This new guest post by Dr Deividas Soloveičik provides interesting discussion of a recent Judgment of the Lithuanian Supreme Court concerning the liability of the contracting authority for the content of tender documentation. The case may be particularly relevant in the context of tenders for public service contracts or concessions, for example, concerning third-party estimates of demand. However, in the context of concessions, any liability of the type discussed by Dr Soloveičik could be problematic if it was seen as reducing or neutralising the transfer of risk to the concessionaire. So, indeed, a very interesting case.
What about some true statements while
drafting the procurement documents?
The Supreme Court of Lithuania has recently decided on the public buyers' obligation to be accurate and precise while drafting the procurement documentation, as well as on the liability of the contracting authorities failing to act so. A couple of things to be noted before the starting point. First, indeed, the ruling of the Court deals with domestic issues and has mainly (maybe solely) only a local impact. On the other hand, and secondly, it is a good example to learn from and, I believe, easily replicable elsewhere, despite the jurisdiction or a legal system. In other words, I believe, the conclusions the Court reflect a concept which should turn into a legal trend and a good example, applicable in a procurement practice worldwide. Thirdly, albeit the case-law of the Court of Justice of the EU and the national courts of Member States regarding the principle of transparency is voluminous, namely, that this principle includes the requirement to draft the procurement documents in a clear manner, the further discussed case has a different angle. Namely, it deals with the situation when the originally clear and precise statement provided in the procurement documents later, during the contract execution phase, appears to be a false statement, leading to the financial loss of the tenderer, now the contractor.
Hence, the Energijos parkas case dealt with the facts where the public buyer organised an open tender for the procurement of landfill gas extraction and utilization services. It has to be mentioned that the procurement was not organised under the EU public procurement directives and neither the Law on Public Procurement. However, the Court explicitly stated that the ruling it gave is also applicable to the realm of the public procurement law.
The facts of the case were the following. The public buyer drafted the tender documentation regarding the purchase of the above-mentioned services. To have the technical specification more explicit, it made a reference to the report of the engineers, a third party. The latter report outlined the parameters regarding the possible minimum gas extraction quantity with the clear reference that this evaluation was rock solid. It appeared during the execution of the contract that the possible quantity of the extracted gas was far from even the minimum the report mentioned and upon which reference the winner of the tender made its calculations and the whole business case. Therefore, the winner of the tender claimed that the false statements of the procurement documents, which were not possible to verify during the procurement procedure, led the claimant to the financial loss of more than 3 mil. EUR.
The Court started its reasoning from the reference to two main legal aspects. First, it stated that the situation at hand is very similar to the one of pre-contractual arrangement. By telling so, the Court continued that in such cases the general obligation universally acknowledged by contract law to act bona fide and to disclose the essential information to the other party before entering into any agreement must be obeyed. Secondly, the Supreme Court stated that neither authority is obliged to give such exact details of the subject of the procurement as it was done in the case at issue. However, the Court went on to say, if the contracting authority decides to include the very specific details of the subject matter, it must do it in a cautious way and providing accurate and correct information, so that the suppliers could make their proper calculations and prepare a business case.
After stating so, the Court decided that there is no difference in situations when the public buyer uses the material prepared by the third party. The Supreme Court noted that in such cases the contracting authority must take the risk if it later appears that the basic information it used in the procurement documentation was inaccurate or even false. The Court created a legal precedent by stating that if the authority, arranging the open tender, decides to include the specific details related to the subject matter of the procured object, such details become an inseparable part of the procurement documentation and the public authority is responsible for the certainty of the given details. This rule is applicable to cases where the contracting authority makes references to the information provided by the third parties.
The rationale of the Court is important in many practical aspects. First, no doubt that this is the extension of the principle of transparency, which requires the tender documentation to be precise and accurate, to the situations where the contracting authority refers to information given by the third party. In other words, the one who gives the information, must guarantee that it is correct, genuine and actual, especially if it relates to the circumstances upon which the market players design their economic decisions and business plans. Third, the precedent made by the Lithuanian Supreme Court upholds the ecosystem of legitimate expectations in open tenders and procurement. It is important for the tenderers to know that they must not verify every piece of information given by the contracting authority in the procurement documentation and that they can take the essential information for granted without being misguided. And if it appears later, during the execution of the public contract, that the whole business case was built of false assumptions, they will be entitled to a fair compensation of damages. Finally, I believe that such approach is very adaptive and might have a cross-border impact elsewhere in different jurisdictions, when the similar cases are heard.
Dr. Deividas Soloveičik, LL.M
Dr Deividas Soloveičik is a Partner and Head of Public Procurement practice at COBALT Lithuania. He represents clients before national courts at all instances and arbitral institutions in civil and administrative cases, provides legal advice to Lithuanian and foreign private clients and contracting authorities, including the European Commission , on the legal aspects of public procurement and pre-commercial procurement.
Dr Soloveičik is an Associate Professor and researcher in commercial law at Vilnius University and a contributor to legal publications. He also closely cooperates with globally recognized academic members of the legal profession. Since 2011, MCIArb. Dr Soloveičik is a member of the Chartered Institute of Arbitrators; since 2016, he is a member of the European Assistance for Innovation Procurement – EAFIP initiative promoted by the European Commission and a recommended arbitrator at Vilnius Court of Commercial Arbitration.
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