by the European Court of Auditors; and it is most certainly in a bad position to absorb any significant increase in the number of questions referred for a preliminary ruling that results from the Member States application of the 2014 Public Procurement Package in a systematic manner.

In my opinion, the CJEU (and the EU Institutions more generally) should look for creative ways of preparing for these changes. Otherwise, the effectiveness of the EU public procurement rules may be jeopardised and/or significantly delayed, particularly concerning the interpretation of the 2014 Public Procurement Package, which is certainly not without legal controversy.

Evaluation of tenders after the expiry of their validity does not annul tender for EU public contracts (T-553/13)

In its Judgment of 2 December 2015 in European Dynamics Luxembourg and Evropaïki Dynamiki v Joint undertaking Fusion for Energy, T-553/13, EU:T:2015:918, the General Court (GC) of the Court of Justice of the European Union (CJEU) has assessed one more case of procurement litigation concerning a cascade-based framework agreement for the provision of IT services (for previous cases, see here and here). This is proving to be quite a highly litigated design for framework agreements, so it is worth looking in detail at the scope of the dispute to determine whether the design of this type of arrangement makes them more exposed to litigation. The analysis will show that it does not because the claims made against the conclusion of the framework agreement are purely procedural.

In the case at hand, the Joint undertaking Fusion for Energy (F4E) issued a tender for a framework agreement for the provision of IT Services and requested that offers remained valid for a minimum of 130 days from the deadline for the receipt of tenders. The successful tenderers were also required to maintain the validity of their tenders for a further 60 days from the notification of the award of the contract. Given the high volume of tenders received, F4E took longer than 130 days in evaluating them, and the evaluation was concluded after the minimum validity period of the tenders had expired.

European Dynamics (ED) was once more a disappointed tenderer. Its offer was not included in the cascade mechanism of the framework agreement, which F4E intended to conclude with three alternative suppliers. Additionally to its standard arguments on failure to meet the duty to provide reasons (which, this time, do not constitute the core of the dispute), ED challenged the process claiming that by evaluating the tenders after their validity period had come to an end, F4E infringed the applicable rules [which require that ‘[t]he invitation to tender ... shall at least … specify the period during which a tender will remain valid and may not be varied in any respect’] and treated ED in a discriminatory manner compared with other tenderers. The key argument submitted by ED is that

the principles of sound administration, transparency and equal treatment of tenderers require that no contract be awarded or signed in the event that one or more tenders are no longer valid in the course of the evaluation, unless the contracting authority officially requests and obtains an extension of the validity period of the tenders... Accordingly, it is a prerequisite for the validity of the evaluation of tenders and the award procedure that tenders be valid throughout the entire evaluation process, in order to ensure that the evaluator’s examination is impartial (T-553/13, para 18).

The GC rejects the argument on several points. Firstly, the GC stresses that the requirement to indicate a minimum tender validity does not impose 

an obligation on the contracting authority to complete the evaluation of a tender within the validity period of that tender. Whilst it is certainly in the interest of the contracting authority to complete its assessment before the expiry of the tenders’ validity period, exceeding that time-limit cannot render the procedure unlawful, nor can it constitute a ground for cancellation of the evaluation of the tenders (T-553/13, para 22).

The GC clarifies that 'the purpose of the validity period of tenders is to ensure that a tenderer does not vary his tender during the evaluation stage and that compliance with that period is not a condition sine qua non for the signature of contracts at the end of the award procedure' (T-553/13, para 24). 

The formulation of the second part of this clarification could lead to uncertainty, as it could be understood that a tender which validity period did not meet the minimum, or that was modified during that term, could still lead to award of the contract. That is not what the GC intends to indicate. In fact, the GC makes reference to the previous case Evropaïki Dynamiki v Commission, T-236/09, EU:T:2012:127, where that clarification was made in a different context. In that case, the GC ruled that

As regards the ... argument that the principles of transparency, good administration and equal treatment among tenderers preclude a contract being signed when one or more tenders are no longer valid, suffice it to say that the purpose of the period of validity of tenders is to ensure that a tenderer does not vary his tender during the evaluation stage ... it is not a condition sine qua non for the signature of contracts at the end of the award procedure. In the present case, the decisions to award the contracts were taken ... within the period of validity of the tenders. Moreover, the applicant merely states that signing the contract when one or more tenders are no longer valid is a breach of the principles of transparency, good administration and equal treatment, but does not explain in what way that constitutes a breach (T-236/09, para 40, emphasis added).

Therefore, the combined reading of para 24 of ED v E4F (T-553/13) and para 40 of ED v Commission (T-236/09) leads to the interpretation that the signature of the contract is not prevented by the fact that one or more tenders are no longer valid at that time. However, it also raises the issue of whether the tender chosen for the award of the contract must remain valid at the time of that decision (as T-236/09, para 40 suggests). The rest of the ED v E4F case discusses this in more detail. As the GC explains

25 ... the applicants may not regard evaluation of the tenders during their validity period as a condition of the validity of the tender procedure ...[the] claim that the principles of transparency, sound administration and equal treatment between tenderers preclude a contract from being concluded when one or more tenders is no longer valid must be rejected (see, to that effect, [T-236/09] paragraph 40).

26 Moreover, in so far as the applicants claim that F4E should have officially requested [ED] to extend the validity of its tender when it realised that the period in question was not long enough to complete the evaluation phase, it should be stressed that, whilst it is true that the contracting authority is entitled to request an extension of the validity period of tenders, it is not required to do so under any of the applicable provisions.

27 As F4E correctly notes, the only consequence that may arise from that provision for the contracting authority is that it cannot oblige a tenderer whose tender has expired to sign and perform a contract based on the conditions set out in that tender.

28 In addition, equal treatment between tenderers is ensured by evaluating all the tenders using the same evaluation criteria and comparing them with one another. If the validity period of the tenders is not one of the evaluation criteria, it could only lead to discrimination in respect of their evaluation if it were proved that a tender was not taken into account on the ground that it had expired ...

29 The file shows that the tenders of all tenderers were evaluated, including [ED]’s tender, and that that evaluation took place while the tenders were valid ...

30 In such circumstances, the mere fact that the final decision was adopted after that validity period had ended cannot render the award decision unlawful (T-553/13, paras 25-29, emphasis added).

In my view, the GC fails to take into account all possible scenarios of discrimination that could arise in such circumstances. It is true that not taking into account a tender for the purposes of evaluation on the ground that it had expired would constitute discriminatory treatment. However, it would also be discriminatory to allow undertakings that set a specific period of validity for their tender to waive it upon hearing that their tender was chosen for award. 

Thus, the argument that the contracting authority must ensure that all tenders remain valid throughout the period carries weight if one considers the strategic games that could ensue when tenderers whose offer has expired are allowed to extend them, particularly if that implicitly creates financial impacts that will (possibly) require modifications of the contract down the line (even if those modifications 'simply' result in the trigger of price revision clauses earlier than would have otherwise been expected).

In my view, the GC also fails to make proper use of the right to good administration. If a diligent contracting authority fails to evaluate the tenders it receives in good time to make sure that all of them remain valid when it aims to enter into the framework agreement or contract, it should (or, I would say, shall) actually request them to extend the validity of their offers. There is no reason to allow the contracting authority not to do so on the basis that "the only consequence ... is that it cannot oblige a tenderer whose tender has expired to sign and perform a contract based on the conditions set out in that tender". That would constitute very poor administration and would severely limit the ability of the contracting authority (and society at large, indirectly) to benefit from competitive outcomes leading to value for money due to its poor time and workload management. Thus, this does not seem to be a proper analysis under the principle of good administration.

On a related note, I think that the GC also got the wrong end of the stick when assessing instances where the contracting authority actually decides to request such extensions of the validity of offers when it realises that it cannot complete the evaluation and award the contract in time. In the previous ED v Commission case, the GC considered that "the fact that the [contracting authority] stated that it did not intend to cancel the tendering procedure in the event of a tenderer refusing to extend the validity of its tender does not mean that the [tenderer who was approach for an extension] was under pressure to agree to the request for extension" (T-236/09, para 39). From a business perspective, this simply makes no sense. Commercial pressure to extend offers should also be subjected to a high standard of assessment under the principle of good administration and the contracting authority should have very powerful reasons not to cancel the tender. The same reasoning that prevents contracting authorities to resort to urgency-based procedures due to situations they should have avoided applies here [see A Sanchez Graells, Public procurement and the EU competition rules, 2nd edn, (Oxford, Hart, 2015) 435-436].

Overall, it seems to me that the GC is generally failing to incorporate commercial reality arguments into its judicial decision-making when it comes to this tricky issue of expiry of time-limited tenders during the evaluation process, or before award of the contract. I would thus support a change of tack in future cases, so that there is really no space for strategic games at that stage, and so that contracting authorities do not engage in business-like negotiations that they could (and should) have prevented by reacting earlier on during the evaluation period.

GC imposes liability on the European Commission for obvious breach of equal treatment in public procurement (T-199/14)

In its Judgment of 29 October 2015 in Vanbreda Risk & Benefits v Commission, T-199/14, EU:T:2015:820 (not available in English), the General Court (GC) annulled a procurement award decision for several breaches of the principle of equal treatment and condemned the European Commission to compensate the complainant for the damages resulting from the award of the contract to a competing undertaking. 

This is the second instance of imposition of liability on EU Institutions for breach of the applicable public procurement rules in less than a month (see European Dynamics Luxembourg v OHIM). However, this case differs from previous findings of liability of EU Institutions because it is not concerned with formal aspects of the procurement process (namely, debriefing obligations and the duty to state reasons), but with substantial issues concerning the equal treatment of tenderers. 

In fact, as the analysis below will show, the case indicates very poor procurement practice by the European Commission, which is surprising and may diminish the credibility of the institution that is aiming to foster a culture of compliance with public procurement rules as a key aspect of the new strategy for a deeper and fairer internal market (see comments here). Indeed, the Commission would be well advised to tighten up its own procurement processes and to lead by example in such change of mentality regarding compliance with  substantive standards and good procurement practices.

In the case at hand, the European Commission had tendered a contract for insurance services. Amongst the tender conditions, the Commission imposed that 'in the case of awarding the contract to a consortium of economic operators, all members of this group had to have " joint responsibility [...] in executing the contract"'. This requirement triggered a significant volume of documentary obligations in case tenderers intended to submit joint offers as part of a consortium (see T-199/14, paras 7-12). 

The Commission received two offers: one from Vanbreda Risk & Benefits (Vanbreda) and one from Marsh. Marsh's offer was made in consortium with others, and this included the participation of AIG Europe Limited (AIG). In view of this, Vanbreda indicated to the European Commission that, in its ownexperience,

AIG, who participated in the Marsh consortium, refused on principle to jointly undertake liability and therefore [Vanbreda] was almost certain that [Marsh's] could not comply with the substantive and formal requirements of the tender specifications (T-199/14, para 14, own translation from French).

The European Commission did not respond to this claim by Vanbreda. First, on the basis that the evaluation of the tenders was on-going (para 15) and, upon communicating its decision to award the contract to the Marsh consortium and Vanbreda's insistence that the offer could not possibly meet the requirement of joint liability, on the pretext that at this debriefing stage, it could not provide information other that 'the characteristics and relative advantages of the successful tender and the name of the successful tenderer' (para 21). After repeated requests from Vanbreda, the Commission eventually replied that

the issues at the root of the applicant's concern had been duly analyzed throughout the tender evaluation stage, that all offers were found compliant and, therefore, the contract was awarded to the bid with the lowest price. The Commission did not forward any of the requested documents to the applicant (T-199/14, para 24, own translation from French).

Unsurprisingly, Vanbreda challenged the award decision. Its main contention was that by allowing Marsh to offer a joint bid for the performance of the contract with a consortium of non-jointly and severally liable insurers, the Commission would have allowed this operator to offer a much lower price (see paras 42-43, where the impact of joint liability on pricing is further discussed).

Upon review of the file in the context of the challenge, Vanbreda discovered that its interpretation of the offer submitted by Marsh did not reflect the reality of the offer submitted by Marsh in cooperation with other insurers. As the GC summarises

Marsh would have in fact filed its offer as a broker sole tenderer and the Commission and Marsh would have corresponded extensively after the opening of tenders about the solidarity condition. The Commission never reported these facts to [Vanbreda], despite repeated questioning of the latter (T-199/14, para 45, own translation from French).

In view of these additional facts, Vanbreda adjusted its arguments to oppose the possibility that an insurance company such as Marsh could have submitted an offer as a 'broker sole tenderer' because, in its view, this would have infringed the requirement of joint liability in the execution of the contract. The Commission opposed this argument on the basis that it relied on an erroneous and restrictive interpretation of both the tender documentation and Belgian law (see details in paras 54-55).

In view of these arguments, and after reminding that the principle of equal treatment of tenderers aims to promote the development of healthy and effective competition between companies participating in a public tender and requires that all tenderers have the same chances in formulating the terms of their offers and are subject to the same conditions of competition (para 64), the GC found that

93 It appears from the foregoing that the admission of a broker to participate in the tender as the sole tenderer is contrary both to the provisions of the tender and the economy of the system set up thereby. The arguments put forward by the Commission concerning the goal it would have pursued of trying to maintain a high level of competition by the participants in the contested tender, are not likely to justify non-compliance with the tender documentation.

94 Furthermore, it appears from the evidence that one of the essential conditions of the tender consisted in the commitment, by the insurer or insurers, to ensure that the contracting authority would benefit from a 100% coverage of the risks set out in the specifications.

95 According to the Commission, in the hypothesis ... of a broker sole tenderer, it would have been incumbent upon the latter to organize the practicalities of the execution of the contract. This approach would have meant for the Commission to check whether the 100% coverage condition described in paragraph 94 above was fulfilled by focusing solely on the results and not on how it was obtained.

96 In this case, when submitting his tender, Marsh presented a distribution of risks between the participating insurance companies in order to reach the goal of 100% coverage. By letter of 14 February 2014, Marsh informed the Commission that one of the insurers to take part in its offering, AIG, had refused to sign the contract. Following this defection, Marsh proposed a new allocation of these risks, without changing the total price of the successful tender, which implied that the coverage of the share of AIG's participation would firstly be achieved by increasing the participation quotas of the remaining insurance companies and, secondly, by allocating a portion of that share to two new insurance companies  that were not among those originally specified in the Marsh's tender.

97 Accordingly, when Marsh had to, firstly, renegotiate increasing the shares of the insurance companies which had initially mandated it as a broker and, secondly, negotiate the participation of two new insurers, not only the competing offer [by Vanbreda] was known, but the certainty of the award to Marsh was acquired. Conversely, if at the time of the formation of the initial offer, and therefore without knowing that the contract would be awarded to them, the insurance companies mandating Marsh had had to assume higher quotas of participation, which implied greater risks for them, it is likely that, in all economic probability, they would have demanded an increase in their remuneration. This could, therefore, have lead to an increase in the tender price. Similarly, the negotiation of a stake by two new insurers in the offer, at a time when neither the price of the competing offer nor the certainty of obtaining the contract would have been known, was also likely to lead to a different result, potentially affecting the total price of the offer proposed by Marsh upwards. Rather, in this case, the two new insurance companies could know exactly the maximum remuneration they could get at the time when they entered into an agreement with Marsh.

98 Therefore, even if the total price of the successful tender has actually not changed for the Commission, the conditions negotiated between the broker sole contractor and the rest of the insurance companies have undoubtedly been changed.

99 It follows from the above that the admission of a broker to participate in the call as a sole tenderer mandated by insurance companies, first, makes illusory the verification by the evaluation committee of the merits of the offer against the conditions imposed by the specifications; secondly, allows said broker to benefit, in this case, of a competitive advantage over other bidders; and thirdly, causes unequal treatment in favour of the broker sole tenderer relative, in particular, to a competitor submitting a joint bid with one or more insurers (T-199/14, paras 93-99, own translation from French and emphasis added).

The GC then goes on to assess to what extent the mere fact of the Commission's engagement with Marsh in pushing for a substitution of AIG after having found out that such insurance company had not accepted the clause on joint liability (as suggested by Vanbreda) amounted to a violation of the principle of equal treatment and the prohibition of negotiations immediately prior to award of the contract, and finds that it is indeed the case (paras 102-133) [for discussion on how such pre-award negotiations can affect competition, and arguments supporting the position followed by the GC, see A Sanchez Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 418-421].

The GC also assesses to what extent the post-evaluation authorisation of a change in the composition of the consortium on which Marsh actually relied also amounts, in itself, to a breach of the principle of equal treatment and, once more, it finds that such a breach took place (paras 134-158). 

Once these infringements are settled, the GC then goes one to assess to what extent the Commission needs to indemnify Vanbreda and finds that the damage derived from the loss of a chance of being awarded the contract and to obtain the corresponding market references in terms of experience is recoverable, but that the rest of claims on the basis of expected benefits and moral damage are not (paras 160-217).

As mentioned at the beginning, in my view, this is a case that shows that the European Commission may not be itself prepared to comply with the very same principles it expects Member States to adhere to. It seems just too obvious that the Commission was willing to engage in very significant procedural irregularities in order to secure a saving of about €0.25mn/year, which was the difference between the offers submitted by Marsh and Vanbreda. 

Under certain lenses, this is an understandable situation, but this is precisely why the rules on the award of public contracts need to prevent these situations of financial conflict of interest in the assessment of non-compliant bids. It seems like there is a very long and winding road ahead in terms of trying to avoid these problems down the rout of fostering a culture of compliance... In the meantime, this type of hard enforcement decisions such as the GC Judgment in Vanbreda Risk & Benefits v Commission must be most welcome.

Another excessively formalistic Judgment on conflicts of interest in public procurement (T-403/12)

Following its incipient line of public procurement case law that sets the burden of proof of conflicts of interest too high (see here), the General Court (GC) of the Court of Justice of the European Union has once more taken a very formalistic approach to the assessment of situations were certain bidders should be presumed to hold an unfair competitive advantage. In its Judgment of 13 October 2015 in Intrasoft International v Commission, T-403/12, EU:T:2015:774, the GC has adopted a  very formalistic approach to the 'objective' assessment of an unfair competitive advantage derived from prior involvement of a tenderer in the preparation of documentation used in a specific tender. Once more, the case involves procurement by the EU Institutions, but the legal arguments and the reasoning of the GC is relevant for procurement under the general EU rules.

In Intrasoft International v Commission, the excluded tenderer had been involved in the preparation of tender documents in an indirect way or as a result of relative happenstance. Indeed, the tenderer had not drafted documents specifically for the tender at hand, but it had been involved in the drafting of tender documentation for a previous project that ended up being 'reused' by the contracting authority. This situation was assessed in conflicting ways between the contracting authority (the European Commission) and the excluded tenderer.

According to the Commission, the (indirect) previous involvement sufficed to provide the tenderer with an undue competitive advantage that required its exclusion from the tender process as the only remedy to that conflict of interest. As summarised by the GC

the Commission argues that ... a certain number of documents drafted by the applicant under the previous contract were joined to the terms of reference for the new tendering procedure. These documents ‘constitute[d] the basis for an important portion of the activities due under the ongoing tender’. The Commission does not dispute, as the applicant observes, that the documents were made available to all potential candidates. However, it contends that the applicant had access to them before the other tenderers and thus enjoyed a competitive advantage, in particular, in searching for qualified experts. Furthermore, while not claiming that this was actually the situation in the present case, the Commission suggests that, having participated in their drafting, the applicant would have been in a position to draft the documents in a way that gave it a competitive advantage for the procurement contract at issue (T-403/12, para 65).

Not surprisingly, the excluded tenderer disagrees and has an opposite assessment of the advantage derived from the previous (indirect) involvement in the drafting of the tender documentation

the applicant states that it was not involved in drafting the terms of reference or the project-related requirements for [the specific tender]. The applicant states, in addition, that it did not have in its possession any more information than that available to all the tenderers. Consequently, according to the applicant, the fact that it had taken part in drawing up a number of technical documents in connection with another tendering procedure could not, in itself, constitute a sufficient reason to draw the unfavourable inference that the applicant was subject to a conflict of interest. Further, it considers that it is apparent from the Court’s case-law (judgment of 3 March 2005 in Fabricom, C-21/03 and C-34/03, ECR, EU:C:2005:127) that the experience acquired under a previous contract is not capable of distorting competition, because if that were the case most tenderers would have to be excluded from new tendering procedures on that ground (T-403/12, para 63).

In addressing these diverging assessments of the situation of conflict of interest potentially affecting the excluded tenderer, the GC adopts a very formalistic approach, which builds up as follows:

76 The awarding authorities are under no absolute obligation to exclude systematically tenderers in a situation of a conflict of interests, such exclusion not being justified in cases in which it is possible to show that that situation had no impact on their conduct in the context of the tender procedure and that it entails no actual risk of practices liable to distort competition between tenderers. On the other hand, the exclusion of a tenderer where there is a conflict of interests is essential where there is no more appropriate remedy to avoid any breach of the principles of equal treatment of tenderers and transparency (judgment in Nexans France v Entreprise commune Fusion for Energy, [T-415/10], EU:T:2013:141, paragraphs 116 and 117).

79 It is apparent from the case-law ... that the reasoning in terms of risk of conflict of interests requires a concrete assessment, first, of the tender and, second, of the situation of the tenderer concerned, and that the exclusion of that tenderer is a remedy designed to ensure respect for the principles of transparency and equality of opportunity for tenderers.

80 In order to determine whether, in the present case, there has been an infringement ... it is, therefore, necessary to examine, in the context of an objective analysis without taking into account the applicant’s intentions, whether the risk of a conflict of interests stems from the applicant’s situation and from a concrete assessment of its tender.

81 In the first place, it should be noted that, according to the Commission, the exclusion of the applicant because of a conflict of interests has the purpose of ensuring observance of the principle of equal treatment of tenderers. It argues that the applicant had access, before the others, to certain documents used as the basis for some of the activities connected with the call for tenders at issue, on the ground that the applicant was part of the consortium which drafted the documents in question for another call for tenders. It is apparent from the letter of 10 August 2012 that that access would have made available to the applicant ‘privileged information’ ... The Commission therefore takes the view, in accordance with what appears in the letter in question, that that access, before the other tenderers, would have given the applicant a competitive advantage in relation to those tenderers.

82 However, it cannot be accepted that the risk of a conflict of interests can be based on the mere fact that the applicant had access, before the other tenderers, to the documents specific to another call for tenders because it belonged to the consortium which prepared those documents which, subsequently, were retained to be used as a reference for the activities associated with the call for tenders at issue in the present case (T-403/12, paras 76 and 79-82, emphasis added).

This first part of the argument seems to follow the general Fabricom approach against instances of automatic exclusion of tenderers previously involved in the design of tender procedures. However, the specific application of this approach to the circumstances of the case becomes very quickly very formal and restrictive by putting what I see as excessive reliance on the fact that the tender documents 'originally belonged' to a different procedure or, in other words, were not exclusive for the tender procedure at hand. That part of the GC's argument goes as follows:

84 Within the meaning of the case-law ... the risk of a conflict of interests exists for the person responsible for the preparatory work for a public contract who participates in that same contract. In this respect it should be noted that, when the Court of Justice used the expression ‘preparatory work’ at paragraph 29 of the judgment in Fabricom, cited in paragraph 63 above (EU:C:2005:127), it was referring to work carried out in the context of one and the same call for tenders.

85 Therefore, the Commission was not entitled to treat the preparation of documents drafted in the course of another call for tenders in the same way as preparatory works under the tendering procedure at issue, within the meaning of the case-law mentioned at paragraph 63 above, unless to show objectively and specifically, first, that those documents had been prepared in the light of the tendering procedure at issue and, secondly, that they had given the applicant a real advantage. If this is not demonstrated, the documents prepared in the course of another tendering procedure, and chosen subsequently by the contracting authority as a reference for part of the activities in a different tendering procedure, are not considered ‘preparatory works’ within the meaning of the case-law previously cited ...

86 In the present case it must be stated that the applicant’s exclusion from the award of the contract was based on the mere fact that it was part of a consortium which drafted the documents under a previous tendering procedure, whereas it has not been argued that the other tenderers did not have access to those same documents in sufficient time. Furthermore, the preparation of those documents did not involve the applicant’s participation in the preparation of the tendering specifications in the call for tenders at issue. Therefore, it has not been established that the applicant was in possession of more information than the other tenderers, which would have amounted to a breach of the principles of equal treatment and of transparency.

87 It follows that the documents at issue do not constitute ‘privileged information’ ... The exclusion of the applicant, contrary to what is claimed by the Commission, is not therefore covered ... and is thus not justified by an infringement of the principles of equal treatment and transparency.

88 Moreover, to classify the documents prepared in the context of another tendering procedure as ‘preparatory work’, on the basis that they have been retained by the contracting authority as a reference for the activities connected to a subsequent tendering procedure, would lead, as the applicant rightly maintains, to it being automatically considered that the experience acquired through participation in an earlier call for tenders is liable to distort competition (T-403/12, paras 84-88, emphasis added).

The specific decision in the case at hand resulted in an annulment of the exclusion decision, but primarily on the basis of lack of evidence of the actual advantage enjoyed by the tenderer previously (indirectly) involved in the preparation of tender documentation. 

Beyond the specific case, the formal approach taken by the GC can create difficulties in actually excluding tenderers with a previous indirect involvement in the preparation of documents used in a specific tender process, particularly because the test created in para 85 of Intrasoft International v Commission comes to set a very high burden of proof that will be hard to discharge: the contracting authority cannot 'treat the preparation of documents drafted in the course of another call for tenders in the same way as preparatory works under the tendering procedure at issue, unless to show objectively and specifically, first, that those documents had been prepared in the light of the tendering procedure at issue and, secondly, that they had given the applicant a real advantage'. Such element of 'linkage' to the specific tender will definitely be very problematic. In my opinion, it can also infringe the general requirement that the assessment of conflicts of interest be totally objective, as stressed by the GC itself in this same case: 

The concept of a conflict of interests is objective in nature and, in order to establish it, it is appropriate to disregard the intentions of those concerned, in particular whether they acted in good faith (see judgment of 20 March 2013 in Nexans France v Entreprise commune Fusion for Energy, T-415/10, ECR, EU:T:2013:141, paragraph 115 and the case-law cited) (T-403/12, para 75, emphasis added).

If the expression 'prepared in the light of the tendering procedure at issue' is constructed to require (positive, recorded) knowledge by the tenderer preparing the documentation that it would be used in more than one tender procedure, then the GC may have just created a requirement of probatio diabolica where it is hard to see how that could be proved in cases where the 'reuse' of the documentation is decided subsequently to the involvement of the tenderer or, more importantly, where it is decided from the beginning but that decision is informal or never recorded (and regardless of it actually being disclosed to the tenderer participating in its preparation). 

Once more, thus, the development of the case law on conflicts of interest in public procurement under a strict and formalistic approach seems to leave a number of questions open. It will be interesting to see how the Court of Justice itself addresses them if they ever reach its docket.

Interesting case on the award of public contracts and 'prudential budgetary reserves' (T-90/14)

The tension between budgetary rules and public procurement law was rather evident in a recent case before the General Court (GC) of the Court of Justice of the European, which it decided in its Judgment of 8 October 2015 in Secolux v Commission, T-90/14, EU:T:2015:772 (only available in French). The case concerned procurement by the EU Institutions, but the situation seems to be applicable mutatis mutandis to procurement covered under the general EU rules for procurement carried out by the Member States.

In the case at hand, the European Commission received a tender valued at 4,222,680 euros and selected it for award of the contract, therefore disclosing that information to all other bidders as part of the general debriefing process. However, the Commission finally awarded the contract for a value of 5,070,000 euros and disclosed this information in the relevant contract award notice. There was no indication of the reasons behind this higher contract value in the contract award notice.

In view of this significant discrepancy between both contract values, a disappointed tenderer challenged the award decision on the basis of an infringement of the requirements of transparency, equal treatment and non-discrimination resulting from the applicable rules. Quite surprisingly, the GC dismissed this claim, on the basis of the following reasoning:

27. At the outset, it should be noted that, as the Commission has explained, the amount of the successful offer was 4,222,680 euros ... The contract has been awarded for 5 070 000 euros euros ... This later amount is equivalent to the rounded price of the offer of the successful tenderer, increased by 20% for indexing and contingencies.

29. In this context, the applicant alleges in particular infringement of the principles of transparency and equal treatment ... as well as rules on advertising.

32. ... it is understood that the applicant's complaint, in essence, is directed against the award of the contract for an amount equivalent to the offer of the successful tenderer , increased by 20% for indexing and contingencies.

37 According to the relevant case law, the principle of transparency, which is essentially aimed to ensure the absence of favoritism or arbitrariness on the part of the contracting authority, means that all terms and conditions of the award procedure must be drawn in a clear, precise and unequivocal manner in the contract notice or in the contract documents (judgments of 29 April 2004, Commission / CAS Succhi di Frutta, C-496/99 P, EU: C: 2004: 236, paragraph 111, and of 26 September 2014, Evropaïki Dynamiki / Commission, T-498/11, EU: T: 2014: 831, paragraph 119).

38 In order to ensure respect for equal treatment and transparency, it is important that all the elements taken into consideration by the contracting authority to identify the economically most advantageous tender and, if possible, their relative importance are known potential bidders when preparing their tenders (judgment of 21 July 2011, Evropaïki Dynamiki / EMSA, C-252/10 P, EU: C: 2011: 512, paragraph 30, and Evropaïki Dynamiki / Commission, paragraph 37 above, EU: T: 2014: 831, paragraph 121).

39 All these requirements were satisfied in this case. Indeed, it clearly appears from the case file that the terms and conditions of the award process have been clearly established in the call for tenders. In addition, the allocation by the Commission for a market value including indexing and contingencies was irrelevant in the identification of the most economically advantageous tender. 

40 ... the first plea must be rejected as in part inoperative and in part unfounded. None of the arguments advanced by the applicant is in any event undermine that conclusion. 

41 First, it should be stressed that the Commission limited itself to  the creation of a budgetary reserve, which will not be used in the absence of contingencies and applications for price indexing. Therefore, it is not a unilateral increase of the price proposed by the successful tenderer. Moreover, the reservation of a higher budget to deal with unforeseen circumstances constitutes prudential behavior on the part of the Commission (T-90/14, paras 27, 29, 32 and 37 to 411, own translation from French and emphasis added).

The reasoning of the GC is quite surprising because, regardless of the budgetary mechanisms or restrictions affecting the Commission's decision (eg under the applicable rules, there was no specific provision allowing for contract modification, which would have created an incentive for the Commission to create a budgetary reserve by means of inflating the award price), the contract was in fact awarded at a higher price than the tender submitted by the bidder, which is a significant deviation of the standard procedural requirement and opens the door to post-award negotiations that can completely undermine the pre-award competition. 

Such preservation of the result of the ex ante competition for the contract is precisely the reason why contract modification has been the object of specific regulation under Art 72 Dir 2014/24. In short, pre-empting the effectiveness of rules on contract modification (either inexistent rules that prevent it or positive rules that constrain it) by artificially increasing the price of the contract at award stage should not be seen as legitimate prudential behaviour on the part of the contracting authority, but a deviation of power that certainly infringes the basic requirements of the duty of good administration.

Moreover, in the case at hand, there were allegations that the offer was abnormally low and that the chosen tenderer would be unable to perform the contract at the prices offered. Under those circumstances, the GC would have been well advised to dig deeper into the (actual) reasons for the Commission to create such a budgetary reserve by means of an artificially high contract price (which is certainly not best or even standard practice), which could reasonably have been motivated by an actual knowledge that the execution of the contract could not be performed at the offered prices without increases (due to indexation, contingencies or otherwise). And this seems particularly suspicious in view of the fact that the awardee of the contract was an incumbent provider of services to the European Commission.

Thus, in my opinion, the decision of the GC in Secolux v Commission is either naive or way too formal and a better analysis of the behaviour of the Commission would be necessary. I am no expert in EU budgetary law at all, but I find it odd that the Commission can simply decide to create 'prudential budgetary reserves' by means of a manipulation of the prices of the contracts it awards. If there is a further appeal to the CJEU, I would prompt the Court to consider the issue under a more stringent framework.

Duty to state reasons for the ranking of tenders in public procurement: Evropaïki Dynamiki strikes back (T-297/09)

In its Judgment in Evropaïki Dynamiki v EASA, T-297/09, EU:T:2015:184, the General Court (GC) has assessed once more the contours of the obligation to state the reasons underlying public procurement decisions, this time regarding the classification of a tenderer in second or third position in a cascade procedure leading to the conclusion of 'ranked' framework contracts--and, once more, upon a challenge of a procurement decision by an EU Institution (this time, the European Aviation Safety Agency, EASA) by Evropaïki Dynamiki. On this occasion, the GC annuls some of EASA's Decisions classifying Evropaïki Dynamiki's tenderer in second or third position in the cascade procedure, but it does not award damages and imposes a 25/75 split of costs between the parties. The reasoning of the GC deserves some close attention and it is worth reminding that the case was on procurement controlled by Financial Regulation (EC, Euratom) No 1605/2002. 

The case is interesting and rather unconventional because it is concerned with framework agreements that EASA planned to conclude with the 3 top tenderers for each of the 5 lots tendered. Evropaïki Dynamiki's tenders being ranked second and third for different lots, then, did not exclude the undertaking from the framework agreements--which thus reduced the challenge to the ranking itself, but not to the conclusion of the ensuing framework agreements or the call-offs within them. Consequently, the challenge is actually concerned with the inclusion in the framework agreements of other tenderers, which looks like a rather uncommon setting for a procurement dispute.

This triggered an objection of inadmissibility by EASA, on the grounds that Evropaïki Dynamiki is one of the tenderers to which framework contracts were awarded for four lots, so it cannot be precluded that it will conclude specific contracts with EASA; and, second, that Evropaïki Dynamiki cannot challenge the award decisions, since it signed four framework contracts for the four lots in question and annulment of the contested decisions would serve no useful purpose. The GC rejected these arguments and declared the action admissible on the following grounds:

41 According to settled case-law, an action for annulment brought by a natural or legal person is admissible only in so far as that person has an interest in the contested measure being annulled (judgments of 14 September 1995 in Antillean Rice Mills and Others v Commission, T‑480/93 and T‑483/93, ECR, EU:T:1995:162, paragraph 59; 25 March 1999 in Gencor v Commission, T‑102/96, ECR, EU:T:1999:65, paragraph 40; and 14 April 2005 in Sniace v Commission, T‑141/03, ECR, EU:T:2005:129, paragraph 25). That interest must be vested and present (judgment of 17 September 1992 in NBV and NVB v Commission, T‑138/89, ECR, EU:T:1992:95, paragraph 33) and is evaluated as at the date on which the action is brought (judgment of 16 December 1963 in Forges de Clabecq v High Authority, 14/63, ECR, EU:C:1963:60, p. 357, at 371, and judgment in Sniace v Commission, cited above, EU:T:2005:129, paragraph 25).

42 In the present case, as EASA observes, each framework contract is implemented by specific contracts concluded according to the cascade mechanism. According to Section 2.7.1 of the tender specifications, when more than one contractor is nominated, EASA determines the specifications of the services required and will first address its request to the contractor who has been ranked first. If this contractor is unable to meet any of the criteria, EASA will address the same request to the contractor who has been ranked second. This process will end with conclusion of a specific contract with one of the contractors who were ranked among the top three and who can meet all the specifications of the services. It follows that if the applicant had been ranked first according to the cascade, this might have secured an advantage for it and that its ranking in a lower position amounts to a significant loss of opportunity. Such a ranking decision therefore produces legal effects vis-à-vis the applicant.

43 Moreover, the fact that the framework contracts which are the subject of the call for tenders at issue have been signed and implemented does not call into question the applicant’s legal interest in bringing proceedings. It is settled case-law that, even where a decision to award a contract has been fully implemented for the benefit of other competitors, a tenderer retains an interest in the annulment of such a decision; such interest consists either in the tenderer’s being properly restored by the contracting authority to his original position or in prompting that authority to make suitable amendments in the future to the tendering procedure if that procedure is found to be incompatible with certain legal requirements (see, to that effect, judgments of 6 March 1979 in Simmenthal v Commission, 92/78, ECR, EU:C:1979:53, paragraph 32, and of 14 October 1999 in CAS Succhi di Frutta v Commission, T‑191/96 and T‑106/97, ECR, EU:T:1999:256, paragraph 63). In the present case, the applicant retains at least an interest in the tenderers’ being correctly ranked according to the cascade (T-297/09, paras 41 to 43, emphasis added).

This is an interesting point to take into consideration. In my view, the implication of the reasoning of the GC is that, should a framework agreement not carry any of the rankings into the call-off phase (ie where the call-offs are either based on a free choice of the contracting authority, or based on a mini-competition), there seems to be no legitimate interest for a contractor included in the framework agreement to challenge the inclusion of other competitors in the contract--that is, the contractor does not have a right to determine whose competitors to face within the framework agreement. 

 

In my view, though, that is not necessarily the case, particularly if the exclusion of a given tenderer would have resulted in a framework including a more limited number of contractors. Hence, a case by case approach seems necessary in all instances, and no a contrario interpretation of the GC's reasoning in Evropaïki Dynamiki v EASA should be made.

The second part of the Judgment that I consider relevant concerns the award for damages. Given that the GC had determined that the admissibility of the claim rested on the fact that being ranked higher "secured an advantage ... and that ... ranking in a lower position amounts to a significant loss of opportunity", it would have seemed logical to expect a claim for compensation due to such "significant loss of opportunity" to be accepted and compensation, at some level, to be granted to Evropaïki Dynamiki. 

 

In that regard, I find it internally inconsistent that the GC has contrarily determined that 

As regards lots 2, 3 and 5, it is true that the contested decisions are vitiated by an inadequate statement of reasons and must be annulled for that reason. However, the inadequacy of the statement of reasons does not mean that the award of the contracts to the tenderers ranked higher in the cascade constitutes wrongful conduct or that there is a causal link between that fact and the loss alleged by the applicant (see, to that effect, judgment of 25 February 2003 in Renco v Council, T‑4/01, ECR, EU:T:2003:37, paragraph 89). It follows that the application for damages in respect of the alleged harm suffered as a result of the contested decisions in the context of lots 2, 3 and 5 of the call for tenders at issue must be dismissed as unfounded in so far as it is based on the inadequate statement of reasons for those decisions (T-297/09, para 185, emphasis added).

In my view, if the rankings were set out in a way that failed to state adequate reasons and Evropaïki Dynamiki has prevailed in getting those decisions annulled, then the preference given to the first ranked contractor should also have been annulled or, at least, compensated for. 

The decision of the GC makes some more sense if one takes into account that Evropaïki Dynamiki decided to limit the challenge to the decision on ranking itself (as set out in para 39, it withdrew "its application for annulment of all further related decisions contained in its first head of claim; that head of claim concerned only the decisions to rank its tenders second or third in the cascade. It follows that this action relates only to the contested decisions. Accordingly, the scope of the present application for annulment must be restricted to an examination of the lawfulness of those decisions."). 

However, the internal consistency of the consideration of a "significant loss of opportunity" regarding the admissibility of the claim is hard to reconcile with the apparent neutrality that the annulment of the decisions seems to have on the financial interests of Evropaïki Dynamiki in the view of the GC.

GC supports exercise of discretion in the assessment of technical compliance in public procurement (T-30/12)

In its Judgment in IDT Biologika v Commission, T-30/12, EU:T:2015:159 (only available in DE and FR and involving public procurement by the EU Institutions), the General Court (GC) has decided on an issue involving the contracting authority's discretion to assess the sufficiency of technical reports and certificates submitted by the tenderer in order to proof conformity of its offer with requirements set out in the technical specifications. This is an important case because it supports the exercise of technical discretion in the assessment of compliance with specifications in public procurement processes and, in my view, consolidates a welcome anti-formalistic development of this area of EU public procurement law.

In the case at hand, there was a tender for the supply of anti-rabies vaccines to a region in Serbia. The technical specifications determined that the vaccines had to meet certain conditions, amongst which it was necessary to demonstrate that the vaccine had been registered by the European Medicines Agency or equivalent agency of an EU Member State, and that its use was also authorised by the Serbian medicines agency prior to its distribution.

Bioveta made an offer to supply anti-rabies vaccines based on a type of virus ("SAD-Bern MSV Bio 10") that differed from the one included in the registration and the authorisation documents it submitted as part of the technical documentation (referring to "SAD-Bern"), which had been obtained for commercialisation in both Serbia and the Czech Republic. 

In view of that discrepancy, the contracting authority required Bioveta to clarify and confirm that, despite the use of a different virus, the vaccine it offered did not require a new registration with a medicines agency, and that the commercialisation under a different name did not breach the initial authorisation to distribute the product in the Serbian market. 

In simple terms, Bioveta explained that the virus had been changed in 1992 and that the "SAD-Bern MSV Bio 10" was the virus used when the product had been authorised for distribution in Serbia. It also submitted a written explanation of the mere commercial orientation of the change of name (implemented to distinguish Bioveta's vaccines from those of competitors that also sold solutions based on the "SAD-Bern" virus), and submitted that it did not require new registration. It also furnished a report by the Czech medicines agency that confirmed that the products were equivalent and the name "SAD-Bern MSV Bio 10" had been used in all registrations and renewals that had taken place since 1992. 

The contracting authority considered that the clarification was sufficient and the contract was eventually awarded to Bioveta. The decision was subsequently challenged by the competing bidder IDT Biologika on several grounds (some of them very technical in veterinary terms). In my view, the interesting ground for challenge rests on the discretion of the contracting authority when it comes to the assessment of technical aspects of a tender for a contract to be awarded on the basis of the lowest price (or in post-2014 terms, to the most cost-effective offer).  

IDT Biologika fundamentally submitted that the explanations and certificates provided by Bioveta had been improperly assessed and taken into consideration by the contracting authority, and that the award decision was flawed due to the exercise of excessive discretion in accepting them--as, in IDT Biologika's view, the contracting authority should have taken a formalistic approach and rejected Bioveta's tender.

In order to resolve this issue, the GC builds on CMB and Christof v Commission, where it was established that "in the context of a public procurement procedure where ... the contract is awarded to the tenderer who has submitted the lowest priced administratively and technically compliant tender, the contracting authority limits its margin of discretion with regard to the award of the contract to the lowest priced tender among the compliant tenders. However, its margin of discretion must remain broad with regard to the evaluation of the conformity of the tenders presented, and in particular the documentation provided in that regard" (T-407/07, EU:T:2011:477, para 116, emphasis added). It then goes on to determine that, in view of the information supplied by Bioveta, it was not unreasonable or manifestly wrong for the contracting authority not to reject the tender.

In my view, this is a significant consolidation of the case law and, under the CMB and Christof v Commission and IDT Biologika v Commission line of case law, contracting authorities and their evaluation teams should be confident in sticking to a possibilistic approach towards the assessment of the tenders--so as to move past strict formalities and accept sufficient technical evidence as to ensure compliance with the technical specifications.

This is certainly the correct approach from the perspective of maximization of competition and the assessment of technical requirements from a functional perspective--and, consequently, the one that best fits the framework set by Art 44 of Directive 2014/24 on test reports, certification and other means of proof of conformity with requirements or criteria set out in the technical specifications, the award criteria or the contract performance conditions (in particular, art 44(2) dir 2014/24 on alternative means of proof).

A spoonful of #publicprocurement in the #CJEU's bowl

Public procurement has been gaining relevance in the case law of the Court of Justice of the European Union (both at the General Court and Court of Justice level), both in qualitative and quantitative terms. A look at the statistics on public procurement cases clearly shows their increasing numerical importance, as well as the increasing backlog that is being accumulated in this area of EU economic law. 

(*) Note: Unfortunately, prior to 2010, the data for the Court of Justice does not include a separate category for public procurement cases (they were likely to be classified under approximation of laws, or under the relevant fundamental freedom). Therefore, the actual numbers may be higher than the available statistics show but, in my view, the general trends seem clear.

In terms of new cases, it seems clear that, despite the increasing prescriptiveness of the public procurement rules, the growing body of EU case law that interpret them, and the issuance of guidance by the European Commission--public procurement is an area of growing litigation. This is particularly clear before the General Court, which has the role of appeals tribunal for the public procurement decisions of the EU Institutions--which makes it surprising that, actually, the number of tender challenges the GC hears is relatively small if one takes into consideration the number of procurement procedures run by EU Institutions on a yearly basis (the Commission alone tenders over 9,000 contracts a year, mostly for services) [which may raise an issue of effectiveness of remedies for EU institutional procurement, but this is an issue that would deserve careful and separate consideration].

In view of this growing number of new cases, it is encouraging to see that the number of completed cases is also growing. However, this may be just a natural adjustment to the number of new cases--the more public procurement cases get on the table, the more that get completed in due time. In this regard, it would be interesting to estimate the average duration of public procurement cases to try to correlate increases in new cases (in 2008, for instance) with larger numbers of completed cases some years after (e.g. in 2011 or 2012).

On a less positive note, a comparison of new and completed cases shows that the pace of increase of completed cases is insufficient to cope with the larger workload of the Court of Justice in this area. It is clear to see that there is an increasing backlog of public procurement cases and that, in its best years, the EU Courts just manage to complete as many cases as they receive--leaving a relatively permanent backlog of some 40 cases before the GC and additional 20 cases before the CJEU.

All in all, then, it seems clear that the EU Courts have a lot of public procurement cases in their plates and that this is an area due to absorb more and more resources of this institution. In view of the larger workload of the GC in this area and the fact that it serves as the first instance for judicial review of the public procurement decisions of the EU Institutions, given the relatively minor relevance of some of these cases--as the (in)famous Evropaiki Dynamiki saga shows--and the fact that some of them are factually intensive, it may be worth reconsidering the attribution of this role to the GC and the potential creation of a specialized chamber to deal with public procurement cases (and there may be room for other specialized chambers, such as one on trademark law, but this is a matter for another day).

In any case, the development of EU public procurement law through the jurisprudence of the EU Courts seems prone to remain a constant feature of this area of EU economic law, at least for some years to come, until the existing 'stock' of pending cases is processed by the system. Something to keep an eye on.