Earlier this year the EU Court of Justice issued a preliminary ruling (810/24) concerning preferences in public procurement.
The facts of the case are briefly as follows: The municipality of Milan invited proposals for projects on “regenerating public urban spaces”. Italian procurement legislation opens up for this design contest-type procedure where the winning project is used as basis for a subsequent tender for choosing an operator for the project. This subsequent tender is open also for the initiator of the winning project proposal. Moreover, if unsuccessful, the legislation allows the initiator to use a so-called pre-emptive right to match the winning bid and have the contract awarded.
In response to the call for project proposals the municipality received only one proposal. The municipality subsequently publicised a call for tender based on that proposal, which was about the financing, installing of public toilet facilities to be operated over a 25 year period. The successful bidder would in return for the investments and operation obtain the right to use the facilities for various digital advertising.
The initiator did not win the tender and applied the pre-emptive right. The subsequent award of the contract to the initiator was contested by the winning bidder who would have been awarded the contract, had it not been for the pre-emptive right.
The winning bidder argued that the pre-emptive right had not been advertised in connection with the tender as Italian law requires. During the processing of the complaint on the national level it was also argued that the pre-emptive right did in fact fly in the face of the essential public procurement principle of equal treatment.
The Italian court therefore asked the EU Court of Justice to decide whether the pre-emptive right is compliant with EU law in general, not least the EU Concession Directive[1].
As regards the EU principle of equal treatment, the Court points out that this principle “lies at the very heart” of EU procurement rules and requires, inter alia, “that tenderers be on an equal footing both when they formulate their tenders and when those tenders are being assessed by the contracting authority. Therefore, as a general rule, a tender cannot be amended after it has been submitted, whether at the request of the contracting authority or at the request of the tenderer.”
The Court goes on to state, that by allowing the initiator to match the winning bid the pre-emption right in fact allows the initiator to amend his bid in violation of the principles of equal treatment.
The Court observes in this connection that the pre-emption means that the highest evaluated bid is not certain to win the contract. In other words, the possibility for by-passing the winner of the tender is essentially undermining the competitive process. Pre-emption right can therefore in the view of the Court not be reconciled with what is the essential purpose of the entire public procurement process.
During the Court proceedings an earlier preliminary ruling concerning another advantageous arrangement in a tender concerning a public contract on book procurement[2] was brought up. The Court did in that previous case not criticize that the arrangement allowed lots to be awarded to a lower rated bidder in addition to best bidder provided that the lower rated bidder upped his bid to match the best bid. The Court explained the difference in its conclusions by referring to the positive competitive effect it would have to have several winners in an otherwise quite monopolised market.
Comments:
The recent case concerned a concession whereas the previous book-case was a more straightforward type of public contract subject to open tender and with price being the sole criterion. The two tenders are therefore indeed different in terms of complexity but are nevertheless seen to be subject to same procedural principles, not least equal treatment.
It can be questioned whether the two cases were so different that they merited completely different outcomes. In the book-case the dividing of the contract into lots and the unchanged rating of bids into best, second best etc. meant that the best bid was not completely by-passed. However, the problem of advantage remains in the sense that one bid, namely the second best, is given a preference compared to competing bids. The question is furthermore whether the purpose of stimulating competition justifies the advantage for the second best bid. What some might term a far-fetched point is that such stimulating effect could be said to be produced in any market whenever a procedure allows several winning bids.
These cases raise in a more general manner the use of initiator-preferences in competitive procedures. Preference to initiators is a long-standing element in Italian legislation as well as in other countries. Preferences are seen as a means to motivate private sector innovative input, especially in projects of the public private partnerships type. Some countries open up for project proposals without prior public invitation, the so-called unsolicited proposals. Such arrangements typically include a complementary obligation for relevant public authorities to review such proposals and consequently use of public resources.
The opinions on unsolicited proposals differ. It has been argued that the possibility for unsolicited proposals will stimulate the generating of new ideas for reforms in areas not identified by public policies. The point has on the other hand also been made that this may result in inconsistent infrastructure development excessively shaped by vested interests.
For these and many other reasons, appropriate safeguards need to be put in place to ensure protection of public interests, notably specific requirements to the feasibility of unsolicited proposals. Sufficient public sector capacities and authority to evaluate proposals also need to be in place. Public resources are obviously also a critical factor in monitoring of the performance of the private operator during the implementation. These aspects are all the more critical given that such typically long-term projects often concern important infrastructure.
Going beyond preferences, it could be argued that even the mere participation of a project initiator in a tender concerning the initiated project raises equal treatment issues. The EU Directives do not exclude participation of bidders that were previously involved as advisors in the preparation of the procurement in question. This is provided that the advantage gained by the advisor/bidder in the shape of additional knowledge can be neutralised by providing the other bidders with similar knowledge. However, in the case of “bidder-initiated” projects It is difficult to see how the advantage gained by a private initiator, having prepared the entire project can be neutralised.
[1] Directive 2014/23
[2] See comments of 30 June 2024 “The East/West Model – book procurement in Denmark”