Yesterday I taught a module on tender evaluation, part of the residential weekend at King’s College London for the Public Procurement Regulation in the EU postgraduate course. One of the cases we discussed was European Dynamics v European Union Intellectual Property Office (T-556/11) and the appeal by EUIPO, subject of a recent opinion from Advocate General Mengozzi (C-376/16). The original case, brought under the Financial Regulation which governs procurement by EU institutions, is notable for its detailed discussion of manifest errors of assessment, conflicts of interest, exclusion for corruption and the duty to give reasons to unsuccessful bidders. It’s also notable for being one of the few cases won by serial litigant European Dynamics/Evropaïki Dynamiki (ED), with the General Court annulling the award of contract and finding ED was entitled to damages (it had claimed over EUR 6 million).

The challenge related to a multi-operator framework agreement to provide IT services to the EUIPO, which was set up on the ‘cascade’ model (i.e. a primary provider plus two reserves). ED came fourth in the competition, despite obtaining the highest score on each of the three technical criteria. It challenged the decision on three grounds: failure to exclude the other bidders based on alleged conflicts of interests and corruption, numerous alleged manifest errors of assessment in the evaluation of the technical and financial criteria, and the level of detail provided by EUIPO regarding the scoring of its tender. As each of the issues is highly relevant to contracting authorities and entities operating under the 2014 procurement directives, it is worth examining both the General Court’s judgment and AG Mengozzi’s opinion, which relates solely to the duty to give reasons.

Conflicts of interest and corruption

The first alleged conflict of interest related to the participation of PwC Spain in one of the consortia admitted to the framework. PwC UK and PwC Belgium had been involved in drafting the tender specifications. When this was brought to EUIPO’s attention, they sought clarification from the consortium leader, who responded that i) there were no structural links between PwC Spain and the entities involved in drafting the tender specifications ii) PwC UK and PwC Belgium were bound by a confidentiality clause and had not disclosed any information related to the specifications and iii) PwC Spain had only been asked to participate in the consortium six days prior to the tender deadline and had no involvement in the preparation, drafting, pricing or sign-off of the technical tender. On the basis of this response, EUIPO concluded that no unfair advantage could have been gained. While some scepticism about the efficacy of Chinese walls within corporate groups may be natural, the existence of a specific confidentiality obligation, together with the lack of opportunity to influence the content of the tender, does seem to greatly reduce the risk of a conflict affecting a tender.

Under the 2014 directives, the duty on contracting authorities to prevent conflicts of interest is balanced against the right of a bidder to demonstrate that it could not have gained an unfair advantage. This is an issue which must be considered from the early planning stages, particularly in IT or other complex tenders where external input is often needed to prepare specifications. While contracting authorities may require companies preparing specifications to refrain from bidding for the main contract, they may not be able to bind other companies in the same corporate group – and the proportionality of this approach might in any case be questioned. The General Court found that in this case EUIPO had fulfilled its duty to investigate and there was no conflict of interest. The Court also appeared to attach significance to the fact that the consortium had scored lower on the technical criteria than European Dynamics – in my view this does not in itself mean that no unfair advantage was gained, as any such advantage may have been outweighed by other factors.

A second alleged conflict of interest arose from the fact that one of the bidders had also bid for a second framework being established by EUIPO, which would involve developing specifications for, and monitoring work carried out under, the first framework. At the time of the tender in question, no contracts had been awarded under this framework. European Dynamics itself was also eventually admitted to the second framework, leading EUIPO to argue that if the conflict of interest argument succeeded on this count ED would also have to have been excluded from the procedure and would lose its claim for damages. In the event, the Court did not consider the claim valid, as the second framework was not yet in existence at the time of the disputed tender. This raises an interesting question regarding the possibility under Art. 57.4 of Directive 2014/24/EU to apply exclusion grounds at any point when the contracting authority becomes aware of a problem. EUIPO had specifically referred to the possibility that holding a contract under the other framework might amount to a conflict of interest and result in exclusion, however as this was not the case at the time of the tender it had not excluded the second consortium.

Finally, ED alleged that Siemens, a key partner in one of the successful consortia, should have been excluded on the basis of its admissions of fraud, corruption and bribery in cases brought in Germany and the United States, and its payment of fines to settle those cases. While Siemens had not been convicted of any crime, the Court found that EUIPO had failed to seek the necessary evidence of this required under the Financial Regulation. EUIPO had not requested an ‘extract from the judicial record’ in relation to this and other grounds of exclusion as required under the Financial Regulation, instead allowing Siemens to rely on a solemn declaration. It had also only received the declaration from one of the two Siemens entities involved in the consortium. The General Court held that it had breached its duty to seek evidence in respect of the grounds of exclusion. Is this also a duty under the 2014 directives? Bidders are able to rely upon self-declarations (including the ESPD) to prove that they comply with the exclusion grounds in the first instance, but contracting authorities must seek documentary evidence in relation to the exclusion grounds prior to contract award. They may also do so at any earlier point where this is necessary for the proper conduct of the procedure. In situations where there are clear grounds to suspect a company of wrongdoing, this obligation is likely to be activated (see my previous blog below about the Rolls-Royce deferred prosecution agreement).

Manifest errors of assessment

ED also advanced a large number of claims of manifest errors of assessment, roughly half of which were upheld by the Court. In relation to the financial evaluation, ED challenged both the formula and the way in which it was applied by EUIPO. The financial evaluation consisted of two parts: 70 marks were assigned based on the average day-rate tendered (with the lowest average rate receiving full marks and other bids marked proportionately) and 30 marks were assigned based on the average efficiency ratio (based on the number of days required to carry out three hypothetical jobs, with the lowest average again receiving the highest score). ED’s challenge to this formula was rejected as they had not established either that EUIPO deviated from its published methodology or that it was unlawful. Arguably any cost evaluation formula which is divided into parts which are weighted separately is capable of giving rise to distortions (for example, if a bidder had a high average rate but was extremely efficient, they might score lower than a bidder who had a higher overall cost but a low daily rate) – however ED did not succeed in demonstrating this.

Duty to give reasons

The third claim raised by ED concerns the duty to give reasons for decisions, and specifically to explain the basis on which bidders ‘lose marks’ in technical and financial evaluations. The concept of bidders losing marks must be treated with caution in my view, as in most evaluation techniques it is not the case that each tender starts out with full marks and points are then deducted for specific shortcomings. Rather, tenders gain marks where they demonstrate performance against a qualitative award criterion; if a tender does not respond to an award criterion at all, it should score zero under that criterion. To deduct marks suggests that there is a putative ‘perfect tender’ to which each bid is being compared. While some contracting authorities do in fact use model tender answers, this can make evaluation formulaic and detract from a genuine exercise of discretion on the part of evaluators. It is also inappropriate where specifications are output- or performance-based, as there will be more than one way to gain full marks under qualitative criteria.

While ED had received its scores and the scores of each of the three successful bidders, it sought a full copy of the evaluation report and copies of the successful tenders. The General Court had previously held in a case brought by ED against the Commission (C-629/11 P) that there was no obligation to disclose all details of the analysis of each tender, the evaluation report or the successful tender(s). In TNS Dimarso (C-6/15), the Court of Justice held that disclosure of evaluation methodology was not required under the procurement directives. In this case however, the General Court found that the reasons given by EUIPO had been inadequate because they did not make clear the relationship between the evaluation of the various technical criteria and sub-criteria and the points ‘deducted’, or provide a breakdown of the points. The Court thus appeared to introduce a higher standard of disclosure than has previously been contemplated in EU case law on tender evaluation. Advocate General Mengozzi’s opinion, delivered on 28 September 2017, upheld the General Court’s approach and dismissed EUIPO’s appeal on this ground. He sought to distinguish Case C-629/11 P on the basis that in that case the weighting of sub-criteria had been clear, whereas in this case the weighting was undisclosed.

In some ways this case perhaps says less about the duty to give reasons and more about choice of evaluation method. EUIPO had adopted one of those unfortunate, but common (at least in recorded case law) evaluation methods which results in only a very small number of marks separating tenders on the technical criteria. To me this almost always indicates a failure to use the marks available to properly distinguish between bids, keeping in mind that they are being compared to each other and not to some ideal standard. Contracting authorities may be better off using intervals spread across the whole range of marks to score technical criteria. Otherwise there is effectively a distortion of the published marking scheme – as the full range of marks may be used to score cost whereas only a very limited range of marks is used to score quality. The result is that cost ends up having a heavy influence on the final result, even when there is not a large spread of tendered costs.

As so often in procurement, it is when the contracting authority itself generates detailed rules but then fails to explain or follow them that it gets into trouble. Regardless of whether the Court of Justice chooses to follow AG Mengozzi and the General Court on this point, contracting authorities are well advised to apply relatively simple scoring methods for technical criteria, explain them in the tender documents, and give tenderers a full statement of reasons which shows how they have exercised their discretion in evaluation.