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:
In the light of the duty to state reasons laid down in the second paragraph of Article 296 TFEU, the author of the measure must disclose its reasoning in a clear and unequivocal fashion so as, on the one hand, to make the persons concerned aware of the reasons for the measure and thereby enable them to defend their rights and, on the other, to enable the Court to exercise its power of review. The requirements to be satisfied by the statement of reasons depend on the circumstances of each case, in particular the content of the measure, the nature of the reasons given and the interest which the addressees of the measure, or other parties to whom it is of direct and individual concern, may have in obtaining explanations (see Evropaïki Dynamiki v Commission, cited in paragraph 145 above, EU:T:2013:88, paragraphs 25 and 26 and the case-law cited). Furthermore, the duty to state reasons is an essential procedural requirement, which is distinct from the question whether the grounds given are correct, which goes to the substantive legality of the contested measure (see judgment of 22 May 2012 in Evropaïki Dynamiki v Commission,T-17/09, EU:T:2012:243, paragraph 40 and the case-law cited).
In the area of public procurement, the first subparagraph of Article 100(2) of the General Financial Regulation and Article 149(3) of the implementing rules set out the requirements which the contracting authority must fulfil in order to comply with the duty, in respect of the tenderers, to state reasons. Thus, under the first subparagraph of Article 100(2) of the General Financial Regulation, ‘[t]he contracting authority shall notify all candidates or tenderers whose applications or tenders are rejected of the grounds on which the decision was taken, and all tenderers whose tenders are admissible and who make a request in writing of the characteristics and relative advantages of the successful tender and the name of the tenderer to whom the contract is awarded’.
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:
In that regard, it is apparent from well-established case-law that, in respect of that provision, the contracting authority cannot be required to provide an unsuccessful tenderer, first, in addition to the reasons for rejecting its tender, with a detailed summary of how each detail of its tender was taken into account when it was evaluated and, secondly, in the context of the notification of the characteristics and relative advantages of the successful tender, with a detailed comparative analysis of the successful tender and of the unsuccessful tender. Similarly, the contracting authority is not under an obligation to provide an unsuccessful tenderer, upon written request from it, with a full copy of the evaluation report (see orders of 20 September 2011 in Evropaïki Dynamiki v Commission, C-561/10 P, EU:C:2011:598, paragraph 27; of 29 November 2011 in Evropaïki Dynamiki v Commission,C-235/11 P, EU:C:2011:791, paragraphs 50 and 51; and judgment of 4 October 2012 in Evropaïki Dynamiki v Commission,C-629/11 P, EU:C:2012:617, paragraphs 21 to 23). The EU judicature nevertheless verifies whether the method applied by the contracting authority for the technical evaluation of the tenders is clearly set out in the tender specifications, including the various award criteria, their respective weighting in the evaluation (that is to say, in the calculation of the total score) and the minimum and maximum number of points for each criterion (see, to that effect, judgment in Evropaïki Dynamiki v Commission, EU:C:2012:617, paragraph 29).
As a preliminary point, it should be noted that, in accordance with the case-law cited in paragraph 244 above, the contracting authority is not, in principle, obliged to give the unsuccessful tenderer access to the full version of the contractor’s tender for the contract at issue or to the evaluation report. Furthermore, if it were to become apparent that, in the present case, having regard to the parties’ pleadings, the documents in the file and the outcome of the hearing, the Court has sufficient information to rule on the present dispute (see, to that effect, judgment of 16 November 2006 in Peróxidos Orgánicos v Commission,T-120/04, ECR, EU:T:2006:350, paragraph 80), there would be no cause to accede to the applicants’ requests for measures of organisation of procedure or of inquiry, in respect of which, moreover, the Court is the sole arbiter (see, to that effect, judgment of 24 September 2009 in Erste Group Bank and Others v Commission,C-125/07 P, C-133/07 P and C-137/07 P, ECR, EU:C:2009:576, paragraph 319, and order of 10 June 2010 in Thomson Sales Europe v Commission, C-498/09 P, EU:C:2010:338, paragraph 138). In any event, it should be noted that, in the present case, the Court has, in part, granted the applicants’ requests inasmuch as it ordered EUIPO, by its order for measures of inquiry of 27 March 2015 (see paragraph 26 above), to produce the documents setting out the calculation and comparative assessment of the financial tenders of the successful tenderers and of the first applicant, an order with which EUIPO complied.
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:
In a case such as the present one, compliance with that requirement is all the more necessary given that, as was stated in paragraphs 227 and 228 above, the possible deduction of net points in respect of certain sub-criteria or sub-points automatically results, under the formula applied by the contracting authority, in the increase in the number of gross points to be allocated to the successful tenderers’ tenders in respect of their technical quality. In other words, it is in the first applicant’s interest to know how points were deducted for each of the sub-criteria and sub-points in respect of which the evaluation report contains a negative assessment in order to be in a position to argue that, given the manifestly erroneous nature of that assessment, that deduction — entailing a corresponding increase in points in favour of the other tenderers — was not justified.
In that regard, it must be stated that, in response to an oral question raised by the Court at the hearing, EUIPO did not deny having awarded points on the basis of the different sub-criteria or sub-points, but merely stated that the first applicant was not entitled to be provided with the detailed method of calculation and breakdown of those points, since the disclosure of the final overall score for each of the three technical or qualitative criteria was sufficient. It is apparent from a combined reading of the tables referred to in paragraphs 14 and 249 above that 6.79 net points were deducted from the first applicant’s bid in respect of qualitative criterion 1 (65 – 58.21 = 6.79), 2 net points in respect of qualitative criterion 2 (20 – 18 = 2) and 3.31 net points in respect of qualitative criteria 3 (15 – 11.69 = 3.31), that is to say, by including the deduction of fractions of points with two decimal places. It follows that, for the purposes of the assessment of the tenders having regard to those qualitative criteria, the evaluation committee applied a mathematical formula or, at least, awarded fractions of points in respect of sub-criteria or sub-points. However, it is impossible, both for the applicants and for the Court, to understand the calculation or precise breakdown of the points deducted for each sub-criterion, or even for each of the sub-points, in particular, for qualitative criterion 1, in respect of which the evaluation report made specific negative assessments with respect to the first applicant’s bid. In those circumstances it is also not possible to verify whether and to what extent those deductions actually correspond to those assessments and, accordingly, whether they are justified or not, or, at the very least, sufficiently plausible.
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.
