Feature I

Spotting the trends—a review of public procurement case law

Alexander Campbell, barrister at Field Court Chambers, considers the most significant public procurement challenges decided in the past year and identifies some key trends coming out of the courts, particularly at EU level.

What are the most notable public procurement challenges decided in the past 12 months?

In European Commission v Republic of Austria Case C-187/16, the Austrian Government decided not to use a competitive tendering process to award contracts for the production of passports, the Court of Justice held that where a national government seeks to invoke ‘essential security interests’ as a reason for awarding a contract directly rather than using a competitive tendering procedure, the government must show that the security interests which it is relying on cannot be properly protected in a competitive tendering process. The government’s mere assertion that a competitive tendering process could not be used will not be accepted on its own.

In Vakakis v European Commission Case T-292/15, the Court of Justice ruled on the level of investigation which is needed in cases where a conflict of interest might exist. In a procurement process for the contract to establish a National Food Authority in Albania, one of the unsuccessful bidders challenged the award of the contract to a bidder whose food expert had contributed to procurement documents prepared by the European Commission. The Court of Justice held that a procuring entity must examine carefully circumstances which might suggest a conflict of interest and that an economic operator should only be allowed to bid for a contract if the procuring entity is certain that there is not in fact a conflict of interest.

Lancashire NHS Foundation Trust & Blackpool Teaching Hospitals NHS Foundation Trust v Lancashire County Council [2018] EWHC 200 (TCC), [2018] All ER (D) 82 (Feb) was a case concerning a contract to provide nursing services for Lancashire County Council. An NHS trust which was unsuccessful in its bid challenged the tender process in court and, pursuant to the Public Contracts Regulations 2015 (PCR 2015), SI 2015/102, the award of the contract to the successful bidder was automatically suspended. The High Court considered the approach to follow when the successful bidder in a tender process applies to lift the automatic suspension. The court must consider whether damages would be an adequate remedy:

  • for the procuring entity if the stay remains but the unsuccessful bidder ultimately loses their legal challenge

  • for the unsuccessful bidder if the stay is lifted but they ultimately succeed in their legal challenge

If both parties’ cases appear equally strong, the court must ask itself where the balance of convenience lies in lifting or maintaining the automatic suspension, ie which approach carries the least risk of irremediable prejudice. Ultimately the High Court decided to maintain the stay pending trial.

In Lloyds of London v Agenzia Regionale per la Protezione dell’Ambiente della Calabria (Arpacal) Case C-144/17, the Court of Justice held that where multiple bidders are in a relationship of control or association with one another (for example as subsidiaries of the same parent), they should not automatically be assumed to be colluding with one another. Accordingly, a blanket exclusion of such bidders was held to be disproportionate.

Are there any key principles of best practice emerging from this case law, eg in relation to consortia, conflicts, bid evaluation and procurement documents?

The picture which emerges from some of the recent case law is of the courts, in particular at EU level, being keen for competitive tender processes to take place wherever possible and for bidders not to be excluded from tender processes if their exclusion is avoidable. Contracting authorities should avoid excluding bidders for collusion or conflicts of interest unless a careful examination of the circumstances has first taken place. Blanket policies and approaches by procuring entities are to be frowned upon.

Are there any trends in the courts’ procedural approach towards public procurement challenges, eg in relation to limitation, automatic suspension, specific applications, remedies?

In the jurisprudence of the last year, the courts have not displayed any major trends showing a shift in their approach on procedural issues. In the major case on automatic suspension in the last year (Lancashire NHS Foundation Trust), the High Court’s approach was a measured and balanced one, showing an approach on whether to lift an automatic stay imposed by the PCR 2015, SI 2015/102, which closely marries with the American Cyanamid [1975] 1 All ER 504 criteria, which did not show any particular trend in favour of one side or the other.

Are there any trends in the use of freedom of information/environmental information requests in the course of a public procurement challenge?

While the most recent case law and decisions of the Information Commissioner’s Office do not reveal any especially striking trends in the use of freedom of information/environmental information requests in public procurement processes, procuring entities should nevertheless bear in mind the impact of PCR 2015, SI 2015/102, reg 21. That regulation provides that information forwarded by an economic operator and designated by them as confidential cannot be disclosed by the procuring entity. That provision is, however, subject to the Freedom of Information Act 2000 and ‘any other requirement, or permission, for the disclosure of information that is applicable under the law of England and Wales or, as the case may be, Northern Ireland’ (see: PCR 2015, SI 2015/102, reg 21(2)(b), (c)).

What effect is EU court jurisprudence having on public procurement and procurement challenges in the UK?

Some of the most significant cases in public procurement law are emanating from the EU courts, rather than from the domestic courts. In the last 12 months alone, key decisions have been handed down in areas such as conflicts of interest in procurement processes and how to obviate the risk of collusion by bidders. Given the EU origin of much domestic public procurement law, it is perhaps unsurprising that it is at the EU level which so much of the key jurisprudence is being handed down.

What guidance would you give to a public body seeking to avoid or defend a public procurement challenge? Is there any official guidance available for public bodies?

In order to avoid legal challenges, public bodies should seek to ensure that procurement processes which they operate permit, as far as possible, the participation of economic operators who wish to take part. Aspirant bidders should only be excluded (for example due to a conflict of interest or collusion between bidders) where the reason for the potential exclusion has been properly looked into first.

Official public procurement policy information and guidance is available from the UK government published by the Crown Commercial Service. At the transnational level, the European Commission has produced publicly available guidance in the form of the Public Procurement Guidance for Practitioners which was republished in February 2018.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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Feature II

Court of Justice confirms open public procurement procedures can use a multi-stage knock out approach (Montte SL v Musikene)

The Court of Justice clarified that it is permissible during an open public procurement procedure to exclude bids at an initial stage based on technical criteria, and to only permit those who pass that stage to have their bids assessed at a second economic evaluation stage. The court noted that this approach was not expressly excluded by Directive EU 2014/24/EU and indeed the same is the case for the Public Contract Regulations 2015. (Written by Adam Heppinstall, barrister, Henderson Chambers.)

Montte SL v Musikene, Case C–546/16

What are the practical implications of this case?

The Public Contracts Regulations 2015 (PCR 2015), SI 2015/102, which implement Directive 2014/24/EU the European Parliament and of the Council of 26 February 2014 on public procurement and repealing Directive 2004/18/EC (the Public Contracts Directive) in England, Wales and Northern Ireland, provide for different forms of public procurement procedures:

  • open procedure

  • restricted procedure

  • competitive procedure with negotiation (also known as the negotiated procedure)

  • competitive dialogue procedure, and

  • innovation partnership procedure

It was thought that the main difference between the open procedure and, say, a negotiated or competitive dialogue procedure was that in an open competition any tenderer may make a bid so long as they are not excluded on certain grounds (under PCR 2015, SI 2015/102, reg 57) whereas the other procedures follow a two-stage process where initial bids are assessed and only those who pass certain pre-selection criteria are allowed to go through a further stage of assessment and evaluation.

Technical criteria are seen as selection criteria under PCR 2015, SI 2015/102, reg 58 and not exclusion criteria under PCR 2015, SI 2015/102, reg 57. What this case confirms, however, is that there is nothing to stop a public authority using the open procedure under PCR 2015, SI 2015/102, reg 27, but applying a multi-stage knock out approach where tenderers who do not meet a certain technical threshold are excluded from further consideration. Regulation 58 of PCR 2015 is worded so as to permit this approach, albeit not expressly so. For example, PCR 2015, SI 2015/102, reg 58(2) refers to imposing certain technical requirements for participation (ie if not met they could lead to exclusion).

In an open procedure, it is more usual to mark all bids using weighted criteria, including technical ability and price, at the same time, but this case confirms that a staged approach is also permitted even in an open competition. It therefore brings clarity to that issue, which is not expressly made clear in either the Public Contracts Directive or the PCR 2015.

What was the background?

Musikene is a Basque public sector foundation which held a public procurement competition for provision of musical instruments and the like using the open procedure. The procurement exercise was carried out in two stages—starting with a ‘technical’ stage where the tenderers had to get at least 35 points out of 50 to proceed to the ‘economic’ stage when the price and value offered would be assessed, again with a maximum of 50 points, with the final score being given out of 100.

Montee, a prospective tenderer, lodged an appeal with the Administrative Board of Contract Appeals of the Autonomous Basque Community, arguing that it was unlawful to exclude bidders from the economic stage of the competition because they were not awarded at least 35 points at the technical stage. They also objected to a final score being given out of 100, as bidders would not know which tenderer had been the cheapest at the final stage (as the two ‘out of 50’ scores would not be disclosed, just the final score out of 100).

The Board of Contract Appeals referred the case to the Court of Justice because it was concerned that an open competition under the Public Contracts Directive could not proceed in stages, as this was reserved for negotiated or competitive dialogue (or equivalent) procedures only. The Board also thought that it was not appropriate to reduce the number of competing tenderers using a technical knockout stage and that that 35 out of 50 might be too high a threshold in any event.

What did the court decide?

First, as a preliminary issue, the court confirmed that the Board of Contract of Appeals was a ‘court’ which was able to make a preliminary reference, as this had been contentious.

Secondly, the court noted that the Public Contracts Directive does not set out any rules (apart from time limits) as to how an open public procurement procedure is to be conducted. Indeed it expressly permits the setting of minimum technical requirements for bidders. The Court of Justice also noted that in selecting the most economically advantageous tender, the contracting authority is able to take into account technical merit.

So long as a contracting authority proceeds in accordance with the principles of transparency, non-discrimination and equal treatment so as to guarantee an objective comparison of the relative merits of the tenders in aid of the overall aim of effective competition, contracting authorities are free to determine the level of technical merit which bids must have and they can achieve this by setting a minimum knockout threshold as a first stage.

While there is express authority in the Public Contracts Directive enabling such a multi-stage approach (eg in negotiated or competitive dialogue procedures), which is absent from provisions relating to the open procedure, there is also nothing within the Directive which prevents such an approach to be taken during an open procedure.

The court held that this is the case even if the number of tenderers which get through to the second stage is drastically reduced following the application of the minimum technical score at the initial knockout stage. If after that stage there were no bids it wished to accept left, the contracting authority could always hold a new competition designed differently with different award criteria.

Case details

  • Court: Court of Justice

  • Judge: T von Danwitz, C Vajda, E Juhász, K Jürimäe and C Lycourgos

  • Date of judgment: 20 September 2018

Adam Heppinstall is a barrister at Henderson Chambers, and a member of LexisPSL’s Case Analysis Expert Panel. Suitable candidates are welcome to apply to become members of the panel. Please contact caseanalysis@lexisnexis.co.uk.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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Feature III

Public transport services procurement—Court of Justice assesses validity of call for tenders without a prior information notice (Rudigier)

The failure of a contracting authority to issue a prior information notice (PIN) one year before publishing a call for tenders for a public contract for bus services, as required by EU rules on public passenger transport services, did not necessarily require the annulment of the call for tenders. If an economic operator is still able to participate in the relevant public procurement exercise and is not placed at a significant disadvantage by the failure to issue a PIN, and as long as the general principles of EU law are complied with, the contracting authority’s infringement of the prior information requirement will not necessarily lead to the annulment of the call for tenders. (Written by Denis Edwards, Mercantile Barristers.)

Rudigier, Case C 518/17

What are the practical implications of this case?

The Court of Justice’s decision in this case emphasises the importance of the principle of effectiveness as the standard for assessing the implications of a particular breach of the public procurement rules.

Not every breach of the procedures in the public procurement directives will render a subsequent stage of the procedure or even a contract award unlawful. Rather, assuming that the same principles are applied to all cases, determination of a breach of public procurement procedures will depend on the facts of the case and on the effect on both the procedure and any economic operator affected by it.

Accordingly, a more complex contract or tender procedure, which might require more time to prepare for, could be more seriously affected by a breach of a prior information requirement. Similarly, a lack of prior information might have more serious implications for a direct award, where an affected economic operator could be completely deprived of an effective opportunity of taking part in the procurement exercise.

The key test was whether an economic operator could show that it was placed at a significant disadvantage as a result of a breach of the PIN requirement, compared to any other operator—for example, one who is already performing the relevant contract. If so, the underlying principles of effectiveness and equal treatment would be infringed.

What was the background?

Regulation (EC) 1370/2007 of the European Parliament and of the Council of 23 October 2007 on public passenger transport services by rail and by road and repealing Council Regulations (EEC) Nos 1191/69 and 1107/70 contains particular rules governing the procurement of contracts and services in the public passenger transport sector, including contracts for public bus services.

Subject to the particular rules in that Regulation, the award of contracts in this sector are subject to the general EU rules on public procurement, such as those derived from Articles 43–49 Treaty on the Functioning of the European Union and contained in Directive 2014/24/EU of the European Parliament and of the Council of 26 February 2014 on public procurement and repealing Directive 2004/18/EC (the Public Contracts Directive) and Directive 2014/25/EU of the European Parliament and of the Council of 26 February 2014 on procurement by entities operating in the water, energy, transport and postal services sectors and repealing Directive 2004/17/EC (The Utilities Directive).

One of the specific requirements provided by Article 7(2) of Regulation (EC) 1370/2007, is that a contracting authority must publish certain information about a prospective contract in the Official Journal of the European Union (OJEU) at least one year before either the launch of an invitation to tender or a direct award. In April 2016 the Salzburger Verkehrsverbund (SV), which was the competent authority for organising public bus services in and around Salzburg, started an open procurement procedure to award a contract for the supply of bus transport services, publishing a call for tenders in the OJEU. The call for tenders had not been preceded by a PIN as required by Article 7(2).

At the end of May 2016, Mr Rudigier applied to the Austrian courts for an order annulling the call for tenders because of the breach of Article 7(2). Having lost at first instance, the appeal court decided to refer questions to the Court of Justice, including whether the breach of Article 7(2) meant that the call for tenders was unlawful even if Mr Rudigier had not been prejudiced by the breach.

What did the court decide?

The court first confirmed that the prior information requirement in Article 7(2) of Regulation (EC) 1370/2007 applied to the award of contracts for public transport services where the award is to be made in accordance with the public procurement directives (including the Public Contracts Directive and the Utilities Directive). The question was what effect the absence of a PIN had on the validity of a call for tenders or award of a contract.

The court recalled that EU law does not require that the unlawfulness of an act or omission at a given stage of the public procurement procedure renders unlawful all subsequent acts in the procedure. While some failures to publish information, such as a failure to publish a notice in the OJEU inviting tenders where this is required by the public procurement directives, would render public contract awards ineffective, this was not prescribed by Regulation (EC) 1370/2007 as a consequence of a breach of the prior information requirement in Article 7(2).

It was for national law to decide whether breach of Article 7(2) of Regulation (EC) 1370/2007 should render a subsequent call for tenders or a public contract award unlawful, subject to national law complying with the principles of equivalence and effectiveness. While a breach of the PIN requirement may have different implications for a call for tenders in contrast to a direct award, the decisive consideration is whether an economic operator is placed at a substantial disadvantage as a result of the breach.

Case details

  • Court: Court of Justice

  • Judge: C Vajda, E Juhász and K Jürimäe

  • Date of judgment: 20 September 2018

Denis Edwards is a barrister at Mercantile Barristers, and a member of LexisPSL’s Case Analysis Expert Panel. Suitable candidates are welcome to apply to become members of the panel. Please contact caseanalysis@lexisnexis.co.uk.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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These articles are available within LexisPSL Local Government. To access further content, why not take out a free trial?

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