KHO 2019:85, 28.6.2019
Article(s) in Directive 2014/24/EU: 24, 41, 57(4)(e) and (f)
Topic: Earlier participation in the preparation stage and conflict of interest: affiliated company participating both the preparation of procurement documents and the contract award procedure
Member State: FI
Court/rev. board: Supreme Administrative Court
1. IMPLEMENTATION / RELEVANT NATIONAL LEGISLATION
Art. 57(4) of Directive 2014/24/EU was implemented by section 81 of Public Procurement and Concession Contracts Act (1397/2016). The wording of national legislation regarding the non-mandatory exclusion grounds due to conflict of interests and earlier participation to the planning of contract award in question is similar to the wording of the Directive.
In section 67 of the Finnish Public Contracts Act it is stated that in the event when a candidate or tenderer has been involved in the preparation of the procurement procedure, the contracting authority needs to make sure that this does not result in a distortion of competition. Further, section 81 on exclusion grounds states that a contracting authority may exclude a candidate or a tenderer whose prior involvement to the preparation of procurement procedure has led a competition distortion, which cannot be removed by less intrusive measures. Before such exclusion the candidate or the tenderer shall be granted a possibility to show proof that its participation in the preparation of the procedure has not compromised principles of equal treatment and non-discrimination. Nonetheless it should be pointed out that Finland did not transpose Art. 24 on preventing identifying and remedying conflict of interests (along with Sweden), despite the clear transposition obligation, and thus there is no specific provision on conflict of interests other than what is set out by the exclusion ground provision. This lack of transposition has also been noted by the Commission and a formal notice has been sent on this regard in 2019.
In 2017 the city of Lahti published a works contract notice on renovation of a local swimming hall. The technical blueprints of the renovation were drafted by Suomen kylpyläsuunnittelu Oy which was a part of the same company group than one of the tenderers (Suomen allaslaite Oy) in the contract award for swimming hall renovation. Not only had Suomen kylpyläsuunnittelu Oy drafted the technical blueprints, but also assisted the contracting authority in the tender selection phase of the award.
The contract was awarded to Suomen allaslaite Oy and as a result, the tenderer, whose tender came second, appealed the contracting authority’s award decision and argued that the contract award procedure, due to Suomen kylpylösuunnittelu Oy’s participation in both planning and execution of stages of the contract award, did not ensure equal treatment of tenderers.
Participation to preparation stage
The Supreme Administrative Court first considered whether the participation to the planning state and drafting of the technical blueprints had infringed the principle of equal treatment. The Court stated that as all tenderers have received the technical details through the call for tender documentation and as there was no proof that Suomen allaslaite Oy would have, due to the company group connection, gotten any extra information not available for other tenderers, the award procedure in question had not breached the principle of equal treatment or led to distortion of competition. In the case the Supreme Administrative Court does not refer to any relevant EU case law, nor the rules set out by such case law. Thus the Court does not reflect the test applied by the CJEU in case C-21/03 and C-34/04 Fabricom where it was established that there is an assumption of advantage for a tenderer who has participated on the preparation stage and who consequently has the burden of proof to show that no such advantage was gained. It seems that in this case the Finnish Supreme Administrative Court puts the burden of proof to the aggrieved tenderer – contrary to the aforementioned CJEU case law – and even though this aggrieved tenderer submits that the technical blueprints were in many accounts very general and broad (leaving room for winning tenderer to give a low price trusting that it can invoice extra expenses and works later when the actual work to conducted is specified) the Court concluded that there was no proof of advantage.
Conflict of interest
Nonetheless the principle of equal treatment was breached when Suomen kylpyläsuunnittelu Oy had participated in the evaluation of submitted tenders. The fact that two representatives of the said company, belonging to the same company group that one of tenderers, has caused doubts regarding the impartiality of the procedure and existence of conflict of interest due to the common economic interests of the companies. Such doubts remain regardless of what have been the actual possibilities of the representatives of Suomen kylpyläsuunnittelu Oy to affect the choice of the contractor. Further the Court concludes that the contracting authority could have removed the conflict of interest by not allowing the representatives of Suomen kylpyläsuunnittelu Oy to participate in the evaluation of tenders. Even though no reference to EU law was made in this case, the Court’s conclusions are in line with the CJEU’s reasoning in C-538/13 eVigilo, where the CJEU submits that an expert’s bias can be established solely on the basis of an objective situation i.e. regardless of whether his or her behavior has actually affected the case at hand.
However, the automatic standstill was already lifted during the first instance proceedings resulting in the conclusion of the contract in 2017 and thus the breach did not result in cancellation of the contract award in question. The Court reflected the possibility for a compensation payment (a Finnish public procurement remedy especiality: a damages-type of financial remedy which can be imposed in administrative procedures) where the aggrieved tenderer is required to show that it would have likely won the contract had the infringement not taken place. The Court concluded that in a “correct” procurement procedure, Suomen allaslaite Oy would not have been excluded, but rather the contracting authority would have denied the representatives of Suomen kylpyläsuunnittelu Oy participation in the tender evaluation. In such case there would not have been a conflict of interest during the tender evaluation and as the tender of Suomen allaslaite Oy would still have been considered better on the basis of the evaluation criteria, the losing tenderer would not have won the contract even in a “correct” procedure. Thus, there were no grounds for compensation payment. In Finland the chain of causality in compensation payment cases and damages cases aiming to remedy loss of contract and profit often results in non-remedying outcomes as a severe infringement of procurement rules is not considered enough unless such infringement has been the direct cause of losing the contract.
The outcome and the chain of causality can be questioned on the basis of the Court’s conclusion regarding the effect of Suomen kylpyläsuunnittely Oy’s participation in the preparation stage. If the Court would have applied the CJEU’s Fabricom test including the assumption of advantage and placing the burden of proof that no advantage was gained to the contracting authority (and winning tenderer) it is likely that the mere participation of Suomen kylpyläsuunnittelu Oy would have led to the need to exclude Suomen allaslaite Oy from the tender procedure. If the Court had followed EU case law, the current losing tenderer would have likely been the only tenderer submitting appropriate tender and thus a likely winner.