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Public procurement case digest (December 2016)

December’s case digest includes two ECJ rulings concerning the proportionality of selection and award decisions relating to professional misconduct and the interpretation of EU law on in-house awards, and a High Court decision denying an application for early specific disclosure.

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 selection and award decisions relating to grave professional misconduct must be proportionate (Connexxion Taxi Services BV v Staat der Nederlanden, Transvision BV and others)

The request was for a preliminary ruling concerned the interpretation of Article 45(2) of Directive 2004/18/EC and the general principles of equal treatment and proportionality and the extent of judicial review of the powers of contracting authorities. The request was made in proceedings between Connexxion Taxi Services BV (Connexxion) and the Netherlands State Ministry of Health, Wellbeing and Sport, (the Ministry) and the tender group constituted by Transvision BV and others (Tender Group) concerning the lawfulness of the Ministry’s decision to award a public services contract to the Tender Group.

The background to this case and the questions referred to the ECJ are set out in the opinion of the Advocate General delivered on 30 June 2016 (see Legal update, Advocate General proposes that it is lawful to apply proportionality when excluding tenderers).

The ECJ ruled that:

  • EU law, in particular Article 45(2) of Directive 2004/18/EC did not preclude national legislation, such as that at issue in the main proceedings, which required a contracting authority to assess, in accordance with the principle of proportionality, whether it was appropriate to exclude from a public contract a tenderer which was guilty of grave professional misconduct.
  • The provisions of Directive 2004/18, (in particular Article 2 and Annex VII A, point 17), read in the light of the principle of equal treatment and the obligation of transparency, precluded a contracting authority from deciding to award a public contract to a tenderer guilty of grave professional misconduct on the ground that the exclusion of that tenderer would be contrary to the principle of proportionality, even though, according to the tender conditions, a tenderer guilty of grave professional misconduct had necessarily to be excluded, without consideration of the proportionality of that sanction.

Given the flexibilities, and the self cleaning provisions which now appear in Directive 2014/24/EU and in the Public Contracts Regulations 2015, relating to selection and exclusion of economic operators, the issues arising in this case are less likely to arise in this jurisdiction.

ECJ rules that, in relation to the “Teckal test”, activities carried out for third parties must be disregarded, but activities carried out for controlling authorities which pre-date controls are relevant (Undis Servizi Srl v Comune di Sulmona and others)

This case concerned a request to the ECJ for a preliminary ruling concerning the interpretation of EU law on the award of a public contract without a public tendering procedure, a so-called “in-house” award. The request was submitted in a dispute between Undis Servizi Srl (Undis) and the Comune di Sulmona (Municipality of Sulmona, Italy), concerning the direct award of a contract for services by that municipality to Cogesa SpA (Cogesa).

Although the contract for services with Cogesa had not yet been concluded, the local authorities with shares in Cogesa entered into an agreement to exercise joint control over that body.

The authorities that controlled Cogesa required it to treat and recover the urban waste of certain municipalities of that region which were not shareholders of that company.

In order to determine whether the contractor carried out the essential part of its activity for the contracting authority, including local authorities which were its controlling shareholders, the ECJ ruled (in relation to Directive 2004/18) as follows:

  • An activity imposed on that contractor by a non-shareholder public authority for the benefit of local authorities, which are also not shareholders of that contractor and do not exercise any control over it, must not be taken into account, since that activity must be regarded as being carried out for third parties.
  • Account must be taken of all the circumstances of the case, which may include activity carried out by that contractor for those local authorities before such joint control took effect.

Whilst the court’s analysis of the core elements of the “in-house” exemption is of interest, there are two key points to be made in relation to Directive 2014/24, which has codified the exemption. Article 12 of Directive 2014/24 now provides that:

  • More than 80% of the activities of the controlled entity must be carried out in the performance of tasks entrusted to it by the controlling contracting authorities.
  • For the purpose of determining the 80% of activities, the average total turnover, or an appropriate alternative activity-based measure, such as costs incurred, for the three years preceding the contract award, shall be considered.

High Court refuses to make specific disclosure order in procurement challenge (Gem Environmental Building Services Ltd v London Borough of Tower Hamlets and Tower Hamlets Homes)

This case concerned an application by Gem Environmental Building Services Ltd (claimant) for early specific disclosure in a procurement dispute with the London Borough of Tower Hamlets and Tower Hamlets Homes (defendant). The claimant sought disclosure of any report/advice concerning its tender.

The underlying point at issue was the claimant’s potential misapplication of the principles applicable to early specific disclosure in procurement cases set out in Roche Diagnostics Ltd v The Mid-Yorkshire Hospitals NHS Trust [2013] EWHC 933 (TCC) (Roche).

The court held that it would not be appropriate to order specific early disclosure in this case for the following reasons:

  • The decision to abandon the procurement had been withdrawn because of the claimant’s case. This was a case where it was accepted that the principal decision under review could not stand.
  • The defendant had made plain that the uncertainty created by the withdrawal of the abandonment decision would not last. A decision was being taken on 28 November 2016 to decide whether or not to abandon the procurement or to continue with the claimant as the successful tenderer. It was not sensible for the claimant to waste the parties’ time, and ask the court to waste its time, considering an application for documents which could be rendered academic within 72 hours (given that the court hearing took place on 25 November 2016).
  • The application was needlessly aggressive, misconceived, unnecessary and unjustified in the light of the test in Roche. Once the defendant had voluntarily agreed to provide most of the documents sought in any event, the claimant ought to have recognised that no further benefit was going to accrue by insisting on going ahead with the oral hearing on 25 November 2016.

This case is of interest because it is a helpful reminder that whilst the Roche principles are intended to assist claiming contractors by making the playing field as level as possible as quickly as possible, claimants will not be able to rely upon them, as the court pointed out, “in circumstances which, on analysis, are far away from the risks of unfairness and detriment identified in Roche“.

General Court dismisses appeal against Commission tender for development and support of information systems (Evropaïki Dynamiki – Proigmena Systimata Tilepikoinonion Pliroforikiskai Tilematikis AE v European Commission)

The General Court has handed down its judgment on an appeal by the Greek company Evropaiki Dinamiki (European Dynamics) against the rejection of its tender within the framework of a EuropeAid closed procurement procedure.

The General Court rejected the appeal in its entirety, finding that the Commission’s (the contracting authority) assessment of previous experience and strategy was reasonably used to identify the most economically advantageous bid, that the Commission had satisfied its duty to state reasons and that the Commission had not erred in its assessment of European Dynamic’s technical offer.

General Court orders that procurement appeals have become devoid of purpose (EuroPower v Commission and STC v Commission)

The General Court has handed down two orders on appeals by EuroPower SpA (EuroPower) and STC SpA (STC) against a decision by the European Commission to award a procurement contract to a different bidder.

In 2014, the Commission published a call for tenders for the construction and maintenance of a tri-generation plant with a gas turbine on the Ispra (Italy) site of its Joint Research Centre. EuroPower and STC submitted bids, but both were rejected. They brought appeals before the General Court.

Subsequently, the Commission repealed its decision to award the contract to the winning bidder (the bidder was subject to investigation by national authorities) The Commission informed the General Court. Therefore, the contested decision disappeared completely from the legal order of the EU and the General Court confirmed that these appeals had become devoid of purpose and there was no need to adjudicate.

Advocate General proposes that Slovenian procurement of medicinal products is unlawful (Medisanus d.o.o. v Splosna Bolnisnica Murska Sobota (AG’s Opinion))

On 1 December 2016, the Advocate General delivered an opinion proposing that a Slovenian procurement of medicinal products was unlawful.

On 14 January 2015, Murska Sobota general hospital decided to launch a tendering procedure for the supply of medicinal products which had to be manufactured on the basis of Slovenian plasma (the national origin requirement).

That clause was introduced by the Murska Sobota general hospital in order to comply with national rules under which imports of medicinal products manufactured on the basis of plasma collected in another member state may be authorised only if the medicinal products manufactured on the basis of plasma collected in the national territory were not sufficient to cover the needs of the national population (the priority supply principle).

When the procurement was challenged, the National Commission for the review of awards of public procurement procedures decided to refer a question to the ECJ for a preliminary ruling.

The Advocate General proposed that the ECJ should answer the question for a preliminary ruling as follows:

  • Articles 34 and 36 TFEU must be interpreted as meaning that they preclude national rules authorising the import of medicinal products manufactured on the basis of plasma collected in another member state only if the medicinal products manufactured on the basis of plasma collected in the national territory are not sufficient to cover the needs of the national population.
  • Article 2 and Article 23(2) and (8) of Directive 2004/18/EC must be interpreted as meaning that they preclude a clause requiring, in accordance with those national rules, medicinal products forming the subject matter of a public supply contract procedure to be manufactured on the basis of plasma collected in the national territory.

The Advocate General has reaffirmed the obligations upon contracting authorities to treat bidders equally and without discrimination and that these obligations flow through to the terms of tender specifications. Equal access for bidders and the opening up of public procurement to competition are fundamental principles and any derogation from them will be strictly construed.

Advocate General finds that core elements of Lithuanian procurement law are unlawful (UAB “Borta” (AG’s Opinion))

This case concerned a request for a preliminary ruling from the Supreme Court of Lithuania to the ECJ relating to a tender specification for the award of a public works contract for constructing a quay at the port of Klaipėda (Lithuania).

The specification contained provisions governing tenders submitted by joint-activity partners. These required each partner to perform a proportion of the contract equivalent to its contribution to establishing the partnership’s professional experience. The referring court was concerned whether such a requirement was compatible with EU public procurement law.

Because the contested specification was only made known several weeks after the call for tenders had been published, the referring court also sought guidance on whether contracting authorities may change the tender specifications during the course of the contract award procedure. It also raised the question whether EU public procurement law precludes a provision that prohibits subcontracting ‘the main work’ in the context of public works contracts.

The Advocate General recommended that in the context of a public contract not subject to Directive 2004/17/EC or to Directive 2004/18/EC, which has a clear cross-border interest, the prohibition on discrimination on the grounds of nationality and the obligation of transparency under Articles 49 and 56 TFEU:

  • Preclude a national rule under which the tenderer must itself carry out the ‘main work’, as identified by the contracting authority, without it being possible to subcontract that part of the contract.
  • Preclude a tender specification which requires that, where partners propose to combine their professional capacities in a common tender, there must be an arithmetic correspondence between the proportion of the contract which each partner will perform and its contribution in fulfilling a professional experience condition.

The prohibition on discrimination and the obligation of transparency which arise under Articles 49 and 56 TFEU preclude changes of the tender specifications which introduce, without objective justification, restrictions concerning the demonstration of professional capacity by joint-activity partners that were plainly not included in the original version of the specifications.

If the opinion of the Advocate General is adopted by the ECJ, the court’s rulings will remain relevant to procurements undertaken under Directives 2014/24 and 2014/25 in terms of the latitude available to contracting authorities to control subcontracting and the use of consortia bids.

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