Golden nugget or poison pill? 'Clearly minor' breach of EU law in the Whistleblower Protection Directive

The recently-adopted Directive 2019/1937 of 23 October 2019 on the protection of persons who report breaches of Union law (aka the ‘Whistleblower Protection Directive’ or WPD) explicitly covers reports of breaches of public procurement law (Art 2(1)(a)(i) WPD)—with a limited exception for defence and security procurement not covered by the relevant EU rules (Art 3(2) WPD and Annex, Part I(A) WPD).

The Whistleblower Protection Directive needs to be transposed towards the end of 2021 (with a further delay to 2023 for covered SMEs). The decisions made by Member States in the transposition of the Whistleblower Protection Directive may generate significant impacts on public procurement practice in the medium term. However, the likely future effectiveness of the Directive hinges on a problematic discretionary provision on ‘clearly minor’ breaches of EU law, on which this blog post will focus.

Background

Implicitly, the coverage of public procurement by the Whistleblower Protection Directive is a recognition of the limitations of the public enforcement of (EU) public procurement law, as well as their private enforcement through the procurement remedies system (despite the Commission’s recent decision not to reform the Remedies Directives…).

Indeed, the recitals of the Whistleblower Protection Directive stress that procurement coverage is necessary

… to enhance the enforcement of Union law on public procurement. It is necessary, not only to prevent and detect procurement-related fraud and corruption in the context of the implementation of the Union budget, but also to tackle insufficient enforcement of rules on public procurement by national contracting authorities and contracting entities in relation to the execution of works, the supply of products or the provision of services. Breaches of such rules create distortions of competition, increase costs for doing business, undermine the interests of investors and shareholders and, in general, lower attractiveness for investment and create an uneven playing field for all businesses across the Union, thus affecting the proper functioning of the internal market (rec 6 WPD, emphasis added).

Therefore, creating (or boosting) national mechanisms to enable whistleblowers to shine a light on potential infringements of EU public procurement law is expected to generate gains on procurement compliance and probity. This is largely aimed at reporting by ‘insiders’, to the extent that there are already other strategies to seek to increase the visibility of procurement information and trigger engagement by civil society and external stakeholders, eg through the new rules on eForms, due to be transposed by end of 2022.

Broadly, the Whistleblower Protection Directive seeks to enhance compliance with EU law, and in particular public procurement rules, by requiring Member States to mandate private and public entities to create new internal and external reporting mechanisms, as well as to afford specific protective measures to (good faith) whistleblowers that report internally or externally, or publicly disclose, breaches of EU law on the basis of information gained in a work-related context. The Directive creates rather granular requirements depending on the size of the private or public sector entity allegedly involved in the EU law breach.

‘Clearly minor’ breaches

In the context of external reporting of suspected breaches of EU (public procurement) law, Art 11(3) of the Whistleblower Protection Directive establishes that

Member States may provide that competent authorities, after having duly assessed the matter, can decide that a reported breach is clearly minor and does not require further follow-up pursuant to this Directive, other than closure of the procedure (emphasis added).

Different to other fields covered by the Directive (eg securities regulation or competition law), I think that this will be the crux of the whistleblowing system in the context of procurement, in particular if Member States opt to designate procurement review bodies as those competent to receive and/or process reports on potential infringements of EU public procurement law—which seems like a rather natural option. However, this would largely amount to a mere broadening of the active standing to launch procurement review procedures.

I would expect most Member States to avail themselves of the discretionary nature of this provision. Thus, I think that the effectiveness of the system will hinge on the provisions of Art 11(3) WPD because external reporting of non-obvious breaches is the most likely focus of (potential) whistleblower activity.

First, because internal reporting mechanisms are unlikely to gain much traction in either private entities (I find it difficult to see how a company that has taken a specific position in the context of a tender would be willing to reverse it due to an internal report, unless it had a very decentralised system to approve the offers) or public entities (again, as the mechanisms of control and decision-making should have already addressed any concerns and, failing that, would have galvanised the public buyers’ position).

It is hard for me to envisage a significant number of inadvertent breaches of procurement law that go undetected and can easily be fixed upon realisation, as is also hard to imagine the possibility of creating a multi-track system whereby concerns harboured by those ‘in the know’ within an organisation can be reported in a manner that results in a significant revision of the situation (barring, perhaps, in the context of very large organisations, or shared mechanisms for intermediate ones).

Second, because very major shortcomings in the probity of the procurement process (ie straight out corruption) or major deviations from procurement law (eg illegal direct awards or ‘cooking’ of the technical specifications or award criteria) should already be covered by other mechanisms, including criminal law. In that context, the main issue is not the administrative responsibility or liability of those involved in the illegality (criminality?), and probably also not (primarily) an issue of work-related retaliation against the whistleblower (which is the core coverage of the protective measures of Art 19 WPD, as far as I can see).

So, unless there is a fear that criminal behaviour is widespread and largely under-reported and under-detected in the field of EU public procurement practice due specifically to limited protections for whistleblowers (which I find a relatively implausible claim), in my opinion, the area of EU procurement law compliance that can probably be practically targeted is somewhat intermediate—ie that of relatively unclear rules of EU public procurement law, of the (mis)implementation of rules in non-observable manner (eg the ‘doctoring’ of evaluation reports), as well as deviations that fall within the area of discretion afforded to contracting authorities.

In those cases, and for the reasons indicated above, the most likely materialisation of any whistleblowing is an external report to the competent authority, which will then have to assess the extent to which the reported breach is (or not) ‘clearly minor and does not require further follow-up’ pursuant to the Whistleblower Protection Directive—ie, presumably, whether the issue of (strict) compliance can be left to the ordinary (if faulty?) enforcement mechanisms for EU (public procurement) law.

Why is public procurement different?

Against that practical backdrop, in my view, the importance of Art 11(3) WPD in the context of procurement stems from the long-lasting discussion of the types of infringements of EU law—ie ‘any breach’, a ‘sufficiently serios breach’, etc—that should trigger relevant consequences; eg the termination of the contract under Art 73 of Directive 2014/24/EU, the ineffectiveness of an awarded contract under Art 2d of the Remedies Directive, or more recently State liability in damages, in the context of the Fosen-Linjen saga (see here).

What constitutes a ‘clearly minor’ breach will need to be somewhat reconciled with the existing rules on procurement remedies. It would seem not only undesirable, but also counter-intuitive, for the Whistleblower Protection Directive to be interpreted in a more stringent way than other rules on procurement remedies. If a public entity could legally follow a course of action under regular administrative and liability rules, why would it be subjected to a more stringent threshold of compliance solely due to the origin of the information/report that prompts the review of its actions and decisions?

Moreover, the application of a common standard would seem a natural consequence of the accumulation of competences for the review of procurement complaints by the same authorities, where this happens. Therefore, as indicated above, it seems to me that the effect of the implementation of the Whistleblower Protection Directive is largely constrained to expanding the active standing to launch procurement review procedures. Whether this can make a significant difference remains an empirical unknown.

Other effects would only be generated if the choices leading to the domestic implementation resulted eg in the attribution of the competence to investigate procurement whistleblowing reports to authorities other than procurement review bodies—but this would create all sorts of practical complications in terms of expertise availability and two-track review procedures, eg in the case of a whistleblowing report concerning a tender in relation to which disappointed tenderers also launch ‘standard’ review procedures.

All in all, then, I think that the likely future effectiveness of the application of the Whistleblower Protection Directive in the field of procurement will hinge on the concept of ‘clearly minor’ breach and its relationship to the current standards triggering ineffectiveness of procurement procedures, awarded contract and/or liability in damages at the domestic level. This is thus perhaps an area where the European Commission could issue interpretive guidance ahead of the transposition deadline of 17 December 2021.

The Norwegian Supreme Court Gives its Final Word in the Fosen-Linjen Saga [guest post by Dag Sørlie Lund]

The Fosen-Linjen Saga has finally come to a close with the Norwegian Supreme Court’s Judgment. Dag Sørlie Lund* kindly provides a sharp summary of the case while we await for any official translations. His fuller critical assessment of the Judgment will be included in the EPPPL special issue we are working on.

The Norwegian Supreme Court Gives its
Final Word in the Fosen-Linjen Saga

The so-called Fosen-Linjen Saga has finally come to its long-awaited end by the judgment of the Norwegian Supreme Court of 27 September 2019, more than 6 years after the company AtB tendered for the procurement of ferry services between Brekstad and Valset in the County of Trøndelag.

The contract was initially awarded to the company Norled. The competitor, Fosen-Linjen, which was ranked as the runner-up, claimed Norled had been awarded the contract unlawfully, and managed to stop the signing of the contract through interim measures. In the interim measures procedure two errors were identified by the courts:

1. AtB had not required the necessary documentation for the award criteria “environment”; and

2. AtB had not verified the viability in Norled’s offer regarding fuel consumption (which was part of the criteria “environment”).

As a result of this, AtB decided to cancel the tender procedure, and restart the whole process.

Fosen-Linjen did not submit a new tender, but instead filed a law suit against AtB claiming damages for the positive interest, or, in the alternative, the negative contract interest. The negative contract interests essentially amounts to the costs of tendering (damnum emergens), while the positive contract interest essentially amounts to the loss of profit (lucrum cessans).

The Supreme Court’s judgment clarifies several key questions about public procurement law related to the threshold for damages, and for the requirement of causality between the breach and the damages. Furthermore, the ruling contains interesting assessments of legitimate grounds to cancel a tender procedure, and the significance of the fact that a tenderer submits an offer despite being aware of errors in the procurement documents for the possibility to receive damages. The judgment is unanimous for all but the question of causality for damages for the negative contract interest, where one justice had a concurring opinion with a slightly different approach. For the purposes of this summary, I will not go further into the differences in the concurring opinion.

The Principle of State liability for breaches of EEA Law

The Supreme Court starts out by grounding the liability for damages in the general principle of State liability for breaches of EEA law. According to this principle an EEA State may be held liable for breaches of its obligations where the following three conditions are met:

1. The breached provision of EEA law must be intended to confer rights on individuals and economic operators;

2. The breach must be considered as sufficiently serious; and

3. There must be a direct causal link between the breach of the obligation in question and the damage suffered by the aggrieved party.

The first condition was clearly met, and the case before the Supreme Court thus mainly concerned the question of the threshold for receiving damages and what it takes to establish a direct causal link for damages for negative costs. A particularly disputed question in the Fosen-Linjen Saga, has been whether the threshold for damages for the negative and the positive contract interests is different. Under Norwegian law, it has traditionally been easier to receive compensation for the negative costs than for the positive costs.

The Positive Contract Interest

The Supreme Court rejected Fosen-Linjen’s claim for damages for the positive interest since there were sufficient grounds to cancel the tender procedure. In fact, there were two grounds for cancelling the procedure.

First, the Supreme Court considered that the identification of the two errors in the interim measures proceedings raised serious doubts about the lawfulness of the procedure. These doubts were considered as sufficient grounds to cancel the tender procedure.

Second, it was also considered that the fact that AtB did not require the necessary documentation for the award criteria “environment”, also constituted sufficient grounds to cancel.

Consequently, the Supreme Court concluded that since the cancellation was lawful, Fosen-Linjen could not receive damages for the positive contract interest. This part of the judgment is somewhat confusing, since it appears to consider the question of causality rather than the question of whether the breach was sufficiently serious: since the tender procedure was lawfully cancelled, no one could ever be awarded the contract, and thus no one would ever have a claim for the loss of profit.

This is particularly confusing since the Appeals Selection Committee of the Supreme Court had explicitly rejected the question of causality for the positive contract interest from being heard by the Supreme Court. This is all the more puzzling since the Supreme Court appears to have been aware of this distinction, noting that the cancellation did not exclude the possibility for damages for the negative contract interest, which shows that the question of liability was not conceptually excluded by the fact of the cancellation.

The Negative Contract Interest

As mentioned, the traditional approach in Norwegian torts law is that the threshold is lower when it comes to damages for the negative costs.

Based on its reading of case law from the CJEU and the EFTA Court, the Supreme Court held, however, that the test for receiving damages, regardless of the categorization of the damages as negative or positive costs, is whether the breach in question may be considered “sufficiently serious”. The Supreme Court outright rejected the suggestion that the threshold might be lower under Norwegian tort law.

In the assessment of whether a breach is sufficiently serious, the Supreme Court noted that it may not be required to demonstrate fault or fraud, although both subjective and objective factors included in the traditional assessment of liability under national tort law, may be relevant to take into account.

Same same, but different

Despite this description of the test for receiving damages, the Supreme Court emphasized that the norm could not be characterized as more or less strict than would otherwise follow from Norwegian tort law, but that the assessment may be somewhat different.

The Supreme Court identified the norm as a sliding scale where the crucial point appears to be the level of discretion enjoyed by the contracting authority – from wide to none at all.

The rule that was breached in the tender procedure – namely the obligation to require necessary documentation for an award criterion – was found to be clear and precise. Accordingly, the Supreme Court found that AtB was liable for the negative costs. In that regard, it was pointed out that AtB twice received questions that raised doubts as to the lawfulness of the award criteria, which combined with the consequences caused by the breach, led to the conclusion that the threshold of “sufficiently serious” was passed.

It’s worth noting that despite the fact that the Supreme Court rejected that a contracting authority might escape liability by claiming not to possess the necessary powers, knowledge, means or resources, it still considered the complexity of the public procurement rules indicated a certain restraint or caution in establishing liability.

Direct Causal Link

Concerning the question of a direct causal link between the breach and the damage, the Supreme Court asked whether the tenderer would have submitted an offer if they had known about the error committed.

Even though the fact that AtB had not required the necessary documentation for the award criteria “environment” was clearly visible for Fosen-Linjen, the Supreme Court considered that this criterion was met since AtB had considered the procurement documents to be lawful despite the fact that the error had been pointed out twice during the tendering procedure. This part of the judgment is also confusing, as it is not entirely clear why the subjective view of the contract authority is relevant when assessing the question of causality.

Unanswered questions

The Supreme Court thus disentangled many key questions about liability for breaches of procurement rules, but some issues remain unanswered. For example, the Supreme Court did not rule on the question of whether liability is conceptually possible where the tendering process should have been cancelled, but this doesn’t happen. Furthermore, as mentioned above, the question regarding direct causal link for damages for the positive interest was not accepted to be heard by the Supreme Court, so the particularities of that assessment was not further clarified. Considering the attention these questions have received through the Fosen-Linjen Saga, it is probably only a matter of time before these will materialize themselves in future cases, with new sagas in national courts and in Luxembourg.

Dag Sørlie Lund

Dag Sørlie Lund is part of our European and Competition law team. He has previously worked at the Department of Legal Affairs in the Ministry of Foreign Affairs, the EFTA Court, the EFTA Surveillance Authority (ESA), and as an attorney. He has experience in advising clients in EU/EEA and competition law, including state aid and public procurement law.

Dag has handled a number of cases concerning the EFTA Surveillance Authority, and has pleaded several cases before the Court of Justice for the European Union and the EFTA Court. Dag has lived in Spain, Belgium and Luxembourg, and speaks Spanish and English fluently.

Should Damages in Public Procurement Hinge on Disappointed Bidders’ Commercial Interests? A Comment on Energy Solutions EU Ltd v Nuclear Decommissioning Authority

This comment has been previously published in eutopialaw. I am thankful to Christopher Brown for having brought this stimulating case to my attention.

In its recent Judgment of 23 January 2015 in Energy Solutions EU Ltd v Nuclear Decommissioning Authority [2015] EWHC 73 (TCC), the High Court ruled on a preliminary issue in a public procurement dispute and held that the review court has no discretion (not) to grant damages for losses resulting from a breach of the public procurement rules. In my view, the Energy Solutions v NDA Judgment should be criticised at least for two reasons: firstly, because it misinterprets the EU rules on public procurement remedies and their link with the general principle of State liability for breaches of EU law; and secondly, because it creates an analytical framework based on the commercial decisions of disappointed bidders that would result in excessive (strategic) claims for damages. Moreover, the Energy Solutions v NDA Judgment sheds light on an important shortcoming of the system of public procurement remedies that is perpetuated under the recently adopted Public Contracts Regulations 2015 (SI 2015/102). This comment addresses these issues in turn.

Background

The dispute arises after Energy Solutions (as part of a bidding consortium, but that is not relevant for our purposes) was not chosen as the winning bidder in a tender for a nuclear waste management contract with the Nuclear Decommissioning Authority (NDA). After expressing its disagreement with the award decision and seeking additional information in the ensuing debriefing process, Energy Solutions eventually challenged the tender procedure within the 30-day limit applicable under reg.47D(2) of the applicable Public Contracts Regulations 2006 (SI 2006/5, as amended, primarily by SI2009/2992). By the time the challenge was effected, NDA had already entered into a contract with the winning bidder. Energy Solutions sought compensation for the damages it alleged to have suffered as a result of the improper conduct of the tender procedure

NDA tried to bar the damages action by arguing that a failure to challenge the award decision within the 10-day standstill period provided for under reg.32(3) Public Contracts Regulations 2006 (which could have prevented it from entering into the contract) broke the causal link between any breach of the applicable procurement rules and the ensuing damages (which, If any, would then derive from the tardiness of the challenge). NDA basically claimed that having foregone the possibility to prevent the award of the contract to another tenderer by activating the suspension foreseen in reg. 47G Public Contracts Regulations 2006, Energy Solutions had also lost the possibility to seek damages compensation. In support of that position, NDA submitted that, under reg.47J(2)(c) Public Contracts Regulations 2006, the review court retained discretion (not) to award damages resulting from a breach of public procurement rules in circumstances such as those in the case (ie the lost opportunity of litigating within the standstill period).

The High Court ruled against NDA on both points. Edwards-Stuart J found no basis for the

submission that any award of damages is dependent on the level of gravity of the breach, or any other such factor, and thus dependent on an exercise of judicial "discretion" or judgment, or whether, absent any failure to mitigate its loss, having proved a breach of the [public procurement rules] a claimant is entitled to anything other than damages that should be assessed by reference to ordinary principles. It may well be that the claimant's conduct will have been such that the court will be very reluctant to make any assumptions in its favour in relation to damages, but that is simply an aspect of the usual approach of the court to the assessment of damages (para 86).

As mentioned above, this finding is open to criticism, both for its inconsistency with EU law and because it creates an analytical framework that may result in excessive claims for damages. Each of these issues is addressed in turn. The problem derived from the diverging duration of the standstill period and the time limit for the challenge of award decisions is discussed last, as it also affects the brand new Public Contracts Regulations 2015.

The improper conceptualisation of the damages remedy with an EU law origin

In order to reach a conclusion on the discretionary or automatic nature of the damages remedy under reg.47J(2)(c) Public Contracts Regulations 2006, Edwards-Stuart J embarked on an assessment of the original provision that this regulation transposes, that is, art.2(1)(c) of Directive 89/665/EC (as amended by Directive 2007/66/EC), as well as its interpreting case law (primarily, Combinatie Spijker Infrabouw-De Jonge Konstruktie and Others, C-568/08, EU:C:2010:751). However, in my view, his Judgment fails to extract the adequate conclusions.

It is worth stressing that, as stressed in paragraph 87 of Spijker (and repeated in para 69 of Energy Solutions v NDA), art.2(1)(c) of Directive 89/665 “gives concrete expression to the principle of State liability for loss and damage caused to individuals as a result of breaches of EU law for which the State can be held responsible” (emphasis added). In my view, Edwards-Stuart J completely misses the point when he tries to distinguish the Energy Solutions v NDA case by stating that

This is not a claim against a Member State for a breach of EU law which was intended to confer a right upon a person such as the Claimant. This is a claim brought by a corporate body against a national public body under the Regulations, an English national provision [sic] (para 83, emphasis added).

If nothing else, this position simply misses the entire EU law doctrine of supremacy and direct effect of Directives (Van Duyn v Home Office, C-41/74, EU:C:1974:133) and the duty of consistent interpretation (Marleasing v Comercial Internacional de Alimentación, C-106/89, EU:C:1990:395). Moreover, it is unnecessary for the analysis the High Court needed to complete in the case at hand. In that regard, it is also worth stressing that, as clearly established by the Court of Justice in Spijker (and repeated in para 70 of Energy Solutions v NDA)

In the absence of EU provisions in that area, it is for the legal order of each Member State to determine the criteria on the basis of which damage arising from an infringement of EU law on the award of public contracts must be determined and estimated … In the absence of any provision of EU law in that area, it is for the internal legal order of each Member State, once those conditions have been complied with, to determine the criteria on the basis of which the damage arising from an infringement of EU law on the award of public contracts must be determined and estimated, provided the principles of equivalence and effectiveness are complied with (Spijker, paras 90 and 92, emphasis added).

Hence, in order to stress the point of procedural autonomy (subject only to equivalence and effectiveness), Edwards-Stuart J did not need to take the difficult (and unacceptable) position of trying to decouple Energy Solutions’ claim from its obvious EU origin by rejecting its true essence.

Following on this aspect of the Judgment, it is also important to stress that counsel properly identified a further development of relevance in terms of assessing the effectiveness requirement. Indeed, in Danske Slagterier (C-445/06, EU:C:2009:178), the Court of Justice issued additional guidance on the possibility of imposing certain duties on disappointed tenderers before they can claim compensation for damages. That case concerned a German rule whereby reparation for loss or damage cannot be obtained by an injured party that has wilfully or negligently failed to utilise an available legal remedy (§839(3) BGB). The dispute concerned precisely the level of diligence that could be required under EU law from a claimant in damages that had forgone other (theoretically) available remedies before claiming for compensation.

In a situation that is clearly comparable to the one in Energy Solutions v NDA (as implicitly acknowledged by Edwards-Stuart J in para 73), the Court of Justice ruled that

it is a general principle common to the legal systems of the Member States that the injured party must show reasonable diligence in limiting the extent of the loss or damage, or risk having to bear the loss or damage himself … It would, however, be contrary to the principle of effectiveness to oblige injured parties to have recourse systematically to all the legal remedies available to them even if that would give rise to excessive difficulties or could not reasonably be required of them … [Union] law does not preclude the application of a national rule such as that laid down in para. 839(3) of the BGB, provided that utilisation of the legal remedy in question can reasonably be required of the injured party. It is for the referring court to determine … whether that is so (paras 61 to 64).

In my view, this provides the proper framework for the analysis of Energy Solutions v NDA, as it places the High Court in the position of assessing whether requiring claimants to challenge award decisions within the 10-day standstill period is reasonable and can become a pre-condition for their damages claims, despite the fact that the applicable regulations provide them with a 30-day period to do so. That is the point of “discretion” (rectius, non-automaticity) in the award of damages derived from public procurement infringements on which the parties disagreed, and one to which I will return below.

However, Edwards-Stuart J insisted (para 78) on his view that the domestic remedy has nothing to do with the general principle of State liability under EU law (in a frontal disregard of Spijker para 87), which excludes the applicability of any guidance ultimately based on the State liability doctrine (Brasserie du pêcheur and Factortame, C-46/93, EU:C:1996:79). In my view, this creates significant confusion and implies a breach of EU law within the UK legal system (which could, if not remedied, end up resulting in liability under Köbler, C-224/01, EU:C:2003:513).

The improper focus on the commercial choices or gambles of the disappointed bidder, which could trigger excessive litigation seeking procurement damages compensation

My second criticism of the Judgment in Energy Solutions v NDA derives from the isolated and commercially-led analysis of the system of remedies provided by Directive 89/665, as transposed by the Public Contracts Regulations 2006 (and now the Public Contracts Regulations 2015). The point of departure for the analysis of the remedies system and, particularly, the granting of damages, needs to rest on two basic points. 

The first one is a point of law. Damages are conceptualised as an ancillary remedy under Directive 89/665 [for discussion see S Treumer, ‘Damages for breach of the EC public procurement rules - changes in European regulation and practice’ (2006) 17(4) Public Procurement Law Review 159-170]. In my view, this is particularly clear after the 2007 reforms [similarly, S Arrowsmith, The Law of Public and Utilities Procurement. Regulation in the EU and the UK, Vol. 1, 3rd edn (London, Sweet & Maxwell, 2014) 178; see also R Caranta, The Comparatist’s Lens on Remedies in Public Procurement (Istituto Universitario di Studi Europei, WP 2011-1) 7-8], which aimed at ensuring the effectiveness of the public procurement rules through stronger requirements of ineffectiveness of contracts concluded in their breach. This is the proper interpretation of the ensemble of remedies established under the EU rules and, in particular, given that art.2e(2) in fine Directive 89/665 expressly indicates that “[t]he award of damages does not constitute an appropriate penalty”.

Hence, damages are not an alternative or substitute remedy for the ineffectiveness of illegally awarded contracts (which can only be replaced with proper penalties imposed on the infringing contracting authority where public interest mandates the continuation of the illegally-awarded contract). Moreover, damages are not a free standing remedy, as they must be based on a (sufficiently serious) breach of procurement rules, which necessarily carries the consequence of either ineffectiveness of the contract or penalties for the contracting authority. This is also very clear from the wording of reg.47J Public Contracts Regulations 2006, which requires the review court to make findings on ineffectiveness and civil penalties, while it (simple?) authorises the court to make findings regarding damages compensation (this is discussed in paras 62ff of the Energy Solutions v NDA Judgment, but in a way that goes against the literal reading of the provision).

The second point is a point of general policy based on economic incentives. In my view, disappointed tenderers will always have an incentive to seek damages compensation. Once they have participated in a tender procedure and not been awarded the contract, it is more favourable for them to seek damages (particularly if loss of profits is recoverable) than to seek the specific performance of the tender procedure being brought back to the point previous to the relevant infringement, or even the award of the contract as such. Once they are put in a position where they have an automatic claim for damages based on the infringement of the procurement rules, they will always prefer its exercise to any alternative remedy that either does not secure them the contract (because it forces a re-tendering) or awards them the contract (as getting direct financial compensation for the lost profits is better than having to – properly – execute a contract in order to create them). 

In short, creating an automatic right to damages compensation for breach of public procurement rules would become a ‘winning lottery ticket’ for disappointed bidders. It is simple to see how such unbalanced rights to remedies would trigger excessive litigation. From a policy perspective, then, it should be required that contractors only be entitled to damages when a specific, non-financial remedy is not available (ie, when the illegally awarded contract must be protected in view of a sufficient public interest).

From this perspective, it is hard to understand how Edwards-Stuart J can consider that

If the claimant is seeking to have the award of the contract suspended, then it must start proceedings within the standstill period or, in any event, within the 30 day period and before the award of the contract. However, if the claimant is merely seeking damages, then it need only start proceedings within the 30 day period. I do not see any basis for treating these two remedies as being of different importance: that depends on a claimant's circumstances and what it is seeking to achieve - the Regulations give it a choice (para 79, emphasis added).

The relevant point, in my view, is that the Regulations do not give a choice to the Court (not the claimant) in terms of the content of the challenge against an award decision. If the Court finds that there is an infringement, it must impose the relevant remedies (not only damages), as clearly established in reg.47J Public Contracts Regulations 2006 for cases in which the contract has already been entered into (and in relatively less stringent terms, in reg. 47I Public Contracts Regulations 2006 when the contract has still not been entered into). Hence, regardless of whether the claimant complements the claim for damages with a claim for ineffectiveness or not, the Court must always consider the possibility and desirability of setting the illegally-awarded contract aside. Consequently, there should actually not be any difference, from the point of view of the Court, between the two sets of remedies indicated above. Maybe in blunter terms, under the applicable Regulations, a claimant is never allowed to actually only seek damages because the Court is never allowed to only rule on damages.

Hence, considerations such as those developed in paragraphs 87 to 91 of the Energy Solutions v NDA Judgment must be rejected, since they rely on the consideration that a claimant can legitimately conclude “for various commercial reasons, that damages would be an adequate remedy in all the circumstances” (para 87, emphasis added), and that this needs to be the guiding principle in the construction of the system of remedies for public procurement infringements.

I of course acknowledge that this is an approach that implicitly recognises that disappointed bidders do not challenge award decisions only in their own interest, but also exercise a (residual, implicit) ‘general attorney-like’ function aimed at catching and sanctioning infringements of (EU) public procurement law—in a sort of private enforcement akin but different from that developed for the equivalent competition law rules. However, I struggle to see how the system of remedies could be developed in satisfactory way exclusively considering disappointed bidders’ commercial interests.

The source of the problems: diverging time-limits beyond mandatory standstill periods

The final issue that bears comment (and much further thought) refers to the existence of time-limits for the challenge of procurement decisions that reach beyond mandatory standstill periods. The situation created under the Public Contracts Regulations 2006 has just been perpetuated under the recently adopted Public Contracts Regulations 2015, which regs.87 and 92(2) perpetuate the problem of a general time-limit for the start of proceedings that exceeds the mandatory 10-day standstill period. As Edwards-Stuart J rightly pointed out in the Energy Solutions v NDA

the Regulations permit an unsuccessful tenderer to start proceedings after the expiry of the standstill period, and therefore at a time after which the authority may have entered into the contract with the successful tenderer: indeed, the Regulations expressly contemplate this eventuality. I therefore have considerable difficulty in seeing how a decision not to start proceedings within the standstill period could be said to be unreasonable. But, as I have already said, this is a question of fact (para 54).

Hence, the problem that is (now, clearly) on the table is that the part of the time-limit for the start of proceedings that runs beyond the duration of the mandatory standstill creates space for strategic litigation, particularly if coupled with the ‘automaticity’ (or lack of discretion) for the award of damages resulting from a breach of public procurement rules discussed above. There are two possible options. On the one hand, to overrule Energy Solutions v NDA and go back to a Spijker-compliant interpretation of the Public Contracts Regulations (2006 and 2015), so that a judgment of ‘reasonableness’ of the time at which the proceedings are started is conducted by the court on a case by case basis. This option creates legal uncertainty and may trigger further litigation at EU level. On the other hand, to amend the Public Contracts Regulations 2015 so that the standstill period and the time-limit to initiate actions coincide. In that case, I would expect the standstill to be extended, rather than the time-limit to be reduced. One way or the other, though, the system needs fixing in order to close the gaps that can now trigger excessive (strategic) litigation.