A Court of Justice of the European Union ruling provides local authorities with some useful hints and tips for dealing with any conflicts that arise in their own procurement exercises. Carroll Dodd explains.
As there is very little case law on the issue of conflicts of interest in public procurement the recent case of Case T-403/12 Intrasoft International v European Commission provides us with an interesting insight into the General Court of the CJEU's approach to this issue.
During a procurement a local authority is under a duty to ensure equal treatment of bidders and transparency in the process. In practice, this means that bidders should be subject to the same rules and conditions and no bidder should receive more or less favourable treatment than the others. In addition, all bidders should be given the same information and the information must be drafted in a way that enables all reasonably well informed and normally diligent bidders to understand it in the same way.
These principles are reflected in Regulation 41 of the Public Contracts Regulations 2015 which deals with conflicts of interest caused by a bidder's participation in a market sounding exercise or role advising a contracting authority. The Regulations place a duty on a local authority to consider whether a bidder's previous participation in preliminary market consultation or help preparing the procurement procedure in any way distorts the competition. If so, the local authority must take "appropriate measures to ensure that competition is not distorted" which may mean, as a last resort, that a bidder with an unfair advantage is excluded from the competition. The hope is that, by imposing such measures, an authority will be able to ensure, so far as possible, that the playing field is levelled so that no one bidder has more information than another.
In the Intrasoft case the European Commission's Delegation to the Republic of Serbia ran a competitive tendering exercise for "support services". This was intended to help Serbia align its customs systems with the EU to help Serbia accede to full EU membership. During the process, the Commission excluded the Intrasoft consortium from the procurement process because of a conflict of interest.
The Commission decided that a conflict existed because Intrasoft had previously acted as an adviser to the Commission on another similar procurement exercise. Intrasoft had helped to draft procurement documentation for a different, yet similar, project for "support services" to be provided to non-EU countries wishing to gain EU membership. The Commission subsequently decided to use the same procurement documentation for the Serbian European Aid procurement.
As a procurement run by the Commission it was governed by the Financial Regulation (governing the establishment and implementation of the EU budget and control of the Commission finances). The Commission was also subject to the European "Practical Guide to Contract Procedures for EU External Actions". The relevant legislative framework in this case made it clear that contracts may not be awarded to tenderers who are subject to a conflict of interest during the procurement process. The Practical Guide to the Commission notes that a conflict of interest may arise "where an individual participating in a procurement procedure…..may grant itself or others unjustified direct or indirect advantages by influencing the outcome of such procedures, or where an expert/company [has] the opportunity to obtain privileged information leading to unfair competition in subsequent or related procedures."
According to the Practical Guide, there is a general presumption that if a company prepares a procurement exercise it must be prevented from "participating" in any subsequent competition based on their preparatory work. This presumption can be rebutted if the company can prove to the contracting authority that its involvement in the preparatory stages of the project did not constitute unfair competition.
The Practical Guide addresses a scenario similar to that in Fabricom (C-21/03 and C-34/03 Fabricom SA v Etat Belge) where a company prepared a procurement for a contracting authority and then also attempted to bid in the subsequent procurement exercise. Notably, Intrasoft prepared procurement documentation for a different project which was then re-used by the Commission on the Serbian European Aid procurement; the procurement process from which Intrasoft were subsequently excluded.
Although the Intrasoft case did not deal with the application of the 2014/24/EU Public Procurement Directive, or the Public Contracts Regulations 2015, the General Court's decision is interesting as it provides us with insight into the general approach and analysis of the conflicts of interest.
The Court decided that there was no conflict of interest and the Commission was wrong to exclude Intrasoft in this instance.
The Court held that, under the Financial Regulation, the Commission could not adopt general rules which resulted in automatic exclusion of any bidder that had acted as adviser or had drafted documentation used in the procurement. The Court observed that conflicts of interest must be decided on the specific facts and, in this case, the facts did not prove that there was a real risk of a conflict of interest.
The Court observed that Intrasoft had worked on documents intended for a different procurement exercise to the one in which they bid. In the Court's view, the work on procurement documents for one procurement process could only be classed as "preparatory works" for another procurement process if the Commission could objectively and specifically prove that Intrasoft carried out the preparatory work "in light of" the second competition. The Commission would also be required to show that the preparatory work did actually give the bidder "a real advantage" in the second competition.
In this case, the Commission could not prove that Intrasoft had been aware of the second procurement exercise, had this in mind when it carried out the initial preparatory work and obtained any form of advantage as a result of its previous involvement with a European Aid programme. Crucially, Intrasoft did not prepare the specification or requirements for either project and all of Intrasoft's competitors in the Serbian European Aid procurement received the same documents with sufficient time to prepare their bids. Also, there was no evidence that Intrasoft's involvement actually impacted on the bid and their chances of success in the competition.
Dealing with conflicts of interest
In order to fulfil its duties under the Treaty principles and Regulation 41, local authorities may wish to think about the Fabricom and Intrasoft cases when establishing a process for dealing with conflicts. On a practical level this may involve:
- Asking participants to disclose any potential conflict including prior involvement in preliminary market consultation or prior input into the procurement procedure;
- Ensuring that there is no automatic exclusion of a bidder from the process without due consideration by the local authority;
- Investigating a potential conflict and giving the bidder an opportunity to defend themselves and demonstrate that competition is not distorted;
- Assessing any evidence provided by the bidder to decide whether a real risk of a conflict of interests exists and whether such conflict distorts the competition;
- Making an objective assessment and ignoring the bidder's intentions including whether the authority believes the bidder is acting in good faith; and
- If a conflict of interest does exist, considering all possible measures that could be taken to level the playing field and only excluding the bidder if no other measure will ensure equality between the bidders.