No automatic exclusion

In the past, the CJEU already clarified that affiliated companies submitting separate bids for the same public contract cannot be automatically excluded. The contracting authority must always give the tenderers the opportunity to demonstrate that they are acting independently and that there is no risk of anti-competitive practices.

It is indeed not inconceivable that companies belonging to the same group may well act autonomously. A group of companies may have internal policies guaranteeing mutual independence and confidentiality when participating in public tender procedures. According to the CJEU, automatic exclusion in such cases would go beyond what is necessary to achieve the objective of the regulation, in particular to create as much free competition as possible and to avoid collusion.

Collusion after the award?

In the case at hand, tenders were submitted by affiliated companies that were part of the same Latvian insurance group. After evaluating the tenders, the contracting authority ranked the tenders of the affiliated companies first and second best. However, when the contracting authority sought to proceed with the award, the best-ranked bidder announced that it was no longer interested in concluding the contract.

The question then arose as to whether the contract could be awarded to the second best. In such a case, Latvian public procurement law provides for an obligation to stop the award procedure if the second best-ranked tenderer would form a single economic unit with the initial best-ranked tenderer. Based on this provision, it was decided that the award procedure had to be stopped and, consequently, the contract could not be awarded to any tenderer.

No irrebuttable presumption of collusion

In line with previous case law, it was now held that the mandatory halting of the award procedure goes beyond what is necessary to achieve the objective of the EU public procurement rules. Indeed, this would come down to an irrebuttable presumption that the best-ranked company only withdraws to favor the second best-ranked company (which by definition has submitted a tender that presents a worse price/quality ratio).

According to the CJEU, such an assumption and the resulting obligation to stop the award procedure has undesirable consequences:

  • First, the widest possible participation of companies should be sought in public tenders. However, an automatic termination of the award procedure will deter affiliated companies from participating.
  • Second, in normal circumstances, a termination would be followed by a new award procedure with the same subject matter. The CJEU notes that, since the ranking would already be known to the bidders, this increases the risk of collusion in the following award procedure.

However, the CJEU recognizes that the situation at hand does indeed involve risks. After all, even if no collusion occurred when the bids were prepared, competition may still be distorted if the best-ranked company withdraws with a view to the contract being awarded to an affiliated company offering a tender with a worse price-quality ratio.

In the CJEU’s view, an automatic halting of the award procedure is in any event too far-reaching to alleviate the risk of such opportunistic behavior. One may wonder, however, if the contracting authority could not sue the first-ranked tenderer for performance or damages.

In a Belgian context, we would argue that a winning tenderer who, during the validity period of its tender, refuses to enter into a public contract incurs pre-contractual liability. Under the new Book 5 of the Belgian Civil Code that may give rise to compensation of costs, but also to compensation of the expected net benefit of the contract that was not concluded.

Opportunistic tenderers are warned!

CJEU confirms excluded tenderers’ right to challenge award decisions
Want to know more about CJEU case law relating to public procurement? Read our article on "CJEU confirms excluded tenderers’ right to challenge award decisions"