In this article, partner David Hansom explores two recent developments in the case law of the Court of Justice of the European Union which help to answer two thorny questions which we are often asked by clients.
Abnormally low tenders
The current public procurement regime in the UK (and, in this article, references to Regulations are the Public Contracts Regulations 2015 or PCR2015) sets out a regime for contracting authorities to exclude bidders which submit tenders which are considered to be ‘abnormally low’.
The starting point is that the abnormally low tenders (ALT) regime exists to prevent competitions being distorted by very low priced tenders which the authority considers could be unsustainable. It helps to protect authorities from having to accept a tender which has been ‘bought’ in.
The regime is set out in regulation 69 PCR2015. It is important to note that the mechanism does not give the authority the automatic right to exclude a bidder which it considers has submitted an ALT. The onus is on the authority to “require tenderers to explain the price or costs proposed in the tender where tenders appear to be abnormally low in relation to the works, supplies or services“.
This means that the authority must write to the tenderer before excluding their bid on this basis, and ask for an explanation. The explanation must be assessed – and here, the importance of documenting the decision in the regulation 84 procurement report and elsewhere cannot be overstated – and can only reject the tender if the authority is not satisfied with the answer given. The contracting authority must reject the tender where it has established that the tender is abnormally low only because the tenderer does not meet environmental, social and labour law requirements established by EU law, national law and/or collective agreements.
There is a separate regime where the authority believes that the ALT is due to the bidder having received unlawful state aid/ public sector subsidies.
It is often the case that bidders will try to bid low to win work, seeing an opportunity to develop a relationship with the authority. How should a tender priced at £0.00 be dealt with?
In the recent Case C‑367/19 Tax-Fin-Lex d.o.o. v Ministrstvo za notranje zadeve, Tax Fin bid into a Slovenian procurement of a legal information management system. It completed the tender price with its bid of 0.00 euros.
The contracting authority rejected the bid on the basis that the bid price did not comply with the procurement rules. Tax Fin appealed.
The Court considered the position in the public procurement regimes which state that the rules apply to ‘contracts for pecuniary interest’. The Court said that pecuniary interest means the payment of consideration, and if there is no consideration, the tender cannot be subject to the public procurement regime. There is therefore no lawful basis in the procurement regime to exclude the bidder because it has submitted a no cost tender.
The Court said that the authority should, instead, have considered whether the bid was an ALT. The Court confirmed that the ALT regime ‘enables the contracting authority to establish that, although the tenderer proposes a price of EUR 0.00, the tender at issue will not impair the proper performance of the contract‘. If the authority is satisfied of that, it should go onto to evaluate the tender as a whole.
This is an interesting case and one which will be useful for contracting authorities and bidders alike when considering how to price a contract, and whether to make an investment in the initial stages of work by offering to do this at no cost.
When is an arrangement not a public contract requiring procurement under the relevant public procurement rules?
There are exemptions in the current rules for contracts which arise as a result of collaboration between different organisations within the public sector. These arrangements can be directly awarded to the other public body where the conditions are met.
There are two types of permitted collaboration that are potentially exempt from the obligation to procure.
The first is where a company which is set up and controlled by the contracting authority for the purpose of delivering the requirement (so called ‘vertical collaborations’, which is the “Teckal exemption” in regulation 12(1) PCR2015); and the second is joint working between two or more public bodies (so called ‘horizontal collaboration’ which is the “Hamburg exemption” in regulation 12(7) PCR2015). There is also the potential for a third route, where one authority no only entrusts the service but delegates its powers to deliver the service to another authority (which has been called the Hannover exemption following Case 51/15 Remondis GmbH & Co. KG Region Nord v Region Hannover.
There have been a number of cases testing the scope of, in particular, the Hamburg exemption. This is because these arrangements typically involve one public body ‘entrusting’ the delivery of services that it must deliver to another authority. In small, competitive markets such as waste disposal, this means that there will not be a procurement process and so there is no opportunity for the private sector to bid for the opportunity.
The most recent case law from the Court of Justice of the EU provides further helpful guidance on the application of the Hamburg exemption.
The legal test is set out in regulation 12(7) PCR 2015 and Article 12 of Directive 2014/24/EC. This provides that a contract concluded exclusively between two or more contracting authorities falls outside of the procurement rules if:
- the contract establishes or implements a co-operation between the participating contracting authorities with the aim of ensuring that public services they have to perform are provided with a view to achieving objectives they have in common; and
- the implementation of that co-operation is governed solely by considerations relating to the public interest; and
- the participating contracting authorities perform on the open market less than 20% of the activities concerned by the co-operation.
In the latest Remondis case, Case 429/19, Remondis Gmbh v Abfallzweckverband Rhein-Mosel-Eifel, related to the award of a contract for the treatment of waste in the mechanical biological treatment plant of Landkreis Neuwied, Germany.
Three German local authorities entrusted the disposal of the waste produced in their respective territories to the association which they controlled together. The association was a contracting authority in its own right.
The association had the ability to place residual waste into landfill, which must be treated before disposal. The association entrusted 80% of its municipal waste disposal operations to private undertakings with the necessary equipment. The remaining 20% was treated by another local authority -which is, of course, also a contracting authority.
Remondis challenged the award of the contract to the neighbouring authority on the basis that it was an illegal direct award of a public contract.
The Court decided that a ‘cooperation between contracting authorities’ does not exist in cases where the contracting authority (which is responsible for a task in the public interest within its territory) does not perform the entirety of that task itself, but instead commissions another independent contracting authority to do it, in return for consideration. The Court said that this a not a genuine ‘co-operation’, which must be based on a strategy which is ‘common to the partners to that cooperation and requires the contracting authorities to combine their efforts to provide public services‘.
This is another interesting case which is a warning shot to authorities looking to rely on the horizontal collaboration exemption. If one contracting authority is simply paying another to deliver a service that it does not provide itself, this is a public contract which should be subject to a procurement exercise.