On 18 May 2016, the Swedish Supreme Court ("SSC") issued two judgments concerning damages claims in relation to public procurement processes.
In the first ruling, the SSC discussed, inter alia, the purpose of damages claims in the public procurement rules and the requirement that there be proximate cause between the contracting authority's infringement and the supplier's loss.
In the second ruling, the SSC laid down the principles that general courts should apply in an action for damages when assessing whether a contracting authority has complied with the public procurement rules during the qualification and evaluation process relating to tenders.
These two judgments provide valuable clarification of very complex issues. Of particular importance is the confirmation by the SSC in the former of the judgments (as further described below) that suppliers are entitled to compensation for their entire lost profits. In the latter judgment, the SSC concluded that unclear, minor infringements of the rules by contracting authorities do not entitle suppliers to damages. After these clarifications, suppliers should now carefully consider whether they should seek damages in cases of serious breaches of public procurement rules.
Damages as one of the two remedies available to a supplier
uppliers that believe that a public contract has been awarded unfairly or that the tender procedure has been conducted inadequately in any other way, have two legal avenues open to them: to appeal the award decision or any other decision taken by the contracting authority during the tender procedure and to claim damages. In Sweden, the former is handled by administrative courts while the latter is dealt with in the civil courts.
It follows from case law of the European Court of Justice that it is for Member States to establish the criteria for determining damages and that individuals are entitled to damages if an infringement of EU public procurement rules is "sufficiently serious". The Swedish Public Procurement Act provides that a supplier is only entitled to damages if the contracting authority has breached the rules laid down in the Act. Indemnity liability arises regardless of intent or negligence.
Therefore, the breaching authority must compensate the supplier for costs incurred in preparing its tender and other costs relating to its participation in the procurement (reliance damages). Moreover, the Act also states that the breach must have harmed the supplier's chances of winning the contract.
In addition to the contracting authority's infringement, the SSC has concluded that if it is proven on the balance of probabilities that a supplier would have been awarded the contract in the absence of the breach, the supplier may also be compensated for lost profits (expectation damages).
Compensation for entire lost profits possible
In the first of the two new judgments from the SSC, the issue of law was whether a supplier ("Supplier A") was entitled to be compensated for lost profits because of the contracting authority's breach of the procurement rules.
Supplier A claimed that the contracting authority had breached the rules as it had disqualified the supplier's tender without legitimate grounds to do so. Since only Supplier A and another supplier ("Supplier B") had submitted tenders, Supplier B's tender was the only tender left after the disqualification of Supplier A, resulting in Supplier B being awarded the contract.
The contract award criterion was "the lowest price". Supplier A's price was the lower of the two tenders and it believed that it should have been awarded the contract if it not had been wrongly disqualified. Therefore, Supplier A applied for a review procedure, in which the Administrative Court ("AC") ruled in favor of Supplier A.
However, instead of rectifying the procurement procedure and awarding the contract to Supplier A, the contracting authority decided to discontinue the procedure.
The following year, the contracting authority conducted a new tendering procedure for the same purpose as the previous procurement procedure. Supplier A did not participate, and the contract was awarded to Supplier B.
This time, Supplier A sought redress in the civil courts, claiming damages on the grounds that since there was a direct correlation between the incorrect award decision and the decision to discontinue the first procurement procedure, the contracting authority did not have objective grounds to discontinue the procedure. Consequently, Supplier A had lost the contract and should therefore be entitled to be compensated for lost profits.
The contracting authority contested Supplier A's claim, arguing, inter alia, that the decision to discontinue the procedure was objectively justified because the project had been delayed and that, in any event, it should not be liable to compensate Supplier A for its entire lost profits.
The main issue before the SSC was whether the incorrect award decision had caused Supplier A harm when the procurement had been discontinued and no contract had been awarded. The SCC concluded that the procedure had been discontinued as a direct result of the contracting authority's incorrect award decision. Therefore, the SSC found that there was proximate cause between the incorrect decision and Supplier A's loss of the public contract. The SSC found that Supplier A had proven on the balance of probabilities that it would have won the contract and that it was not, in this case, necessary for a contract to have been awarded to another supplier in order for Supplier A to be entitled to compensation for its lost profits. Consequently, Supplier A was awarded compensation for its entire lost profits.
An opportunity to be considered in cases of serious breaches of public procurement rules
In the second judgment, the SSC examined what principles civil courts should apply in a damages claim procedure when assessing whether or not a contracting authority has followed the public procurement rules during the tendering procedure.
In brief, the SSC referred to EU case law, which makes it clear that the criterion that must be satisfied for individuals to be entitled to damages is that the contracting authority's infringement of the EU public procurement rules must be "sufficiently serious".
Accordingly, the SSC stated that while full compliance is very important, the contracting authorities should be permitted, within the framework of the general principles of the public procurement rules, to draft contract documents and use qualification and evaluation criteria that may not always be optimally designed.
Thus, the SSC concluded that the right to damages arises only where the claim concerns a clear and not a trivial deviation from the general principles of the public procurement rules or from what can be considered to be an objective evaluation of the tenders in relation to the contact documents. Only if these criteria are met will there be considered to be a sufficiently clear breach of the public procurement rules, resulting in liability to pay damages.