A note on Reg 73 of the Public Contracts Regulations (and by extension Art 73 of the EU Public Procurement Directive) [Guest post* by Dr Aris Christidis]

In this guest post, Dr Aris Christidis follows up on the issue of termination of contracts where the contracting authority has exceeded the limits of permissible contract modifications under Article 72 of Directive 2014/24/EU, focusing in particular on the shortcomings of Art 73 thereof and its transposition in the UK through reg.73 Public Contracts Regulations 2015.

A note on Regulation 73 of the Public Contracts Regulations (and by extension Article 73 of the EU Public Procurement Directive)

In this earlier post about the alleged unlawfulness of the NHSX contract modification, Albert argued that ‘the cause for termination could not be waived because reg.73 is meant as a safeguard against abuses of reg.72 and, thus, is unavoidably triggered the moment the boundaries of reg.72 are exceeded’.

I want to pick up on this point and provide some thoughts on the scope of Regulation 73 and by extension on Article 73 of the EU Public Procurement Directives.

Let me start by examining the position under the EU Directives. The 2014 directives have included a provision (Art 73 of Dir 2014/24/EU and the equivalent of Art 90 of Dir 2014/25/EU and Art 44 of Dir 2014/23/EU) which requires the Member States to empower their contracting authorities, under their national laws with the option of unilaterally terminating a contract during its term at least under the following three situations:

(a) the contract has been subject to a substantial modification, which would have required a new procurement procedure pursuant to Article 72;

(b) the contractor has, at the time of contract award, been in one of the situations referred to in Article 57(1) and should therefore have been excluded from the procurement procedure;

(c) the contract should not have been awarded to the contractor in view of a serious infringement of the obligations under the Treaties and this Directive that has been declared by the Court of Justice of the European Union in a procedure pursuant to Article 258 TFEU.

While such a remedial measure is in the right direction because it allows contracting authorities to correct their violations after a contract comes into effect, it does not address various issues on how this remedy is supposed to operate. These issues are to be determined solely by national laws.

Also, it is not clear why the only option for contracting authorities is to terminate a contract, instead of providing other remedial alternatives such as the shortening of the duration of the contract—similarly with the ineffectiveness remedy.

Surely, even if contracting authorities are under an obligation to terminate a contract, this should not be automatic. Public interest considerations such as the urgency of executing the contract should be carefully considered before any decision to prematurely discharge such a contract is made.

Finally, the EU legislator does not explain convincingly the rationale behind the reason why in the aforementioned violations the contracting authorities should have the right (rather than the obligation – see next section) to terminate an existing contract and why other violations should not necessarily constitute reasons to terminate an existing contract (e.g. finding of conflict of interest or direct awards).

Does Article 73 impose a positive obligation?

Undoubtedly, Article 73 (c) - unlike the other two– has a mandatory effect. This is because it concerns a violation that has been declared under Article 258 TFEU, which Member States must comply with under Article 260 TFEU.

The purpose of this provision seems to be to ensure that a duty of a Member State to terminate a contract is fulfilled as quickly as possible and avoid any possible cumbersome procedural issues that may be imposed under national law.

An issue that requires some consideration is what amounts to a ‘serious infringement’ that may lead to an obligation to terminate a contract (interestingly, the proposal for the 2014 directive (COM (2011) 896) did not refer to the wording ‘serious infringement’ rather it stated: ‘…a Member State has failed to fulfil its obligation under the Treaties…’).

Following the ruling of the CJEU in Waste (C-503/04), which concerned a decision under Article 258 TFEU, a ‘serious infringement’ will constitute any violation that restricts the fundamental freedoms of the internal market, in that case, the fact that an unlawful direct award had the effect of restricting other economic operators from providing the particular service. 

It is submitted that serious breach may constitute any violation that influences the outcome of competition and that termination of an existing contract seems relevant, inter alia, in the following situations: when a tender should have been excluded because of prior involvement of candidates in the submission of bids, when a conflict of interest is found or when a tender should have been rejected because it did not comply with tender conditions.

What seems to be certain is that a ‘serious infringement’ would most probably be regarded by the CJEU as any violation of the other two explicit reasons for termination as provided in the Article at hand - namely, violations with regards to the modification of contracts (see case C-601/10 Commission v Hellenic Republic available in French and Greek) and the entering to a contract with a provider who should have been disqualified from the awarding process.

This argument, in turn, raises the concern on whether the provisions of Article 73 are facultative or in effect contracting authorities are under an obligation to terminate a contract when the prescribed violations take place. In other words, whether EU law raises a positive obligation for contracting authorities.

On the one hand, the wording of this Article is clear: ‘Member States shall ensure that contracting authorities have the possibility… under the conditions determined by the applicable national law, to terminate a public contract during its term…’ (emphasis added).

On the other hand, this wording does not align with the rationale behind the adoption of this measure. According to Recital 112, ‘contracting authorities are sometimes faced with circumstances that require the early termination of public contracts in order to comply with obligations under EU law in the field of public procurement’ (emphasis added).

I lean towards the more formalistic interpretation, that is, there is no positive obligation. In my view, the Directive is not sufficiently clear on this and, as discussed below, the UK has not made termination a requirement but rather an option for the contracting authorities.

The implementation in the UK

Regulation 73 of the Public Contract Regulations 2015 (PCR) has transposed the EU law requirement of empowering contracting authorities to terminate an existing contract. Regulation 73 did not opt to include other violations that could give the right to a contracting authority to terminate an existing contract.

Two things should be noted about this unilateral power. The first is that Regulation 73(1) makes it clear that it is up to the discretion of a contracting authority to terminate a contract or not. It specifically states that ‘…contracting authorities shall ensure that every public contract which they award contains provisions enabling the contracting authority to terminate the contract where…’ (emphasis added; see for example the Model Contract for Services by the Government Legal Department at clause 33). Therefore, contracting authorities can simply refrain from exercising such power even if the relevant violations have taken place.

The second is that Regulation 73(3) clarifies that when provisions for termination are not provided within the terms of the contract, such power shall be an implied term of the contract. In other words, Regulation 73 overrides the absence of express contractual terms by providing a statutory basis for such unilateral power to be exercised.

In my view, Regulation 73 has little practical effect. In principle, it is a very good idea to empower contracting authorities to unilaterally terminate a contract. They are, indeed, in the best position to correct any unlawful acts especially when these are unintentional. Also, the disposal of such power minimises the possibility of litigation by third parties and ensures that any violations are remedied with minimum costs and in the public interest.

However, the way Article 73 was implemented in the UK shows the problematic design of this measure. There is nothing to compel contracting authorities to terminate an existing contract even if, on the face of it, they have violated the relevant rules. To require compliance, you need some form of external enforcement or recommendation. Otherwise, who is to determine whether the prescribed rules have been violated or not and who may induce a contracting authority to terminate a contract?

The only way for the government to be compelled to terminate a contract which is the result of unlawful modification or other serious infringement is if the Commission brought a case before the CJEU under Article 258 TFEU. In the current, COVID-19, and Brexit environment, I very much doubt that this will happen.

What if the government decides to terminate a contract under Regulation 73?

A final issue that perhaps requires some attention, is how are consequential matters between parties treated where the government decides to terminate the contract based on Regulation 73.

The first point to note is that Article 73 Directive 2014/24/EU does not give any indication as to how such consequential matters are to be regulated by the Member States and this is another problematic aspect of the design of this provision at the EU level.

Indeed, if the purpose of this remedial measure is to correct violations by returning a contract to the status quo ante then surely any compensation to the contractor due to early termination should be reasonable and proportionate.

Therefore, any form of redress must in principle be based on restitution, that is, a contractor must not be able to recover anything further that the value of what has been performed and has benefited the contracting authority.

The Commission had indicated that this is a requirement for the ineffectiveness remedy. In particular, Recital 21 of the Remedies Directive states that the objective to be achieved where the Member States lay down the rules which ensure ‘that the rights and obligations of the parties under the contract should cease to be enforced and performed’.

It goes on to say that ‘the consequences concerning the possible recovery of any sums which may have been paid, as well as all other forms of possible restitution, including restitution in value where restitution in kind is not possible, are to be determined by national law’. Similar careful thinking and considerations were not given for Article 73.

In the content of the PCR, Regulation 73(2) provides that consequential matters in case of termination should be regulated by express contractual provisions. Hence, the provisions of a contract itself will stipulate how these matters are to be regulated between parties and not some contract or administrative law principle.

The Model Contract for Services by the Government Legal Department provides some signs as to how the government will treat consequential matters in case of termination pursuant to Regulation 73. For instance, clause 34.5 (b) provides that in case of termination due to a substantial modification any costs from this termination should lie where they fall. This seems to be an appropriate form of compensation.

Some final thoughts

The current crisis has triggered a conversation about the design of the procurement rules all over the world. Perhaps this is also a good time both for the EU and the UK to think harder as to the scope of the exercise of unilateral termination powers by contracting authorities.

This is an excellent remedial tool. It is less costly and more time-efficient than any other form of enforcement when a contract has been concluded unlawfully. However, various issues need to be considered carefully. The following are some suggestions:

1. Careful consideration of the type of violations that should give rise to termination. Legislators could consider the gravity of the violation and perhaps make a distinction between violations that require termination and violations for which a contracting authority can exercise discretion as to whether to terminate or not.

2. An independent body with powers to compel contracting authorities to terminate or at least make suggestions to consider termination. In the UK, for instance, such power may be exercised by the Public Procurement Review Service which current remit does not allow the exercise such powers.

3. Clear indication as to how consequential matters are treated. As argued above, any compensation in case of unilateral termination due to violation of procurement rules should be based on restitution to align with the purpose of this remedy, which is to restore the public contract market in the status quo ante.

Dr Aris Christidis

Dr Aris Christidis is a Lecturer in Law at Newcastle Law School, which he joined in January 2018. He previously taught at the University of Nottingham, where he completed his PhD in December of 2018 (without corrections). He currently teaches Introduction to Business Law and Contract Law. Aris’ current research lies in public procurement law and the interaction of public with private law in the context of public contracts. His research interests are in comparative law, the law of obligations, public procurement law and in the economic analysis of law.

* Guest blogging at HTCAN: If you would like to contribute a blog post for How to Crack a Nut, please feel free to get in touch at a.sanchez-graells@bristol.ac.uk. Your proposals and contributions will be most warmly welcomed!

New lengthy reference by Lithuanian Supreme Court raises a range of difficult questions (C-927/19, Klaipėdos regiono atliekų tvarkymo centras) [guest post by Dr Deividas Soloveičik*]

This guest post by Dr Deividas Soloveičik provides interesting background and critical remarks on a recent Lithuanian reference to the Court of Justice for a preliminary ruling on issues concerning several aspects of the 2014 rules, in particular interesting boundary issues between qualitative selection and technical specifications, as well as exclusion of consortium partners. It will be interesting to keep an eye on the case, as it brings an opportunity for the CJEU to expand its case law.

Some difficult questions

The very end of the 2019 was highlighted by a new lengthy preliminary reference to the CJEU by the Supreme Court of Lithuania (the Supreme Court), in a case that raises a broad range of issues concerning economic and financial standing requirements, the boundary between qualitative selection and technical specification criteria, confidentiality of procurement documents in the context of ensuing litigation and the consequences of the provision of false information. This case and the initial findings of the Supreme Court will be  assessed in this “executive summary” of the references sent to the CJEU—which, at the time of writing (17 January 2020) are yet to be admitted (although the referral has been assigned case number C-927/19, Klaipėdos regiono atliekų tvarkymo centras).

Before proceeding to the analysis, it is worth recalling that, in relation specifically to the point on submission of false information and its impact on the potential exclusion of the tenderer concerned the Supreme Court was perfectly aware of the recent Judgments in Meca (C-41/18, EU:C:2019:507, not available in English) and Delta (C-267/18, EU:C:2019:826) case-law at the time of the reference to the CJEU. However, the Court extends its query and mainly is seeking to find out whether (i) the act of provision of false information by one of the consortium partners “infects” the rest of the team and (ii) what the role of the national court hearing this kind of legal case in the light of the above-mentioned Meca and Delta case-law is, when the CJEU previously specifically emphasized the importance of the discretion of the contracting authority while handling these kind of legal (procurement) situations.

Background

The Lithuanian contracting authority started an open tender for the services of municipal waste gathering and removal to landfill treatment facilities. The procurement procedure was regulated by national and Directive 2014/24/EU. The procurement documents inter alia included the following requirements:

• Technical specification: the service provider uses vehicles for waste management services that are in line with the requirements of EURO 5 standard; all vehicles must have installed constantly functioning GPS transmitters that would allow the contracting authority monitoring the exact location and movement route of the vehicle. The supplier must allow the contracting authority and the administration of the Neringa municipality to use its installed GPS as much as it is necessary to monitor the location and movement routes of the vehicles used in providing the services of waste management and transporting waste to landfill. If sub-suppliers are involved, this requirement is also applicable for their vehicles.

• Technical and professional capacity: the supplier must own or lease (or possess otherwise) the necessary quantity of vehicles needed to execute the public contract and these must comply with the requirements listed in the technical specifications. The requirements for qualification and technical specification were almost identical.

• Financial and economic capacity: tenderers’ average annual operating income from carrying out the activities related to the management of mixed municipal waste during the past 3 financial years (or the period since the supplier’s registration date if the supplier carried out the activities for a period less than 3 financial years) had to be not less than EUR 20,000 EUR excluding VAT.

There were three tenderers in a procedure: the plaintiff, another company and an awardee of the public contract, which was a consortium comprised by three individual companies. The plaintiff took second place. The plaintiff submitted the claim against the contracting authority claiming that the winner had not complied with the: (i) technical specifications – the vehicle indicated by the supplier is not for the mixed waste transportation and considering the years of manufacture – it does not comply with the requirements of the EURO 5 standard; (ii) financial and economic requirements - the average annual operating income of the supplier while carrying out the activities related to the management of mixed municipal waste during the past 3 financial years must be not less than EUR 20 000 EUR excluding VAT, but one of the joint venture partners of the supplier does not carry out waste management activities overall. The crux of the dispute was thus the following: one of the consortium partners made a statement that it had experience in management of mixed municipal waste. The claimant contended that this might not have been the truth because this partner of the consortium had never rendered any services of this type. So the claimant maintained that (a) this consortium partner did not have the needed qualification and (b) that this consortium partner made a false statement. This must have led, in the opinion of the claimant, to rejection of the consortium’s tender.

The court of first instance dismissed the claim but the appeal was successful, and the court obliged the contracting authority to re-execute the evaluation of the tenders. The Court of Appeals considered that the winner of the tender did not prove that it had the technical capacity, because the original tender did not include the information on the required vehicles, which were provided by the tenderer only after the submission of the bid to the contracting authority.

The initial awardee of the contract did not agree with the findings of the Court of Appeals and filed a cassation complaint which was accepted by the Supreme Court.

Regarding the financial and economic capacity as a qualification criterion

By raising the question on the scope of the qualification requirement to hold a relevant financial and economic capacity, the Supreme Court addressed the above-mentioned statements of the procurement documentation which required each tenderer to have an annual operating income from carrying out the activities related to the management of mixed municipal waste during the past 3 financial years or the period since the supplier’s registration date (if the supplier carried out the activities for a period less than 3 financial years) of not less than EUR 20,000 EUR excluding VAT. There were three legal aspects which triggered the Court’s doubts.

First, by reading Art. 58(3) of Directive 2014/24/EU the Supreme Court was prone to conclude that the latter limited the discretion of the contracting authority to require the suppliers to have a turnover from a very specific (niche) economic (business) activity as a sole and main financial criterion. The Court reasoned that the main goal of Art. 58(3) of the Directive was to help contracting authorities finding a financially trustworthy and economically stable contract partner. Therefore, the Court believed that, on the one hand, it allowed the contracting authorities to request from the tenderers having a general financial turnover (as specified in the procurement documentation) and, on the other hand, it left leeway to request the proof of the financial (monetary) capacity gained from a more specific business activity, because the wording of Art. 58(3) of the Directive 2014/24 contains a statement “... including a certain minimum turnover in the area covered by the contract”. However, the Court considered that any requirement for the suppliers’ qualification which is based on Art. 58(3) of Directive 2014/24 (and respectively the national procurement law) should (or even must) a priori address the general financial turnover and must not use a turnover from a niche commercial activity autonomously (i.e. as a sole requirement for financial and economic qualification). In the given case, it seems that the Supreme Court doubted if the contracting authority had a right to require an annual operating income to be received from carrying out the activities related to the management of mixed municipal waste as a single selection ground. The wording of the ruling suggests that the Supreme Court deemed that the contracting authority had a right to require a general turnover (e.g. 200,000 EUR annually) and an income from a specific activity (e.g. 20,000 EUR from management of mixed municipal waste), but not only the latter.

Second, by reading a text of the ruling it seems that the Supreme Court reasoned that if the interpretation of the Art. 58(3) of the Directive 2014/24 was otherwise, i.e. as allowing the contracting authority to require financial and economic standing on the basis of a narrow experience (like in a given case from management of mixed municipal waste), then, in the Supreme Courts’ view, there would be a blurred line between the qualification related to financial and economic standing and the one connected to technical and professional ability. There would hardly be a difference between Art. 58(3) and Art. 58(4) of Directive 2014/24. In other words, the Supreme Court considered that even if legally the requirement for qualification was named as a financial and economical one, it in fact would be the requirement for technical and professional ability when it required financial flows to be gained from a very specific practice. Therefore, it might be said that the Court’s question to the CJEU has an indirect perspective, namely the Court wants the CJEU to clarify the lines between Arts. 58(3) and 58(4) of the Directive 2014/24/EU.

Third, the Court went on to examine the CJEU case-law in Esaprojekt (C-387/14, EU:C:2017:338) and its possible application to the case at hand. It must be recalled that the awardee of the public contract was a consortium of three companies. One of these companies (say company A) constantly held that it had the required financial qualification, because it maintained that this requirement was not personal and could be relied upon as a capacity gained from the execution of a previous public contract which was executed by the consortium to which company A was a member. However, company A did not itself render the services related to the management of mixed waste and therefore it had not received any income from that.  Therefore, the claimant contended that the company A could not hold that it had received any income from the management of mixed municipal waste and, therefore, it did not have a required qualification. The Court recalled that in Esaprojekt the CJEU stated that an economic operator cannot refer to the qualification gained by the whole consortium and may only be deemed to be qualified to the extent it itself executed the relevant (part of) public contract. Therefore, the Supreme Court wonders if this ratio decidendi, delivered in Esaprojekt in respect of technical and professional ability as a qualification requirement, should be applied on the same grounds while dealing with financial and economic standing of the suppliers.

In the light of these considerations, the Court asked the CJEU to answer:

(i) if the requirement to prove the annual income of the relevant size, received from a specific commercial activity (the management of mixed municipal waste), should be subsumed under Art. 58(3) or Art. 58(4) of the Directive 2014/24;

(ii) if the answer to the previous question had any effect on the application of the rules, provided in Esaprojekt, namely, whether it is allowed under the EU public procurement law to disregard the financial and economical capacity, gained during the joint bidding and execution of the previous public contract, if this capacity in corpore is relied upon by a single member of consortium in a later procurement procedure. In other words, the Supreme Court seeks to find out if a consortium member (company A) in a present tender can rely on a qualification, gained by another consortium, to which this company A was also a member, although company A did not actually and directly execute the part of the contract to which it seeks to rely in the later (present) tender (in this case – the management of mixed waste).

Regarding the separation between professional and technical capacity and technical specifications

It is a consistent and already an old national case-law which makes a very clear and precise dividing line between the requirements of the suppliers’ qualification (selection criteria) and technical specification. The Supreme Court maintains a principle that this separation has a substantial practical implication because under the settled case-law of the Lithuanian courts each discrepancy of the tender that is related to qualification (missing document, insufficient provision of required information on qualification, etc.), may be easily rectified. This means that it is forbidden to reject the a tender without at least requesting for a decent explanation from the supplier. The Supreme Court holds that such approach is in line with the view of the CJEU, expressed in such cases as SAG ELV Slovensko (C-599/10, EU:C:2012:191) or Manova (C-336/12, EU:C:2013:647). Meanwhile, any part of the tender that is connected to the requirements of technical specification cannot be amended, rectified or explained by an economic operator at a later stage of procurement in such a way as to turn the non-compliant original tender into a compliant one.

It must be recalled that in this case the requirements for the technical and professional capacity (the supplier must own or lease (or possess otherwise) the necessary quantity of technical measures needed to execute the public contract) were copy-pasted to the technical specification. Therefore, the situation itself became confusing: if those conditions were deemed as criterion for qualification, then there must have been a possibility to provide the additional information upon the request of the contracting authority (what was one of the arguments by the respondent in a case). Meanwhile, in case of an opposite legal approach, i.e. that such requirements are a part of technical specification, any amendment to the original tender after the submission deadline would undergo a much stricter test.

Therefore, the Supreme Court cast doubts on the legal possibility of the mentioned technical and professional qualification requirement. Although the Court referred to Commission v. Netherlands case (C-368/10, EU:C:2012:284) as the one allowing “relevant similar simultaneous requirements both as a condition of technical specification and criteria for entering into a public contract or its execution”, the Supreme Court was not sure if the qualification criterion can be so detailed and exhaustive as it was in the disputed procurement. The Court went on with its reasoning that the more detailed the requirement on qualification was, the more likely it was already a condition of the technical specification and not a selection criterion. In other words, it seems that the Supreme Court was prone to consider that the requirement on qualification cannot be so detailed as it should be in case of technical specification.

Thus, the Court asked the CJEU if the requirement of the procurement documentation that the economic operator used the vehicles needed for waste management services, that were in line with the requirements of EURO 5 standard; all vehicles must have had installed constantly functioning GPS transmitters, that would have allowed the contracting authority monitoring the exact location and movement route of the vehicle fell within the scope of regulation of Directive 2014/24 a) Art. 58(4), b) Art. 42 together with the Annex VII or c) Art. 70.

Regarding the scope of obligation of confidentiality in the light of effective remedies in public procurement

Although since Varec (C-450/06, EU:C:2008:91) there has not been a major development of the concept of confidentiality in public procurement law, on the contrary, in Lithuania it is one of the hottest legal topics during the recent five years. It has been circulated in all possible layers of the legal world, starting from the legislation and ending with the widely elaborated case-law [more on this might be read here: D Soloveičik, ‘Rethinking the confidentiality in public procurement: does public mean naked public?’ (2018) 1 UrT 11-26; for comparative perspectives, see the contributions to K-M Halonen, R Caranta & A Sanchez-Graells (eds), Transparency in EU Procurements. Disclosure Within Public Procurement and During Contract Execution (Elgar 2019)). In a nutshell the current national legal ecosystem in respect of confidentiality could be described as promoting extreme transparency in public procurement and thus limiting the disclosure of competitors’ information in very rare cases, mostly related to top commercial secrets of private parties. The Supreme Court considers that the mentioned “pro disclosure” case-lawis in line not only with the requirements of the principle of effectiveness of remedies in public procurement, but also with the regulation of Directive 2016/943/EU on the protection of trade secrets.

Despite the legal ecosystem, where the transparency should prosper, paradoxically the administrative practice during the procurement procedure is usually different. The contracting authorities, albeit being precisely aware of the mentioned juridical requirements to grant access to the relevant documentation, still are very disclosure averse. In a majority of procurement cases the contracting authorities deny the tenderers their right to gain the access to the competitors’ commercial proposal by arguing that this might lead to an illicit leak of a commercial secret. Moreover, while rejecting the claims of the tenderers, contracting authorities tend to give very abstract and uncomprehensive answers.

This leads to a situation where tenderers launch their legal challenges in from of the courts without having seeing the full picture of the procurement process and, therefore, being refused  an effective protection of their rights as required by the EU public procurement remedies directives. Usually in such cases the situation is rectified by the courts, which tend to disclose the information if it is not a commercial secret. As there is a two-layer procurement dispute system in Lithuania, where access to the court is guaranteed only after the prior submission of the claim to the contracting authority itself, the Supreme Court raised the issue of consistency and rationality of such practice when contracting authorities try to hide the information (usually the winners’) and then such information is only gained at the stage of litigation in court. This makes the procurement dispute at the stage of contracting authority useless. Therefore, the Court referred to Art. 1(1)(3) of Directive 89/665/EEC, Art. 21 of Directive 2014/24/EU and Directive 2016/943/EU and asked the CJEU if:

(i) if the contracting authority must deliver to the requesting tenderer the information comprising the competitors’ tender if such request is related to a legal challenge of such tender and is needed to verify its compliance with the requirements of the procurement documentation, subject to the fact that the claiming tenderer previously asked for this information. It is interesting to note that actually the main point of that question is whether the contracting authorities should be obliged to disclose the required information in order to avoid the mentioned practice that the information is locked during an early stage of the dispute, meanwhile it will still most likely be unlocked when it reaches the court. The hidden idea of the inquiry is that if it appears that the answer to the question is positive and the contracting authorities would be obliged to be almost fully open, then less disputes might reach the courts as the tenderers, after seeing the competitors’ tender, may find out that their claim would be unfounded.

(ii) In case the contracting authority rejects the suppliers’ claim, if its answer must be comprehensive, clear and informative, even though such an answer and its wording may disclose the confidential information. In other words, the Supreme Court wants to know to what extent the contracting authorities may be reserved while replying to the disclosure requests from tenderers, on the grounds that providing a detailed justification for the rejection could in itself constitute a breach of confidential treatment.

(iii) The mentioned provisions of the EU law must be understood as allowing the tenderer to separately challenge before the court the decision of the contracting authority each time it decides to reject the suppliers’ request for access to the competitors’ bid. It has to be mentioned that it is a long-standing national case-law which allows this kind of legal action in Lithuania. So, it seems that the Supreme Court knows the answer because it gave it to all the practitioners itself a long time ago. However, the inquiry sent to the Luxembourg is more an implicit request for verification if such case-law is in line with the EU legal regulation. An additional aspect to this inquiry is that the Supreme Court wanted to know if in the above-mentioned legal situations the tenderer may claim only the denial of the access to information, leaving the rest of possible legal claims, related to the competitors bid, aside. It seems that the Court is prone to think that if the answer to this question was positive, it would most likely mean that such tenderer would not lose its right to challenge these additional irregularities of the competitors’ tender after it receives the relevant information from the contracting authority, even if it is done with the assistance of the court. In other words, this part of the question is related to possible (non)application of limitation of actions.

(iv) Another two questions were related to a procedural law. The Court asked if the national court, hearing the public procurement dispute, in all cases must require the information on the challenged competitors’ tender from the contracting authority, despite its previous actions during the public procurement procedure. And a related question: if Art. 9(2)(3) of Directive 2016/943/EU must be understood as requiring the court, which declined the disclosure of the competitors’ tender to the claimant (but having this information in a file), to take this information into consideration while deciding on a merits of the case. In other words, the Supreme Court is asking whether the courts hearing the public procurement cases and having the information on one of the tenderers’ tender and which they decided to leave locked (meaning that the claimant would not see this data), are under an obligation to examine such information ex officio and take it into consideration while deciding the case. This means that in case of a positive answer to that question, the claimant might still have a chance to win the case, even without seeing the whole materials of a case-file, if there were actual irregularities of the competitors’ tender and the court spotted them.

Regarding the legal consequences of submitting false information and the courts’ discretion to decide upon this

Under the national provisions of the Law on Public Procurement, economic operators can be “blacklisted” if they provide false information to the contracting authority during the procurement procedure. In case of a joint bidding, all of the consortium members are included into this list.

In the case before the Court, one of the members of the consortium that was awarded the public contract was presenting to the contracting authority an inconsistent information regarding its previous financial income. The Supreme Court mentioned that according to the Esaprojekt ruling (above), there is no need to identify the intentional misbehavior of the tenderer in order to reject its bid. The Court reminded that purely negligent actions are sufficient to disqualify the tenderer if such actions could seriously mislead the contracting authority and negatively affect the result of the procurement. Therefore, taking into consideration the facts of a case, the Supreme Court stated that the actions of the mentioned consortium member, in Court’s view, might be considered as negligent.

After the Court came to such a conclusion, on the one hand it most likely must have decided that the tender of the consortium was invalid and that all the members were blacklisted. On the other hand, the Court was stopped from moving towards this legal direction because of two reasons. Firstly, the contracting authority was of the opposite opinion. It did not hold the tenderer negligent and neither it considered the consortiums’ given information as false. Therefore, the Court had a doubt if it can decide on its’ own initiative completely opposite to the direct will of the contracting authority. Secondly, these doubts were amplified by the recent findings of the CJEU in the above-mentioned Delta and Meca cases, where the Court of Luxembourg emphasized that it is a contracting authority, and only it, which is empowered to decide regarding the reliability of the economic operator. In the light of these conclusions, the Supreme Court decided to stay proceedings and request for explanation from the CJEU on the scope and limits of the discretion of national courts in such legal situations.

Besides, the Supreme Court raised a question on whether in case of submission of false information to the contracting authority the consequences of blacklisting must be applied to all members of the consortium. The Court noted that it is natural to expect the possibility of legal risks, related to the participation in a tender (e.g. the need to replace the partner due to its default, etc.). However, the Supreme Court considered that any such risk should be limited to the particular procurement and not be implemented in a way of a total ban on participation for a specified period of time and for all the consortium members. Although the Court did not use this wording, but it implied that this might be disproportionate.

Therefore, the Court asked the CJEU two following questions:

(i) If, in the light of the Art. 57(4)(h) of Directive 2014/24/EU and the Delta case, the national court is allowed, despite the will of the contracting authority, to ex officio decide that the economic operator intentionally or by negligence provided the contracting authority with false information and must have been excluded from the public tender.

(ii) If, in the light of the Art. 57(4)(h) of Directive 2014/24/EU and the principle of proportionality, the disqualification of a tenderer from a procurement procedure with the possible consequences of being “blacklisted” for the specified period of time is applicable against all the members of a joint bidding consortium or just against the economic operator responsible for such misbehavior.

Conclusion

There is no doubt that the Lithuanian Supreme Court triggered important issues related to public procurement practice. The answers from the CJEU are much awaited because procurement professionals face similar situations daily. Some of the areas, such as confidentiality, are extremely different across many EU jurisdictions, albeit all procurers operate under the same EU law on public procurement. Therefore, the interpretation suggested by the CJEU will be used to further unify practice across the internal market.

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.

* Guest blogging at HTCAN: If you would like to contribute a blog post for How to Crack a Nut, please feel free to get in touch at a.sanchez-graells@bristol.ac.uk. Your proposals and contributions will be most warmly welcomed!

The Danish Supreme Court’s ruling in the “Road Marking Case”: the end of a joint bidding era [guest post by Heidi Sander Løjmand, MSc]

In this insightful and thoughtful blog post, Heidi Sander Løjmand discusses the hot-off-the-press Judgment of the Danish Supreme Court in longstanding litigation concerned with joint bidding in procurement procedures. As she stresses, this is a ‘must-know’ case for all competition and procurement practitioners, much as the earlier Norwegian SKI Taxi and the related EFTA Court Judgment, because it fleshes out the difficulties and implications of a strict application of competition law in this setting.

The Danish Judgment is likely to mark the end of an era in Danish practice, as Heidi points out, but it will certainly only add fuel to the fire of academic and policy-making discussions about the interpretation and application of Article 101 TFEU in the context of public procurement. I for one, am very grateful to Heidi for making this interesting line of Scandinavian case law accessible in English, as well as for sharp questioning of the legal arguments. 

The Danish Supreme Court’s ruling in the “Road Marking Case”: the end of a joint bidding era

Yesterday, the 27th of November 2019, the Danish Supreme Court delivered its long-awaited judgment in the so-called “Road Marking Case”. The full judgment is available here (in Danish). The Danish Supreme Court found that joint bidding by companies that could have submitted independent bids for several lots of the same tender constituted an anticompetitive agreement between competitors and, as it included an agreement on the price of the tender as well as on the division of the services (share by lots) to be carried out by each of the teaming companies, it constituted a by object violation of Art 101(1) TFEU and the domestic equivalent, Section 6 of the Danish Competition Act. In doing so, the Danish Supreme Court upheld the initial decision by the Danish Competition Council and overturned an intermediate decision by the Danish Maritime and Commercial High Court that had deemed the joint tendering lawful.

1. Background

In 2010, the consultancy firm McKinsey & Company provided the Danish Government with a report on how to increase economic growth through competition. Amongst the suggestions were to consolidate public tenders within the construction and services industries in order to (i) take advantage of potential economies of scale, (ii) to attract foreign companies, and (iii) to apply procurement procedures and tender requirements that encourage efficient operation. Such initiatives would, according to the report, lead to fewer yet bigger and more efficient companies, and thus to a better utilization of economies of scale.

Tender I (2012): In that light, the Danish Road Directorate changed its tender format and published – in 2012 for the first time – an invitation to bid for a consolidated tender comprised of 337 contracts covering 19 different subject areas. One subject area was road marking. The demanded road marking services were divided into five lots/contracts covering different geographical areas. It was possible to submit bids for one or more lots; companies submitting bids for multiple lots could offer rebates not exceeding 20%, compared to the aggregation of their offers for individual lots. The award criterion was the lowest price.

The two road marking companies, Eurostar Danmark A/S and GVCO A/S (formerly LKF Vejmarkering A/S) (hereinafter referred to as Eurostar and GVCO or the parties) decided to team up and submitted a joint bid with a rebate for all 5 contracts via their agreement-based Danish Road-marking Consortium. The consortium was unsuccessful. All 5 contracts were awarded to the competitor, Guide-Lines, who had offered a 20% rebate (it bears mentioning that Guide-Lines would have won all the contracts without the rebate).

Tender II (2013): One year later, Guide-Lines won a similarly structured tender by the Road Directorate regarding road maintenance. As in 2012, Eurostar and GVCO submitted an unsuccessful joint bid via their Danish Road-marking Consortium.

Tender III (2014): Guide-Lines defaulted on two of their road marking contracts (i.e. from the 2012 tender) as they were unable to perform according to the set time and work schedules. As a consequence, the Danish Road Directorate decided to publish an invitation to bid for 3 of the initial geographical lots. The procurement format was similar to the two previous tenders, except this time there was no limit to the size of the rebate. For the third time, Eurostar and GVCO submitted a joint bid through their Danish Road-marking Consortium for all three contracts. If the consortium was awarded one contract, no rebate would be granted. If it won two or three contracts a rebate of 5% or 20% would be granted, respectively. The consortium won all three contracts. It turned out that no other company had submitted a total bid for all three lots, and on one of the lots the consortium’s bid was the only one. Guide-Lines had submitted a bid for two lots with no rebate, and Lemminkäinen for one lot. Guide-Lines filed a complaint with the Danish Competition Council alleging that the joint bid from Eurostar and GVCO constituted an infringement of Section 6 of the Danish Competition Act and art. 101(1) TFEU. 

It is worth noting that Eurostar and GVCO concluded a new consortium agreement for each of the three above-mentioned tender procedures. The civil charges in the present case concerned only the consortium agreement between Eurostar and GVCO in relation to the 2014-tender. The criminal charges that were brought against the parties in 2016 following the Competition Appeals Tribunal’s decision (discussed below), however – remarkably – accuse the parties of having entered into a cartel agreement in the period from primo 2012 to ultimo 2014, thus including the collaboration between the parties in all three tenders. It shall be interesting to see the outcome of the criminal proceedings, not least because individuals engaged in cartel behavior (which is defined very broadly in the Danish Competition Act) face the risk of prison sentences of up to 6 years. Fortunately, the Danish Appeals Tribunal noted in its decision that the joint bidding in question did not amount to a classic cartel.

2. Procedural history

A) Decision of the Danish Competition Council (24 June 2015) [available in full here (in Danish)].

The Competition Council found that Eurostar and GVCO had infringed the prohibition on anticompetitive agreements. Decisive for this finding was that the two companies could have submitted separate bids on at least one lot with their current individual capacity. In addition – though it was not essential for the conclusion – the companies could have expanded their individual capacities so as to bid separately for all three lots. They were therefore to be regarded as competitors in the tender procedure at issue, despite their argument that they were not competitors because they were incapable of submitting individual bids for all three lots, and that this, the total tender, was the relevant benchmark due to the way the procurement procedure was structured.

The Competition Council found that the joint bidding constituted an infringement by object because the consortium agreement was concluded between competitors (debatably the two largest in the industry, that were also subsidiaries of two large corporate groups: SAFEROAD and Geveko AB), and it contained the fixing of a joint price as well as an agreement to share the different geographical lots between the two companies with (allegedly) no pooling of resources etc. Not surprisingly, the Competition Council also found that the agreement did not meet the conditions for exemption under art. 101(3) TFEU.

The parties appealed the decision to the Danish Competition Appeals Tribunal.

B) Decision of the Danish Competition Appeals Tribunal (11 April 2016) [available in full here (in Danish)].

The Danish Competition Appeals Tribunal upheld the Competition Council’s decision but refrained from assessing whether Eurostar and GVCO had – or could achieve – sufficient capacity to submit separate bids on the entire tender. The parties indisputably had the capacity to bid individually for some of the lots and were therefore to be regarded as competitors. In light of this, the Tribunal found that their agreement to submit joint bids eliminated competition between them, and that it infringed art. 101(1) TFEU by object. Like the Competition Council, the Tribunal found that the criteria for exemption under art. 101(3) TFEU were not met.

Once again, the parties appealed the decision to the Danish Maritime and Commercial Court. 

C) Judgment of the Maritime and Commercial High Court (27 August 2018) [available in full here (in Danish)].

Contrary to the decisions of the competition authorities, the Maritime and Commercial High Court found that the agreement between Eurostar and GVCO to submit joint bids did not infringe art. 101(1) TFEU. The Court noted that the tender was structured in a way that favored bids on all three lots, and that the companies’ ability to submit separate bids on some lots could not prevent them from teaming up for the purpose of submitting a joint bid for the entire contract. In the Court’s view, such a restriction on companies’ freedom to carry out their business would not necessarily promote competition.

Since the Competition Council had not provided sufficient proof that Eurostar’s and GVCO’s capacity calculations were inaccurate, the Court found that the parties were unable to independently bid for the entire contract. As a consequence – though it is not explicitly stated – they were not classified as being competitors, and therefore the agreement fell entirely outside of the scope of art. 101(1) TFEU. The competition authorities’ decisions were thus set aside.

Besides the different benchmark for assessing when two companies are competitors in connection to a tender procedure, the Court also stated its view on the Competition Council’s way of assessing companies’ ability to bid independently. The Council did not allow the companies to subtract resources allocated to the servicing of existing key customers, unless written agreements were in place. The Court dismissed this, stating that companies are entitled to take account of such capacity if the expectation of recurring orders is backed by previous experience. It would be commercially irresponsible not to.

This time, the Danish Competition Authorities appealed the judgment. 

3. Ruling of the Danish Supreme Court (27 November 2019)

As already noted, the Supreme Court set aside the judgment of the Maritime and Commercial High Court. It is worth mentioning that during the proceedings, the Supreme Court refused to refer questions to the CJEU for a preliminary ruling as it found the law to be clear. The questions submitted by the parties have not been published, and thus it is not possible to elaborate on the justification of the Court’s refusal.

In general, the Supreme Court gave support to the interpretation applied by the Competition Appeals Tribunal. Initially, the Court confirmed that Eurostar and GVCO would not be treated as competitors if they were incapable of undertaking the services demanded by the Road Directorate independently, and that the basis for evaluating this ability was the requirements of the tender documents. Remarkably, the Supreme Court then stated that all the conditions, which according to the two consortium parties encouraged the submission of total bids—i.e. the terms of the tender (consolidation of previous smaller tenders + option to provide collective rebate) and the history of previous tenders (in which the winner submitted a total bid)—were irrelevant. Because the tender documents objectively allowed companies to bid for one, two or all three lots, the Supreme Court found no basis for the view that the “real contest” was for the total tender, i.e. all three lots. The Supreme Court instead observed that the other tenderers submitted bids for only one or two lots, respectively.

Since it was undisputed that Eurostar and GVCO could have submitted separate bids on individual lots, the Supreme Court found that Eurostar and GVCO were competitors in relation to the tender procedure at issue. On the issue of object/effect, the Supreme Court acknowledged that the agreement between the two companies was entered into with the purpose of submitting a joint bid on the Road Directorate’s tender and to perform the tasks accordingly if the consortium was successful. The Court then went on to state that the agreement did not possess the characteristics of a production agreement, and that it did not foster collaboration between the parties as to the actual performance of the offered road marking services, since the parties had decided ex ante which one of them should operate in the respective geographical areas in each possible outcome (i.e. whether the consortium won one lot, two or three). On this note, the Supreme Court concluded that the consortium agreement was in fact a means to distribute two individual companies’ services – and highlighted the price fixing as well as the market division element – and that the Appeals Tribunal was right in finding that it amounted to a restriction of competition by object. Not surprisingly, the Court also found that the conditions for individual exemption under art. 101(3) TFEU had not been proved to be met.

4. Comment

The Danish Road Marking Case is the second case in Scandinavia to make it all the way to the Supreme Court. In 2017, the Norwegian Supreme Court decided on the much-debated Ski Taxi case, in which two taxi companies had submitted joint bids via a jointly-owned administrative company for a number of years (for comments on the case, see e.g. A Sanchez-Graells, “Ski Taxi: Joint Bidding in Procurement as Price-Fixing?” (2017) 8(7) Journal of European Competition Law & Practice 451–453, and I Herrera Anchustegui, “Joint bidding and object restrictions of competition: The EFTA Court’s take in the ‘Taxi case’” (2017) 1(2) European Competition and Regulatory Law Review (CoRe) 174-179).

One would like to believe that, with these cases, the boundary between legal and illegal joint bidding should be just about clear-cut; providing legal certainty for the companies thereby allowing them to plan effectively their bidding strategy and behaviour. The reality is, however, that even with the clarity stemming from the mentioned cases, many (essential) issues still remain unsettled and/or ambiguous (as recently pointed put in a joint letter of 1 November 2019 to the European Commission by the Confederation of Danish Industry (DI), the Confederation of Norwegian Enterprise (NHO), the Confederation of Swedish Enterprise (Svensk Näringsliv), the Confederation of Finnish Industries (EK) and the Federation of Icelandic Industries (SI); on file with author)

First. When are two companies to be regarded as (of particular interest potential) competitors in relation to a certain tender procedure? The Supreme Court cases clearly indicate that it suffices to classify two companies as competitors if they are capable of submitting bids on some (the same?) lots, and that it is irrelevant whether they have the ability to submit bids for the entire tender/contract for which they have actually teamed up to bid.

The Danish Supreme Court does not seem to give importance to the distinction between the individual lots, but it follows from the Competition Council’s decision that GVCO had the capacity to submit an individual bid on lot A or B and Eurostar on lot A and B (given the information about the lot sizes, Eurostar could presumably also have bid for lot C instead of lot A and B). Without specifically mentioning that the two companies are competitors because of their ability to submit individual bids on (some of) the same lots, the Danish Supreme Court leaves the impression that if company 1 is able to submit an individual bid for lot A, and company 2 for lot B, the two companies will be competitors in relation to a tender consisting of the two lots A and B. Unless the two lots are very similar in size – and needless to say concern the same product – this logic does not appear very convincing or pro-competitive.

Providing the lots A and B are similar, what is clear from the Danish Supreme Court’s approach is that the possibility of receiving two bids on lot A or lot B is favoured over the possibility of receiving one (joint) bid on lot A and B. For the contracting authority (and society in general), this may not be the most desired (economically efficient) approach, as lot B will have to be re-tendered if company 1 and 2 happen to submit individual bids on the same lot (provided of course that there are no other bidders than company 1 and 2).

Both the Norwegian and Danish Supreme Court cases concerned contracts/lots of the same product. It is not clear-cut how the analysis is to be applied to tenders of e.g. framework agreements or public contracts with various products. Two companies could have subject-specific overlaps but different key operations – a consultancy firm specialized in construction could have in-house architects employed (or have architecture companies as subsidiaries) but want to team up with a specialized, independent architecture company. If a tender is divided into lots, one of which concerns architectural services, would such an overlap in competencies lead to the conclusion that the consultancy firm and the architect are competitors, because of their ability to bid for the “architecture lot”? Or should they be viewed as non-competitors in relation to the entire tender/or to the demanded consultancy services of which architecture services may just be a part?

Second. The Danish Supreme Court did not consider the capacity assessments put forward by the parties or the Competition Council in order to prove the companies’ (in)ability to submit individual bids. It is therefore uncertain whether the parties’ calculations had been sufficient to prove their lack of individual abilities, if the benchmark had been the entire tender as in the Maritime and Commercial High Court’s view. It is going to be very interesting to see how far the assessment of a company’s “real and concrete possibilities” to expand its capacity in order to submit a bid (on a single lot!) will be stretched. Indeed, if the standard follows that of the Competition Council in the Road Marking Case (which however concerned the ability to expand in order to bid for the entire tender, not single lots) it seems many companies are likely to be viewed as potential competitors for future procurement tenders.

Third. It remains undecided how the use of sub-contractors affects the competition assessment. If it is common to use sub-contractors, should two companies be classified as competitors if they could submit individual bids with the use of (non-competitors) as sub-contractors? In a case for the Norwegian Competition Authority (Vedtak V2009-17 – Gran & Ekran AS og Grunnarbeid AS [available here (in Norwegian)], the company Gran & Ekran could perform only 8% of the tasks required in the tender. The fact that the company had contacted a sub-contractor with a view to submit a bid for the entire tender, however, indicated to the competition authority that it was a potential competitor to the company Grunnarbeid. Though the case is not a straight-forward joint bidding case as it concerned a reciprocal sub-contracting arrangement between Gran & Ekran and Grunnarbeid (and was assessed ex post with the knowledge that both parties in fact submitted separate bids on the entire tender with each other as sub-contractors, and thus were de facto actual competitors), it raises the question whether – in a “more traditional” joint bidding case – a company with such a limited ex ante competence to bid risks being considered a potential competitor for a tender (lot!?) to which 92% of the tasks must be performed by sub-contractors?

Fourth. The relevance of whether the companies submitting a joint bid are competitors in the market “outside of” the particular tender appears ambiguous. The Danish Supreme Court observed in its commented Judgment that Eurostar and GVCO were amongst the biggest Danish undertakings in the road marking industry at the time the Road Marking Consortium was established and the joint bid submitted, and that they were active in the same market and at the same level of the value chain. Thus, it is apparent that they were competitors in the traditional relevant market; but (why) does this matter?

In a recent case for the Danish District Court [Retten i Glostrup, case 15-10950/2017 Bjerregaard Sikkerhed, available here (in Danish)] two companies’ (lack of) competitive relation outside of the tender procedure was determinative for the conclusion. The company Bacher Logistics (formerly Four Danes) submitted a bid for an entire tender (i.e. 5 lots of various work wear and logistics) with the company Bjerregaard Sikkerhed as a sub-contractor. Bjerregaard Sikkerhed, however, also submitted an independent bid for one of the lots, and thus the two companies were de facto competitors for that lot. The two independent bids from the companies on that specific lot were identical. Nevertheless, the Court found that – with the evidence presented – this behavior did not amount to a restriction of competition. The conclusion rested on mainly three arguments:

i)               since the companies were specialized in different products/services (specialist wholesaler within safety footwear vs logistics), they were not normally competitors;

ii)              there was nothing unusual about the commercial practice of submitting bids based on prices/product information from sub-contractors; and

iii)            it was unlikely that the sub-contractor would have been able to submit a better bid.

 As with the Norwegian case mentioned above, this case is not a “straight-forward” joint bidding case, yet it opens for a discussion of the impact that the competitive relation outside of a specific tender may have for the assessment of the companies bidding behavior.

Fifth. As regards the size and number of the teaming companies, one could in the light of the Maritime and Commercial High Court’s approach wonder: if two consortium parties are amongst the biggest companies (no. 1 and 2, or 2 and 3) in a highly-concentrated industry, and none of them could bid individually for a contract, what is the likelihood of other market participants being able to? Presumably, less likely. Would the acceptance of a joint bid between these two companies then not lead to the conclusion that all of the industry’s companies could have teamed up to submit one joint bid without conflicting with the competition rule, because none of them could be regarded as competitors in relation to the tendered contract? No. Though it does not appear from any the mentioned cases, a joint bidding arrangement may restrict competition if it involves more companies than it is objectively necessary to submit a bid, even if the companies are not competitors in relation to the specific tender.

The requirement of a joint bid being “objectively necessary” also raises – in light of the Road Marking Case – the question of whether account should be taken of the size/market share/market power of the teaming companies. Would it have been objectively necessary that the allegedly two largest companies teamed up, even if they were incapable of submitting individual bids? What if the two companies could have submitted bids in competition with each other by teaming up with any of the industry’s smaller enterprises; should they be regarded as competitors because of that possibility? Can and should competition law impose such a “less restrictive means” approach to determine the legality of joint bidding, and if so should it be applied to determine whether two companies are competitors or whether the restriction is by object or by effect for the purposes of art. 101(1) TFEU, or perhaps reserved for whether exemption is possible under art. 101(3) TFEU?

Sixth. An issue that has not been given much attention in the mentioned cases is the risk of achieving static efficiency as opposed to dynamic, when assessing the legality of a joint bid with a sole focus on the particular tender procedure at issue. Such an approach risks neglecting the possible spill-over effects that may affect the broader market on which the companies operate, including for example higher (joint) concentration. Of course, one may argue that if there is an expectation that consortium members will bid jointly for future contracts, the industry’s other companies will (need to) team up in order to effectively compete against that consortium. This may promote economic efficiency, if the (likely) fewer bids are more competitive than any individual bids would have been; thus, such promotion of a more concentrated industry structure (in the bidding market) may not sit as awkwardly together with competition policy as would appear at first sight. One could, however, wonder whether this type of structural assessments belong to the enforcement of the prohibition of anticompetitive practices rather than e.g. merger control, as joint tendering in one occasion does not necessarily imply joint tendering for future contracts.

More generally, this line of argumentation raised one of the main questions in the Road Marking Case: Do fewer bids necessarily equal a restriction of competition when such could provide the public authority with a higher (or equivalent) value-for-money than individual bids? Having in mind that the goal of competition law is to promote economic welfare (for the consumers), and that the mean to achieve this goal is effective competition, it would be useful to obtain further clarity on how exactly “effective competition” is to be understood in a public procurement context, and how the static welfare of a contracting authority stemming from one tender procedure is to be weighed against the dynamic welfare of other contracting authorities and consumers in its broader sense.

Seventh. A different but somewhat related topic, which the cases do not provide clarity on, is whether and/or when joint bidding constitutes an infringement of competition law by object or by effect; and how much detail and effort is needed to establish an object infringement. In the Road Marking Case both the competition authorities and the companies used AG Bobek’s fish metaphor (Opinon of 5 September 2019 in Budapest Bank and Others, C-228/18, EU:C:2019:678, para 51) to support their respective views.

The companies claimed that, although the consortium agreement perhaps looked like a fish and smelled like a fish, it possessed so many characteristics different from a fish that in order to qualify it as such, a detailed examination (of its effects) should be carried out. Of course, they also argued the obvious; since joint bidding can have pro- as well as anticompetitive effects on competition, such behavior does not categorically fall into “the object box”. In fact, because of its ambivalent effects, joint bidding should always require a detailed analysis as to the effects on competition.

Not surprisingly, the competition authority argued to the contrary. In their view, the consortium agreement looked like a fish, smelled like a fish, and behaved like a fish; and no circumstances in the market could convincingly question the (likely) anticompetitive effects of such a fish. It was a price fixing and market sharing agreement between competitors, and because such have long been classified as object restrictions, no detailed analysis was needed to establish that it was in fact a fish. The only plausible object of the agreement was to restrict competition. As revealed, the Danish Supreme Court supported the authority’s interpretation.

Clearly, the parties and the competition authority viewed the agreement very differently. Some may argue that at first glance their different approaches seem to fit nicely into “the more economic” vs “the orthodox” approach to competition law enforcement. The authority seemed to follow the rather stringent approach adopted by the Norwegian Supreme Court and the EFTA Court in the Ski Taxi case, where a joint bidding arrangement was deemed a restriction of competition by object mainly due to its price-fixing element. From an enforcement perspective, this simple yet inflexible approach is not hard to understand; merely observing a price-fixing element between competitors renders a joint bidding arrangement anticompetitive by object, regardless of any legitimate purposes or (likely) pro-competitive effects. The benefits of this approach are that it provides a high degree of legal certainty; it reduces the procedural burden of the competition authorities under art. 101(1) TFEU; and it effectively reverses the burden of illegality to the parties, who must provide sufficient evidence to prove fulfilment of the cumulative conditions in art. 101(3) TFEU to find their joint bidding agreement exempt. This approach, however, also creates risk of type I enforcement errors, i.e. condemnation of conducts that are not anticompetitive, and may lead businesses to refrain from entering into joint bidding arrangements that are not harmful to competition—to the potential detriment of contracting authorities and, ultimately, taxpayers.

The parties in the Road Marking Case did not give “stand-alone” importance to the price fixing element as this is an inevitable element of joint bidding. To correctly assess the restrictive effects of joint bidding one should therefore see the price-fixing element in its rightful context. This led to another principal disagreement in the case; namely, determining which facts and circumstances should be included in the “legal and economic context”, and which should be reserved for the analysis of efficiencies under art. 101(3) TFEU. The companies argued that past experience from comparable tenders revealed that the winning bidder was likely to be found amongst those who submitted bids for the entire tender, and the companies’ legitimately anticipated participation by foreign tenderers to submit such “total bids” because of the Road Directorate’s active marketing efforts in the Nordic countries. These circumstances determined the parties’ bidding strategy and should, according to the parties, be taken into account under the legal and economic context (art. 101(1) TFEU). The authority noticed that the companies’ ability to provide a “more competitive bid” (i.e. a “more likely to win” bid) could only be assessed under art. 101(3), as the ability to bid is the determinative factor under 101(1) TFEU, not the ability to win, and objectively it was not a requirement that tenderers submitted “total bids”. Again, as already declared, the Danish Supreme Court upheld the authority’s approach, leaving much to be desired from a commercial bidding strategy perspective.

It is correct that it was objectively possible to submit bids for one or several lots, and that the consortium parties could in fact have done so independently. The problem is that in reality no company (except in certain cover price cases) submits bids merely to participate in public tenders because of the costs involved; they bid to win. If they assess that there is no (or a low) chance of winning, they will refrain from bidding. The Maritime and Commercial High Court acknowledged this commercial reality of the companies, and though the Court repealed the case primarily because the parties were not competitors (in relation to the entire tender), it also noted that the Competition Appeals Tribunal had failed to carry out the necessary, concrete assessment of the agreements’ purpose and character so as to conclude with sufficient clarity that it had the object of restricting competition. Whether the Maritime and Commercial High Court would have repealed the case if the companies had been found to have the ability to individually submit bids for the entire tender, is questionable.

The Supreme Court found that, in the given market settings, the consortium agreement by its very nature had the potential to restrict competition, and thus it was unnecessary to demonstrate any actual anti-competitive effects on the market. Neither the parties’ subjective purpose of submitting a more competitive bid, nor the fact that the collaboration happened openly, could change this.

The questions and issues highlighted above are by no means exhaustive, but already demonstrate the complexity of the enforcement of competition law in the context of public procurement. Further topics within the joint bidding sphere are equally interesting (and unclear), for example; the possibility of joint bidding arrangements fulfilling the conditions for exemption under art. 101(3) TFEU; the burden of proof and usage of the proof proximity principle in regards to the assessment of companies’ (lack of) capacity to bid individually; the substance of the profitability test when assessing whether it constitutes a sustainable business strategy to expand company capacity; the relevance and significance of ex ante vs ex post facts; the limits on information exchange between the companies during the different stages of the tender process; the relevance and application of auction theory; the relevant market and competitor-analysis when applying the de minimis, the qualification of illegal joint bidding as cartel behavior that may be faced with criminal charges; etc.

Needless to say, the Road Marking Case limits the possibility for companies to bid strategically with each other; or at least it makes clear that such collaboration must involve some integration of resources/competencies. A prospective need to (maybe) pool resources if needed during the contract period does not suffice, if the market (in this case geographical lots) has been divided between the parties ex ante. The case, however, not only offers a cautionary tale to companies but also to contracting authorities when it comes to procurement design (as did the SKI Taxi case, as discussed by Sanchez-Graells in this blog). Clearly, the contracting authorities have very limited scope to utilize the benefits of potential bidders’ economies of scale, if at the same time, they decide to divide the tender into lots.

Looking at the future, it is worth stressing that the detailed Danish Guidelines on joint tendering [available here (in English)]: were amended – in a less than convincing way – to reflect the judgment of the Maritime and Commercial High Court. In light of yesterdays’ Supreme Court judgment, the Danish Competition and Consumer Authority may simply pick out the few comments reflecting the High Court’s stance and change the guidelines back to how they used to be.

Heidi Sander Løjmand, MSc

Heidi Sander Løjmand is a PhD Researcher at the University of Southern Denmark (Law Department). In her PhD she explores the approach to joint bidding under art. 101(1) TFEU, in particular in the Nordic Countries. She holds a master’s degree in Business Administration and Commercial Law (law and economics) from Copenhagen Business School, and has previously worked in legal practice. You can connect with Heidi via LinkedIn: https://www.linkedin.com/in/heidi-sander-l%C3%B8jmand-ba41513b/.

Is Circular Economy a move towards or away from sustainability? A short piece on the (ab)use of the concept of circularity [guest post by Dr Lela Mélon]

With business sustainability in mind and in search of sustainable governmental behaviour, especially in terms of public purchasing practices, circularity seems like a fitting concept for fulfilling public needs in a sustainable manner (see eg Geissdoerfer et al: 2016). Given the hurdles with the implementation of green public procurement practices across the EU, and the struggles in furthering sustainable public procurement (going beyond environmental to also add social concerns), I expected that circular public procurement would be an exception and applicable only to a handful of cases. And indeed, it did not take much research to verify that the application of circularity across European public procurement is scarce at its best: while listed under green public procurement, circular public procurement exhibits few best practices across the EU that mostly arose at the local level (see eg this 2018 best practice report).

While it might be argued that circularity by definition requires local action, that does not prevent the development of practices at a regional, national or even supra-national level in specific sectors with potential to become circular, e.g. energy sector, construction sector and waste management. Yet, whether we speak about circularity in the framework of private markets or public procurement, it is absolutely indispensable to embed circular practices in the framework of sustainability and not simply formulate it under the framework of waste management.

Much has been said on recycling, less on the cycle. Seeing circularity as an exercise of recycling and bringing materials back into the loop has been widespread, leading to even higher production and consumption and straying away from true sustainability. That being said, the underpinning reasons for such developments do not lie solely in private market practices, but also stem from the lack of knowledge on circularity and policy incoherence on the national and EU level in general.

What is (true) circularity?

Applying to both private and public markets, the notion of circularity should be clear. Recycling comes last. The whole purchasing procedure needs to be rethought and redesigned to accommodate more sustainable decisions and close the loop of linear practices as in ‘buy, use, dispose.’ Already at the stage of making the purchase decision, circularity demands us to rethink: do we need the product, service or works in question? Could we upcycle a product that we already own to fulfil that need? Could the need be filled by buying a service instead of the product or conversely leasing or renting the product? If the answer to those questions is no, then we need to purchase the product, service or work in question demanding a long life-time evaluation model.

Here the companies engaging in circular production need to provide a life-long guarantee, user manual, strategic design that facilitates reparability, minimal use of raw materials and energy (and its responsible sourcing, accounting for the social aspect of sustainability), use of renewable energy and efficient service and maintenance in case of a product fault. Spare part guarantee, service agreements, small repairs, standard components and easy disassembly are the must-haves under a truly sustainable circular economy.

Reuse and sometimes upcycling are the key. Recycling under a circular model is truly the last resort and its success in extracting useful materials for further production actually depends on the way the product was designed: the absence of hazardous materials, the possibility to disassemble the product into different materials with ease, the possibility of downcycling and upcycling of the materials. These notions all run counter to the current linear economy: and the implications of such systemic change on business models and private markets as we know them will be significant, causing significant policy spill over effects and demanding the elimination of existing policy incoherences inhibiting such a transition. This piece aims to provide further food for thought on the system as it is regarding private and public markets; discussing the current state of affairs, the impediments to a higher uptake of circular practices and the policy spill over effects of a successful implementation of circularity as a general exercise.

Where are we at? – the European Commission’s Action Plan

In terms of EU policy on circular economy in general, the European Commission has issued an ambitious circular economy package—which surprisingly focuses on waste management and bringing resources back in the loop—coupled with two subsequent implementation reports in 2017 and 2019. While the package recognises that the value of circular economy lies also in job creation, savings for businesses and the reduction of EU carbon emissions; the action plan on the matter focuses heavily on reforming the waste management legislation, albeit briefly reflecting also on the broader aspects of circular economy such as job creation, innovative design, business models, research, re-manufacturing, product development and food waste. The wrong signal is therefore sent to the private and public market: the focus on getting scarce materials back into the loop instead of a systemic change of production processes themselves. This influences private and public markets and reinforces the idea that the only issue with traditional linear production and consumption processes is the scarcity of (raw) materials.

Further reinforcing this idea, the EU study on Accelerating the transition to the circular economy focuses on public funds employed to that effect, omitting the fact that this represents only a fraction of the funds needed for a true systemic change. The study has been seen as an accelerator for the deployment of the circular economy, discussed in the framework of new circular business models and in the framework of waste management (id at 10). While the need for extensive financing has been repeatedly highlighted (eg in this 2017 report’s estimate of EUR 320 billion by 2025) for a systemic transition to circular economy (with estimated combined benefits of such shift of EUR 500 billion), the focus of the report has been on providing such finance in the current ‘business as usual’ framework, advocating for higher investment in such transition by the EU, without a comparative assessment of the current private financial market frameworks and its indispensable role in such transition (cfr this call for integrating externalities in the existing risk assessment frameworks).

Arguing for a systemic approach and a stronger focus on private finance offerings, especially with regards to small and medium-size enterprises (see here and here), points to the insufficiency of public funds for the transition to a more circular economy. To boost the private finance offerings, there is a need for a systemic change of financial systems to account for the inherent risks of the current linear business models, thereby eliminating persistent unfair competitive advantage for linear business models in the access-to-finance scenario. Not incorporating the change of linear risk assessment practices in greater detail into the EU action plan is a pitfall that needs to be remedied, qualifying change that needs to occur regarding the traditional access-to-funding setting in order to accommodate circular business and the changes it entails for ‘business-as-usual’ also in terms of the access-to-finance.

The structural flaw of underestimating the risks of linear projects and overestimating the risks of circular economy projects will not be remedied simply by taxonomy and EU funds: the financial systems on their own need to ‘circularise’ their finance offerings: the world as we know it, business as usual, is about to change and it could cost them more than just their reputation. Asset backed loans will need to change into ‘relationship’ backed loans, which presupposes also changes and ameliorations to contract laws to ensure monetised value to relationships as steering wheels of the new circular economy.

The lack of circularity in finance influences the offerings of the private market and the innovation necessary for circular solutions, which will in turn influence also the success of circular public procurement: the public funds and practices in innovation procurement cannot produce a sufficient amount of circular procurement to create a strong movement on the private market.

What are the impediments to a higher uptake of circular practices and what are their implications?

Aside from these two broader policy concerns, there are some specific impediments to circularity in public procurement: the first is the low uptake of green public procurement (GPP) across the EU,[1] impeding the insertion of circularity as the next step of GPP and the second the lack of regional, national and supranational best practices to that effect.

The integration between public procurement and circular economy itself is at its early stages at the EU level, where the incorporation of social, environmental and economic specifications into public procurement is not at a sufficiently high level to produce an indirect effect on products and consumers themselves and thereby stimulating circular economy. Furthermore, as majority of circular innovation stems from small and medium sized enterprises, it is crucial to further facilitate their access to public procurement systems, aside from general efforts to support the implementation of sustainable public procurement.

While the Eco-design Directive 2009/125/EC incentivises Member States to implement waste-preventing public procurement strategies according to information about the products’ technical durability, simultaneously suggesting the recycling requirements to be designed accounting for corresponding requirements for waste treatment in the waste legislation related to product, significantly supporting the circular flow of substances and materials, it is still strongly focused on waste management. Once again, here the notion of circularity supports more the linear production models than it does true circularity: while waste management and preservation of materials is important, determining the initial need for production and the potential for lease, reuse and upcycle is more important in terms of circularity.

The second supporting tool for circular public procurement, the Environmental Footprint Initiative of the European Commission, aims at providing a harmonisation process for the development of a scientific and consensus-based method, trying to inform and direct consumer choices with clear and comparable environmental information. Again, while reliable information is an indispensable steppingstone for determining sustainability hotspots, it is a truly preliminary and indirect step towards circular procurement. It does not provide for a true move from linearity to circularity.

Aside from the general concerns introduced above, the private sector further encounters impediments to circularity in current legislation on plastics recycling, competition law and the general corporate law favouring and prioritising linear business practices, lacking clear guidance on circularity. These are all examples of policy incoherence, some representing a direct example of incoherence (the silence of corporate legal frameworks on the social norm of shareholder primacy,[2] the plastic packaging requirements preventing the use of recycled plastics), others an indirect example (competition law).

Coupled with the abovementioned issues of financial law, these impediments are sufficient to significantly reduce the development of new circular solutions beyond pure recycling efforts. Additionally, the indirect policy incoherence in terms of competition policy as it stands, needs to be revised simultaneously to other sustainable changes to EU legal frameworks, and we have not accounted yet for those changes to a significant extent. If circularity is to be a tool towards achieving true sustainability, the traditional notions of ‘separating’ competitors and keeping them from cooperating will need to be revised. Circular systems have a need to be interconnected, cooperating and sharing, especially as reuse, repair and upcycling are the building blocks of circular economy. This calls for a systemic change of competition laws in themselves.

Furthermore, to aid the financing of this transition, traditional property and contract law will need to develop additional institutions to account for a different economy, one not based on assets as in material assets but rather relationships as assets. The road towards true circularity is still long, but these policy spill over considerations need to be resolved simultaneously with other sustainable changes to areas directly connected with sustainability in order to achieve a timely change towards truly sustainable circularity.

Where to now?

To conclude, a systemic change requires efforts of policymakers, private and public market actors as well as consumers. The above presented reflections represent just a fraction of what we will have to deal with in terms of transition towards sustainability and I would love to hear about any additional concerns and/or solutions to the policy issue that you have encountered in your professional field. I would gratefully any feedback or suggestions at lela.melon@upf.edu.

Dr Lela Mélon

Lela Mélon is a lawyer and an economist, specialised in sustainable corporate law. Lela started her sustainability career in 2014 with her research on shareholder primacy in corporate law. She is currently charge of the Marie Curie Sklodowska funded project ‘Sustainable Company’ at the Pompeu Fabra University in Barcelona. She has co-authored and authored monographs, published several scientific articles in the field of sustainable corporate lawand sustainable public procurement and presented her work at conferences across Europe, as well as introduced sustainable corporate law curricula in several universities in Europe.

[1] Mélon, L. ‘More than a nudge? Arguments and tools for mandating green public procurement in the EU.’ Working Paper, Conference Corporate Sustainability Reforms Oslo 2019.

[2] Mélon, L. Shareholder Primacy and Global Business (Routledge 2018); Sjafjell, B. (2015) Shareholder Primacy: The Main Barrier to Sustainable Companies, University of Oslo Faculty of Law Research Paper No. 2015-37.

The Norwegian Supreme Court Gives its Final Word in the Fosen-Linjen Saga [guest post by Dag Sørlie Lund]

The Fosen-Linjen Saga has finally come to a close with the Norwegian Supreme Court’s Judgment. Dag Sørlie Lund* kindly provides a sharp summary of the case while we await for any official translations. His fuller critical assessment of the Judgment will be included in the EPPPL special issue we are working on.

The Norwegian Supreme Court Gives its
Final Word in the Fosen-Linjen Saga

The so-called Fosen-Linjen Saga has finally come to its long-awaited end by the judgment of the Norwegian Supreme Court of 27 September 2019, more than 6 years after the company AtB tendered for the procurement of ferry services between Brekstad and Valset in the County of Trøndelag.

The contract was initially awarded to the company Norled. The competitor, Fosen-Linjen, which was ranked as the runner-up, claimed Norled had been awarded the contract unlawfully, and managed to stop the signing of the contract through interim measures. In the interim measures procedure two errors were identified by the courts:

1. AtB had not required the necessary documentation for the award criteria “environment”; and

2. AtB had not verified the viability in Norled’s offer regarding fuel consumption (which was part of the criteria “environment”).

As a result of this, AtB decided to cancel the tender procedure, and restart the whole process.

Fosen-Linjen did not submit a new tender, but instead filed a law suit against AtB claiming damages for the positive interest, or, in the alternative, the negative contract interest. The negative contract interests essentially amounts to the costs of tendering (damnum emergens), while the positive contract interest essentially amounts to the loss of profit (lucrum cessans).

The Supreme Court’s judgment clarifies several key questions about public procurement law related to the threshold for damages, and for the requirement of causality between the breach and the damages. Furthermore, the ruling contains interesting assessments of legitimate grounds to cancel a tender procedure, and the significance of the fact that a tenderer submits an offer despite being aware of errors in the procurement documents for the possibility to receive damages. The judgment is unanimous for all but the question of causality for damages for the negative contract interest, where one justice had a concurring opinion with a slightly different approach. For the purposes of this summary, I will not go further into the differences in the concurring opinion.

The Principle of State liability for breaches of EEA Law

The Supreme Court starts out by grounding the liability for damages in the general principle of State liability for breaches of EEA law. According to this principle an EEA State may be held liable for breaches of its obligations where the following three conditions are met:

1. The breached provision of EEA law must be intended to confer rights on individuals and economic operators;

2. The breach must be considered as sufficiently serious; and

3. There must be a direct causal link between the breach of the obligation in question and the damage suffered by the aggrieved party.

The first condition was clearly met, and the case before the Supreme Court thus mainly concerned the question of the threshold for receiving damages and what it takes to establish a direct causal link for damages for negative costs. A particularly disputed question in the Fosen-Linjen Saga, has been whether the threshold for damages for the negative and the positive contract interests is different. Under Norwegian law, it has traditionally been easier to receive compensation for the negative costs than for the positive costs.

The Positive Contract Interest

The Supreme Court rejected Fosen-Linjen’s claim for damages for the positive interest since there were sufficient grounds to cancel the tender procedure. In fact, there were two grounds for cancelling the procedure.

First, the Supreme Court considered that the identification of the two errors in the interim measures proceedings raised serious doubts about the lawfulness of the procedure. These doubts were considered as sufficient grounds to cancel the tender procedure.

Second, it was also considered that the fact that AtB did not require the necessary documentation for the award criteria “environment”, also constituted sufficient grounds to cancel.

Consequently, the Supreme Court concluded that since the cancellation was lawful, Fosen-Linjen could not receive damages for the positive contract interest. This part of the judgment is somewhat confusing, since it appears to consider the question of causality rather than the question of whether the breach was sufficiently serious: since the tender procedure was lawfully cancelled, no one could ever be awarded the contract, and thus no one would ever have a claim for the loss of profit.

This is particularly confusing since the Appeals Selection Committee of the Supreme Court had explicitly rejected the question of causality for the positive contract interest from being heard by the Supreme Court. This is all the more puzzling since the Supreme Court appears to have been aware of this distinction, noting that the cancellation did not exclude the possibility for damages for the negative contract interest, which shows that the question of liability was not conceptually excluded by the fact of the cancellation.

The Negative Contract Interest

As mentioned, the traditional approach in Norwegian torts law is that the threshold is lower when it comes to damages for the negative costs.

Based on its reading of case law from the CJEU and the EFTA Court, the Supreme Court held, however, that the test for receiving damages, regardless of the categorization of the damages as negative or positive costs, is whether the breach in question may be considered “sufficiently serious”. The Supreme Court outright rejected the suggestion that the threshold might be lower under Norwegian tort law.

In the assessment of whether a breach is sufficiently serious, the Supreme Court noted that it may not be required to demonstrate fault or fraud, although both subjective and objective factors included in the traditional assessment of liability under national tort law, may be relevant to take into account.

Same same, but different

Despite this description of the test for receiving damages, the Supreme Court emphasized that the norm could not be characterized as more or less strict than would otherwise follow from Norwegian tort law, but that the assessment may be somewhat different.

The Supreme Court identified the norm as a sliding scale where the crucial point appears to be the level of discretion enjoyed by the contracting authority – from wide to none at all.

The rule that was breached in the tender procedure – namely the obligation to require necessary documentation for an award criterion – was found to be clear and precise. Accordingly, the Supreme Court found that AtB was liable for the negative costs. In that regard, it was pointed out that AtB twice received questions that raised doubts as to the lawfulness of the award criteria, which combined with the consequences caused by the breach, led to the conclusion that the threshold of “sufficiently serious” was passed.

It’s worth noting that despite the fact that the Supreme Court rejected that a contracting authority might escape liability by claiming not to possess the necessary powers, knowledge, means or resources, it still considered the complexity of the public procurement rules indicated a certain restraint or caution in establishing liability.

Direct Causal Link

Concerning the question of a direct causal link between the breach and the damage, the Supreme Court asked whether the tenderer would have submitted an offer if they had known about the error committed.

Even though the fact that AtB had not required the necessary documentation for the award criteria “environment” was clearly visible for Fosen-Linjen, the Supreme Court considered that this criterion was met since AtB had considered the procurement documents to be lawful despite the fact that the error had been pointed out twice during the tendering procedure. This part of the judgment is also confusing, as it is not entirely clear why the subjective view of the contract authority is relevant when assessing the question of causality.

Unanswered questions

The Supreme Court thus disentangled many key questions about liability for breaches of procurement rules, but some issues remain unanswered. For example, the Supreme Court did not rule on the question of whether liability is conceptually possible where the tendering process should have been cancelled, but this doesn’t happen. Furthermore, as mentioned above, the question regarding direct causal link for damages for the positive interest was not accepted to be heard by the Supreme Court, so the particularities of that assessment was not further clarified. Considering the attention these questions have received through the Fosen-Linjen Saga, it is probably only a matter of time before these will materialize themselves in future cases, with new sagas in national courts and in Luxembourg.

Dag Sørlie Lund

Dag Sørlie Lund is part of our European and Competition law team. He has previously worked at the Department of Legal Affairs in the Ministry of Foreign Affairs, the EFTA Court, the EFTA Surveillance Authority (ESA), and as an attorney. He has experience in advising clients in EU/EEA and competition law, including state aid and public procurement law.

Dag has handled a number of cases concerning the EFTA Surveillance Authority, and has pleaded several cases before the Court of Justice for the European Union and the EFTA Court. Dag has lived in Spain, Belgium and Luxembourg, and speaks Spanish and English fluently.