Review Of Authority's Decision To Cancel Tender Process

A&O Shearman
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In Croce Amica One Italia Srl v Azienda Regionale Emergenza Urgenza [2014] EUECJ Case C-440/13, 11 December 2014, the European Court of Justice ruled that EU Member States can grant public authorities broad discretion to exclude tenderers from procurement processes and cancel tenders. In addition, national courts and tribunals have extensive powers to review the lawfulness and expediency of procurement decisions by public authorities.

Background

In December 2010, an Italian public authority (AREU) (Regional Emergency Services Agency) announced an open tender for a contract to supply specialist transportation services. Four companies participated in the tender, but the bids of three companies were rejected on technical grounds. Croce Amica One Italia Srl (Croce Amica One) was the only company remaining in contention and was provisionally awarded the contract. However, after conducting a further review of Croce Amica One's tender, AREU concluded that it was anomalous. In the same period, preliminary criminal investigations were being conducted into the Croce Amica One's legal representative for fraud and making intentionally false statements in connection with the tender.

AREU subsequently decided not to proceed with awarding the contract to Croce Amica One and cancelled the entire tender procedure. AREU's reasoning was that "apart from the anomalous nature of the tender, the AREU [could] not in any event, for evident reasons of expediency and reasons connected with the principle of sound administration, proceed to award the services contract to the tenderer Croce Amica One…nor, given the vital nature of the services in question, [could] it postpone the award of the contract pending the outcome of the criminal proceedings or even the conclusion of the investigations currently under way".

Croce Amica One challenged AREU's decision, seeking the annulment and provisional stay of the decision, as well as making a compensation claim for damage sustained as a result of the decision. The Lombardy Regional Administrative Court decided to stay the proceedings and referred four questions to the European Court of Justice (ECJ) for a preliminary ruling under Article 267 of the Treaty on the Functioning of the European Union. The ECJ re-framed the reference as two questions:

(a) whether Article 45 of Directive 2004/18/EC precluded the adoption by a contracting authority of a decision not to award a contract for which a procurement procedure had been held and not to proceed with the definitive award of the contract to the sole tenderer remaining in contention to whom the contract had been provisionally awarded where the conditions for the application of the grounds for exclusion set out in Article 45 were not fulfilled; and

(b) whether a competent national court can conduct a review of a decision of a contracting authority in the exercise of its unlimited jurisdiction, that is, a review enabling it to take account of the reliability and suitability of the tenderers' bids and to substitute its own assessment for the contracting authority's evaluation as to the expediency of withdrawing the invitation to tender.

European Union public procurement rules

Directive 2004/18/EC (31 March 2004) governs the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts. Article 45(1) provides that any tenderer who has been convicted by final judgment for participation in a criminal organisation, corruption, fraud or money laundering is excluded from participation in a public contract. Article 45(2) provides that any economic operator may be excluded from participation in a contract where: they have been convicted by a judgment which has the force of res judicata for any offence concerning their professional conduct; they have been guilty of grave professional misconduct proved by any means which the contracting authority can demonstrate; or they are guilty of serious misrepresentation in supplying information for the tender. The Directive was transposed into Italian law with the inclusion of a power for the contracting authority to withdraw, suspend or modify its own decisions.

Directive 89/665/EEC (21 December 1989) governs the coordination of the laws, regulations and administrative provisions relating to the application of review procedures to the award of public supply and public works contracts. Article 1(1) provides that Member States must ensure that decisions by contracting authorities can be reviewed effectively, and be capable of being annulled if they infringe EU public procurement law or national rules transposing that law.

Decision not to award the contract and cancellation of the tender

The ECJ noted that AREU's decision not to award the contract to Croce Amica One and cancel the tender was different to a decision relating to the exclusion of a tenderer under Article 45 of Directive 2004/18/EC. Article 45 envisions a tenderer being excluded either before the provisional award of the contract or after a criminal conviction, not after provisional award but before conviction as occurred in this case. However, the Court held that EU law did not preclude Member States from providing in their legislation for the possibility of withdrawing an invitation to tender where none of the provisions in Article 45 was fulfilled. The basis for such a decision could be (among other things) an assessment as to whether it was expedient in the public interest to conclude an award procedure given a change in the economic context or factual circumstances, the needs of the contracting authority, or there being an insufficient degree of competition where it was considered that only one tenderer was qualified to perform the contract. The Court concluded that AREU could decide not to proceed with the definitive award of the contract to Croce Amica One and not to award the contract at all.

Ability of a national court to review the decision of a contracting authority

The ECJ found that Article 1(1) of Directive 89/665/EEC required an ability to review the lawfulness of decisions by contracting authorities, for the purpose of ensuring that the relevant rules of EU law or national provisions transposing those rules were complied with. Such a review could not be confined to a simple examination of whether the decisions of contracting authorities were arbitrary. However, in the absence of specific EU legislation in the field, it was open to national legislatures to grant national courts and tribunals more extensive powers to review whether decisions of contracting authorities were expedient.

COMMENT

Public procurement rules at EU and national level are designed to protect both contracting authorities and tenderers. Tendering for a major contract can be very costly, so bidders (and their financial backers) have a significant interest in tenders being conducted in a transparent way, contracts being awarded fairly, being treated equally with other bidders, and being able to take action against contracting authorities if contracts are not awarded fairly or if tenders are cancelled arbitrarily. The criteria for rejecting tenderers in the Public Contracts Regulations 2006 (in England, Wales and Northern Ireland) and Public Contracts (Scotland) Regulations 2006 are in similar terms to Article 45 of Directive 2004/18/EC.

The ECJ's decision gives public authorities substantial discretion to exclude tenderers and cancel tenders, enabling them to protect themselves from suppliers before entering into procurement contracts and to react to changing circumstances. Once Directive 2014/24/EU (which repeals Directive 2004/18/EC) has been transposed into national laws, this situation will be governed by Article 57(5), which allows contracting authorities to exclude bidders at any time during the tender process (not just at the pre-qualification stage) and in view of acts committed or omitted before or during the tender process. Subcontractors and consortia members can also be excluded throughout the procurement process. The UK government has stated its intention to transpose Directive 2014/24/EU into national law in early 2015, and transposition by EU Member States is required by April 2016. Nevertheless, this decision will reinforce the breadth of the discretion given to contracting authorities by Article 57(5) and will provide further comfort to them in deciding to exclude tenderers. This decision also clarifies the scope given to national courts and tribunals to review the merits of decisions by authorities in the context of public procurement.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. Attorney Advertising.

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