Case C-396/14 MT Højgaard and Züblin v Banedanmark

1. There are many reasons for companies to join together to bid for a public contract. As a team you might achieve certain economies of scale, or be in a position to combine expertise, which makes your bid more attractive. You may also minimise your financial exposure and therefore the risk of taking on the project. There is, however, also uncertainty by choosing to go in with others, and a question must be asked: what happens if your new partner drops out part way through the bid process?

2. This is what happened to Per Aarsleff in its bid for the award of a contract for the construction of a new railway line between Copenhagen and Ringsted in Denmark.

3. Banedanmark – the Danish utility awarding the contract – began the procurement using the negotiated procedure and it was envisaged that bidders would be invited to lodge three successive tenders prior to contract award. Per Aarsleff submitted its first tender as part of a group with E. Pihl og Søn A/S.

4. The day before this first tender was submitted E. Pihl og Søn A/S was declared insolvent and it later dropped out of the tender process. Banedanmark permitted Per Aarsleff to continue in the process alone and it was eventually awarded the contract.

5. One of the unsuccessful bidders – a consortium comprising MT Højgaard and Züblin – brought proceedings before the Public Procurement Complaints Board in Denmark claiming that, by allowing Per Aarsleff to participate in the procedure after the dissolution of its partnership with E. Pihl og Søn A/S, Banedanmark was in breach of the principles of equal treatment and transparency laid down in Article 10 of Directive 2004/17/EC (the Utilities Directive) and therefore the contract award should be annulled.

6. The Public Procurement Complaints Board made a reference to the Court of Justice of the European Union (ECJ) asking whether the Utilities Directive should be interpreted so as to preclude an authority such as Banedanmark from awarding a contract to an economic operator which had not initially applied to take part in the tender process alone and therefore had not been pre-selected to participate in that tender process.

7. There are no specific rules in the Utilities Directive which govern alterations to the composition of consortia during the course of a tender process (there were no specific Danish rules on the issue either). In such a case, the ECJ held that the matter fell to be assessed under the general principles of EU law, in particular the principle equal treatment.

8. The ECJ found that a contracting entity will not breach the principle of equal treatment where it permits one economic operator which had initially taken part in a tender process as part of a group to take the place of that group in the process following the dissolution of the group, provided that it is established that:

(i)the economic operator by itself meets the requirements laid down by the contracting entity; and

(ii)its continued participation in the procedure does not mean that other bidders are placed at a competitive disadvantage.

9. In this case there was no question that Per Aarsleff would have satisfied the conditions required for participation in the procurement procedure even in the absence of the technical and financial capacities of E. Pihl og Søn A/S. Also, Per Aarsleff had taken over the employment contracts of over 50 E. Pihl og Søn A/S employees, including the contracts for those individuals who were key to the implementation of the project concerned. Whether or not the other bidders were placed at a disadvantage as a result is a question of fact to be decided by the Danish Public Procurement Complaints Board.

10. We would surmise that this judgment from the ECJ is a win for both utilities and economic operators. Although the Utilities Directive has now been replaced, the relevant legal principles are still found in the new Directive 2014/25/EC and so the findings here are of continuing relevance. These findings would also apply equally to procurement procedures run by public authorities which are not utilities.

11. Utilities and public bodies – in the absence of specific national rules to the contrary – now have a clear way of maintaining competitive tension in procurements where there is a risk of consortia dissolving part way through the process. This may be a particularly acute risk in procurements under the negotiated or other potentially lengthy procedures. It would be unfortunate if a utility or public body was forced to begin a new procurement in order to ensure that it has enough economic operators involved to receive a competitive outcome in circumstances where one or more sufficiently-qualified consortium members would be willing to continue in the process without the drop-out.

12. For bidders, the judgment reduces the risk associated with bidding as part of a consortium. The door is left open for members of the consortium to change during the process, so long as this does not place other bidders at a disadvantage.

13. That said, utilities and public authorities should remain vigilant if these circumstances arise. Upon a challenge it will be for the national court to decide whether – on the case-specific facts – the continued participation of an economic operator in the procurement procedure gave that operator some kind of competitive advantage. The duty of transparency that flows from the principle of equal treatment requires that tenderers must be in a position of equality both when they formulate their tenders and when those tenders are being assessed. This means that tenderers must be subject to the same conditions when formulating their tenders.

14. Particularly during the late stages of a procurement process, there could be instances where an economic operator is in fact given the opportunity to revise its entire bid strategy following the exit of a bid partner. This might give the operator an opportunity that is not offered to other bidders and in such an instance the economic operator might gain an unfair competitive advantage.