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Public procurement case digest (June 2016)

June’s case digest includes four ECJ decisions, including rulings that the principle of equal treatment does not preclude a member of a consortium from replacing the consortium in a procurement, and that ERDF funding can be withheld or clawed back when a contracting authority fails to comply with domestic procurement law.

Please feel free to submit a comment below or send us an Ask query if you have any views on the cases covered, or think that we have missed a case that should be brought to the attention of public procurement practitioners.

ECJ rules that it is not a breach of the principle of equal treatment for a single consortium member to replace a consortium in a procurement procedure (MT Højgaard A/S, Züblin A/S v Banedanmark)

This decision followed a request by the Public Procurement Complaints Board, Denmark (the Board), for a preliminary ruling under Article 267 of the Treaty on the Functioning of the European Union (TFEU).

The railway infrastructure operator in Denmark (Banedanmark) had commenced a negotiated procedure for the construction of a new railway line. One of the pre-qualified consortia comprised two entities, one of which was subsequently declared insolvent. Banedanmark decided to allow the surviving consortium member (Per Aarsleff) to continue to participate alone and subsequently awarded the contract to it. A competing consortium issued proceedings claiming an annulment of the award decision on the ground that Banedanmark was in breach of the principles of equal treatment and transparency.

The ECJ ruled, on 24 May 2016, that the principle of equal treatment, read together with Article 51 of Directive 2004/17/EC (the Utilities Directive) did not prohibit a contracting entity from permitting a member of a bidding consortium (which had been invited to tender), to replace that consortium (following its dissolution) and to tender alone in a negotiated procedure. However, the ECJ also ruled that in order to do so, the economic operator must meet the bidding requirements and its participation must not place the other tenderers at a disadvantage.

ECJ holds that ERDF funding can be withheld or clawed back when a contracting authority fails to comply with domestic procurement law (Judeţul Neamţ, Judeţul Bacău v Ministerul Dezvoltǎrii Regionale şi Administraţiei Publice)

The ECJ has ruled that:

  • A failure to comply with national provisions by a contracting authority which is the beneficiary of structural funds, in connection with the award of a below threshold public contract may constitute an “irregularity” within the meaning of Article 1(2) of Regulation 2988/95 (on the protection of the European Communities’ financial interests) or Article 2(7) of Regulation 1083/2006 (on the European Regional Development Fund). This can give rise to a reduction or clawback of the funds in question, if that breach had the effect of prejudicing the general budget of the European Union by charging an unjustified item of expenditure.
  • Article 98(2) of Regulation 1083/2006 means that financial corrections by member states, if applied to co-financed expenditure under structural funds for failure to comply with rules concerning the award of public contracts, are administrative measures within the meaning of Article 4 of Regulation 2988/95 and not penalties.
  • The principles of legal certainty and protection of legitimate expectations do not preclude member states from applying financial corrections governed by internal legislation which came into force after an alleged breach of the rules governing public contracts occurred, provided that it involves the application of new rules to the future effects of situations which arose under the earlier rules.

ECJ decision on reliance on capacity of third parties to satisfy minimum tendering selection requirements (Pippo Pizzo v CRGT Srl)

The request for a preliminary ruling under Article 267 of the TFEU from the Council of Administrative Justice for the Region of Sicily was made in proceedings relating to the exclusion of a tenderer from a tendering procedure. The tender was for the award of a public service contract for the management of waste and cargo residues on board ships.

The ECJ ruled that:

  • Articles 47 and 48 of Directive 2004/18/EC for the award of public works contracts, public supply contracts and public service contracts must be interpreted as not precluding national legislation which allows an economic operator to rely on the capacities of one or more third-party entities for the purpose of satisfying the minimum requirements for participating in a tendering procedure which are only partially satisfied by that operator.
  • The principle of equal treatment and the obligation of transparency must be interpreted as precluding an economic operator from exclusion from the procedure for the award of a public contract as a result of the operator’s failure to comply with an obligation that does not expressly arise from the documents relating to that procedure or out of the national law in force, but from their interpretation of that law and those documents and from the incorporation of provisions into those documents by the national authorities or administrative courts. Therefore, the principles of equal treatment and of proportionality must be interpreted as not precluding an economic operator from being allowed to regularise its position and comply with that obligation within a period of time set by the contracting authority.

Although Directive 2004/18/EC has been repealed and replaced by Directive 2014/24/EC, the provisions referred to in this judgment are broadly repeated and expanded in Directive 2014/24. Therefore, it is considered that the judgment will be relevant to comparable issues arising under Directive 2014/24.

ECJ holds authorisation scheme not a public contract but potentially subject to Treaty principles (Dr Falk Pharma GmbH v DAK-Gesundheit)

The ECJ has ruled that a contract scheme for the acquisition of goods under which a public entity contracts with any economic operator which agrees to provide the goods, in accordance with predetermined conditions, without choosing between the interested operators, does not amount to a public contract within Directive 2004/18/EC.

However, if the authorisation procedure underpinning that scheme is of cross border interest, it must be organised in accordance with the fundamental rules of the TFEU, in particular, non-discrimination, equal treatment and transparency.

While the case arose from the German pharmaceutical market, the consideration given to the possibility for other models of purchase by contracting authorities is likely to be of interest across jurisdictions and sectors.

High Court sets aside automatic suspension in NHS procurement dispute (Kent Community Health NHS Foundation Trust v NHS Swale Clinical Commissioning Group and another)

The High Court has set aside an automatic suspension which arose in proceedings challenging the award of a contract for adult community services, holding that despite the not-for-profit status of the claimant, damages would be an adequate remedy and could be ascertained. There was no justification for approaching the question of adequacy of damages any differently whether the disappointed bidder was a not-for-profit or a for-profit entity or whether it would be in the public interest for the claimant to be delivering the services as opposed to the successful bidder

This decision is of interest because it sets out the key considerations relating to balancing the interests of for-profit and not-for-profit providers in relation to the delivery of NHS services and the possibility of damages as a remedy, taking account of the balance of convenience and the public interest.

General Court dismisses appeal against EU Office of Intellectual Property procurement decision (AF Steelcase SA v EUOIP)

The General Court has handed down its judgment on an appeal by AF Steelcase SA (Steelcase) relating to a decision of the European Office of Intellectual Property (EUOIP) to award a procurement contract for the supply and installation of furniture and signage to another bidder. Steelcase claimed that EUOIP infringed its duty to state reasons as well as the principles of sound administration and proportionality.

The General Court dismissed the appeal in its entirety, finding that EUOIP’s letters informing Steelcase of its decision to reject their bid were sufficient to satisfy the duty to state reasons under Article 296 of the TFEU. The General Court also found that EUOIP had not infringed the principle of sound administration, nor infringed Regulations 966/2012 and 1268/2012. Steelcase’s bid was not submitted in the way prescribed and a contracting authority cannot accept tenders which are inconsistent with the subject of the contract, as defined in those documents, as that would be incompatible with the principles of transparency and equal treatment.

Advocate General opinion on preliminary reference regarding application of Directive 2004/18 (Domenico Politano, AG’s Opinion)

Advocate General Wahl has handed down his opinion on a preliminary reference from an Italian court regarding the application of Directive 2004/18 to national legislation on betting and gambling which allows undertakings to be excluded from the tendering procedure if they fail to provide bank references from two separate banks in order to prove economic and financial standing.

Article 47(5) of Directive 2004/18 provides that if, for any valid reason, the economic operator is unable to provide the references requested by the contracting authority, it may prove its economic and financial standing by any other document which the contracting authority considers appropriate.

However, the Advocate General considered that the ECJ should answer the court by finding that the case in the main proceedings is not a public service contract under Directive 2004/18. As regards freedom of establishment, the Advocate General considered that the Italian legislation was not in breach provided that the measure was proportional, this being a matter for the referring court to verify.

Advocate General Opinion on subcontracting arrangements in relation to public bus services (Hormann Reisen GmbH v Stadt Augsburg, Landkreis Augsburg, AG’s Opinion)

Advocate General Sharpston has delivered an opinion to the effect that Article 5(1) of Regulation (EC) 1370/2007 on public passenger transport services, by rail and road, must be interpreted as meaning that a bus services contract (which is not a concession contract), is subject to the rules on subcontracting in Article 4(7) of Regulation 1370/2007. Therefore, a transport authority may specify in a contract notice that the successful tenderer will not be entitled to subcontract more than 30% of the public bus services entrusted to it by a public services contract.

The opinion would mean that such contracts have greater flexibility than under those awarded solely under Directive 2004/18/EC, under which contracting authorities may restrict successful tenderers in their use of subcontracting only in very limited circumstances. Whether changes introduced by Article 63(2) of Directive 2014/24 will mean that the ruling in this case will not be relevant to new procurements remains to be seen.


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