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:
EUIPO contends that point 13.1 of Annex I to the tender specifications is consistent with the case-law according to which, first, a potential conflict of interest may arise where a tenderer has participated in the preparation of the call for tenders and, secondly, in such a case, the tenderer concerned must be given the opportunity to explain why, in the particular circumstances of the case, that potential conflict of interest did not confer any undue competitive advantage on him. In any event, the conflict of interest must be real and not hypothetical and the existence of the risk of it materialising must be established following a specific assessment of the tender and of the tenderer’s situation. The existence of a potential conflict of interest on the ground that a subcontractor took part in drafting the tender specifications is not sufficient to exclude that tenderer.
In the present case, EUIPO took account of the alleged conflict of interest. When EUIPO noted that PricewaterhouseCoopers (PWC) Spain was a subcontractor of the Drasis consortium, it immediately sought clarification from the latter. First, in response to that request, Drasis explained that only PWC UK and PWC Belgium had taken part in the preparation of the tender specifications and that there was no structural link between them, on the one hand, and PWC Spain, on the other. Secondly, pursuant to the duty of confidentiality by which PWC UK and PWC Belgium were bound in the context of the provision of services to EUIPO for the drafting of the tender specifications, they did not disclose any relevant information in that respect, in particular, to the other companies in the same group. Thirdly, Drasis stated that it had contacted PWC Spain only six days before the deadline for the submission of tenders, and its letter of 15 April 2011 confirmed the fact that PWC Spain had not been involved in the preparation, drafting, pricing or sign-off of the technical tender submitted by the consortium. In the light of that information, EUIPO then checked whether PWC Spain’s involvement in the Drasis consortium could have conferred an unfair competitive advantage on that consortium vis-à-vis the other tenderers, and concluded that this was not the case. EUIPO therefore submits that it acted in compliance with the tender specifications and the applicable rules and that it correctly found that in the specific circumstances of the case there was no valid reason to exclude the Drasis consortium from the tendering procedure. Finally, in respect of the technical award criteria, the first applicant’s bid was awarded a much higher score than that of the Drasis consortium, which in itself proves that it did not enjoy an unfair advantage.
The Court observes that, in the light of the information provided by EUIPO in its defence, in the present case, it is common ground that, on the one hand, PWC UK and PWC Belgium, companies fully controlled by PWC International Ltd, had participated in the preparation of the tender specifications of the tendering procedure and that, on the other hand, PWC Spain, another subsidiary of PWC International, was part of the Drasis consortium, the third successful tenderer. In addition, it follows from two letters of 15 April 2011 sent by the Drasis consortium and PWC Spain to EUIPO, the content of which is not as such disputed by the applicants, that that consortium had invited PWC Spain to take part in the tendering procedure as a subcontractor only six days before the deadline for the submission of the tenders.
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:
As is apparent from a combined reading of the judgments of 3 March 2005 in Fabricom (C-21/03 and C-34/03, ECR, EU:C:2005:127, paragraphs 26 to 36) and of 19 May 2009 in Assitur (C-538/07, ECR, EU:C:2009:317, paragraphs 21 to 32), the existence of structural links between two companies, one of which took part in the drafting of the tender specifications and the other took part in the tendering procedure for the public contract in question, is, in principle, capable of causing such a conflict of interest. However, the risk of a conflict of interest in the light of that case-law appears to be less significant when, as in the present case, the company or companies responsible for the preparation of the tender specifications are not themselves part of the tenderer consortium, but are merely members of the same group of undertakings as that to which the company that is a member of the consortium also belongs.
On the assumption that such a situation is in fact capable of causing a conflict of interest, it must be stated that, in the present case, EUIPO checked and demonstrated to the requisite legal standard that such a conflict of interest could not affect the conduct of the tendering procedure and its outcome.
In that regard, it should be recalled that the mere finding of a relationship of control between PWC International and its various subsidiaries is not sufficient for the contracting authority to be able automatically to exclude one of those companies from the tendering procedure, without checking whether that relationship actually impacted on its conduct in the context of the present procedure (see, to that effect, judgment in Assitur, cited in paragraph 43 above, EU:C:2009:317, paragraph 32). The same also applies, a fortiori, to the finding that the implementation of certain preparatory work by a company belonging to a group of undertakings, another company of which is taking part, as a member of a tendering consortium, in the tendering procedure, since the latter company must be allowed to demonstrate that that situation involves no risk whatsoever for competition between tenderers (see, to that effect and by analogy, judgments in Fabricom, cited in paragraph 43 above, EU:C:2005:127, paragraphs 33 to 36, and of 20 March 2013 in Nexans France v Joint Undertaking Fusion for Energy,T-415/10, ECR, EU:T:2013:141, paragraph 116).
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:
By contrast, the existence of a conflict of interest must lead the contracting authority to exclude the tenderer concerned, where that approach is the only measure available to avoid an infringement of the principles of equal treatment and transparency, which are binding in any procedure for the award of a public contract (see, to that effect and by analogy, judgments in Assitur, cited in paragraph 43 above, EU:C:2009:317, paragraph 21, and of 23 December 2009 in Serrantoni and Consorzio stabile edili,C-376/08, ECR, EU:C:2009:808, paragraph 31), that is to say, that no less restrictive measures exist in order to ensure compliance with those principles (see, to that effect, judgment in Nexans France v Joint Undertaking Fusion for Energy, cited in paragraph 45 above, EU:T:2013:141, paragraph 117 and the case-law cited). It must be stated that a conflict of interest is, objectively and in itself, a serious irregularity without there being any need to qualify it by having regard to the intentions of the parties concerned and whether they were acting in good or bad faith (see, to that effect, judgments of 15 June 1999 in Ismeri Europa v Court of Auditors,T-277/97, ECR, EU:T:1999:124, paragraph 123; Nexans France v Joint Undertaking Fusion for Energy, cited in paragraph 45 above, EU:T:2013:141, paragraph 115; and of 11 June 2014 in Communicaid Group v Commission,T-4/13, EU:T:2014:437, paragraph 53).
In that regard, it should be noted that on 11 April 2011, that is to say, one month after the deadline for submission had passed and four months before the adoption of the award decision, EUIPO had expressly asked the Drasis consortium to clarify the situation of the PWC group companies in order to establish whether any conflict of interest existed, to which request that consortium and PWC Spain responded on 15 April 2011 by two letters which were in substance identical. It is apparent from those letters, inter alia, that the Drasis consortium had invited PWC Spain to take part in the tendering procedure as a subcontractor only six days before the deadline for the submission. Notwithstanding the fact that PWC UK, PWC Belgium and PWC Spain were ‘sister’ companies belonging to the same group, the applicants did not submit any information capable of calling into question the veracity of that claim, which the contracting authority was therefore legitimately entitled to consider as an important indication that there was no potential conflict of interest affecting the tendering procedure. Regardless of the duty of confidentiality — relied on by the Drasis consortium, PWC Spain and, finally, EUIPO — prohibiting the disclosure of confidential information between ‘sister’ companies within the PWC group, it appears unlikely that within the short period of six days PWC Spain could have been able to collect, from PWC UK and PWC Belgium, useful confidential data underlying the formulation of the tender specifications and that, thanks to those data, it could usefully have amended the consortium’s tender in order to increase its chances of success. Nor is it plausible that, in those circumstances, at the time of the drafting of the tender specifications, that is to say, long before the decision to involve PWC Spain as a member of the Drasis consortium, PWC UK and PWC Belgium were able to design the award criteria of the contract at issue in such a way as to favour the consortium in the context of the tendering procedure.
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.
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.
