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 iVanbreda 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.