This article is an excerpt from the 2021 edition of The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its April 2016 decision in European Dynamics Luxembourg SA v. European Union Intellectual Property Office, the European Court of Justice determined that the European Union Intellectual Property Office (EUIPO) conducted a flawed evaluation process and awarded an unsuccessful bidder lost profit damages. The dispute dealt with a tender call for the award of framework agreements for software development and maintenance services valued at a total of € 135,000,000. An unsuccessful bidder challenged the process on multiple grounds, alleging that a competing bidder should have been disqualified for conflict of interest and for having previously engaged in bid-rigging and bribery, and claiming that the EUIPO failed to provide an adequate debriefing.
With respect to the conflict of interest issue, the complainant argued that one of its winning competitors had an unfair advantage since that competing consortium included a subcontractor whose related companies were involved in the preparation of the specifications for the tender call. However, the Court found that the subcontractor in question (PricewaterhouseCoopers (PWC) Spain) was not directly involved in the drafting of the specifications, which were actually prepared by “sister companies” (PWC UK and PWC Belgium) who shared the same parent company (PWC International Ltd) as the subcontractor in question.
As the Court concluded, while there may have been a potential conflict of interest due to the structural links between the PWC subsidiaries that prepared the specifications and the PWC subsidiary that formed part of a competing bidding consortium, the Court stated that this potential conflict of interest was not sufficient to make a finding of actual conflict of interest.
While the Court confirmed that actual conflict of interest would be found in a situation where a potential conflict gave rise to an actual unfair advantage, the facts in the specific case did not appear to support an actual conflict of interest in the challenged bidding process since the subcontractor was approached to participate in the bidding process only six days before the bidding deadline. The Court found that there was little chance that this provided enough time for the PWC subsidiary to provide an informational advantage from its sister companies in the preparation of the bid. The Court therefore rejected the complainant’s challenge on this issue.
In fact, the Court found that the competing consortium actually scored significantly lower than the complainant in the technical areas associated with the specifications in question, which further undermined the claims that the competing consortium had obtained an unfair advantage in the process. The Court therefore concluded that the complainant had failed to make its case in relation to actual conflict of interest.
However, the Court agreed with the complainant in its assertions that EUIPO should have investigated the allegations that the competing consortium was previously involved in bid-rigging and other criminal activities that would have justified a disqualification. As the Court noted, EUIPO failed to conduct the required due diligence during its evaluation process. Rather, the evaluators improperly relied on a declaration in which the company swore that the allegations were untrue, even though the company had previously admitted to those activities and agreed to an out-of-court settlement with authorities to avoid formal prosecution.
The Court also agreed with the complainant that EUIPO failed to provide the complainant with an adequate debriefing. As the Court noted, the European procurement rules require purchasing institutions to provide reasons for their contract award decisions to losing bidders. With respect to the scope of debriefing disclosure duties, the Court agreed with EUIPO that this duty did not extend to providing a full copy of the evaluation report to losing bidders, or a copy of the winning bidder’s tender document.
However, the Court ruled that EUIPO was required to disclose how it had deducted points from the complainant in relation to each sub-criterion so that both the complainant and the Court could be in a position to assess whether there were any errors in the evaluation. The Court determined that EUIPO failed to meet this transparency standard. The Court therefore annulled EUIPO’s evaluation decision.
Turning to the issue of damages, EUIPO argued that it should not be liable for damages since it had the right to cancel a bidding process without awarding a contract to any bidder. Based on this fact, EUIPO maintained that the complainant could not conclusively establish the causal connection between EUIPO’s rules breach and the loss of a contract award. If it could not prove that the breach resulted in the loss of a contract, it followed that the complainant could not be entitled to damages. However, while this principle was applied in prior cases to deny the award of damages, in this case the Court rejected EUIPO’s argument and found that the complainant was entitled to the award of damages:
In the present case, it must be stated that the infringement of the principle of equal treatment of tenderers, in conjunction with that of Article 93(1)(e) of the General Financial Regulation and point 13.1, first paragraph, subparagraph (e), of the tender specifications, and the manifest errors of assessment made by the contracting authority in the context of the individual assessment of the first applicant’s bid, necessarily affected the latter’s chance of being ranked higher in the cascade procedure and of becoming, at least, the third successful tenderer, in particular in the event the Drasis consortium were to be excluded from the tendering procedure for the reasons outlined in paragraphs 64 to 78 above.
It also follows that, even taking account of the contracting authority’s broad discretion with respect to the award of the contract at issue, the loss of opportunity suffered in the present case by the first applicant constitutes actual and certain damage according to case-law (see, to that effect and by analogy, judgments of 9 November 2006 in Agraz and Others v Commission,C-243/05 P, ECR, EU:C:2006:708, paragraphs 26 to 42, and Evropaïki Dynamiki v EIB, cited in paragraph 215 above, EU:T:2011:494, paragraphs 66 and 67; Opinion of Advocate General Cruz Villalón in Giordano v Commission,C-611/12 P, ECR, EU:C:2014:195, point 61). In the present case, the fact that the first applicant was awarded the highest score for the technical quality of its tender, although that tender was ranked fourth, renders implausible the premise that the contracting authority could have been led not to award it the contract at issue but to offer it a framework contract with EUIPO.
The Court therefore agreed that the complainant was entitled to an award of damages due to its loss of the contract opportunity arising out of the flawed evaluation. While the complainant claimed that those damages should be in the amount of €6,750,000, the Court determined that it was not in a position, at that stage of the proceedings, to provide a definitive ruling on the amount of damages. It therefore directed the parties to seek an out-of-court settlement on the calculation of damages, failing which they could make future submissions to the Court to seek a ruling on the specific amount of damages owing.
