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 January 2016 decision in Agriconsulting Europe SA v. European Commission, the European Court of Justice dismissed a rejected bidder’s lost profits and bidding costs claim after finding that the European Commission properly rejected the complainant’s bid as abnormally low. The case dealt with a European Commission tendering procedure for a network facility for the European Innovation Partnership. Only two bidders obtained the minimum scores necessary to be short-listed for the price evaluation stage. The complainant’s price was EUR 1,320,112.63, while its competitor’s price was EUR 2,316,124.83. Concerns arose over the low bidder’s pricing, particularly in the area of “additional tasks”.
As the Court noted, the “record of the meeting of the evaluation committee held on 20 November 2012 shows that the applicant was ranked in first place and that, since the committee had concerns about the abnormally low nature of the tender, it decided to request information from the applicant concerning the prices for the additional tasks.” The Court also noted that “the Commission informed the applicant that the evaluation committee had found the prices stated for the additional tasks to be abnormally low” and that the Commission had “asked the applicant for detailed explanations on the calculation of the prices offered for additional tasks 1 to 21 and 25, stating that the tender could be rejected if the explanations proved unconvincing.” The evaluation committee ultimately decided to reject that low bid after finding that the bidder planned to overlap staff between the main tasks and additional tasks, which was in contravention of the tender call specifications. This resulted in the evaluators adjusting the bidder’s technical score so that it no longer met the minimum scoring threshold:
It is apparent from the final record of evaluation of the applicant’s tender of 19 December 2012 that the evaluation committee considered the applicant’s explanations and found, in particular, that there was an overlap of staff between the main tasks and the additional tasks, which did not comply with the requirements of the tender specifications. It therefore lowered the score given to the applicant’s tender for award criterion 3 from 11.8 points to 7 points, the minimum required score being 7.5 out of 15. The evaluation committee therefore completed its evaluation by confirming its opinion that the applicant’s tender was abnormally low and by finding that, based on the additional information provided by the applicant, its tender no longer reached the minimum score required by the tender specifications under award criterion 3.
The evaluation committee therefore recommended an award to the competing bidder. The low bidder challenged this decision and claimed lost profits as a remedy for what it claimed to be the improper rejection of its bid. As the Court summarized, under the rules of The Treaty on the Functioning of the European Union (TFEU) and related case law, bidders must meet a three-part legal test before being entitled to damages under European Law for what is referred to as “non-contractual liability” (meaning damages for claims other than breach of contract, which can include bid dispute claims). That test requires that the bidder prove that the actions of the government body were unlawful, that the damages suffered by the complaint were real rather than hypothetical, and that there be a causal link between the unlawful act and the damages suffered:
Law
The claim for damages
By the present action, the applicant submits that a number of illegalities were committed in connection with the tendering procedure which vitiate the decision to reject its tender. It asks that the Commission be ordered to pay damages, under Article 268 TFEU and Article 340 TFEU, for the harm suffered as a result of the loss of the contract in question, the loss of the opportunity to conclude that contract and the expenses of participating in the tendering procedure, as well as for non-material harm.
More specifically, the applicant contends that the Commission committed eight sufficiently serious breaches and argues that its tender was rejected unlawfully. It alleges (1) error of assessment of the tender and infringement of the principle of equal treatment in relation to award criterion 1; (2) misapplication and error of assessment of its tender in relation to award criterion 2; (3) breach of the contract procedure rules in relation to award criterion 3; (4) infringement of the principle of proportionality in relation to award criterion 3; (5) infringement of the principle that the stages of a tendering procedure should be kept separate; (6) error of assessment of the tender in relation to award criterion 3; (7) misinterpretation and misapplication of the concept of abnormally low tender; and (8) infringement of the principle of equal treatment in the application of the concept of abnormally low tender.
It should be recalled that, pursuant to the second paragraph of Article 340 TFEU, in the case of non-contractual liability, the European Union must, in accordance with the general principles common to the laws of the Member States, make good any damage caused by its institutions or by its servants in the performance of their duties.
According to settled case-law, for the European Union to incur non-contractual liability, within the meaning of the abovementioned provision, on account of the unlawful conduct of its bodies, three conditions must be satisfied, namely that the alleged conduct of the institution be unlawful, that the damage be real and that there be a causal link between the conduct alleged and the damage complained of (judgments of 29 September 1982 in Oleifici Mediterranei v EEC, 26/81, ECR, EU:C:1982:318, paragraph 16; 9 September 2008 in FIAMM and Others v Council and Commission, C-120/06 P and C-121/06 P, ECR, EU:C:2008:476, paragraphs 106 and 164 to 166; 9 September 2010 in Evropaïki Dynamiki v Commission,T-300/07, ECR, EU:T:2010:372, paragraph 137; and 16 October 2014 in Evropaïki Dynamiki v Commission,T-297/12, EU:T:2014:888, paragraph 28). Furthermore, as regards the condition relating to the unlawful conduct, the case-law requires there to be a sufficiently serious breach of a rule of law intended to confer rights on individuals. The decisive test for finding that a breach is sufficiently serious is whether the EU institution or body concerned manifestly and seriously disregarded the limits on its discretion (see, to that effect, judgments of 4 July 2000 in Bergaderm and Goupil v Commission,C-352/98 P, ECR, EU:C:2000:361, paragraphs 42 to 44; of 10 December 2002 in Commission v Camar and Tico,C-312/00 P, ECR, EU:C:2002:736, paragraph 54; of 17 March 2005 in AFCon Management Consultants and Others v Commission,T-160/03, ECR, EU:T:2005:107, paragraph 93; and in Evropaïki Dynamiki v Commission, EU:T:2014:888, paragraph 29).
Where one of the three conditions required for the European Union to incur non-contractual liability is not satisfied, the claims for damages must be dismissed without it being necessary to examine whether the other two conditions are satisfied (see, to that effect, judgments of 15 September 1994 in KYDEP v Council and Commission,C-146/91, ECR, EU:C:1994:329, paragraph 81, and in Evropaïki Dynamiki v Commission, cited in paragraph 32 above, EU:T:2014:888, paragraph 33).
Furthermore, according to settled case-law, the Commission has a broad discretion in assessing the factors to be taken into account for the purpose of deciding to award a public contract following a tendering procedure (judgments of 17 December 1998 in Embassy Limousines & Services v Parliament,T-203/96, ECR, EU:T:1998:302, paragraph 56, and 20 September 2011 in Evropaïki Dynamiki v EIB,T-461/08, ECR, EU:T:2011:494, paragraph 137). Similarly, the Commission enjoys considerable latitude in determining both the content and the application of the rules applicable to the award of a contract, for its own account, following a tendering procedure (see, to that effect, judgments of 14 February 2006 in TEA-CEGOS and Others v Commission,T-376/05 and T-383/05, ECR, EU:T:2006:47, paragraphs 50 and 51; in Evropaïki Dynamiki v EIB, EU:T:2011:494, paragraph 137; and of 25 October 2012 in Astrim and Elyo Italia v Commission,T-216/09, EU:T:2012:574, paragraph 17).
While the Court ultimately dismissed the claim on the merits, finding that the rejection of the low bid for abnormally low pricing was justified and not a breach of applicable tendering rules, the Court also stated that the bidder would not be entitled to damages based on hypothetical future losses since applicable European rules do not recognize lost profit damages or other claims against public institutions for cancelling a tendering process and failing to award a contract:
First, as regards the harm linked to the loss of the contract in question, which is the principal claim made, the applicant submits that this corresponds to the gross profit of which it was unfairly deprived. This harm essentially equates to loss of profit.
It should be recalled that, according to the case-law, an action founded on damage resulting from loss of profit must be dismissed because the damage at issue is not real and existing, but future and hypothetical (see, to that effect, judgments of 29 October 1998 in TEAM v Commission,T-13/96, ECR, EU:T:1998:254, paragraph 76; in AFCon Management Consultants and Others v Commission, cited in paragraph 32 above, EU:T:2005:107, paragraphs 113 and 114; and of 8 December 2011 in Evropaïki Dynamiki v Commission,T-39/08, EU:T:2011:721, paragraph 47).
The condition relating to damage requires that the harm for which compensation is sought be actual and certain, which it is for the applicant to prove (see judgment in Evropaïki Dynamiki v Commission, cited in paragraph 91 above, EU:T:2011:721, paragraph 46 and the case-law cited).
According to Article 101 of the financial regulation, the contracting authority may, before the contract is signed, either abandon the procurement or cancel the award procedure without the candidates or tenderers being entitled to claim any compensation.
Thus, even if the evaluation committee had recommended that the contract be awarded to the applicant, the contracting authority would not have been bound by the evaluation committee’s proposal and it had a broad discretion in assessing the factors to be taken into account for the purpose of deciding to award the contract (see, to that effect, judgments in TEAM v Commission, cited in paragraph 91 above, EU:T:1998:254, paragraph 76; AFCon Management Consultants and Others v Commission, cited in paragraph 32 above, EU:T:2005:107, paragraphs 113 and 114; and Evropaïki Dynamiki v Commission, cited in paragraph 91 above, EU:T:2011:721, paragraph 47).
Even if it were to be accepted that the applicant’s tender ought to have been placed first and that the applicant should therefore have been awarded the contract, that would not have obliged the Commission to sign the contract with the applicant. Indeed, there is no principle or rule applicable to the Commission’s tendering procedures which requires it to sign the relevant contract with the person designated as the contractor at the conclusion of the tendering procedure (see, to that effect, judgment in Evropaïki Dynamiki v EIB, cited in paragraph 34 above, EU:T:2011:494, paragraph 211).
Consequently, the harm corresponding to the applicant’s loss of profit linked to the loss of the contract in question is not actual and certain, but hypothetical. It cannot therefore be the subject of compensation.
The applicant’s arguments seeking a departure from the case-law, according to which the contracting authority is not required to sign the contract with the tenderer ranked first at the conclusion of the tendering procedure, do not cast doubt on that finding.
The applicant contends that although the contracting authority may decide to finalise the contract, it is not free to award it to other tenderers who failed to win the tendering procedure lawfully. However, that assertion is not inconsistent with the fact that the contracting authority remains free to finalise the contract or not and, therefore, to abandon it, so that harm based on loss of profit is never certain. Furthermore, the case-law does not draw a distinction between whether the contract was awarded or not. Harm linked to loss of profit, namely harm equivalent to the profit which could not be made from performance of the contract, presupposes the certainty of being awarded the contract. In view of the contracting authority’s discretion under Article 101 of the financial regulation, such harm is never certain.
Contrary to the applicant’s arguments, that case-law does not allow the contracting authority to take advantage of its own infringement of the rules without having to pay compensation for the resulting harm, since other types of harm are eligible for compensation if they are actual and certain. That is the case, in particular, with respect to harm linked to the loss of an opportunity or that linked to the charges and expenses incurred by a tenderer in order to participate in a tendering procedure, where an infringement of EU law has affected its chances of being awarded the contract. Paragraphs 80 to 82 of the judgment of 30 April 2009 in CAS Succhi di Frutta v Commission (C-497/06 P, EU:C:2009:273), cited by the applicant, specifically concern harm linked to the loss of an opportunity or to the charges and expenses incurred by a tenderer in order to participate in a tendering procedure, and not loss of profit.
In addition, the applicant submits that, according to that case-law, the unsuccessful tenderer — who is denied protection by way of precautionary measures on account of the very strict case-law on interim proceedings — is also denied protection by way of the right to compensation. However, once again, it must be pointed out that as a result of the wording of Article 101 of the financial regulation, contrary to the applicant’s assertions, the applicant did not lose a contract but rather an opportunity to obtain the contract which was the subject of the Community tendering procedure (order of 20 July 2006 in Globe v Commission,T-114/06 R, ECR, EU:T:2006:221, paragraph 116).
Thus, the arguments which the applicant puts forward to challenge the applicable case-law, according to which harm corresponding to its loss of profit cannot be pleaded, must be rejected.
The Court also noted that claims for bidding costs are also generally not recognized under European Law since bidders are expected to bear their own costs and public institutions are not bound to award any contract in a bidding process:
Thirdly, as regards the harm claimed in respect of the expenses incurred in connection with the tendering procedure, it should be recalled that economic operators are to bear the risks forming an integral part of their activities, having regard to the individual circumstances of each case. In a tendering procedure, those economic risks include, inter alia, the costs associated with the preparation of the tender. The expenses thus incurred therefore remain chargeable to the undertaking which chose to participate in the procedure, since the right to bid for the award of a contract does not signify that the contract will definitely be awarded to that undertaking (judgment in CAS Succhi di Frutta v Commission, paragraph 99 above, EU:C:2009:273, paragraph 79). Article 101 of the financial regulation provides that the Commission is free to decide not to make any award at all. Therefore, there was no guarantee that even the tenderer offering the most advantageous bid would win the contract.
It follows that the charges and expenses incurred by a tenderer in connection with his participation in a tendering procedure cannot in principle constitute harm which is capable of being remedied by an award of damages (judgments in CAS Succhi di Frutta v Commission, cited in paragraph 99 above, EU:C:2009:273, paragraph 81; TEAM v Commission, cited in paragraph 91 above, EU:T:1998:254, paragraph 71; and Embassy Limousines & Services v Parliament, cited in paragraph 34 above, EU:T:1998:302, paragraph 97).
As this case illustrates, while many statutory bid protest regimes extend remedies beyond the procedural relief available through redraft, re-evaluation, rescission, and redirect orders, and also recognize complaint costs or bidding costs, some also recognize lost profit damages as a remedy for a flawed tendering process that results in a lost contract award. The European Union falls within those jurisdictions that recognize lost profit awards, but the case law puts strict restrictions on financial remedies arising out of those bid protests.
