Public Procurement Law: Damages as an Effective Remedy 9781472561046, 9781849462174

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List of Contributors Fiona Banks is a barrister at Monckton Chambers, Gray’s Inn, London. Michael Bowsher QC is a barrister at Monckton Chambers, Gray’s Inn, London. Martin Burgi is Professor of German and European Public Law, Municipal Law and Director of the Institute for the Modernisation of Administrative Law and Public Procurement Law (FVV), Ruhr-Universität Bochum. Roberto Caranta is Professor at the University of Turin, Law Faculty. Catherine Donnelly is a barrister at Blackstone Chambers, London and the Law Library, Dublin and a Lecturer in Law, Trinity College, Dublin. Vera Eiró is a PhD candidate, Universidade Nova de Lisboa, School of Law, Portugal. Duncan Fairgrieve is Senior Fellow in Comparative Law at the British Institute of International and Comparative Law, London; Barrister, 1 Crown Office Row, London. Nicolas Gabayet is a PhD candidate and teaching assistant at the University of Aix-Marseille III, France. Michael R Golden is a partner at Pepper Hamilton LLP, and formerly GAO’s managing associate general counsel for procurement law, responsible for overseeing GAO’s bid protest function. Daniel I Gordon is the Administrator for Federal Procurement Policy, Office of Management & Budget, United States, and formerly the Deputy General Counsel at GAO and a member of the adjunct faculty at the George Washington University Law School. Jan M Hebly is a lawyer with the law firm Houthoff Buruma and is also a professor of Construction and Procurement Law at the University of Leiden. François Lichère is Professor at the University of Aix-Marseille III, France. Esperança Mealha is Judge of the Lisbon Administrative Court and currently Assistant to a judge of the Portuguese Constitutional Court. Caroline Nicholas is Secretary, UNCITRAL Working Group I (Procurement), and a member of UN Secretariat staff.

viii  List of Contributors Silvia Ponzio is Assistant Professor of Administrative Law at the Faculty of Economics of the University of Turin. Steen Treumer is Professor of Procurement Law and Privatization Law, Faculty of Law, University of Copenhagen. Folkert G Wilman was formerly a lawyer for Houthoff Buruma.

Introduction Duncan Fairgrieve and François Lichère

P

ublic procurement is an essential aspect of public sector activity, and one which is of particular prominence currently, representing more than 15 per cent of the GDP in Europe. The substantive and procedural rules in this sphere governing the procurement are now well developed in most advanced economies. However, the enforcement of public procurement rules is a topic which has been somewhat overlooked in academic treatment,1 and the specific topic of damages is all but absent. This publication seeks to remedy this lacuna. The aim of the book is to analyse the award of damages for breach of public procurement law from a comparative perspective. Europe is the focus of the treatment, as public procurement has been subject to an important harmonising influence through European provisions, though we shall venture further afield as well. From a European perspective, the principle of subsidiarity seems to have played a role within this sphere. Whilst Directive 89/665 indicates that Member States must make provision for the awarding of damages in the case of infringement of EU law on public contracts,2 there is little detail as to the conditions under which an awarding authority may be held liable or in respect of the determination of the amount of the damages which it may be ordered to pay. The reason for this lies in the wording of the review procedures Directives, both in the original text of Directives 1989/665 and 1992/13 and in their revised version following the 2007/66 Directive: 1. Member States shall ensure that the measures taken concerning the review procedures specified in Article 1 include provision for powers to: (a) take, at the earliest opportunity and by way of interlocutory procedures, interim measures with the aim of correcting the alleged infringement or preventing further damage to the interests concerned, including measures to suspend or to ensure the suspension of the procedure for the award of a public contract or the implementation of any decision taken by the contracting authority; 1  Though the literature is now finally growing : see eg F Lichère and S Treumer, Enforcement of the EU Public Procurement Rules (Djof Publishing, 2011). 2  Art 2(1)(c).

2  Introduction (b) either set aside or ensure the setting aside of decisions taken unlawfully, including the removal of discriminatory technical, economic or financial specifications in the invitation to tender, the contract documents or in any other document relating to the contract award procedure; (c) award damages to persons harmed by an infringement.

Whereas the rest of the Directive gives detail as to what the various Member States could or should do to comply with the first two requirements, it remains silent on the issue of damages. This is by no means an oversight. The explanation for the silence is in fact given in the impact assessment report that preceded the adoption of the 2007/66 Directive:3 Changes to post-contractual Remedies which would imply changes to the underlying philosophy of the Remedies Directives requiring a completely new set of Directives to be introduced [were discarded at an early stage]: various solutions more specific to post-contractual Remedies were considered. The key issue here is to strengthen the deterrent effect induced by the ‘threat’ of bringing a damages action. One possible way to do this would have been to amend the Remedies Directives, removing or relaxing the conditions requiring an unsuccessful bidder to provide proof that he had a serious chance of winning the contract. However, this would have directly touched upon the basic national principles governing contractual liability (i.e. the rules on compensation where loss of a chance has to be proved by the plaintiff) with few benefits (i.e. no corrective effects on the award procedure and the contract signed). Initially at least, cases would be brought to ‘test’ the willingness of the Review bodies to award such damages, which would increase costs for the taxpayer, as Awarding Authorities which have signed a public contract without achieving best value for money would have to pay damages more frequently and in a higher amount. Balancing these potential increased costs, coupled with the significant changes required in the national laws of contractual liability, led the Commission services to discard this solution at an early stage.

In sum, whilst the European instruments, and particularly the European Directive of 11 December 20074 reaffirmed the importance of damages as a tool to enforce the proper award of public contracts, the exact architecture of the damages remedy has been left to the Member States. It would not be correct however to conclude that the Member States have been given an entirely free hand in this matter. The European rules are having an increasing impact, and the European case law illustrates this very point. In Commission v Portugal,5 the ECJ set aside national legislation which required proof of culpability as a precondition for an award of damages:

3  Annex to the Proposal for a Directive of the European Parliament and of the Council amending Council Directives 89/665/EEC and 92/13/EEC CEE with regard to improving the effectiveness of review procedures concerning the award of public contracts: Impact assessment report, Remedies in the field of public procurement (SEC(2006) 557). 4  Amending Council Directives 89/665/EEC and 92/13/EEC. 5  Case C-70/06.

Introduction  3 [B]y failing to repeal Decree-Law No 48 051 of 21 November 1967, making the award of damages to persons injured by a breach of Community law relating to public contracts, or the national laws implementing it, conditional on proof of fault or fraud, the Portuguese Republic has failed to adopt the measures necessary to comply with the judgment of 14 October 2004 in Case C‑275/03 Commission v Portugal and has thereby failed to fulfil its obligations under Article 228(1) EC.

Two recent decisions of the Court of Justice of the European Union have also touched upon this issue in Strabag6 and Spijker.7 These decisions will be examined in more detail in the chapters below,8 but a word will be said at this point. In the first decision, Strabag,9 the Court seems to have asserted, based upon the principle of effectiveness and the objectives of the Remedies Directive, that national legislation which makes the right to damages for an infringement of public procurement law conditional on that infringement being culpable,10 is contrary to EU law. This narrow interpretation of the judgment is uncontroversial. However, there have been suggestions that the judgment of the European court extends further. Adopting a textual analysis of the decision, Treumer has argued that the decision is a ‘dynamic and far-reaching’ one, which ‘appears indirectly to rule out that a Member State may make damages for breaches of EU public procurement law conditional of a “sufficiently serious” breach or “substantial” breaches’.11 He thus concludes that Strabag entails ‘that any breach of the EU public procurement rules in principle is sufficient ground for damages’.12 This is indeed one interpretation of the decision, and if correct, would involve significant consequences. It is possible however, to see the Strabag as premised on a more modest proposition, namely that a systematic requirement of culpability is not compatible with the requirements of effective remedies under European law. From this perspective, it is not at all certain that the decision necessarily involves the setting aside of the sufficiently seriousness standard in public procurement cases. Indeed, such a stance of the court would be surprising, as running directly contrary to the orthodox approach in cases of state liability for breach of community law.13 It should not be overlooked that the sufficiently seriousness standard does not require proof of fault in its subjective sense.14 Fault may be one of the relevant factors, but this is not necessarily so. Indeed, in certain areas, the mere breach of provisions will be considered  Case C-314/09.  Case C-568/08. 8   See especially S Treumer, ‘Basis and Conditions for a Damages Claim for Breach of the EU Public Procurement Rules’, ch 8 below. 9  Case C-314/09. 10  Including where the application of that legislation rests on a presumption that the contracting authority is at fault. 11  Treumer, n 8 above at page 160 below. 12  Ibid. 13  See for instance P Craig, EU Administrative Law (Oxford, 2006) chs 20 and 21. 14  See eg R v Secretary of State, Ex p Factortame Ltd (No 5) [2000] 1 AC 524, 541: ‘It was also clear from the cases that it is not necessary to establish fault or negligence on the part of the member state going beyond what is relevant to show a sufficiently serious breach.’ (per Lord Slynn). 6 7

4  Introduction to be sufficiently serious. This standard is thus flexible and nuanced enough to comply with the approach of the court in Strabag. In the second decision, Spijker,15 there was a difference in emphasis, as the court grounded its decision firmly on the principle of procedural autonomy, holding that ‘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.’16 This approach of course allows for greater room for manoeuvre on the part of the Member States in terms of the elements of the test of liability for damages. Despite the increasing importance of the European framework, national law is – as explained above – still of primary importance. It is for this reason that this publication commences with a number of national reports reviewing the way in which Member States from different legal traditions have dealt with this issue. Over and above the individual country reports in leading jurisdictions, it also includes a number of integrated comparative studies which identify transversal themes, and examines how these are dealt with across the region. These comparative studies deal in turn with issues such as the legal basis and the architecture for damages claims, the test of causation, including thorny issues such as loss of a chance and contributory negligence, the concepts of loss and quantum, as well as access to justice and procedural issues. The European aspects of this area are complemented by an international perspective, with chapters presenting the approach of US law, as well as the remedies provision in the UNCITRAL Model Law on Procurement.

 Case C-568/08.  Ibid, para 92.

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1 Damages for Breach of Public Procurement Law A French Perspective Nicolas Gabayet

I. Basis and Conditions for a Damages Claim

A.  Basis of Claim

T

he rules applying to damages for breach of EC public procurement law are the same as those applicable generally for the liability of public authorities before an administrative court. It could be considered as a ‘public tort law’, and probably best translated as public bodies’ extra-­ contractual liability (‘la responsabilité extra-contractuelle des personnes publiques’).1 This liability is not specific to breaches of public procurement procedure. The general liability rules apply broadly to all French administrative law. Thus, when a public body commits a fault that entails a wrong, any citizen harmed by the wrongful action can trigger the liability of the public authority, as far as the citizen can prove that a fault has been committed by the public body and that there is a causal link between the fault and the loss.2 As any illegality committed by a public body is considered a fault by French administrative courts, the extra-contractual liability of public bodies is likely to be sought in case of a breach of public procurement rules. As a consequence, I would like to thank Professor François Lichère, Sophie Boyron and Duncan Fairgrieve for their comments on a previous version of this text. 1  There is also a distinction between what is called ‘responsabilité pour faute’: liability in cases when a fault has been committed by public bodies, and ‘responsabilité sans faute à prouver’: public bodies can be held liable for an activity that entails a wrong, no matter if a fault has been committed or not. The claimant does not have to prove that a fault has been committed. ‘Responsabilité sans faute à prouver’ is not applicable to breach of public procurement rules. 2  See generally, D Fairgrieve, State Liability in Tort: A Comparative Law Study (Oxford, Oxford University Press, 2003).

8  Nicolas Gabayet the damages claim sought by the claimant is a remedy in tort, not in contract. Indeed, there is no doctrine of implied contract3 in French law. The impact of the EC remedies Directives on the award of damages for breach of public procurement procedures remains quite limited in France. The Council Directive 89/665 on Review Procedures, which was implemented in France by the Law of 4 January 1992, and entailed the creation of a new interim remedy in case of a breach of EC or French public procurement rules during the tendering period. As a consequence, a bidder can go before a single judge in the administrative court, and request a stay of the awarding procedure and the annulment of all unlawful decisions made so far. This remedy is called ‘référé précontractuel’. However, whereas the Council Directive 89/665 explicitly provided for the award of damages in this context, the French Parliament did not need to include this within the new procedure, since the remedy has existed in France for decades.4 This explains why the power to grant damages has not been included in the ‘référé précontractuel’. The Law of 7 May 2009 (N° 2009-515) implementing the Council Directive 2007/66/CE, introduces the new summary remedy of ‘référé contractuel’, which is actionable by an unsuccessful bidder after the contract has been made so as to request inter alia its annulment, but the new action does not provide for the award of damages. However, in the Tropic Travaux case,5 the Conseil d’Etat created a procedure empowering administrative judges to annul the tendering procedure or compensate the unsuccessful bidder for the loss caused by the unlawfulness of the tendering procedure. Therefore, an unsuccessful tenderer can claim for damages either through a standard damages claim or through a Tropic Travaux claim. B.  Pre-conditions of Successful Claim To be awarded damages, the claimant simply has to prove three things: a breach of a procurement provision during the tendering procedure, loss and a causal link between the two. There is nothing else – such as negligence, intention or breach of a duty of care – to prove. Thus, the conditions for claim in France are quite favourable to the claimant especially since any breach of the law (illegality) is deemed a fault under French administrative law.

3  Under the implied contracts theory, originated from the Blackpool and Flyde Aero Club case, when bidders have submitted an offer to a public body according to public procurement contracts procedures, the latter has a pre-contractual duty to fairly act toward the former. 4  CE, 19 February 1930, Société Est et Sud Piketty, Lebon p 196. 5  CE, Ass, 16 July 2007, Tropic travaux signalisation Guadeloupe, RFDA 2007, p 696, concl Casas.

Damages: A French Perspective  9

II.  Issues of Causation

A. Introduction When the awarding public authority has committed a fault in the tendering procedure, any unsuccessful bidder may be granted damages provided that he can prove the loss of a chance of being awarded the contract. However, the extent of the compensation depends on the probability of a successful outcome in the tender. Thus, when the bidder can only prove that ‘he would not have been devoid of a chance to win the contract’6 had the procedure been lawful, he will be compensated only for the loss of bid costs. If he can prove that he would have had a serious chance of winning the contract, the tenderer will be awarded compensation recovering the loss of potential profit. On the contrary, if the unsuccessful bidder is unable to prove, at the very least, that had the procedure been lawful, he ‘would not have been devoid of a chance of winning the contract’, then his claim for compensation will fail. These three solutions are now well established and the courts often state all three when an unsuccessful bidder claims compensation.7 B.  Compensation for the Loss of Bid Costs The unsuccessful tenderer can be compensated for the loss of bid costs when he can prove that he would not have been devoid of a chance of winning the contract. This possibility is quite favourable to the claimant. Indeed, the notion of ‘not having been devoid of a chance of winning the contract’ does not mean that had the tendering procedure been lawful, the bidder would have had a good chance of being awarded the contract. On the contrary, had the company been able to prove its serious chances of winning the contract, it would be entitled to claim for loss of profits in addition to bid costs. When the bidding company does not make such a claim, it knows that it did not have strong chances of being awarded the contract. Although the loss is then fairly indeterminate, the claimant will be awarded damages as long as there was more than a 0 per cent chance   ‘N’était pas dépourvu de toute chance de remporter le contrat’.  CE, 18 June 2003, Groupement d’entreprises solidaires ETPO Guadeloupe, Sté Biwater, Sté Aqua TP, AJDA 2003, p 1676; CE, 11 September 2006, Commune de Saran, req no 257545; CE, 29 December 2006, Sté Bertele SNC, req no 273783: When a tendering company claims compensation for the loss resulting from its unlawful eviction from the tendering procedure, it is up to the judge to check whether the company was devoid of any chance to win the contract or not; if the company was devoid of any chance, then it will not have any right to compensation; if the company was not devoid of any chance to win the contract, it should have a right to compensation for the bid costs; then the judge has to check if the company had a serious chance to be awarded the contract. Should it be so, the company has a right to compensation for the loss of profit, necessarily including the bid costs, which would then not to be compensated separately, unless it is otherwise provided by the contract. 6 7

10  Nicolas Gabayet of being awarded the contract. This solution may be regarded as a sanction for public authorities who have committed illegalities in the course of a tendering procedure. Still, it is also a fair solution for the tenderers whose bids were unsuccessful, because of the illegality committed by the awarding authority. C.  Compensation for Loss of Potential Profits The Conseil d’Etat started granting compensation for loss of profit resulting from a fault of the awarding authority in the tendering procedure in the Monti case, in which it was stated that: the quashed decision to evict the bidder from the tendering procedure . . . has deprived him of a serious chance to win the bid. He has therefore a right to compensation, calculated on the loss of profit actually observed and not on bid costs.8

i.  Compensation Based on a ‘Serious Chance’ or a ‘Very Serious Chance’ The case law seems to make a difference between a ‘serious chance’ and ‘very serious chance’ of winning the contract. Commentators have argued that this distinction has had an effect on the award of damages:9 in the case of a ‘very serious chance’, the claimant would be fully compensated for the loss of profit, whereas in the case of a simple ‘serious chance’, he would only be partly compensated of this loss.10 However, the distinction between ‘serious chance’ and ‘very serious chance’ does not make an actual difference on the quantum of damages. Indeed, in the Ville d’Amiens case, the Conseil d’Etat stated that ‘if the company had serious chances of winning the contract, it has a right to full compensation for the loss of profits’.11 It is then sufficient to prove a serious chance of winning the contract had the tendering procedure been lawful, to be fully compensated for the loss of profits. Reference by the courts to the ‘very serious chance’ criterion is actually pretty rare. ii.  When will a Claimant be Considered as Having Had a Serious Chance? Proof that a serious chance of winning the contract existed results in the claimant being entitled to be fully compensated for the loss of profits. Consequently, it is crucial to determine the circumstances in which the claimant is to be considered as having lost a serious chance. In order to establish whether a claimant had a serious chance of being awarded the contract, the French administrative judges use their inquisitorial power to gather and analyse clues, such as: ‘the  CE, 13 May 1970, Monti, req no 74601, Lebon p 322.  S Trocol, note sous CAA Douai, 21 May 2002, Sté Jean Behotas, AJDA 2003, p 232.  CE, 21 November 2001, SA Quillery, req no 218221: ‘due to the irregularities of the tendering procedure, the company has been deprived of a very serious chance to be awarded the contract and was then entitled to ask for the entire compensation of the loss profit’. 11  CE, 27 January 2006, Ville d’Amiens, CP-ACCP, March 2006, p 62, concl N Boulouis. 8 9

10

Damages: A French Perspective  11 skills and the guarantees of the bidder, the circumstances in which he has been evicted from the award of the contract, the number of bidders, and the differences of prices between the offers’.12 In so doing, judges basically analyse the bids in the manner of the awarding authority, albeit that this runs close to the judges second-guessing the awarding authority’s decision. An unsuccessful tenderer will be considered as having had a (very) serious chance to be awarded the contract when a bid other than his, which was unlawfully considered, went on to become the winning bid. Indeed, in the SA Quillery case, the Conseil d’Etat considered that a bidder for the award of a works contract whose offer had been rejected, had a very serious chance of winning the contract, provided that his offer was, according to its quality, in second position after the offer which had been irregularly accepted. The claimant then had a right to full compensation for his loss of profits.13 The financial criterion is often important in practice for French public procurement. Accordingly, the fact that an offer is the lowest one results in ‘a sort of presumption of a serious chance in [its] favour’.14 Indeed, the claimant had a serious chance of winning the contract in a case where the claimant’s bid was rejected even though it was the lowest.15 Moreover, an unsuccessful bidder will be considered as having had a serious chance when the successful bid should have been rejected and when only the claimant’s bid fulfilled the contract’s notice requirements and its price was the lowest.16 Similarly, an unsuccessful bidder will be regarded as having had a serious chance if out of four offers, one was incomplete, another had excessive delays and the winning bid was 17 per cent higher than the claimant’s.17 However, the assumption that the lowest bid should win is not always right. Indeed, notwithstanding the fact that his price was the lowest, an unsuccessful bidder may never have had a serious chance of winning the contract, eg when in addition to the price, the technical value has to be taken into account in the tendering procedure and the technical value of the offer was lower than the winning bid,18 or unsuitable because of the complexity of the planned building.19   I De Silva, concl sur CE, 21 November 2001, SA Quillery, p 5.  CE, 21 November 2001, SA Quillery, req no 218221. 14  F Lichère, ‘Damages for Violation of the EC Procurement Rules in France’ (2006) 4 Public Procurement Law Review 171–78. 15  CAA Bordeaux, 2 May 2006, Centre hospitalier d’Angoulême, req no 02BX01710, Contrats et marchés publics July 2006, p 25 ; CAA Bordeaux, 31 July 2003, Sté Bourbonnaise de travaux publics, req no 99BX02241, Contrats et marchés publics, October 2003, note F Olivier: in this case, the court considered that a bidder whose offer was not among the best regarding the technical criteria had a serious chance to be awarded the contract provided that its price was the lowest. 16  CAA Bordeaux, 10 February 2005, Sté Urbacco, req no 00BX02632. 17  Concl M Lasvignes sur CE, 27 September 1993, Commune des Mées c/ Sté SOMECO, p 6. 18  CE, 29 December 2006, Sté Bertele SNC, req no 273783: due to the weakness of the seats proposed by the Bertele company and due to the use of those seats by the public, the technical value of its offer was lower than the one of the wining company and, consequently, despite the fact that the offer was the lowest, it was not the most interesting. 12 13

 CE, 10 August 2005, Société d’entreprise de travaux publics de l’Ouest, no 259444.

19

12  Nicolas Gabayet iii.  Absence of Compensation It should be pointed out from the outset that both the compensation for loss of bid costs and the compensation for loss of profits are only possible when the tendering procedure has been advertised. If it has not, the potential tenderer obviously has not made any offer and then he has not incurred any bidding expenses.20 Likewise, it is impossible for a potential bidder to prove that he would have had a chance to be awarded the contract if he has never made any offer. If it appears that the bid was obviously unsuitable with regard to the criteria established by the awarding authority, then there is no right to compensation. For instance, the offer from an architect bidding to be awarded the architect’s contract for the Stade de France, who proposed the building of two stadiums whereas the contract notice mentioned only one, could not be successful.21 Similarly, the bidder whose tender documents did not include a particular certification required in the contract notice would never have gone on to win the contract and thus was not entitled to compensation for the bid costs.22 Even though contributory negligence of the unsuccessful bidder may lower the damages due by the tendering authority, there is no significant case law on this issue. III. Loss and Quantum

A.  Loss of Profits Damages for lost profits are calculated on the basis of net profit. Therefore, the claimant has to indicate precisely the amount of net profit he thinks he would have made if he had been awarded the contract.23 In order to prove the accuracy of the alleged net profit calculated, the unsuccessful bidder has to give the court the details of the calculation he has made and the documents he has used. However, judges often make a global analysis taking into account the economic situation of the particular market (eg whether there is a lot of competition in the market or not) and the benefits usually made by companies on the particular market.24 The percentage of profit accepted by 20  CAA Bordeaux, 6 December 2005, Communauté d’agglomération du grand Angoulême, req no 02BX01222. 21  Concl C Bergeal sur CE, 30 June 1999, Sarfati, no 193925: M. Sarfati had proposed the building of two stadiums. Although innovative, this project did not respond to the contract notice, planning the building of only one stadium . . . Then, the alleged loss is not certain.

 CAA Lyon, 15 March 2007, Sté OLGEMA, req no 05LY01807.  C Bréchon-Moulènes, Droit des marches publics, Le Moniteur, III. 631.3, p 14. 24   ‘In order to estimate the compensable net profit, you take into account a serie of factors, such as the usual net profit made by companies in this market and the amount of competition pressure’. I De Silva, concl sur CE, 21 November 2001, SA Quillery, p 6. 22 23

Damages: A French Perspective  13 administrative courts varies from 1.25 per cent25 to 35 per cent.26 The allocation of the latter rate remains isolated, though. In most cases, the allocation of percentage of profit as damages would be much lower (eg 1.6%27, 7%28 or 11.63%29). It is worth mentioning that the unsuccessful bidder can be compensated for the lost profit even though in the meantime, he has profited from other contracts which were signed and performed because the original bid was unsuccessful.30 Somehow, having lost a serious chance of winning a public contract, the claimant benefits from being awarded other contracts that he is free to perform. Indeed, as has been emphasised by Professor François Lichère, in such a case, the claimant is actually ‘paid twice for only one work done’.31 B.  Bid Costs The unsuccessful bidder who was not ‘devoid of a chance of winning the contract’ has to prove what the bid costs actually amounts to. Therefore, he has to furnish the court with documents establishing mainly how many people have worked on the bid and for how long.32 The calculation of the damages will then be made on the basis of the sums dedicated to the payment of the employees who have worked on the preparation of the bid. IV. Access to Court: Procedures and Remedies

A.  Relationship between Annulment Procedures and Damages Actions There is no compulsory link between annulment and damages in French law. In French administrative litigation,33 there are two main actions: on the one hand, the so-called ‘recours pour excès de pouvoir’, in which the claimant can only  CAA Bordeaux, 3 December 1991, Société Les travaux du midi.  CAA Lyon, 2 March 2003, Commune de Saint Galmier, no 01LY02331.  CE, 15 March 1968, Ministre de l’Industrie, RDP 1968.1124. 28  CE, 8 February 2010, Commune de La Rochelle, no 314075. 29  CAA Douai, 28 May 2003, Entreprise Delatttre, no 00DA00663. 30  CE, 27 January 2006, Commune d’Amiens, no 259374: ‘The fact that a company unlawfully evicted from the awarding of a contract makes a turnover on other markets has no incidence on the appraisal of the loss of profits resulting from the eviction.’ 31  Lichère, ‘Damages for Violation’, above n 14. 32   In the case CE, 1 July 2005, Sté Didactic, no 663672, it was held by the defendant that the claimant did not prove the amount of the bid costs in respect of which he claimed compensation, whereas the company had joined to its claim a table evaluating at €863, 93 the costs paid to participate in the awarding procedure (mainly due to the time spent by the employees in preparing the offer). The commissaire du gouvernement N Boulouis held in his conclusions (followed by the court) that he ‘could not see what other information might be required from the claimant’ and neither could he see ‘how the company would have been able to bring the proof of its bid costs unless making itself a document’ (N Boulouis concl sur CE, 1 July 2005, Sté Didactic, no 663672, p 3). 33   Contentieux administratif. 25 26 27

14  Nicolas Gabayet ask judges to annul an administrative decision34 and the so called ‘recours de plein contentieux’, which allows the court to award damages to the claimant. Among the recours de plein contentieux, it is worth mentioning the so called ‘recours Tropic travaux’, which enables the claimant to seek either for damages or for annulment of a contract. An unsuccessful bidder seeking to trigger the awarding authority’s extra-contractual liability goes to court and start a recours de plein contentieux. One must emphasise that with regard to the recours de plein contentieux, it is not necessary to seek the annulment of the administrative act to be granted damages. It is up to the claimant to seek either the annulment of the administrative act or damages.35 This is particularly true since the Tropic travaux case,36 in which, as mentioned above, the Conseil d’Etat created a new remedy for the benefit of unsuccessful tenderers; since, unsuccessful tenderers have had a choice: they can ask that a contract be annulled after it has been signed or that they be paid compensation for a loss of profits or a loss of bid costs because of the illegality committed during the awarding procedure. It is worth specifying that since the Tropic Travaux case, unsuccessful bidders can no longer introduce a recours pour excès de pouvoir against an acte detachable. They are required to use the Tropic travaux remedy. On the contrary, claimants who are not potential parties to the contract and who have not bid to be awarded the contract cannot make a Tropic travaux claim. They can only go before a court with a recours pour excès de pouvoir against an acte detachable. When the claimant wants to go to the court before the contract has been signed to seek the annulment of the tendering procedure, by means of the ‘référé précontractuel’,deriving from the implementation of the Council Directive 89/665 on Review Procedures, he cannot seek damages at the same time. He can only bring a claim for damages with a ‘recours de plein contentieux’. The implementation of the Directive 2007/66/EC by the Law of 7 May 2009,37 while creating the so-called ‘référé contractuel’ and empowering the judge to penalize the tendering authority in case of illegality, has had no effect on the issue of compensation for unsuccessful bidders. B.  Time Limits for Bringing Claims The time limit for the bringing of a damages claim by an unsuccessful tenderer against a public body is fairly extensive. Indeed, in French administrative law, 34  The recours pour excès de pouvoir is impossible against a contract. It is only actionable against a unilateral act of a public body aiming to the making of the contract and which can be intellectually considered as separable from the contract itself (‘un acte détachable du contrat’). Any claimant, provided he is not a party to the contract, can make a recours pour excès de pouvoir against an acte détachable du contrat. 35  Obviously, if the purpose of the claimant is only to have the administrative act annulled, the action is then a recours pour excès de pouvoir. 36  CE, Ass, 16 July 2007, Tropic travaux signalisation Guadeloupe, RFDA 2007, p 696, concl Casas. 37  Ordonnance no 2009-515 du 7 mai 2009, relative aux procédures de recours applicables aux contrats de la commande publique.

Damages: A French Perspective  15 according to Law of 31 December 1968,38 the only time limit is four years,39 starting on 1 January following the date on which the damage has come to the notice of the claimant.40 As a consequence, whenever an unsuccessful bidder becomes aware that the awarding authority has committed an illegality during the tendering procedure, he can go to court for damages within four years starting from the following 1 January. C.  Standing and Who Can Bring a Claim? In French administrative law, the only standing required for an actionable claim in damages against a public body is that the claimant’s interests has been harmed by the action of the public authority. Therefore, any unsuccessful tenderer who has suffered a loss due to an illegality in the awarding procedure can bring a claim. D.  Frequency of Claims The number of damages claims from unsuccessful tenderers evicted from an unlawful awarding procedure seems quite high in France. Indeed, between 2001 and 2010, there have been forty-two cases before the higher courts (Cours Administratives d’Appel and the Conseil d’Etat).41 The number of cases involving a damages claim made by an unsuccessful bidder is actually much higher. Indeed, the forty-two cases mentioned above do not take into account the judgments from the first instance administrative courts (Tribunaux Administratifs). Moreover, as only a quarter of the total amount of first instance judgments are appealed, one can estimate that the figure of forty-two is a long way from the actual figure for all damages claims concerned with the awarding procedure of a public contract. E.  Damages and Other Remedies The availability of damages does not affect the availability of injunctions or other similar remedies in French law.

 Art 1.   Prescription quadriennale. 40  CE, 11 July 2008, MJ, no 306140. 41  Four cases before the Conseil d’Etat and thirty-eight cases before the appeal courts. 38 39

16  Nicolas Gabayet G. Procedures In order to bring an actionable claim, the unsuccessful bidder must ask for compensation from the awarding authority for the loss suffered first. On refusal by the public authority, the claimant will then need to go to court within two months, to demand the annulment of the refusal of the public authority. There is a procedural requirement in French administrative law that claimants must question the legality of a public body’s decision. To put it another way, any action against a public body must challenge a decision from a public body, even if the action is a damages claim. Due to this procedural rule, there is no possibility for the unsuccessful tenderer to be compensated quickly for part of the damages. He always needs to submit a claim for compensation to the awarding authority prior to the action being introduced in court. Indeed, under article R. 541-1 of the Code de justice administrative, providing the ‘référé-provision’ procedure, the claimant can go before a single judge directly, ask him to recognise that the loss he has suffered is ‘not seriously debatable’ and to grant an interim payment.42 This interim payment has to stay within the limits of the ‘not seriously debatable part’ of the loss. It is worth noting that there is no need for a main damages claim before a court to make a référé-provision. Thus, the claimant can resort to a single référé-provision and/or a damages claim before an administrative court. In the Groupement d’entreprises solidaires ETPO Guadeloupe case, the Conseil d’Etat had to settle a référé-provision made by an unsuccessful bidder to be compensated for the loss of a serious chance of winning a work contract, after the public body had first awarded the company the contract and then changed its mind and organised a re-consideration of the bids. The Conseil d’Etat held that due to the fact that the company had first been awarded the contract and that the organisation of a re-consideration of the offers was unlawful, it was ‘not seriously questionable’ that the claimant had a serious chance of winning the contract. Therefore, under the référé-provision procedure, the company was compensated for the ‘not seriously debatable’ part of its loss of profits, which, in this case, was estimated to be €47,000.43 Conclusion

Both the rules to trigger the liability of the public authority and the way damages are calculated are very favourable in French law to unsuccessful bidders suing public authorities for a breach of the awarding procedure rules. Indeed, proving a fault is quite easy, since any illegality is considered a fault and proving 42   art R 541-1 CJA: ‘le juge des référés peut, même en l’absence d’une demande au fond, accorder une provision au créancier qui l’a saisi lorsque l’existence de l’obligation n’est pas sérieusement contestable’. 43  CE, 18 June 2003, Groupement d’entreprises solidaires ETPO Guadeloupe, Sté Biwater, Sté Aqua TP, no 249630, AJDA 2003, p 1676.

Damages: A French Perspective  17 harm is facilitated by the application of the ‘perte de chance’ (loss of chance) theory, enabling a claimant to be compensated for a hypothetical loss. Additionally, the courts do not take into account in the award of damages the fact that the claimant may have earned money from other contracts performed since the illegal awarding procedure. In practice, though, bidding companies – who are the usual major public authorities’ partners – might be cautious in launching legal proceedings against public authorities, for fear that litigation may ultimately be counter-productive.

2 Damages and EC Procurement Law German Perspectives Martin Burgi*

I.  Basis and Conditions for a Damages Claim

A. Introduction

T

raditionally, the German remedy mechanisms in public procurement law are classified in a two-staged system: the primary legal protection system, mainly dealing with questions of inquiry on the one hand (namely annulment of unlawful decisions), and a fully developed secondary legal remedies system concentrating on damages on the other. Whereas the primary legal protection of annulment or the setting aside of unlawful award decisions, achieves great attention and constitutes by far the most important review mechanism, the damages procedure in Germany has, on the contrary, had a somewhat low profile and lacked clarity despite its many and quite elaborate regulations. Not surprisingly, only few damages cases are brought to court.1 Nevertheless, due to the heterogeneous review systems in the European Member States, this area of law is receiving increasing attention since the European Commission tried to strengthen the national remedies systems by

* The author wishes to express his thanks to research assistant Frauke Koch for her valuable support in the preparation and publication of this paper. 1   In the year 2008, 1158 cases concerning the annulment were brought to court and just 227 complaints were filed to the OLG`s (Oberlandesgericht); exact numbers for the frequency of damages claims are not available though. The only data available regarding primary legal review procedures. Analysing the statistical report issued by the Federal Ministry of Economics (BMWi) about primary legal review procedures dealt with in front of the review chambers in the year 2009, 1,275 applications have been directed and about 1,200 of them have been completed, whereas 1,065 have been directed in 2010 (983 completed). The annual report can be looked at under www.bmwi.de/BMWi/ Navigation/Wirtschaft/Wirtschaftspolitik/oeffentliche-auftraege,did=191022.html (downloads). See European Business Panel, Monatsinfo 10/2004 des forum vergabe e.V., p 162; Byok, NJW [2010] 817.

20  Martin Burgi implementing the New Remedies Directive2 (amending the former Directives). Furthermore, German court rulings increasingly deal with damages claims in the public procurement sector.3 B.  Classification of a German Damages Claim i.  Three Different Types of Relief The German remedies system is equipped with three different ways of obtaining review. In accordance with the obligations deriving from the New Remedies Directive 2007/66/EC, each unlawful procurement procedure may be dealt with by means of either interlocutory relief or general inquiry (including the procedure of annulment and setting aside of decisions in breach with procurement law) or the procedure of damages. Irrespective of these three methods of gaining relief, other sanctions are possible (financial mechanisms sanctioning the breach of the standstill period). Bearing in mind that a bidder is nearly exclusively interested in obtaining the award, it is not surprising that the German damages system for procurement breaches – which still lacks clarity in some areas – has gained only limited attention in practice. Given the bidder´s entrepreneurial interest in the award, the pursuit for damages is often eclipsed. ii.  Character of the Law and Other Bases for Claim Following the prevailing academic opinion and existing court rulings, the damages regime in Germany is part of civil law, as public procurement law itself is categorised as civil law4 (above and below the thresholds).5 The domestic sources of law on damages for breach of EC procurement rules are quite numerous and yet most provisions enabling a bidder to seek damages do not arise from a genuine public procurement basis. In fact, the only regulation specifically addressing damages in the public procurement area is § 126 Act against the Restraints of Competition (GWB). Other, and sometimes even more relevant or advantageous bases for claims are of a tort law character;6 or of contractual nature, such as the quasi-contractual claim arising from the rules on the 2   Council Dir (EC) 2007/66 amending Council Directives (EEC) 89/665 and 92/13 with regard to improving the effectiveness of review procedures concerning the award of public contracts [2007] OJ L335/31. 3  Taking into account that the German Civil Court itself dealt with two important cases relating to a damages claim, one can draw the conclusion, that damages claims (BGH WRP [2006] 1531; BGH WRP [2008] 370) in Germany are of increasing importance, Alexander, WRP [2009] 28. 4   Pietzcker, (2007) 8 German Law Journal 185, 186. 5  It should be noted, that the classification of public procurement law as an area governed by private law (though also bound by some public law rules) is the result of a very long and controversial discussion in German literature and jurisdiction. 6  Such as §§ 823 I, II, 826 German Civil Code [BGB]

Damages: German Perspectives  21 ‘liability due to the Breach of Duty prior to contract’, widely known as the principle of culpa in contrahendo (cic). The claim would be of tort law character, if the public authority is withholding important information, if negotiations are made without the intention of awarding a contract or if the public entity has raised expectations about the prolongation of an award procedure and disappoints the bidder later on.7 A different ground for a claim is part of cartel law,8 whereas another basis for legal action is the general rule on the Liability of public authorities.9 However, the provisions mentioned in the previous sentences remain of rather minor importance. C.  Compliance with EU Law EU law (especially the procurement Directives)10 has had a significant impact on the existing national rules in the public procurement sector. European rules, such as the principles of non-discrimination, equal treatment, fair competition and transparency remain the most important fundamental rules in public procurement law. Furthermore, the principles of equivalence11 and effectiveness (effet utile) are still valid and affect central issues of the secondary legal remedies procedure. In the absence of European rules governing the matter, then due to the doctrine of procedural autonomy, it is up to the national legislator to fix the conditions necessary for successful and effective relief. Article 2(1) of the New Remedies Directive encompasses the obligation that each Member State is supposed to establish both a primary12 and a secondary legal remedies system.13 However, guidance as to how (exactly) the legal system should be established cannot be extracted from the Directive. A margin of manoeuvre is left to each Member State in this regard.14 Nevertheless, the principles of effectiveness and

  Wagner, [2009] NZBau 437.   §§ 20, 33 GWB 9  Art 34 Basic Law [GG], § 839 BGB. 10   Council Dir (EC) 2004/18 on the coordination of procedures for the award of public work contracts, public supply contracts and public service contracts [2004] OJ L134/14; Council Dir (EC) 2004/17 on procurement procedures of entities operating in the water, energy, transport and postal services sectors [2004] OJ L134/1; Council Dir (EC) 2007/66 [2007] OJ L335/31 and the Council Dir (EEC) 89/665 on the coordination of the laws, regulations and administrative provisions relating to the application of review procedures to the award of public supply and public work contracts [1989] OJ L395/33; Council Dir (EEC) 92/13 coordinating the laws, regulations and administrative provisions relating to the application of Community rules on the procurement procedures of entities operating in the water, energy, transport and telecommunications sectors [1992] OJ L76/14. 11   Meaning that domestic rules on damages should not be less favourable than those governing similar domestic actions : Case C-453/99 Courage Ltd v Crehan [2001] ECR I-6297. 12  See Art 2(1)(a). 13  See Art 2(1)(b). 14  Egger, Europäisches Vergaberecht (2008), § 126 GWB fn 1569. 7 8

22  Martin Burgi equivalence15 are still to be followed. Consequently, the established domestic review mechanisms enabling a rejected bidder to claim for compensation should be available ‘at least to any person having or having had an interest in obtaining a particular contract and who has been or risks being harmed by an alleged infringement’.16 In accordance with the prerequisite of availability, the demands of effectiveness and rapidity must be met by the national legislator as well.17 Furthermore, the compensation criteria set up should not be too demanding and restrictive; being awarded compensation should be possible in practice for each bidder challenging an award and should not be considered a theoretical possibility. The compensation paid due to the misbehaviour of the contracting entity should be adequate. The quite elaborate secondary remedies system and its conditions for a damages claim are (or have been) subject to controversial discussions pertaining to their conformity with European Law. The following issues are potentially affected by the European demand for effectiveness: the interpretation of the word ‘genuine’; the question whether § 126 GWB requires fault; the demand of notification prior to the bringing of a damages claim (subsidiarity of secondary legal relief); the recoverability of lost profits or the amount of damages granted for the infringement. These issues and related questions are dealt with subsequently. On the whole, however, it can be stated that German procurement provisions are commonly regarded as compatible with EU law. As far as § 126 GWB is concerned, the compatibility with European Law is a consequence of its similarity to Directive 2007/66/EC (‘genuine chance’).18 For this reason, the implementation of the New Remedies Directive 2007/66/EC has not, until now, triggered off the need for reform. D.  § 126 GWB i.  General Information The provision of § 126 GWB, the only one specific to public procurement law in the German damages system, constitutes an independent basis for a damages claim.19 Other claims, stemming from the principle of culpa in contrahendo or claims based upon tort,20 remain unaffected.21 Giving introductory information about § 126 GWB, it should be noted that this paragraph is of a twofold char­acter: on the one hand, § 126 GWB tends to protect each injured bidder by granting 15  Case Brasserie du Pêcheur v Germany [1996] ECR I-1029; case C-453/99 Courage Ltd v Crehan [2001] ECR I-6297. 16   Council Dir (EC) 2007/66 OJ L335/33. 17  Egger, Europäisches Vergaberecht, § 126 GWB, fn 1573. 18  Willenbruch/Bischoff, Kompaktkommentar Vergaberecht (2008), § 126 GWB fn 1. 19  Horn, Public Procurement in Germany (2001), p 60; Prieß/Niestedt, Rechtsschutz im Vergaberecht (2006) p 164. 20  Alexander, WRP [2009] 29; Immenga/Mestmaecker, Wettbewerbsrecht (2007), § 126 GWB, fn 2. 21   § 126 S.2 GWB.

Damages: German Perspectives  23 subjective rights. The public entity´s infringement of procurement rules is supposed to be sanctioned by virtue of this provision (sanctioning character). On the other hand, public authorities awarding contracts are meant to be motivated to act in accordance with procurement law unless they do not want to pay huge sums in compensation to all claiming parties (preventive and incentive character). A claim based on this provision is open to any company which proves that it lost a ‘genuine chance’ due to the violation of procurement rules. Summing up, the bidder (claimant) may claim for compensation for the infringement committed by the public contracting entity (defendant). In contrast to other regulations, recovery is made for the loss of a chance and not just in case of an easily quantifiable loss. ii. Requirements (Conditions) As already stated above, a variety of uncertainties and disputes about requirements, scope and legal consequences of § 126 GWB still remain – albeit § 126 GWB has been subject to broad and intense discussions in German literature and jurisdiction over the past few years. This is one of the main reasons which helps to explain the bidders´ reluctance in seeking damages. Most of them favour other forms of corrective review (such as annulment). a. Awards above the Thresholds It is undisputed that § 126 GWB is applicable only in the case of pan-European contract awards. The public contracting entity22 calling for tender has to meet the requirements of § 99 GWB (public contract). The amount of the contract has to exceed or at least reach the relevant thresholds laid down in § 2 VgV (Public Procurement Regulation) GWB. As follows from §§ 100 I, 127 GWB, a damages claim cannot be based on § 126 GWB below the thresholds amount. Consequently, the aggrieved company is left with claims arising from the principle of culpa in contrahendo or deriving from other areas of the law (tort law, fair trade law). b.  Participation in an Award Procedure It is commonly accepted in German law that compensation cannot be refused simply because the disadvantaged bidder has not participated in an award procedure. Even without having participated in the tender, a bidder may have lost a ‘genuine chance’. He is thus entitled to fair compensation for the work done and the preparations made (preparations costs) for taking part in the tender.23 As long as the bidder incurred costs and suffered a loss (even loss of a chance) which is in a causal relationship to the award, he or she is entitled to compensation.   § 98 GWB.  Arztmann, Schadensersatz im Vergaberecht (2005), pp 95, 96; Prieß/Niestedt, Rechtsschutz im Vergaberecht (2006), p 166. 22 23

24  Martin Burgi Otherwise, his chances of obtaining review and getting compensated for the alleged infringement would be too limited. c. Infringement of a ‘Protective Law’ A successful claim based on § 126 S.1 GWB also requires the violation of a public procurement provision intended to protect the bidder. Regulations based on § 127 GWB, which concerns the contracting rules for awarding public service contracts, public work contracts, contracts for professional services24 and the Public Procurement Regulation (Vergabeverordnung) are considered to grant subjective rights.25 If the contracting authority infringed a different provision, then the protective character of the provision in question has to be proven. It should be noted that regulations, which help to guarantee a transparent, non-discriminatory and competitive procedure or ensure the equality of chances within an award pro­ cedure, are put into the category of ‘intended to protect the bidder’ in case the European threshholds are reached. d. Genuine Chance By far the most contested and complicated requirement of a damages claim pursuant to § 126 S.1 GWB is the requisite of the so-called ‘genuine chance’. The claimant has to provide sufficient proof of his ‘genuine’ chance of being awarded the public contract, which means that it is not – contrary to other claims – necessary to give proof that he or she would have definitely received the award without the violation. Consequently, a large number of bidders can potentially initiate a damages claim based on § 126 GWB. Therefore, many commentators have advocated reducing its relatively wide and generous scope by sharpening the notion ‘genuine chance’. However, any restriction of this notion runs the risk of being challenged for breach of the European principles of equivalence and effectiveness.26 It should also be noted that the notion of a genuine chance is not solely based upon the lowest bid (in financial terms). Other aspects and advantages of the tender (such as the fulfilment of secondary considerations, quality of the product or the quality of the used materials) may come into play as well. Even the bidder who is not able to offer the lowest bid, but whose bid fulfils other aspects, may have good chances to win the award. Therefore he might as well be considered of having a ‘genuine chance’. e. Impairment of the Chances(s) Due to the misconduct, the bidder must have been wrongfully deprived of the ‘genuine chance’. This means that the infringement must have directly led to an   VOL/A, VOL/B,VOF.  Willenbruch/Bischoff, Kompaktkommentar Vergaberecht (2008), § 126 GWB, fns 7–12. 26  See below. 24 25

Damages: German Perspectives  25 impairment of the chances (based upon the causal test of conditio sine qua non). Take an example: Suppose it can be shown that if the contracting authority had informed all bidders in the same way about relevant aspects of the tender, then the rejected bidder would have also been able to modify his bid to the changed situation. In such a case, a bidder will be entitled to compensation if he or she can show that if he had modified his bid, then his chances to win the contract would have been (much) better. In accordance with other typical damages claims (eg tort law), the claimant is supposed to prove infringement, genuine chance and impairment. Thus, the burden of proof remains on the bidder’s side. f. Fault? Debate remains around the role of fault, and whether the action capable of causing damage must have been culpable. Contrary to the wording of § 126 S.1 GWB, some legal experts27 declare that this provision lays down a precondition of culpable infringement, because a typical German damages claim traditionally involves the showing of fault and the same set of rules is to be applied to a damages action in public procurement law. Otherwise, sanctions could not be pertinent, it would not be legitimate to hold the public authority to account. However, in view of European law principles, it should not be mandatory to prove fault as a precondition of a successful damages claim on the basis of § 126 GWB. Otherwise, the conditions for initiating a damages claim would be much too restricted, and the exercise of the bidder’s rights conferred by § 126 GWB would be rendered extremely difficult, if not to say practically impossible. This consequence runs the risk of infringing the rulings of the European Court of Justice28 and its requirement of an effective remedial system available for everybody with any interest in seeking review.29 If § 126 GWB required fault to be proven, then an obstacle difficult to surmount would be established to diagnose a breach of EU law. Most national courts do not postulate fault. The relevant German court rulings to date, including a decision of the BGH,30 follow the prevailing view that fault is not required – a culpable contract-award error on the side of the contracting entity is thus not mandatory. The court´s conclusion was primarily based on the textual wording of the provision in question.31 The BGH bolsters 27  Byok/Jaeger/Gronstedt, Kommentar zum Vergaberecht (2005), fn 1301; Immenga/Mestmäcker, Wettbewerbsrecht (2007), § 126 GWB, fn 9; Jebens, [1999] DB 1741, 1743. 28  The European Court of Justice stated that each provision restricting the chances of claimants seeking compensation too much, is to be presumed incompatible with EC law; Egger, Europäisches Vergaberecht (2008), fns 1592–93. 29  See Council Dir (EC) 2007/66 OJ L 335/31. 30   BGH, judgment of 27/11/2007- X ZR 18/07, [2008] WM 494ff. 31  The Court states that the wording of § 126 GWB does not demand fault or a culpable infringement (in contrast to other norms, such as § 125 II No.1 GWB), see: BGH, judgment of 27/11/2007- X ZR 18/07.

26  Martin Burgi this point of view by pointing out that other provisions enabling the claimant to seek monetary compensation explicitly demand fault. Following the court´s argumentation a contrario a typical German damages claim requires fault only in case of an explicit requirement of the regulation. A claim arising from §126 GWB lacks such a specific criterion. Moreover, the draft bill of § 126 S.1 GWB does not contain any hints regarding the necessity of fault. g.  Contributory Negligence Some additional questions are also relevant in terms of a successful claim in damages: does the right to claim for compensation necessitate a procedure of annulment in advance of a damages claim? Must the bidder try to prevent the (impending) violation? And if so, is there an obligation to object within a certain time period? Following the majority opinion on this matter, a challenge (or notification) in advance of the claim is not mandatory,32 as such an obligation would simply impair the bidder´s rights to initiate a claim. Moreover, access to the legal review mechanism of compensation would be too difficult to obtain, thereby contrary to the principle of effectiveness. As a challenge prior to the claim is not obligatory, claims are not ruled out just because a challenge (interim relief or other possibilities of primary legal protection) has not been initiated. Notwithstanding this approach, the failure to challenge the decision does have an impact on the claim. In case of evident infringements, the tenderer is expected to act. It is his duty to criticise the public entity’s behaviour and try to remedy the violation as soon as possible, provided a realistic chance of remedy does exist. The omission to launch a feasible and reasonable challenge raises the question of contributory negligence. This issue is the subject of animated doctrinal discussion. Some commentators in German legal literature are convinced that contributory fault on the side of the bidder simply affects the quantum of compensation.33 Others argue that the bidder does (or should) not get any damages at all.34 However, in our view, the fact the injured competitor did not notify the public contractor of the infringement or that he did not try to challenge the violation should not rule out the whole claim, as this consequence would render the criteria for seeking review too difficult. Public procurement provisions tend to protect the bidder. Therefore, the claimant should be allowed to turn to the German review body even if he is confronted with the charge of actual (contributory) fault. He should not be obliged to invest money in a (possibly) long and futile review procedure. The reduction of the amount of damages assigned to him in the end is consistent and fair, though.35  Niebuhr/Kulartz/Kus/Portz, Kommentar zum Vergaberecht (2000), § 126 GWB, fns 46–50.  Irmer, Sekundärrechtsschutz und Schadensersatz im Vergaberecht (2004), p 283. 34  In case the bidder is mostly responsibl, see Irmer, Sekundärrechtsschutz und Schadensersatz im Vergaberecht, p 283 35   BGH, ZfBR 1988, 182; OLG Düsseldorf, VergabeR 2003, 704. 32 33

Damages: German Perspectives  27 iii.  Loss and Quantum a. Recoverability The disappointed bidder who has initiated an admissible and justifiable damages claim pursuant to § 126 GWB, is awarded compensation which may cover tender costs or the costs incurred for the preparation of the tender and the preparation in an award procedure. Although the wording of § 126 S.1 GWB suggests a different interpretation,36 it is possible to argue that a claim may be brought for both tender costs in combination with preparation and participation costs.37 b. Assessment of Damages In granting of compensation, two distinct problems can arise: the first relates to the actual recoverability of the experienced loss. The other query concerns the assessment of damages. These questions are dealt with below. E. Other Important Basis of Claim i.  Culpa In Contrahendo (cic) As § 126 S. 2 GWB clearly stipulates, other claims remain unaffected. Therefore, the well-known principle of culpa in contrahendo38 serves as an additional and supplementary basis for a claim. As this doctrine is applicable even below the relevant thresholds,39 it follows that culpa in contrahendo provides an additional basis of claim for large contracts covered by the EC regulations (above the thresholds). In the German damages system, most procurement claims are based on the principle of culpa in contrahendo40 Comparing this basis of claim to the one deriving from § 126 GWB, the scope of application is considered to be narrower, as its conditions are more restrictive given the requirement of fault. Nevertheless, the rules concerning standing appear more advantageous: each person with an interest in the contract is entitled to claim (not only the bidder). The claim can be directed against each purchasing body which has failed to abide by the EU procurement rules, be it private or public.41

 In particular, the usage of the term ‘or’.  Immenga/Mestmäcker, Wettbewerbsrecht (2007), §126 GWB fn 11. 38  Laid down in the combination of provisions (§§ 280 I, 241 II, 311 II German civil code [BGB]), 39  Willenbruch/Bischoff, Kompaktkommentar Vergaberecht (2008), § 126 GWB, fn 31. 40  Immenga/Mestmäcker, Wettbewerbsrecht (2007), § 126 GWB, fn 3. 41  Willenbruch/Bischoff, Kompaktkommentar Vergaberecht (2008), § 126 GWB, fns 32–33; BGH, judgment of 27/11/2007- X ZR 18/07, [2008] WM 494ff; BGH, judgment of 27/6/2007, X ZR 34/04, [2007] NZBau 727 ff. 36 37

28  Martin Burgi a.  Conditions of a Claim based on culpa in contrahendo 1. Confidential Relationship The most important prerequisite of a claim arising from the principle of culpa in contrahendo is that of a confidential relationship between the tenderer on the one hand and the public contracting entity on the other hand. Due to the participation in the award procedure (or simply preparations after the call for tender, a quasi-contractual relationship is thus established between the two potential contractors. The submission of the tender is not considered an obligatory condition for the creation of this special relationship of trust. The bond between enterprise and public entity is characterised by multiple duties of care, implying obligations of notification, negotiation, trust or the duty to reveal all relevant information regarding the contract in general or the execution of the latter. Furthermore, the principles of fair dealing (in the sense that legitimate trust should not be disapponted) and equal treatment42 supplement the contents of the obligations evolving from the ‘duty of care’. The bidder relies on the fact that the contracting entity is acting in accordance with procurement provisions.43 If this is not the case, the bidder may assert his claim for compensation before the ordinary courts. 2.  Culpable Infringement of the Aforementioned Duties Contrary to the claim specific to procurement law, the claim grounded in culpa in contrahendo requires proof of fault (culpable infringement). The breach of the confidential relationship must be culpable. According to § 276 BGB, culpable infringement is made out in case of intentional or negligent action. Take the following example: where a public authority has failed to inform a bidder of a changed situation and has treated another bidder preferentially, fault will be held to have been demonstrated on the part of the contracting entity. 3.  Exculpation and Contributory Negligence The public authority is free to give proof of the fact that the claimant bidder would have suffered the loss even without the infringement, namely if the public contractor had acted lawfully (in accordance with procurement provisions). As a consequence, the bidder´s claim is ruled out in such a case due to the concept of lawful conduct (rechtmäßiges Alternativverhalten). The public authority must show that the bidder would have really acted differently (lawfully) in the respective situation.44 Furthermore, in case of contributory negligence of the bidder, the claim for compensation will succeed only partly: the quantum of compensation will be reduced.45

 In the sense that no arbitrary decisions are to be made.  OLG Naumburg, judgment of 26/10/2004, [2005] ZfBR 210. 44  Kulartz/Kus/Portz, Kommentar zum GWB- Vergaberecht (2006), § 126 GWB fn 64. 45  This means that if a bidder acts in breach of procurement law himself, he acts in bad faith if he initiates a claim against the contracting entity. 42 43

Damages: German Perspectives  29 b. Legal Consequences: Heads of Loss Recoverable If a damages claim on the basis of culpa in contrahendo is successful, then a bidder will be granted compensation. The principle of reparation is that the bidder should then be put into the financial position he would be in, if the breach would not have happened.46 The damage covers not only the so-called negative interest (loss incurred by relying on the validity of declaration) but also the positive interest (lost profits, interest in the performance of the contract).47 More detailed information about the heads of loss recoverable and the assessment of damages are found below. ii. Tort Law a.  § 823 I BGB Damages claims in German Public Procurement Law may also be based upon other heads of legal action deriving from tort law. However, tort law claims are very rare in frequency as the many conditions are simply very difficult to prove. Culpa in contrahendo is not seen as tort law in Germany because of its precontractual character. Due to this character, similarities between contractual claims and the claim arising from culpa in contrahendo are more evident than similarities with tort law. Probably the most important and popular basis for damages in Germany is § 823 BGB (in general). A bidder seeking compensation based on the provision of § 823 I BGB can only assert a claim where there has been ‘a culpable inter­ ference in the business enterprise in exercise’. In light of the violation of procurement law, the defendant procuring authority must have committed an unlawful interference in the business enterprise (of the claimant) by impairing the business of the enterprise. According to § 823 I BGB, it must be shown that the public authority has directed its interference specifically and intentionally (or at least negligently) against the enterprise itself. As already mentioned above, cases referring to this rule are sparse, because such an infringement is very difficult to prove and in most cases, the interest and the intention to interfere cannot be observed on the side of the contracting body. In fact, a claim based on § 823 I BGB seems possible only in one scenario: where the bidder is intentionally excluded from the award procedure.48 b.  § 823 II BGB Another claim with an origin in tort law is based on the provision of § 823 II in conjunction with a protective law norm. A successful damages claim requires 46  Kulartz/Kus/Portz, Kommentar zum GWB- Vergaberecht (2006), § 126 fn 55, Wagner, [2005] NZBau 438. 47  Prieß/Niestedt, Rechtsschutz im Vergaberecht (2006), p 173. 48  Willenbruch/Bischoff, Kompaktkommentar Vergaberecht (2008), § 126 GWB, fn 68.

30  Martin Burgi proof of the infringement of a rule considered a protective law, and therefore intended to protect the tenderer. For the time being, it is not certain which German procurement provisions are recognised as such (and to what extent they are recognised as such). As the courts’ decisions state, compensation arising from § 823 II BGB in conjunction with a public procurement norm is possible if procurement provisions themselves are not sufficient to remedy the infringement. Therefore, the principle of subsidiarity has to be kept in mind when referring to a damages claim based on § 823 II BGB. In consequence, a bidder’s claim on § 823 II BG is ruled out the moment a procurement provision such as § 126 GWB guarantees adequate relief. Supposing the prerequisites of § 126 GWB are not fully given or § 126 GWB is not even applicable, a claim rooted in § 823 II BGB appears advantageous. c. 826 BGB By virtue of § 826 BGB, a tenderer is entitled to obtain reparation via a com­ pensation claim only in case of an intentional infringement contravening public policy. This concept is complicated to handle as it raises the preliminary question of when such an infringement might be given. Given its comprehensive requirements, a claim on § 826 BGB can hardly ever be proven. Complaints are sometimes successful in case of bribery, corruption or in cases of manipulation.49 iii.  Competition Law: Cartels Though not quite as important and relevant as the provision of § 126 GWB or legal action due to the principle of culpa in contrahendo, some remarks on cartel law claims are essential so as to give a complete overview of the statutory bases for damages in procurement law. A complaint based upon cartel law follows from §§ 20, 33 GWB.50 In the event that the public authority holds a relatively strong or even a dominant position in a certain market and violates § 20 GWB intentionally or negligently, § 33 GWB in conjunction with § 20 GWB may be used to gain compensation. Furthermore, discriminate treatment is forbidden as well, unless the public authority is able to present an objective justification. Provided that these conditions are fulfilled, the aggrieved bidder is entitled to file a claim for damages on the basis of § 33 GWB. Showing domination in the relevant market is, however, very difficult. This is the main reason for the fact that claims arising from cartel law are very rare. The main sectors where the dominance is considered to occur are that of the military or defence sectors.

  ibid, fn 76.   BGH, judgment of 22/10/2008, 27 U 2/08, [2009] ZfBR 404ff.

49 50

Damages: German Perspectives  31

II. Issues of Causation

A.  Relevant Test Although some remarks have already been made on this topic, within the context of the individual claims, the following section will provide some additional details about issues of causation. As far as the relevant test of causation is concerned, the following question should be raised prior to the assessment of damages: would the damage have occurred in the absence of the breach of procurement provisions? This question involves the court in second-guessing the public authority’s decision. Due to the lack of closer information about the public contractor’s decision, the courts have established a system implementing the relaxation of evidential standards (Beweiserleichterung). According to this, the defendant (the public contracting entity), is supposed to co-operate with the court. In such a manner, if the defendant gives away all relevant information, especially the evaluation criteria as well as their weighting, the court can follow and reconstruct the authority´s decision and the weighting of the criteria and it can assess whether the claimant would have had a chance. B. Loss of Chance In cases of § 126 GWB, the claimant has to prove that the loss of the ‘genuine chance’ of being granted the award, would not have happened without the infringement of procurement law. Therefore, issues of causation are dealt with by means of the conditio sine qua non formula (known as the ‘but-for’ test in English law). The tenderer does not have to bring forward each and every possible proof concerning the causal relationship between the infringement and the impairment of his (genuine) chance, because otherwise the exercise of his rights would be rendered practically impossible or excessively difficult. The possibil­ ities of being granted compensation would be far too restricted. Nevertheless, the evidence provided should be credible enough to prove the loss of the chance. As regards the type of ‘chance’ which must be shown in order to file a damages claim, the following information aims to give a brief overview of the many interpretations (regarding the term ‘genuine chance’) of this notion . Some authors51 have argued that § 126 S.1 requires the bidder to belong to the shortlist, because only in that case can a real chance of winning the contract be presumed. Other legal experts postulate the submission of an acceptable bid fulfilling all formal requirements,52 which means that the tender should be complete, qualified and  Schnorbus, [1999] BauR 77, 93.  Niebuhr/Kulartz/Kus/Portz, Kommentar zum Vergaberecht (2000), § 126 GWB, fn 19 giving further references. 51 52

32  Martin Burgi adequate. According to a different viewpoint, a genuine chance will be found if the bidder would have received the award with the utmost probability.53 Of course, the bidder with the lowest bid is considered to have the best chance: it is highly likely, though not absolutely certain, that he would have gained the award.54 Following one final interpretation, possibly the most severe opinion expressed, the bidder should be part of the top group (e.g. best 5-10 bidders). Despite the academic discussion, it is common conception that it is not necessary that the claimant is to be considered the best of all participants. Giving such an interpretation, the possibilities of seeking review would be far too restricted and therefore in breach of EC rules. On the other hand and in conformity with national court rulings,55 the tender of the complainant should not rank so low among all the other offers that he would definitely have been excluded. Note also that according to European and German law, a bid has to be obligatorily excluded due to certain reasons, such as where the bidder acted in breach of criminal law or does not fulfil obligatory formal requirements. If the claimant could have been chosen as the bidder most economically advantageous because such an decision lies in the discretion of the awarding body, then he or she is considered to have a ‘genuine chance’.56 As far as the amount of compensation is concerned, presumptions can be applied to assist the claimant. The calculation of the degree of the chance has an impact on the amount of damages awarded. Nevertheless, the exact degree of the lost (genuine) chance is not considered of great importance. In Germany, the calculation is made with the help of § 287 ZPO (Code of Civil Procedure) which means that the amount of damages is subject to an estimation.57 Contrary to other countries, a recovery sum of 60 per cent of the estimated profits does not necessarily mean that the tenderer has lost a chance of 60 per cent. C.  Loss and Quantum: Recoverability At the same time, some difficulties have been encountered as regards the recoverability of lost profits (positive interest). Most legal experts do not approve of the award compensation for lost profits under § 126 GWB. Following their argumentation, § 126 GWB constitutes an independent basis of claim intending to sanction the public entity’s infringement leading to a loss of chances. They argue that the text of the provision indicates that recovery is possible solely and explicitly for expenditure relating to the preparation of tender and the partici OLG Thüringen, judgment of 8/12/2008- 9 U 431/08.   BGH, judgment of 1/8/2006-X ZR 146/03. 55   BGH, judgment of 27/11/2007- X ZR 18/07. 56  Immenga/Mestmäcker, Wettbewerbsrecht (2007), § 126 GWB, fn 13; Willenbruch/Bischoff, Kompaktkommentar Vergaberecht (2008), fn 17. 57  There are quite a lot of factors playing a role (business chances, what is purchased, which norm has been infringed). 53 54

Damages: German Perspectives  33 pation in an award procedure. § 126 GWB is not meant to compensate the rejected bidder for each and every loss.58 Whilst compensation for the performance of the contract is not available under § 126 GWB, other grounds for claims, however, remain unaffected. Accordingly, similar claims which do cover lost profits are still possible alongside a claim based upon § 126 GWB, so that the award of damages for lost profits on the basis of § 126 GWB is not strictly required. Other opinions may be expressed on this point, particularly in view of the Community law principle of effectiveness. As has already been noted, the Member States are obliged to establish an effective review system,59 and this involves a duty to grant adequate compensation, so that the amount of damages should not be too low.60 Therefore, some legal experts endorse the recoverability of lost profits as well. Another important question relating to the German damages regime is the recoverability of future business opportunities (anticipatory profits). A general rule whereby contracts won in the past always count in favour of the picked bidder, is not known in German procurement law.61 This problem is closely linked to suitability criteria, namely the ‘qualification’ of the bidder taking into account his experience in comparable contract awards. The recoverability of anticipatory profits is (currently) not of great practical importance, given that the wording of § 126 GWB is clear. Most unsuccessful bidders are mainly interested in winning the contract and not in seeking compensation for lost future business chances as well. D.  Assessment of Damages: Bid costs Bearing in mind that the courts are invariably given little information about the claimant enterprise or its profit margins, the calculation of the quantum of damages can be a difficult issue. But as § 126 GWB is not designed to provide compensation for lost profits62 and the quantification of the tender costs is relatively easy, this question is not quite as problematic in the context of § 126 GWB as it is in case of a claim arising from culpa in contrahendo (which allows for   § 126 S.2 serves as reinforcement of this assumption.  See Art 2 I Council Dir (EC) 2007/66 OJ L 335/31. 60  Egger, Europäisches Vergaberecht (2008), fns 1603–04. 61  The fact that the rejected bidder made business with someone else instead of implementing the public contract does not necessarily jeopardise his chance to obtain damages, as the misconduct of the public entity is the main reason for the right of seeking damages being assessed. If it were not for the error of the public entity, the bidder would have made profit (another contract). The misconduct of the entity is to be sanctioned and irrespective of the bidder´s chances in other procurement procedures. Following other opinions though, the amount of damages is affected due to the bidder´s duty to minimise damages (§254 BGB), see Egger, Europäisches Vergaberecht (2008), fn 1582; Immenga/ Mestmäcker, Wettbewerbsrecht (2007), § 126 GWB, fn 10. 62  See the clear wording of § 126 GWB. 58 59

34  Martin Burgi compensation even in the sense of positive interest). If difficulties remain, for example because documentary evidence is missing, the courts are entitled resort to an estimate of the amount of damages,63 looking to the reasonable tender costs (in a comparable award procedure). The judge decides which costs are reasonable and typical for a certain kind of contract. The range of the damages awarded by the judges is dependent on the facts of the individual case and based upon detailed information about the enterprise, the importance of the contract, the annual company accounts or its normal profits.64 It is worthy of note that, in respect of bid costs, the percentage of the chance wasted does in no way affect the assessment of damages. Therefore, the claiming bidder receives compensation irrespective of the degree of his chances of winning the contract. A reduction of the quantum of compensation for the alleged violation of procurement law is – for reasons listed above – legitimate only in case of contributory negligence. E.  Calculation and Burden of Proof Some short explanatory remarks on the burden of proof are required here. The onus is traditionally placed upon the claimant. If the aggrieved entrepreneur is seeking monetary compensation, then he has to provide sufficient proof.65 Consequently, the bidder has to verify that he has lost unlawfully and that procurement provisions have indeed been violated. F.  Causation and Recoverable Heads of Loss: culpa in contrahendo i. Causation Following § 126 GWB, and as laid down in all the relevant court rulings, a successful claim arising from the principle of culpa in contrahendo requires proof of a causal relationship between the infringement of the confidential duties and the loss suffered. The infringement must thus lead directly to the loss (conditio sine qua non). The loss itself can be a consequence of an infringement at the beginning of the award procedure, such as the public contractor violating his notification duties. If notification duties are infringed and bidders do not apply, the loss consists in the loss of a chance; if they take part in an award and an error happens, their loss will be the bid costs and the preparatory costs not only   §287 ZPO.  OLG Naumburg, judgment of 26/10/2004, [2005] ZfBR 215. 65  The bidder is left with the burden of proof, irrespective of the basis of claim; Willenbruch/ Bischoff, Kompaktkommentar Vergaberecht (2008), § 126 GWB, fns 26, 63–65. 63 64

Damages: German Perspectives  35 the chance.66 The relevant ‘test’ of causation is thus the following: would the damage have happened without the breach of procurement provisions? ii.  Recoverable Heads of Loss Worthy of note is the fact that liability due to the breach of duty in the precontractual phase may include compensation for lost profits as well. In general, the compensation is granted, under specific circumstances,67 for the damage incurred by relying on the validity of a declaration. The preconditions required to render a claim for lost profits admissible are presented in the following section. A bidder is granted compensation on the basis of culpa in contrahendo, if his damages claim is successful. The damages cover the so-called negative interest, which includes the costs for the preparation of the tender as well as the participation costs. Lost profits are recoverable if the tenderer is able to prove that he would have definitely68 received the award without the infringement.69 The competitor with the obviously most acceptable bid is thus entitled to be fully compensated. All other tenderers (namely those who did not make the short list) are considered to have suffered costs which are not recoverable as the participation in an award procedure comprises the typical risk in procurement cases. And in order to prevent claims of each and every bidder who thinks he might have had a chance to be awarded the contract, a claim for compensation in the terms of lost profits (arising from cic) is restricted. iii.  Assessment of Damages The amount of compensation granted in the end is difficult to calculate. Again, the courts rely on § 287 ZPO which allows for an estimate to be reached by the courts. Nevertheless, the judges require sufficient documentary evidence. As the judges are entitled to assess the level of damages awarded, it is possible to adjust the amount of compensation to the level of fault. A serious and intentional infringement often results in a higher amount of damages than a violation of minor importance. The amount of damages granted in the end depends mostly on the judge´s estimation (§287 ZPO, knowledgeable appraisal) of the circumstances in question.70

 Arztmann, Schadensersatz im Vergaberecht in Deutschland und Österreich (2003), pp 113–17.  Including the restricted scope, meaning that reliance (trust) must be proven, as well as causation and loss. 68  This is a very high standard (but may be shown where the bidder is considered the only one who has a right to claim), and this explains why lost profits are not compensated for in most cases. 69  Horn/Graef, NZBau [2005], 507; Kulartz/Kus/Portz, Kommentar zum GWB- Vergaberecht (2006), § 126 fn 57; Prieß/Hausmann/Kulartz, Formularbuch Vergaberecht (2004), C III 2, p 588. 70  Musielak, ZPO Kommentar (2008), fns 7ff, 11, 16. 66 67

36  Martin Burgi

III. Access to Court: Procedures and remedies

A.  Competence and Time Limits for Bringing a Claim As far as questions of competence are concerned, it should be underlined that the ordinary (civil) courts have jurisdiction as regards all kinds of damages claims.71 Since award decisions are closely linked to commercial matters, the commercial chambers of the courts hear these claims. Actions for damages are subject to a limitation period of three years,72 and the time period commences to run at the end of the year in which grounds for the application first arose and in which the unlawfully passed-over bidder acquires knowledge of the unlawful act enabling him to complain. There has been no academic discussion yet as to whether this relatively short time-frame is compatible with European law. B.  Who Can Present a Claim? Who is eligible to present a claim depends upon the conditions applying to the basis of the claim in question. This means that, as regards the provision of § 126 GWB, each and every bidder is entitled to get compensation the moment he can successfully prove his ‘genuine chance’. A claimant with this kind of chance is allowed to seek compensation irrespective of the infringement: it does not matter whether the bidder has not been informed of tender, excluded from the tendering process, whether his bid was unlawfully considered not responsive or abnormally low or if his bid was unlawfully postponed to another bid etc. This inevitably means that even enterprises which may not have ultimately been granted the award (given that the infringement never happened) may nonetheless claim for compensation on the base of § 126 GWB. The same rules are applicable to a damages claim based upon culpa in contrahendo. The only issue which entitles a bidder to assert a claim successfully is the fact that he fulfills the conditions of the basis of claim, namely the confidential relationship. As we have seen, it is in practice very difficult for anyone other than the bidder with the most attractive bid to recover damages. A damages claim is also dependent on the infringed provision. Only a norm granting subjective rights (protective law) enables the tenderer to initiate a damages claim. Therefore, the right to claim is always dependent upon the individual case, and in particular the rule which has been breached.

 Horn, Public Procurement in Germany (2001), pp 60–61.   §§ 195, 199 BGB.

71 72

Damages: German Perspectives  37 C.  Relationship Between Primary Legal Protection and Secondary Legal Remedies As the previous sections have shown, the German remedies system regarding procurement law, is divided in two elements: the annulment procedure known in German law as primary legal protection,73 and the damages action establishing the secondary legal remedies system. The existence of these two different review procedures (one complementing the other) raises several questions concerning their relationship. There is no general rule stating which remedy should take priority over the other. A bidder is not obliged to apply for annulment of the decision in question prior to bringing a damages claim.74 Neither the wording of the relevant provision (§ 126 GWB) nor its independent character support such an assumption. Furthermore, the European law notion of effet utile requires a rapid and effective review mechanism. In conclusion this means that the relationship between primary legal protection and the secondary legal remedies system is not premised on the principle of subsidiarity. Nevertheless, the regimes are both interrelated. In case of evident infringements, the bidder is best advised to apply for annulment, unless he does not want to prejudice his chances of a successful damages action. Indeed, where the bidder himself has been responsible for the intensification of the alleged infringement, it is generally accepted to be appropriate to deny him or her the full amount of compensation due to the notion of contributory fault (§254 BGB). Both remedy mechanisms are, however. important, though for different reasons. The primary legal system with its legal possibilities of annulment and setting aside of decisions is considered the most important review mechanism for a bidder interested in the award. On the other hand, damages claims have in practice received only little attention. A bidder is generally interested in seeking the award, as the award can serve as a reference for later award decisions and provides much a better compensation for all the costs incurred (than a damages claim). Furthermore, some bidders do not want to risk a damages claim for fear of reducing their chances of winning future awards. Another important explanation why only 10 per cent of the enterprises put in a claim is the difficulty in proving the conditions for a claim.75 Although the German secondary remedies system is known as a regime with detailed regulations, the conditions of each basis of a claim are, as we have seen above, subject to much discussion, and in many cases characterised by a lack of certainty .   §107 GWB; Nachprüfungsverfahren.  For the reasons explained in the section above dealing with contributory negligence: §§ 13 GVG (Judicature Act), This question is contested in Germany, most voices do not demand a procedure of annulment precedent to a damages claim, see Arztmann, Schadensersatz im Vergaberecht in Deutschland und Österreich (2003), p 102; Immenga/Mestmäcker, Wettbewerbsrecht (2007), § 126 GWB, fn 5. 75  European Business Test Panel, Monatsinfo 10/2004 des forum vergabe e.V., p 162. 73 74

38  Martin Burgi Another difference between an action for annulment and a claim for damages is the question of the courts’ jurisdiction. A damages claim is filed before the ordinary courts, whereas a claim for annulment is dealt with by special procurement review chambers,76 with possible appeal to the Court of Appeals.77 For the period of 2007, 1,119 annulment cases were registered, which indicates the fundamental importance of the German primary legal protection regime (with just 197 appeals).78 Based on the dogma of pacta sunt servanda, even a contract concluded in breach of procurement provisions remains valid.79 Though Directive 2007/66/ EC, amending the former remedies directives and attempting to enhance the domestic review regimes, stresses the importance of a correction as soon as possible, Member States are left with a margin of manoeuvre which allows the national legislator to decide on the legal consequences of such an infringement. An obligation to declare the unlawful contract null and void cannot be derived from the Directive. In fact, § 114 II 1 GWB states that even an unlawfully concluded contract remains valid and can be subject to a procedure of annulment only in special cases.80 In Germany, the award of the contract thus prevents the bringing of primary actions. The unsuccessful bidders are left solely with the possibility of claims for damages. Contractual provisions have an impact on the amount of damages granted. On the one hand, the contract helps calculate the anticipatory profits and on the other hand it serves as an indication of the costs which have been adequately invested. D.  Frequency of Claims We have already noted that only a few damages claims have reached the courts. The national system provides a more or less effective remedies system equipped with a primary legal remedies mechanism and a secondary legal review regime. Given the nature of the bidder’s interests,81 damages are only of secondary and inferior importance. Owing to the fact that seeking full compensation (lost profits) is very difficult, damages cannot be a real compensation for the lost   § 102 GWB, Procurement tribunals.   § 116 GWB.  Byok, NJW [2009] 648. 79  Irmer, Sekundärrechtsschutz und Schadensersatz im Vergaberecht (2004), p 277; Werner, [2009] VergabeR 253, 255; The new remedies directive postulates annulment of the unlawfully concluded contract only in case of evident and grave infringements against public procurement law. 80  The national legislator´s general decision that a unlawfully concluded contract cannot be checked in front of the competent court will be slightly changed due to the implementation of the Gesetz zur Modernisierung des Vergaberechts v. 13.02.2009, BR-Drs 35/09. Thanks to this change in legislation, an unlawfully concluded contract is not to be cancelled if the bidder does not apply for annulment in time (§101 a, b, 114 II GWB amended version). Furthermore the contract remains can be a subject of ineffectiveness in case of the absence of a contract notice or the breach of the standstill period, as the New Remedies Directive states (Art 2d). 81  As we have seen, the bidders are first and foremost interested in obtaining the award. 76 77 78

Damages: German Perspectives  39 contract (lost chances). In addition, difficulties in proving the detailed conditions of such a claim remain and render a damages claim less favourable and less attractive. The relationship between the public contracting authority and potential candidates is mostly harmonic. Of course, some tenderers are reluctant to start a damages procedure, because they are afraid of negative consequences (negative reaction of the public contractor in future procurements).82 E.  Damages and other Remedies As already mentioned above, a claim for compensation based on § 126 GWB does not rule out other claims in damages. As conditions and applicability of § 126 GWB differ from other damages claims, the other bases of claim are regarded as concurring claims.83 In the case of an omission procedure (§§823 I, 1004 BGB; §§33, 20 GWB) leading likewise to the granting of damages, the claim for compensation evolving from § 126 S.1 GWB remains unaffected and valid. Therefore, the claimant can choose which claim he wants to bring forward. F. Procedure The procedure applying to a damages claim deserves a short comment as well. An expedited procedure such as the French ‘référé provision’84 is not available in Germany. The procedure in public procurement law is strictly governed by the German civil code (ZPO). It is noteworthy that the award chambers are not competent in damages claims, and thus it follows that the ordinary courts apply the common procedure rules; just as if the courts were dealing with any other damages claim. The time scale for gaining remedy on the grounds of the contract award error does not differ from other claims for compensation, as the ordinary courts are competent in both cases and the review rules applied are the same as well. IV. Conclusion

The total public procurement in the EU is estimated at about 16 per cent of the Union’s GDP (Gross Domestic Product), so the importance of public procurement law and of a efficient review system for bidders is rising continuously.  Ax, [1999] BauR 1251.  Arztmann, Schadensersatz im Vergaberecht in Deutschland und Österreich (2003), pp 105, 126. 84   Where the judge can quickly grant part of the damages when the obligation is not seriously questionable. 82 83

40  Martin Burgi Member States are obliged to establish a remedies system which is accessible and effective. The details of the system are left to the discretion of the national legislator, though. The German damages system can be regarded as a framework of different bases of claims, based upon provisions in the field of procurement law, tort law or cartel law. For the time being and despite some problems concerning the interpretation or the complexity of the relevant norms, a more or less ‘welloiled’ damages review procedure is provided in Germany. As such, this meets the requirements of the European Directives. The more cases that are brought to courts in the future, the more problems will be solved, uncertainties will be successfully clarified and at the very least bidders are (hopefully) going to profit from a better and more effective damages system. Furthermore, an increasing number of court rulings on damages would ultimately help to create more legal certainty. It can be carefully stated that small modifications are needed in order to enhance the bidder’s position in case of unlawful decisions.

3 Damages under Public Procurement The Portuguese Case Vera Eiró and Esperança Mealha

Introduction

I

n this chapter, we offer an overview of the availability of damages for tenderers in Portuguese public procurement law.  Following proceedings before the ECJ, the legal framework for public procurement in Portugal has been significantly amended.  Given the novelty of such amendment, Portuguese case law on this subject is yet to be fully clarified.  We shall report upon the major academic views on the subject and shall also put forward some case law that may be useful for interpreting the new legal framework. I. The Portuguese legal framework

A. Introduction After several decades out of the spotlight, public procurement is now a hot topic in Portugal, due to one major event: the enactment, on January 2008, of the Public Contracts Code (the PCC) implementing the Directives 2004/17/CE and 2004/18/CE of the European Parliament and of the Council, governing so-called administrative contracts.1 This chapter was written in May 2009 and up dated on May 2010. The authors would like to thank Prof Carla Amado Gomes for her helpful comments and suggestions. 1  The PCC was approved by Decree-Law 18/2008, 19 January and entered in force on 30 June 2008. The Code was rectified by Declaration 18-A/2008, 29 January, amended by Law 59/2008, 11 September, Decree-Law 223/2009, 11 September, Decree-Law 278/2009, 2 October and Law 3/2010, 27 April and was adapted to the Autonomous Regions of Madeira and Azores by Regional Decree Law 34/2008/M, 14 August (Madeira) and 34/2008/A, 28 July amended by 15/2009/A, 6 August (Azores). The PCC goes far beyond the implementation of EU public procurement directives as it also rules (i) almost all the procurement of all Portuguese contracting authorities (comprising, by general rule, all the contracts entered into by public contracting authorities and not just services, works, supplies and concession contracts), and (ii) the execution of the so-called administrative contracts.

42  Vera Eiró and Esperança Mealha There are two other relevant laws that must be addressed when examining Portuguese public procurement law: the Judicial Process Code for the Administrative Courts (the PCAC)2 and the Rules for the Administration and Public Entities Civil Liability (the APECL).3 The PCC establishes the procedures for the award of Portuguese public contracts and the execution of the admin­ istrative contracts. The PCAC deals with the administrative judicial procedure rules (determining, in short, how and when a party can have access to admin­ istrative courts). Finally, the APECL relates, in general, to the State and Administration’s extra-contractual civil liability (excluding contractual liability and liability resulting from actions which are not ruled by public law).4 The latter is said to implement, in a specific rule,5 damages under public procurement as ruled by article 2(1)(c) of Directive 89/665/CEE and article 1/d), of Directive 92/13/CEE.6 B.  Remedies based on Setting Aside and Interim Relief Procedures Until the enactment of APECL, Council Directives 89/665 and 92/13 on remedies in public procurement (Remedies Directives) had predominantly influenced the Portuguese administrative courts’ procedure. In 1998, an interim relief procedure was established for public sector procurement,7 as well as an expedited setting-aside procedure allowing the administrative judge to suspend and to set aside procurement decisions of the contracting authorities.8 The main characteristics of this legal regime was its expedited nature;9 the possibility, granted to the claimant, to request the court to set aside decisions taken during the procurement procedure;10 and the possibility of claiming a range of interim procedures in order to guarantee the effectiveness of the setting aside procedure.11 2  Approved by Law 15/2002, 22 February and amended by Declaration 17/2002, 6 April, Law 4-A/2003, 19 February and Law 59/2008, 11 September. 3  Approved by Law 67/2007, 31 December and amended by Law 31/2008, 17 June. 4  This could be said to correspond to tort law. 5  Art 7/2. 6  The Remedies Directives were amended by Directive 2007/66/EC, 11 December, to be implemented in Portugal soon. For a comment on the necessary implementation of the amended version of the Remedies Directives see A Mesquita Nunes, ‘Contratação Pública a duas velocidades: a transposição da Directiva 2007/66/CE’ (2009) 1 Revista de Direito Público e Regulação 35–54; and A Gouveia Martins, ‘Perspectivas de evolução da tutela provisória do processo cautelar’, in Cadernos de Justiça Administrativa, 79, 15–28. 7  Of works, services and supplies contracts, for whatever value. 8  Decree-Law 134/98, 15 May. This decree was enacted in order to implement Council Directive 89/665. However, this legal regime was further extended, through article 48 of Decree-Law 223/2001, 9 August, so as to implement Directive 92/13/CEE. 9  Characterised by brief time limits that run even during judicial vacations of the administrative court. 10  The general rule at the time was that only final administrative decisions could be attacked in court. 11   For a comment on this legal framework see M Joao Estorninho, ‘A propósito do Decreto-Lei n.º 134/98, de 15 de Maio, e das alterações introduzidas ao regime de contencioso dos contratos da

Damages under Public Procurement  43 In 2002, a major reform was undertaken of the Portuguese administrative procedure rules by means of the enactment of the PCAC.12 In implementing the Remedies’ Directives, the PCAC revoked the aforementioned Decree-Law of 1998 and improved13 upon the special emergency procedure for procurement claims14 and special emergency interim measures regarding the public sector contracts and also concessions of works contracts, irrespective of their value.15 The 2002 reform did not alter the legal framework applicable to the Administration’s extra-contractual civil liability. However, the PCAC established new procedural rules which, through the interpretation of the administrative courts, have turned out to be very important for damages in public procurement.16 We are referring, here, to Article 102/5 of PCAC that gives administrative judges the power to invite the parties to agree upon an amount of damages when, during the expedited set-aside procedure, evidence shows that the quashing of the wrongful act is absolutely impossible.17 A similar possibility exists during the procedure for the enforcement of the quashing decision.18 The introduction of the provision for public procurement damages under the APECL19 is relatively recent. Consequently, the only Portuguese case law relevant to this chapter is that applicable to damages where the quashing of the wrongful act is absolutely impossible as laid out in Article 102/5 PCAC.20

Administração Pública . . .’, (1998) 11 CJA 3–9; and Bernardo Diniz de Ayala, ‘A tutela contenciosa dos particulares em procedimentos de formação de contratos da Administração Pública, Reflexões sobre o Decreto-Lei n.º 134/98, de 15 de Maio’, in JM Sérvulo Correia et al, Estudos de Direito Processual Administrativo (Lisboa, Lex, 2002) 281–312. 12  This reform entered in force only during the year 2004, but the amendments to Decree-Law 134/98 entered in force with the enactment of Law 4-A/2003, 19 February. 13  One of the chief improvements is that the court is no longer limited to a set-aside power, but it also has an amendment power (eg of unlawful specifications of the awarding procedure documents) – see Mário Aroso de Almeida and Carlos Alberto Fernandes Cadilha, Comentário ao Código de Processo nos Tribunais Administrativos, 2a edn rev (Coimbra, Almedina, 2007) 591. 14  The setting-aside procedure, now called contencioso pré-contratual urgente. 15  Arts 100–103 (regarding the setting aside actions) and 132 (regarding interim relief) of the PCAC. It must be noted that, in Portugal, the prospects of recovering damages will not be relevant to the Court’s decision whether or not to grant interim relief. Interim relief can be granted even when the predictable loss is merely monetary and therefore can be reinstated through pecuniary compensation (e.g. TCA Sul (11 October 2006), P 01471/06). Moreover, the Portuguese courts have clearly stated that when the predictable loss is difficult to ascertain (eg in the case of loss profit) at least one of the conditions for interim relief (periculum in mora) is fulfilled (TCA Sul (14 April 2005), P 00618/05 and TCA Sul (02 April 2009), P 04561/08). 16  It must be noted that Portugal is a civil law country. A relevant part of the Supreme Administrative Court’s (STA) and the central courts’ (TCA Norte and TCA Sul) decisions are online. All the decisions quoted, except where otherwise stated, can be found at www.dgsi.pt. 17  This is named, in Portuguese, a case of modificação objectiva da instância, and a similar rule is established for the setting aside common and special procedures (art 45 of the PCAC). 18  Arts 166 and 178 PCAC. 19  Art 7/2. 20  Or to the application of arts 166 and 178 PCAC, as referred to below.

44  Vera Eiró and Esperança Mealha C.  Remedies Based on Damages In spite of the major reform of administrative courts’ procedure rules in 2002, the basis of damages claims for unlawful acts of public entities – including breach of public procurement law – remained until 2008 those established under Decree-Law 48051, 21 November 1967. The need to replace this Decree-Law was, however, advocated within the legal community, as there were concerns that this legal framework did not entirely comply with the principle of extracontractual civil liability of the State and other public entities established under article 22 of the Portuguese Constitution of 1976.21 The enactment of APECL in 2008 was the primary answer to this concern and corresponds to a major reform of one of the most important public law rules. It is also important to bear in mind that Portugal was recently found by the ECJ to have failed to implement Directive 89/665/CEE regarding the ‘damages remedy’ (Cases C-275/03 and C-70/06).22 These ECJ decisions are now considered ‘landmark decisions’ because of their relevance for the understanding of the Remedies Directives, in particular the fault requirement.23 Consequently, among this major reform in 2008, the Portuguese legislator was also concerned with implementing the ‘damages remedy’ into public procurement. In this respect, Article 7/2 of the APECL was specifically enacted (and amended) to satisfy the ECJ’s demands. In order to understand the state of the art of damages under public procurement in Portugal it is important to bear in mind the wording and recent evolution of the APECL. The initial version of this Article, as enacted in January 2008, was as follows: [A]ny person harmed by an infringement occurring during the award procedure of the contracts referred to under article 100 of the PCAC, is entitled to damages in accordance with the conditions established in this law.

21  See for all, JJ Gomes Canotilho and Vital Moreira, Constituição da República Portuguesa Anotada, Artigos 1.º a 107.º, vol 1, 4a edn rev (Coimbra, Coimbra Editora, 2007) 426 and Jorge Miranda and Rui Medeiros, Constituição Portuguesa Anotada, vol I, art 1 a 79 (Coimbra, Coimbra Editore, 2005) 213. 22  Case C-275/03 Commission/Portugal (14 October 2004). As a result of this first conviction, and as Portugal was considered not to have complied with the Court’s decision, Portugal was required to pay a daily pecuniary sanction for the breach of its directive implementation obligation in Case C-70/06, Commission/Portugal (10 January 2008). 23  This was the first time that a Member State was required to pay a daily pecuniary sanction for the breach of its directive implementation obligation concerning Public Procurement. Cf David McGowan, ‘Penalty Payments for Non-Implementation of the Remedies Directive: A Note on Commission v Portuguese Republic (Case C-70/60) ’ (2008) 5 Public Procurement Law Review NA209–11. This was also the first time that Portugal was required to pay a daily pecuniary sanction – Maria José Rangel de Mesquita, ‘O caso Comissão c. República Portuguesa: a primeira condenação do Estado português no pagamento de uma sanção pecuniária por incumprimento’ in Estudos em Homenagem ao Prof. Doutor Paulo Cunha 2009 (submitted and accepted for publication).

Damages under Public Procurement  45 In July 2008,24 this rule was amended as follows: [A]ny person harmed by an infringement occurring during the award procedure of the contracts referred to under article 100 of the PCAC, is entitled to damages in accordance with the Community Law conditions for extra contractual civil liability.25

This special rule is therefore the direct result of an attempt to satisfy the European Commission’s wishes in respect of the Portuguese implementation of the Remedies’ Directive in the classical sector. The new wording would seem to be satisfactory in the Commission’s eyes.26 However, there has been a good deal of discussion of this rule within Portuguese legal doctrine. The academic opinion can be divided into two major arguments. First, it has been pointed out that it is difficult to determine, for sure, the conditions for these claims. It has thus been argued, in this regard, that claimants are now obliged both to fulfil and identify the conditions of claim.27 Secondly, questions have been raised about the spill-over effect of this rule: it has been argued that because APECL does not refer, in general,28 to the application of the EC civil liability rules this would mean, a contrario, that the impact of EC law would only be felt on the Portuguese public procurement legal regime, therefore leaving without response all the other relevant public liability cases resulting from the ECJ’s recent case law.29  Producing effects since January 2008.  This is not an official translation. The Portuguese version is: [É] concedida indemnização às pessoas lesadas por violação de norma ocorrida no âmbito de procedimento de formação dos contratos referidos no artigo 100.º do Código de Processo nos Tribunais Administrativos, de acordo com os requisitos da responsabilidade civil extracontratual definidos pelo direito comunitário.

24 25

26  It must be noted, however, that the initial version of article 7/2 of APECL was also supposed to meet the Commission’s demands regarding damages under Public Procurement. Portugal brought an action on 26 January 2009 against the Commission of the European Communities (Case T-33/09), the main plea being the annulment of Decision C(2008) 7419 of 25 November 2008, by which the Commission required the Portuguese Republic to make the penalty payment imposed on it by the judgment of the ECJ in Case C-70/06. Portugal’s main argument is that APECL was published on 31 December 2007 in the Diário da República (Portuguese Official Journal), and therefore the penalty payment claimed may only relate to the period until 9 January 2008 or, in the worst case, until 29 January 2008, as APECL entered into force 30 days after its publication, that is to say on 30 January 2008. Information regarding these legal proceedings in www.curia.europa.eu/ 27  Esperança Mealha, ‘Responsabilidade civil nos procedimentos de adjudicação dos contratos públicos’ (2008) 5 Julgar 99–120, 101; Carla Amado Gomes, O Livro das Ilusões: A responsabilidade do Estado por violação do Direito Comunitário, apesar da Lei 67/2007, de 31 de Dezembro, 2008, available at http://icjp.pt, 2; Maria José Rangel de Mesquita, O Regime da Responsabilidade Civil Extracontratual do Estado e demais Entidades Públicas e o Direito da União Europeia (Coimbra, Almedina, 2009) 49/50. 28  There is an additional reference under art 15 for the legislative power responsibility in case of breach of EC law. 29  It has been argued, in this respect, that Portugal is now in breach of Francovich and the following case law. Cf Rangel de Mesquita, above n 27 at 28, 32, 46, 49 and passim. Considering that, despite the lack of clarity of APECL rules, it is possible to consider that the Portuguese judges are able to grant damages for the breach of EC law as established under Francovich and the following case law, Gomes, above n 27 at 12, and Luís Cabral de Moncada, Responsabilidade Civil ExtraContratual do Estado. A Lei n.º 67/2007, de 31 de Dezembro (Lisboa, Abreu & Marques, Vinhas e Associados – Sociedade de Advogados RL, 2008) 17.

46  Vera Eiró and Esperança Mealha The basis and conditions for a damages claim based on the breach of procurement rules are found in APECL. It is therefore possible to argue that damages are, in Portugal, a public tort law remedy, governed by Article 7/2 of the general law on the liability of public authorities. The administrative courts therefore have jurisdiction over all applications for public procurement damages.30 II. Conditions for a damages claim

A. Introduction As we have already seen, the damages rule comprised in the Remedies Directives has been implemented in Portugal through Article 7/2 APECL. In light of the lack of developed case law,31 our analysis will be limited to what the Portuguese legal commentary has put forward regarding the application of this specific rule, as well as the guidelines that can be drawn from the case law under DecreeLaw 48051. The APECL grants a general right to compensation for all damages caused by the State, public entities and private parties. All damages action brought against decisions of the State and public authorities are now governed by APECL.32 Article 7/2 APECL is included in the chapter of the legislation that governs civil liability for unlawful actions (acto ilícito). However, the wording of this rule and the specific reference to ‘Community Law conditions for extra-contractual civil liability’, transforms it into an ‘island’ within APECL. This means that damages in public procurement are subject to a special legal framework, the boundaries of which are provided by EU Law.

30  Rights of audience before the administrative courts are restricted to lawyers. In some cases, the public authorities may be represented in court by any public servant holding a law degree and working as legal aid for said authority. In some common procedures the State is represented by the Public Prosecution Service. 31  The first-tier court decisions are not published and therefore it is necessary to wait for an appeal in order to analyse any case law in this subject. 32  This therefore comprises executive actions, legislative actions and judicial actions. However, the application of APECL depends, in every case, on the type of activity pursued by the public or private entities: the activity must either (i) correspond to the performance of a public power or (ii) be ruled under Administrative law rules or principles. Public procurement procedures as ruled under the EC Directives are considered to be Public Law (or equivalent to Public Law). See for all, Pedro Gonçalves, Entidades Privadas com Poderes Públicos (O Exercício de Poderes Públicos de Autoridade por Entidades Privadas com Funções Administrativas) (Coimbra, Almedina, 2005) 295 (referring to those rules as Administrative law); José Carlos Vieira de Andrade, A Justiça Administrativa, 9a edn (Coimbra, Almedina, 2007) 114, Mário Esteves de Oliveira and Rodrigo Esteves de Oliveira, Código de Processo nos Tribunais Administrativos: Estatuto dos Tribunais Administrativos e Fiscais (Anotados), I (Coimbra, Almedina, 2006) 53 and Carlos Alberto Fernandes Cadilha, Regime da Responsabilidade Civil Extracontratual do Estado e Demais Entidades Públicas (Anotado) (Coimbra, Coimbra Editora, 2008) 132.

Damages under Public Procurement  47 B.  Francovich, Article 340 of the Treaty on the Functioning of the European Union33 or Remedies Directives? The conditions of damages claims under Article 7/2 APECL are, as we have seen, specifically laid down as the ‘Community Law conditions for extra-­ contractual civil liability’. This reference has been interpreted by some of the legal doctrine to include the conditions for claims established by the ECJ’s case law for Member States’ liability for the infringement of EU law.34 It is, however, possible to question whether those conditions may be in fact the liability conditions developed by the European courts in interpreting former article 288 EC Treaty and current article 340 of the TFEU.35 Although Francovich and the following case law is considered by some scholars to be the immediate answer to the wording of Article 7/2, others have drawn attention to the need to keep in mind the wording of the Remedies Directives.36 The striking point here is that every breach of procurement rules per se (European or national ones) can give rise to liability for loss (thereby abandoning the sufficiently serious breach condition). It will, however, remain necessary to provide evidence of the damages suffered and causation. C. Conditions i.  Unlawful Act Within the framework of the APECL applicable to damages caused by unlawful acts, it is worth noting that Article 9/1 APECL establishes that not every illegality will result in compensation: the illegality in question must offend rights or legally protected interests. In this respect, and although the wording of Article 7/2 seems to provide for a complete and special damages framework exclusively applicable to procurement award procedures, it has been argued that Article 9/1 APECL remains useful. In public procurement, it has been argued that, in general, public procurement directives or implementing national laws are rules of law intended to protect the bidders.37 Therefore, it is possible to say that, within public procurement, the claimant’s proof that public procurement provisions were breached in order to satisfy preconditions of wrongfulness is sufficient.  Prior art 288 of the EC Treaty.  Cadilha, Regime, above n 32 at 128. 35  This issue may, however, lose relevance when it is considered that Francovich case law and art 288 are becoming closer and closer in what respects their conditions of claim. Nevertheless, when applying art 288, the European courts have already established rulings, maxime regarding causality and amount of damages that may not correspond to Francovich requirements. Therefore, this distinction may, at the end of the day and in procurement cases, maintain its relevance. 36   Mealha, ‘Responsabilidade civil’, above n 27 at 105, Gomes, O Livro, above n 27 at 2. Arguing that the remedies directives establish a special damages legal framework, Rangel de Mesquita, O Regime, above n 27 at 52. 37   Mealha, above n 27 at 108. 33 34

48  Vera Eiró and Esperança Mealha ii.  Damages Without Fault The new wording of Article 7/2 APAC is said primarily to result in the abandonment of the fault requirement which, although established as a judicial presumption is, nevertheless, considered one of the preconditions for the general rules regarding the extra-contractual liability of public bodies.38 This means that, in respect of the award procedures of contracts referred to under article 100 PCAC, once the breach has been established, the claimant will only have to provide evidence of loss and of the causal link between the breach and the loss in order to obtain damages: there is no need to prove negligence/intention of the contracting authority. Illegality will suffice. Although the wording of APECL is very different from the wording of Decree-Law 48051, it is not expected to involve a major change in the relevant Portuguese case law. In fact, Portuguese administrative courts have long ago established, in several different cases, that fault is always assumed to exist when the public entities acted unlawfully.39 iii.  Issues of Causation a. The Traditional Approach The lack of specific rules, and relevant ECJ case law,40 with regard to causation may indicate that Portuguese administrative courts will follow the general causation rules with respect to causation and the relevant tests. According to this approach, it is up to the claimant to give evidence of both the loss and the causal link existing between the loss and the breach. The APECL has not provided any major change regarding this issue. In this respect, Portuguese administrative courts usually apply the adequate condition theory. This theory of causation entails, as administrative courts normally decide, that the claimant will need to show that he or she would, with all probability, have been awarded the contract had it not been for the infringement. 38  The presumption of fault is established under article 10/2 and 3 of the APECL. Considering fault as one of the conditions for a general damages claim, Cadilha, Regime, above n 32 at 129; JC Vieira de Andrade, ‘A Responsabilidade por danos decorrentes do exercício da função administrativa na nova lei sobre responsabilidade civil extracontratual do Estado e demais entes públicos’ (2008) 3951 RLJ 360–71, 367. 39  This presumption is, however, rebuttable. 40  Regarding the conditions for non-contractual liability under art 288, second para, EC, it is settled case law that there is a causal link where there is ‘a direct link of cause and effect between the error committed by the institution concerned and the injury pleaded, the burden of proof being on the applicant’: Case T-226/01 Succhi di Fruta (13 September 2006), and the following Case C-497/06 P, (30 April 2009), and the case law there quoted. However, causality in public procurement is, somehow, different. See Case T-13/96 TEAM (29 October 1998); Case T-203/96 Embassy Limousines (17 December 1998) (where lost profits are not granted as the plaintiff cannot provide evidence that he would have been the awardee but for the unlawful act and the tender costs are not considered damages); Case T-160/03 AFCon (17 March 2005) (where tender costs are considered damages but lost of profits not); Case C-348/06 P Girardot (21 February 2008) (in this case, regarding Staff Regulations, the court applies a loss of chance ruling) and Case T-495/04 Belfass (21 May 2008).

Damages under Public Procurement  49 Most of the damages cases stop here. In fact, and depending on the grounds for the quashing of the unlawful decision, evidence of the concept of ‘all probability’, which in practice means evidence close to certainty, can be almost impossible. As an example of the Portuguese case law in this respect, in a decision of the Administrative Superior Court (STA), dated 3 March 2005, the court decided that the claimant could not be awarded damages unless he could provide evid­ ence that but for41 the contracting authority’s unlawful decision (that is, if the contracting authority had decided lawfully), he would have been awarded the contract.42 Account must also be taken in this regard of the administrative courts’ traditional approach to the State’s separation of powers doctrine. In application of this, the administrative courts are reluctant to second-guess the discretionary decisions of public authorities. Evidently, the bid evaluation process is, generally, a discretionary decision.43 However, the PCC has brought some changes in this regard that will allow the bid evaluation to be reviewed by the court in many of its aspects. In particular, the said evaluation as part of the bid process is now considered to be less of a discretionary decision and must comply with detailed legal rules.44 b. In the Pipeline . . . Recent Trends and the Loss of Chance Doctrine The Portuguese causation rule is usually considered an ‘all or nothing’ kind of rule. In other words, either causation is established, and the claimant receives full compensation, or causation is not established, and the claimant receives nothing at all. However, there have been recent court decisions putting forward a new rule45 based upon something similar to the ‘loss of chance’ rule. Some of these rulings concern ‘setting-aside’ administrative procedures regarding the award of contracts not included under Article 100 PCAC.46 It is entirely possible that  In this way, the adequate condition theory involves a prior application of the sine qua non test.  Decision from STA, 03 March 2005, P 041794A and similar decisions dated 04 April 2006, P 077B/02, and dated 29 Septmeber 2004, P 01936/03. 43   eg in STA (04 August 2004), P 0835/04, and in TCA Norte (14 June 2007), P 1657/05.1BEPRT the Court expressly states that the bid evaluation decision is an administrative decision that, except for very exceptional cases, can not be second guessed by the judicial power (that is, the courts). 44  As an example, it is worth noticing that the PCC now establishes that when the contracting authority applies an open procedure in awarding a public contract, and bases the award on the most economically advantageous tender criteria, he/she must adopt a specific and very detailed evaluation formula which is made public for all tenderers (Art 139/2/3). 45  Though it is not clear yet whether this is a causation rule or a rule regarding the amount of damages. 46  It must be noted that for procurement not referred to under art 100 of the PCAC there is also a set-aside administrative procedure available (it is not, however, an urgent procedure). Art 45 of the PCAC establishes that when the setting aside is either impossible or would cause exceptional damages to the public interest, the court can replace the quashing order by a decision whereby it grants a compensation to the plaintiff (this rule is similar to article 102/5 PCAC referred below). 41 42

50  Vera Eiró and Esperança Mealha administrative courts might extend the same ratio decidendi to procurement cases. Good recent examples of these decisions are the STA’s decisions, dated 24 October 200647 and 25 February 2009.48 In this second case, the claimant had been unlawfully excluded from a public tender in respect of a public employment nomination. The claimant was thus prevented from participating in the exams necessary to fulfil the tender conditions. The Court considered that it was impossible for the claimant to show that had she been admitted to the exams, she would have been chosen and therefore employed. The Court thus stated that causality was, in these circumstances, impossible to demonstrate. However, considering that the action of the contracting authority was in fact unlawful and that it was, at the time of the ruling, impossible to quash the decision, the Court decided that the claimant had had a right to participate in the public tender, and therefore lost a chance to be successful. This loss of chance should be compensated, ruled the Court, through the use of Article 566/3 of the Civil Code that grants the judge powers to determine the amount of damages using equitable principles. Considering the amount of damages claimed by the claimant (comprising lost profits), the Court then considered that evidence had been put forward to show that the claimant had a 30 per cent chance of being chosen. Therefore, the Court granted 30 per cent of the total amount claimed by the claimant (here including the positive interest and in that the lost profits). In this decision, the STA also refers to another decision handed down in 2005.49 Here, the decision by a contracting authority awarding a works contract was annulled by the Court. In the enforcement procedure of the said annulment decision, evidence was provided to the Court showing that the works had already been executed by the unlawfully selected tenderer. The Court then decided, applying a rule similar to the one established under Article 102/5 of the PCAC (but applicable during the enforcement procedures),50 that the claimant should be awarded compensation calculated as established under Article 566/3 of the Civil Code. In order to decide upon the amount of damages, the court considered the ranking of the claimant’s bid (he was the fourth), the number of bidders, the price of his bid (and a profit percentage argued by the plaintiff of 17,68%) and the period of time that had passed between the unlawful decision and the Court’s final decision. The Court granted compensation of €11,700, expressly stating that it was equitable compensation and that, therefore, it did not correspond either to lost profits nor tender costs.51  P 0289/06.  P 047472A. 49  Dated 29 Nov 2005 P 041321A. 50  PCAC establishes that the judicial procedure entails two different phases: a declaration phase where the court establishes whether or not the claimant’s demands can be sustained and an enforcement phase where the court enforces the previous decision whenever the public authority does not comply. The decision in question was taken during said enforcement phase. 51  See also TCA Norte (05 November 2009), P 00978/04.5BEBRG. 47 48

Damages under Public Procurement  51 Most of these rulings are very recent ones and it is not possible, as yet, to establish whether or not they will coalesce into a settled new approach of the Portuguese courts regarding causation in public procurement.52 Notwithstanding these recent trends, there are some authors that propose a different approach. Considering the possibility that Article 7/2 establishes a special damages regime regarding Public Procurement, it has been argued that causation would need to correspond to the test foreseen under Article 2/7 of Directive 92/13.53 As already mentioned, Article 7/2, applies to public procurement for works (including works concessions), services and supply contracts. Although the Remedies Directives have different wordings, damages claims in the public sector procurement and in the utilities sector usually follow the same pattern. Therefore, if the Portuguese courts apply the causality test put forward in the Utilities Remedies Directive, it is not expected that there will be different rulings for the public sector procurement. iv.  Types of Loss In general, under the rules of civil liability in Portugal, compensation is provided for all the loss that the claimant has suffered. Compensation is therefore required to place the aggrieved bidder in a position as if the wrongful act had not occurred.54 In public procurement, the two heads of loss that are usually sustained are:  lost profits, namely the profit that the claimant would have received if the breach had not occurred; and •  bid costs, which are sometimes considered as a special type of loss under public procurement.55

•

52  In the civil jurisdiction, the Supreme Court of Justice (the STJ) has already applied the loss of chance rule in a case where the breach of a transport agreement determined that a tenderer did not arrive on time to submit its tender to the contracting authority. In this case, which was not decided by the administrative courts, the STJ considered that the plaintiff should be granted lost profits (included in the positive interest) as he had serious and significant (in Portuguese, séria e grande) probability of winning the contract considering that his bid had the better prices, deadlines and guarantees than the other bid that was submitted to tender STJ (18 May 2006), P 923/06 (CJ-STJ, XIV, II, 2006, 95–97). With reference to this and other decisions, see Vera Eiró, ‘Quanto vale uma sentença? Notas sobre a aplicação do artigo 102.º, n.º 5, do Código de Processo nos Tribunais Administrativos’ (2008) Estudos Comemorativos dos 10 Anos da Faculdade de Direito da Universidade Nova de Lisboa, 834, fn 104. There are not as yet any doctrinal commentaries on the loss of chance cases in Portugal in a public law perspective. However, the analysis provided by civil law academics may be very useful. See, for instance, Paulo Mota Pinto, Interesse contratual negativo e interesse contratual positivo, II, (Coimbra, Coimbra Editora, 2008) 1350–61 and Júlio Vieira Gomes, ‘Sobre o dano de perda de chance’ ( 2005 [but 2007]) Direito e Justiça, II, 9–47. 53   Mealha, ‘Responsabilidade civil’, above n 27 at 111. 54  Art 562 Civil Code. 55  This head of loss would sometimes correspond to an independent category of loss.

52  Vera Eiró and Esperança Mealha Although in theory both lost profits and expenses can in principle be paid to the claimant, case law has shown that lost profits, especially those included in the positive interest theory, are difficult to obtain. For instance, even when the claimant could show that he was entitled to the contract, the STA has already held that the claimant is only entitled to receive compensation for expenses, including the bid costs (the negative interest), but not for the lost of profits that could only have come from the awarding of the contract (the positive interest).56 However, there are also cases where the STA has considered that bid costs are a tender risk. In these cases, it has been ruled that either the tenderer can show he would have been awarded the contract (and therefore he will be entitled to the lost profits and bid costs are not considered damages) or he does not show causality and consequently will receive nothing.57 More recent decisions have taken a different line, however. In fact, in a recent case where the claimant could not provide evidence that he would be the awardee, the STA decided that the claimant was nevertheless entitled to bid costs.58 As Portugal is a civil law country, it is not possible to foresee with certainty what the administrative courts will decide in the future. The most recent case law has however established that bid and procedure costs are most of the times granted as a quantum minimo and that a percentage of lost profits can be granted in exceptional cases and as a result of a rule similar to the loss of chance doctrine. As already noted, the major difficulty is to provide evidence of causation. If causation is established, even if only as a probability (and not a certainty), then calculating the damages’ quantum may not be very problematic. Considering the new trends on causation, damages must also be seen in a different way. For instance, in the case law referred to above, in which the STA awarded damages for the loss of chance – the loss of a job promotion which was proved, with a reasonable probability, would have occurred had it not been for the unlawful act – the Court awarded, along equitable lines, 50 per cent of the total amount of income that would have been received if the promotion had taken place.59 In another case regarding a job promotion, the amount of damages was calculated, also along equitable lines, with reference to the total amount of income that the claimant could have received if he was promoted and based upon the chance he would have had in achieving that promotion.60

56   STA (31 October 2006), P 0875/05 and, considering the case where the contracting authority has already awarded the contract but decides not to execute the contract, STA (22 October 2009), P 557/08 (Acórdão no 1/2010, published in Diário da República, 1a série (20 January 2010). For a comment on this see Vera Eiró, ‘Adjudicar, não contratar . . . e indemnizar’ (forthcoming) Cadernos de Justiça Administrativa. 57  See eg STA (03 March 2005), P 041794A. 58  Lost profits were not granted because causation was not established – STA (07 October 2009), P 0823/08. 59   STA (24 October 2006), P 0289/06. 60   STA (25 February 2009), P 047472A.

Damages under Public Procurement  53 Even though these are not cases relating specifically to damages under public procurement, and even if the legal framework for establishing the casual link may be different, the same kind of damages calculation can have some relevance in public procurement damages awarding.61 There is also a relevant public procurement damages case pending before the courts. This is a civil liability procedure that follows the administrative procedure whereby the administrative courts have considered that the awarding decision of a works contract was unlawful. In this case, the contracting authority (the National Parliament) used bid evaluation criteria contrary to European Law. As the works had been finished (they comprised the execution of the new National Parliamentary building), the STA decided that the quashing of the setting-aside order was impossible and therefore considered that the only possible remedy for the claimant would consist in a civil liability procedure. It was during the civil liability procedure that the Lisbon Administrative Court (first-tier court) awarded the claimant damages for lost profits amounting to €814,537.62 The Lisbon court considered that causation had been established because on using the remaining valid criteria (which related to price and deadlines for the execution of the works), the claimant presented the best bid.63 It must be noted that the decision is now subject to appeal, and the STA may of course overrule the Lisbon Administrative Court´s decision. v.  Special Cases of Damages under PCC The PCC has now established a right for candidates to be refunded their bid costs in three different scenarios: when the contracting authority decides not to award the contract to any of the candidates,64 in case of delay of the awarding decision and subsequent refusal from the awardee to enter into the contract65 and when the contracting authority, after the awarding decision, decides not to enter into the contract.66 It must be noted that in the first case, the contracting authority can only decide not to award the contract based upon valid legal reasons (in particular, based on the public interest). In the first two scenarios referred to above, candidates will receive damages as long as they show that they entered a bid which complied with all the tender   Cf STA decision, dated 29 November 2005, P 041321A referred to earlier on.  Plus legal fees and court costs. Lisbon Administrative Court, P 0583/01 (this decision is not available online). 63  This decision was already subject to an appeal before the STA. The STA has recently decided that the appealed decision was not complete – because the judge did not decide upon the amount of interest to be paid to the plaintiff – and therefore decided to send the judicial procedure back to the first instance court (731/2 of the Judicial Procedure Code) (STA (24 Septmeber 2009), P 584/09). It is now up to said first-tier court to complete the decision. This new first-tier decision may, once again, be subject to an appeal. Considering that the first-tier court will have to decide once again upon this judicial process, the final decision for this case is not expected to occur in the near future. 64  Art 79/4. 65  Art 76/3. 66  Art 105/3. 61 62

54  Vera Eiró and Esperança Mealha conditions. This is a very generous solution as, in practice, all the candidates may recover their bid costs without demonstrating any kind of chance of success with respect to the award of the contract. In the final scenario referred to above, solely the awardee will receive compensation for bid costs. It has been argued that the rationale behind these three solutions would be the culpa in contrahendo civil rule.67 III. Access to Court

A.  Relationship between Expedited Setting-Aside Procedures and Damages Actions The setting aside by means of an annulment or a declaration of nullity of the contracting authorities’ wrongful decision is not a precondition for a successful claim in damages. However, a claimant who decides to bring a damages’ claim without a prior setting-aside procedure can face special difficulties establishing causation. In fact, except for very particular situations, it is very difficult to sustain a damages claim if the claimant has failed to bring a judicial review allowing for the setting aside of the unlawful decision (this judicial review usually involves an application for interim measures).68 It should be noted that, as far as we can tell, there are no known public procurement cases based on the common procedure actions (see below) regarding damages which have not included a previous judicial review procedure. The difficulty in providing the necessary evidence for the causation test is not, however, the major reason for the few damages common procedure actions in public procurement. Indeed, it has even been argued that the award of damages is a ‘last resort’ remedy, applicable only when the setting-aside procedure did not provide an effective remedy for the claimant because primary relief was not provided to the claimant or the granting of primary claim did not prevent damages from occurring.69 It should be noted that the expedited setting-aside procedures and interim measures are often able to guarantee an effective judicial review which corrects the alleged infringement and prevents damages. In fact, these specific remedies can be used in order to set aside the unlawful decision and to request a judicial injunction against the contracting authority. In the case of an injunction, the 67  Carlos Ferreira de Almeida, Contratos I, 4a edn (Coimbra, Almedina, 2008) and Marco Caldeira, ‘Adjudicação e exigibilidade judicial da celebração do contrato administrativo no Código dos Contratos Públicos’ (2008) 140 O Direito 697–728. 68  This is due to the fact that the court may consider that the claimant has suffered damages that he/she could have avoided if he/she had used the expedited setting-aside procedures. 69  Claiming that primary legal protection through the setting aside of the act in breach is the primary remedy and that damages correspond to a ultima ratio remedy, see Carla Amado Gomes, Contributo para o Estudo das Operações Materiais da Administração Pública e do seu Controlo Jurisdicional (Coimbra, Coimbra Editora, 1999) 388.

Damages under Public Procurement  55 court orders, under special conditions, the contracting authority to take appropriate action.70 B. Damages Within the context of public procurement cases, damages claims can be obtained through the following different judicial procedures before the administrative courts. i. Common Procedure (acção administrativa comum) This is the form of action71 used to settle disputes relating, among others, to the liability of public or private parties under APECL. This procedure allows the claimant to present a damages claims for breach of public procurement law even if it is no longer possible to bring a setting aside procedure (eg because of the time limits). It is also the best-adapted procedure for bringing claims referring to damages not claimed in a previous setting-aside procedure. ii. Multiple Claims in an Expedited Procedure As a general rule, claimants can demand, at the same time, both the primary remedy (of setting aside) as well as an award of damages. In other words, the claimant can submit multiple claims in order to obtain simultaneously the quashing of the administrative order, and, for example, damages resulting from said administrative order. Setting-aside procedures in a public procurement context regarding the contracts referred to under article 100 PCAC need to follow the special expedited procedure for procurement claims.72 This emergency nature of the procedure is not entirely consistent with multiple claims (that may entail difficult and lengthy decisions). Therefore, it is not clear if public procurement cases are an exception to the multiple claim general rule. Authors who admit the simultaneous urgent set-aside application and damages argue that urgency of the judicial process is, in this case, lost.73 Considering this lack of certainty regarding the final results of this multiple claim, lawyers tend not to accumulate these two requests.

70   eg the court finds in favour of the setting aside of the decision which excluded a tenderer from the award procedure, and also orders, under certain conditions, the said tenderer’s admission to the procedure; the court can also determine which steps in the awarding procedure must be re-taken in consequence of that admission. 71  Arts 37 f PCAC. 72  This was decided by STA (12 December 2006), P 0528/06. 73  Cadilha, Regime, above n 32 at 131.

56  Vera Eiró and Esperança Mealha iii.  Expedited Setting-Aside Procedure (contencioso pré-contratual urgente) Article 102/5 of PCAC74 provides administrative judges with powers to invite the parties to agree upon an amount of damages whenever the primary claim’s judicial decision would result in an ‘impossible task’ for the contracting authority.75 This entails that even though the court might decide in favour of the setting aside of the unlawful decision, that decision would not constitute an effective review, because it would be impossible to ensure its compliance. This rule is very similar to the one, referred to below, that applies during the enforcement procedure. The novelty of the ruling under Article 102/5 is that it allows the transformation of a setting-aside remedy into a damages’ remedy at an early stage of the procedure, when the setting aside of the unlawful act is yet to be determined and thus preventing the ineffectiveness of that judicial review.76 When applying Article 102/5 PCAC, the administrative judges are, in fact, considering the conditions of claim for damages under public procurement.77 iv. Enforcement Procedure The claimant can commence enforcement procedures if the contracting authority fails to comply voluntarily with the administrative court’s decision setting aside the unlawful decision.78 It should be noted, however, that during the said procedure the court has the power to declare that the non-compliance is justified79: either it is an impossible task or because it must be declared impossible for overriding reasons relating to a general interest. In that case, the court will invite the parties to agree upon an amount of damages. If no mutual agreement is reached, then it is left to the court to determine the amount of damages.80 As will be apparent, this rule is similar to the one resulting from Article 102/5, except that it takes place at a more advanced stage of the judicial procedure.81   Which refers to art 45 of the PCAC.  See eg TCA Sul decision, dated 27 November 2008, P 04421/08. 76  This rule is applicable to set-aside procedures through arts 45 and 49 PCAC. Under art 45, the grounds for such transformation are (i) the impossibility to quash the decision and (ii) the exceptional harm caused to the public interest. The legal rule behind this procedure is complex and its application has not been decisively solved by the Portuguese courts. The main difficulty here is to determine the grounds on which compensation/damages would be granted by the court. On this matter, see Eiró, ‘Quanto vale’, above n 52 , passim. 77  See eg STA (30 September 2009), P 0634/09 and TCA Norte (11 May 2009), P 00978/04.5BEBRG. 78  The court can set time limits for necessary legal or material conduct to be taken by the contracting authority and set a daily pecuniary sanction to be applied during the non-compliance period – art 179 PCAC (wording from Sérvulo Correia, ‘Judicial Resolution of Administrative Disputes (Administrative Procedure in Portugal)’ in Dário Moura Vicente (ed), Comparative Law Portuguese-American Perspectives, I (Almedina, Fundação Luso-Americana, 2006) 323–36, 335). 79  In Portuguese ‘causa legítima de inexecução’. 80  Arts 166 and 178 PCAC. 81  In a recent decision, the STA has decided that damages are granted for the non-compliance of the setting aside decision in itself – that is, for the loss of the enforcement procedure – and granted damages as a compensation for the loss of the judicial set aside decision. The amount of damages was awarded on the basis of equity principles (STA (20 January 2010), P 047578A). 74 75

Damages under Public Procurement  57 C.  Standing and Who Can Bring a Claim A damages action is available to anyone who has been harmed by an alleged infringement of a contracting authority. If the damages claim is presented during, or in consequence, of a judicial review for setting aside the unlawful act,82 the claimant must be – and it is usually so as mentioned above – someone having or having had an interest in obtaining a particular contract and who has been harmed, or risks so being, by an alleged infringement. This includes every bidder unlawfully excluded from the procedure or unlawfully postponed to another one. It also includes every potential bidder who is unlawfully not informed of the tender or who is prevented from participating because of the unlawful criteria of the award procedure. There is some case law dismissing as inadmissible the special setting-aside procedure, on the ground that the claimant did not have an individual and direct concern in the complaint. The striking point here is that the judicial review must have direct influence on the interests of the bidder. That implies, for instance, that someone who was not a bidder in the award procedure (but could have been) cannot seek the setting aside of the award decision in the procedure concerned;83 and there is case law84 suggesting that a tenderer is allowed to seek the judicial review of a decision that excludes him from the procedure, but he cannot seek the setting aside of a decision that accepts another tenderer in the awarding procedure.85 D.  Time Limits for Bringing Claim i.  Common Procedure (acção administrativa comum) The limitation period for bringing a claim for damages based on a breach of public procurement rules is three years, which is the prescription time limit for lawsuits based upon extra-contractual civil liability.86 This limitation period begins to run when the complainant acquires knowledge of the circumstances that ground the claim, even though he ignores the identity of the obligor or the  Under Arts 102/5 or 166 and 178 PCAC.  TCA Sul (28 April 2005), P 00703/05. 84  TCA Sul (05 July 2007), P 02740/07. There are several other relevant decisions. As an example, the STA has already decided that the bidder ranked fourth can present a set-aside claim if such claim is grounded in such a way that the three other bidders would be excluded (STA (13 February 2002), P 048403). In another decision, the STA ruled that the bidder ranked second could present a setaside claim in order to exclude the bidder ranked first (STA (13 January 2005), P 01318/04). 85  The potential bidder will have to provide evidence that he will have an advantage if the act is quashed. In a recent decision, the TCA Sul considered that such evidence was not provided to the court and therefore considered that a potential bidder did not have standing. TCA Sul (29 January 2009), P 0474/09. 86  Art 5 APECL, that expressly refers the general rule comprised in article 498 Civil Code. 82 83

58  Vera Eiró and Esperança Mealha total extent of the damages.87 However, the claim must be brought within the time limit of twenty years from the date of the contracting authority’s unlawful decision.88 It must be noted, however, that these time limits are interrupted (the ‘clock’ is stopped and then restarted) when legal proceedings are brought, and during the pending judicial procedures for the setting aside of the unlawful decision.89 According to administrative courts’decisions, the ‘knowledge of the circumstances giving rise to the claim’ does not mean that the claimant must have technical knowledge of the legal regime, but only that he knows that he has suffered damages and that they have occurred because of an unlawful decision.90 ii.  Setting-Aside Application in an Urgent Special Procedure (contencioso pré-contratual urgente) As already explained, this special judicial procedure is an expedited procedure. Due to its urgent nature, the time-limit for the filing of a setting-aside claim is very strict, namely one month from the date of notification or, if notification does not occur, from the date of relevant knowledge. PCAC does not expressly refer to the time limits for bringing a claim under Article 102/5. E.  Frequency of Claims Although there are no official statistics on this subject, it is possible to say that, in public procurement, the use of damages as a specific remedial action (by means of a common procedure) is very infrequent as compared with the increasing number of interim remedies and expedited setting-aside actions. When preparing Directive 2007/66/EC,91 the Commission noted that an aggrieved supplier faced with a signed public contract, is often deterred from bringing a damages action for the following reasons: (i) actions in damages have no real corrective effect; (ii) damages actions are hampered by practical difficulties; (iii) the process is lengthy and costly.92 In our view, these reasons may be shared by Portuguese tenderers.  Art 498 Civil Code.  The time limit of three years commences when the potential bidder acknowledges the unlawful decision but no damages claim can be brought if that occurs twenty years after the date of the unlawful decision : Art 309 Civil Code. 89  Art 41/3 PCAC. 90  See eg STA’s decisions 07 March 2006, P 0889/05; 26 April 2005, P 0443/04; TCA Norte (12 March 2009), P 00534/07.6BEPNF. 91  The latter has not been implemented in Portugal yet (final implementation date is 20 December 2009). However, considering that damages have not been subject to any amendment, it is possible to argue that the implementation of Directive 2007/66 will probably bring no news regarding damages in Portugal. 92  Commission Staff Working Document, Annex to the Proposal for the Directive amending Council Directives 89/665/EEC and 92/13/EEC CEE, Impact Assessment Report – Remedies in the field of public procurement. 87 88

Damages under Public Procurement  59 Nonetheless it can be argued that damages actions are an additional remedy considering that interim measures and expedited setting-aside actions can, in public procurement, have a real corrective effect as regards an infringement. However, when these primary remedies cannot, for some reason (and this happens), provide sufficient relief, it is impossible not to notice that in Portugal, at least until the entering in force of APECL, the claimant did not have an easy route to obtaining damages.93 In spite of all the difficulties arising from Article 7/2 APECL, as noted above, it can be expected that its wording will bring significant changes to the Portuguese case law, especially as regards the casual link and the type of loss to be considered under European Law. It should be noted that although Article 7/2 wording is a direct result of the need to establish damages without fault, that particular condition for damages has not been responsible, under the law before APECL, for the negative response in awarding damages for public procurement infringements. IV. Conclusion

The Portuguese law on damages in public procurement vary in form. However, the grounds and conditions for a damages claim are found in Article 7/2 APECL. Due to the ECJ’s case law, the Portuguese damages rule does not differ from that under EU law.94 The novelty of this rule (and the consequent lack of jurisprudence) does not provide a complete set of responses to the question of damages in Portugal. Under the previous case law,95 much needs to be done in order to clarify the conditions of damages in public procurement, particularly as regards causality and quantum of damages issues. However, there are some promising developments regarding the ruling of damages under public procurement in Portugal. In fact, and despite the relative lack of damages claims, the Portuguese administrative courts are starting to deliver a message: effective damages remedies will be available and the bidders claim can in fact succeed. Considering the above, tenderers may start believing: yes we can!

93  Practical difficulties of the damages action may also arise from its length. In fact, and since it is not an urgent judicial procedure, on average a first instance judgment can last for more than two years. 94  As it expressly stated in APECL that grounds and conditions of a damages claim are ruled under EC Law for extra-contractual civil liability. 95  And taking into account certain decisions that may remain the same within the new regime.

4 Damages Remedy in England & Wales and Northern Ireland Fiona Banks and Michael Bowsher QC

I. Introduction

T

he EC directives requiring that remedies be made available for breach of procurement law obligations have been implemented in the UK by providing that such a breach amounts to a tortious breach of statutory duty. This approach to implementation made it easier to provide for the damages remedy required by the relevant directive (Directive 89/665/EC), but it has important effects as it dilutes the administrative or public law character which one might have expected would be part of the enforcement regime in respect of public procurement breaches (and is arguably a characteristic of the regime in other jurisdictions). As public procurement is enforced by the imposition of this tortious and legal (as opposed to equitable) obligation it is to be expected that, absent any special direction from EC law, the ‘pure’ common law jurisdictions of the United Kingdom (England & Wales and Northern Ireland) would accord some primacy to the award of damages as opposed to any other relief that might lead to direct correction of the breach. The English case law concerning the applicable principles for award of those damages appears to establish that the available damages include anticipatory compensation for lost profits (and margin recovery) or at least the lost chance of earning such a profit. This means that in principle there may be an ample damages remedy available to a challenging bidder. The focus of this chapter is to consider how the availability and importance of this damages remedy has affected the grant of interim, corrective relief in the English and Northern Irish courts. This raises, therefore, a question as to whether the traditional American Cyanamid test applied by these courts in deciding whether to grant interim relief is consistent with the objectives of the Remedies Directive.

62  Fiona Banks and Michael Bowsher This question remains of contemporary relevance following the implementation of the new Remedies Directive, Directive 2007/66/EC.1 Despite the procedural changes which that implementation has brought in, decisions of the High Court have continued to apply the American Cyanamid test in deciding whether to restrain a contracting authority from entering into contract on an interim basis pending trial.2 II. The Approach of the European Court of Justice to Procurement Remedies

The European Court of Justice in Alcatel,3 emphasised that the very purpose of the Remedies Directive (89/665)4 ‘is to establish effective and rapid procedures to review unlawful decisions of the contracting authority at a stage where infringements may still be rectified’.5 The Court, therefore, considered that the Remedies Directive required Member States to ensure that any contracting authority’s award decision, prior to the conclusion of any contract, be amenable to review ‘whereby an applicant may have that decision set aside if the relevant conditions are met, notwithstanding the possibility, once the contract has been concluded, of obtaining an award of damages’. Thus, the European Court of Justice appeared to be asserting the primacy of interim relief over damages in the context of procurement challenges. Such a conclusion makes sense as a matter of policy as it ensures that the objectives of the procurement regime are met and that the applicant does indeed receive a fair and equal chance of competing for the award of the contract in question. III. Remedial Priorities as expressed in the Remedies Directives

The fourth recital of Directive 89/665/EEC6 notes that ‘effective and rapid remedies must be available’ in order to open up public procurement to Community competition. That such remedies are to include interim measures is made clear by the fifth recital, as follows: 1  Effected in England, Wales and Northern Ireland by the Public Contracts (Amendment) Regulations 2009; the detail of these procedural changes lies beyond the scope of this paper. 2   Indigo Services (UK) Ltd v The Colchester Institute Corporation, [2010] EWHC 3237 (QB); Exel Europe Ltd v University Hospitals Coventry and Warwickshire NHS Trust [2010] EWHC 3332 (TCC). For a fuller narrative see Rayment, ‘In the balance’ Procurement & Outsourcing Journal, July/August 2011 p 22. 3   Alcatel (Alcatel Austria AG v Bundesministerium für Wissenschaft und Verkehr) Case C-81/88 [1999] ECR. I-07671. 4  Council Directive 89/665 on the co-ordination of the laws, regulations and administrative provisions relating to the application of review procedures to the award of public supply and public works contracts [1989] OJ L395/33 (now amended by Directive 2007/66/EC of the European Parliament and of the Council). 5  See Alcatel, above n 3 at para 38. 6  As amended by Directive 2007/66/EC.

Damages: England & Wales and Northern Ireland  63 [C]ompetent review bodies must, among other things, be authorised to take interim measures aimed at suspending such a procedure or the implementation of any decision which may be taken by the contracting authority; whereas the short duration of the procedures means that the aforementioned infringements need to be dealt with urgently.

The eight recital, although referring to the Commission bringing an infringement to the attention of competent authorities of the Member State concerned, emphasises the objective of the ‘rapid correction of any alleged infringement.’ Article 2(1) itself obliges Member States to ensure that there is power to: (a) take, at the earliest opportunity and by way of interlocutory procedures, interim measures with the aim of correcting the alleged infringement or preventing further damage to the interests concerned, including measures to suspend or to ensure the suspension of the procedure for the award of a public contract or the implementation of any decision taken by the contracting authority; (b) either set aside or ensure the setting aside of decisions taken unlawfully . . .; (c) award damages to persons harmed by an infringement.

There is no express indication in Directive 89/665/EEC as to which remedy should take priority over the others. However, the inherent balancing exercise in the granting of any interim relief is both recognised and expressly permitted in Article 2(4): [T]he body responsible may take into account the probable consequences of the [interim] measures for all interests likely to be harmed, as well as the public interest, and may decide not to grant such measures where their negative consequences could exceed their benefits.

It is not clear from Article 2(4) itself whether it is permissible for the adequacy of other relief to be taken into account in the balancing exercise. Whilst this may well be inherent in evaluating the probable consequences of granting interim measures, this is surely just one factor to be taken into account. The amendments introduced by Directive 2007/66/EC sought to address weaknesses in the review mechanisms of Member States. In particular, the mechanisms established by Directive 89/665EEC did not always ensure compliance with Community law, ‘especially at a time when infringements can still be corrected’.7 IV. The Approach of the English and Northern Irish Courts

The principal English decision dealing with the approach to be taken in awarding damages for breach of procurement law is the decision of His Honour Judge Humphrey LLoyd QC in Harmon CFEM Facades v Corporate Officer of the House of Commons.8 The Judge specifically noted that the contractual approach  See third recital of Directive 2007/66/EC.   Harmon CFEM Facades v Corporate Officer of the House of Commons (1999) 67 Con LR 1.

7 8

64  Fiona Banks and Michael Bowsher to assessment of damages was applicable to a claim for breach of procurement law.9 In the common law jurisdictions of England & Wales and Northern Ireland, the primary remedy for breach of tortious or contractual obligations is the award of damages. The common law position is, Justice Holmes noted, The duty to keep a contract at common law means a prediction that you must pay damages if you do not keep it – and nothing else.10

HHJ Humphrey LLoyd QC decided in Harmon that a tenderer is entitled to recover damages if he can show that he has been wrongfully deprived of a contract, or of a real and substantial chance of being awarded a contract and in consequence has wasted his costs of tendering or lost the chance of recovering them through the contract or has lost the net profit and contribution to overheads that he would have obtained or the chance of so doing.11 The Judge robustly asserted that the damages remedy should be an adequate and deterrent remedy. Citing the ECJ in Joined Cases C-46/94 & 48/93 Brasserie de Pecheur SA v Germany; R v Secretary of State for Transport Ex p Factortame Ltd,12 he held: In my judgment it is not enough that some remedy should be provided for, in my view, it is clear that from the cases culminating in the Brasserie de Pecheur SA case that the remedy should be both adequate and a real deterrent. Accordingly, it is necessary always to take care that the result of applying a national law which purports to implement a directive will sufficiently meet the requirements of Directive 89/665. It follows that the interpretation of a national law giving effect to a directive such as Directive 89/665 should be one which assumes that it is intended to achieve the objectives of the relevant directive, unless the language is completely inconsistent with that intention, in which case effect will have to be given to the parent directive or other law or principle of law for the national law will have failed to implement it. Accordingly regulation 31(3)13 must be read or applied in such a way that a contractor will recover all his losses incurred in consequence of the relevant breach even if such losses might not be recoverable under comparable or analogous provision of national law. The latter objective would not be met if a contracting authority were able to escape paying the full consequence of its breach.14

The availability of this damages remedy is significant for the grant of interim relief by the Court as under the usual English law principles on the grant of interim relief, the prospect of recovering such damages will be relevant to the Court’s decision whether to grant discretionary interim relief.

  Harmon, above n 8 at para 259.   ‘The Path of the Law’, (1896-1897) 10 Harvard Law Review 457, 462. 11   Harmon Judgment, above n 8 at 307. 12   Joined Cases C-46/94 & 48/93 Brasserie de Pecheur SA v Germany; R v Secretary of State for Transport Ex p Factortame Ltd [1996] ECR I-1029. 13   ie the equivalent of reg 47(6). 14   Brasserie de Pecheur, above n 12 at para 306. 9

10

Damages: England & Wales and Northern Ireland  65 The standard approach to determining whether to grant interim relief is set out in a body of case law which takes as its starting point the following passage from the judgment of Lord Diplock in American Cyanamid v Ethicon Ltd. [T]he governing principle is that the court should first consider whether, if the plaintiff were to succeed at the trial in establishing his right to a permanent injunction, he would be adequately compensated by an award of damages for the loss he would have sustained as a result of the defendant’s continuing to do what was sought to be enjoined between the time of the application and the time of the trial. If damages in the measure recoverable at common law would be adequate remedy and the defendant would be in a financial position to pay them, no interlocutory injunction should normally be granted, however strong the plaintiff’s claim appeared to be at that stage. ... It is where there is doubt as to the adequacy of the respective remedies in damages available to either party or to both, that the question of balance of convenience arises. It would be unwise to attempt even to list all the various matters which may need to be taken into consideration in deciding where the balance lies, let alone to suggest the relative weight to be attached to them. These will vary from case to case. Where other factors appear to be evenly balanced it is a counsel of prudence to take such measures as are calculated to preserve the status quo.15

HHJ Humphrey LLoyd QC perceived in Harmon that the effectiveness of interim remedies would be affected by questions as to whether damages would be an adequate remedy for the Claimant, or whether the Claimant had provided a sufficient undertaking to meet the losses of others in the event that it was shown that it ought not to have obtained interim relief. He specifically suggested (albeit that it was not directly relevant to the decision) that these American Cyanamid principles might present obstacles to the grant of interim relief.16 A.  Consideration of Damages Principles in Applications for Interim Relief in English Courts Subsequent cases concerning applications for interim relief have not taken a wholly consistent approach to the relevance of the damages remedy. It was common ground before Lewison J (as he then was) in DeVilbiss Medequip Ltd v NHS Purchasing and Supply Agency and Others17 that in deciding whether to suspend the implementation of an award of a contract based on a clear or admitted breach of Community obligations, the starting point is to correct the error. The Judge, however, did not consider that DeVilbiss was such a case.18   American Cyanamid v Ethicon Ltd [1975] AC 296 at 408 per Lord Diplock.   Harmon judgment, above n 8 at para 253. 17   DeVilbiss Medequip Ltd v NHS Purchasing and Supply Agency and Others [2005] EWHC 1757 (Ch). 18   DeVilbiss judgment , above n 17 at para 63. 15 16

66  Fiona Banks and Michael Bowsher Although not referring expressly to American Cyanamid principles in his judgment, Lewison J considered whether or not there was a serious issue to be tried. Despite concluding that there was no serious issue to be tried, the Judge held that even if he had found that there was, he still would have declined to grant any interim relief given inter alia that the Claimant had a right to recover damages under Article 32 of the Public Services Contracts Regulations 1993 (‘the 1993 Regulations’).19 Such an approach would appear to relegate interim relief to a secondary remedy behind damages given the availability of damages for anticipatory profits. BFS Group Ltd v Secretary of State for Defence and Purple Foodservice Limited,20 arose in the context of an incumbent operator (‘3663’) seeking to challenge the procurement and subsequent award of a contract by the Secretary of State for Defence to the successful tenderer (‘Purple’). In considering 3663’s application for an interim injunction to restrain the Secretary of State from entering into the new contract with Purple, the High Court accepted that damages would not be a wholly adequate remedy if 3663 were to succeed at trial. Nevertheless, the injunction application was rejected having regard to the need to maintain performance of the contract, and having regard to the interests of the winning bidder. If an injunction was to be granted and 3663’s challenge subsequently failed at trial, the Court considered that Purple might not be in a position to provide the supply without considerable further delay which would cause losses. Blackburne J could see that ‘formidable difficulties may arise in quantifying just what its losses are as a result of any delay’. In effect, damages were seen to be a less than wholly satisfactory remedy for both the Claimant and the winning bidder that would have to rely upon enforcement of the undertaking in damages if it were prevented from performing the contract on an interim basis. The balancing exercise undertaken in this case appears to fall squarely within that envisaged by Article 2(4) of Directive 89/665/EEC, the Court considering how the granting of the injunction would affect the interests of all likely to be harmed as well as the public interest, and in doing so having regard to the available compensation both in favour of the Claimant and other parties involved in the matter. Again, in the context of an application for an interim order to prevent a contracting authority from entering into a contract with the selected bidder, the High Court found in Lion Apparel Systems Limited v Firebuy Limited21 that in the event that Lion established at trial that Firebuy, the contracting authority, had committed a breach of an obligation owed to Lion, damages would be an inadequate remedy given the ‘very real difficulties in quantification of the profits that might have been made over 15 years if Lion had been awarded the   DeVilbiss judgment , above n 17, at paras 69–71.   BFS Group Ltd v Secretary of State for Defence and Purple Foodservice Limited [2006] EWHC 1513 (Ch). 21   Lion Apparel Systems Limited v Firebuy Limited [2007] EWHC 2179 (Ch). 19 20

Damages: England & Wales and Northern Ireland  67 contract’.22 Further, the Judge was not convinced that Firebuy would be good for the money if a substantial award of damages were made against it. Nevertheless, the application for injunctive relief was refused. The Court was clearly concerned that if the procurement process was suspended pending trial, the project itself could fail causing harm to Firebuy, other public authorities and possibly the wider public interest. On this basis the Court did not consider that damages would be an adequate remedy for Firebuy and others. In going on to consider the balance of convenience, given that Lion had only demonstrated ‘a weak case for saying that Firebuy committed a manifest error of evaluation,’23 that case was insufficient to interrupt the procurement process where that interruption might cause the entire project to fail. Had Lion been able to demonstrate a stronger case at that stage, the balance of convenience may have fallen in their favour. The Court of Appeal had to consider interim relief in the context of a procurement challenge in the case of Lettings International Ltd v London Borough of Newham.24 The High Court had initially granted an interim injunction on the application of Lettings against the contracting authority restraining it from entering into any contract or framework agreement pursuant to the procurement that was being challenged. This injunction was later discharged on the application of the contracting authority. Lettings sought to appeal this decision before the Court of Appeal. Moore-Bick LJ considered that the considerations governing an application for interim relief under regulation 47(8)(a) of the Public Contracts Regulations 2006 were so similar to those which arise on the ordinary application for an interim injunction that the American Cyanamid principles should be applied. Having considered that there was a serious issue to be tried, the Court turned to the question of the adequacy of a remedy in damages.25 The principal argument made on behalf of Lettings was that if the contractor was confined to a remedy in damages, the quantification of its loss would be very difficult because not only would it be a claim for the loss of the chance of being successful in a fairly operated tender process but also the consequential loss of the chance of being called on by the council to provide services pursuant to the framework contract.26 The Court took into account the fact that no contract had as yet been awarded: what Lettings really sought was a fresh opportunity to be successful. The evidence filed by the council demonstrated that the tenders would expire if contracts were not shortly entered into. This might mean that new tenders would have to be evaluated should the injunction remain in place. Prices under these fresh tenders might be less advantageous. However, it was relevant that   Lion judgment, above n 21 at 213.   Lion judgment, above n 21 at 215. 24   Lettings International Ltd v London Borough of Newham [2007] EWCA Civ 1522. 25   Lettings judgment, above n 24 at para 12. 26   Judgment, para 33. 22 23

68  Fiona Banks and Michael Bowsher there was no suggestion that the contractor would not remain able to meet any judgment for damages which the council may obtain if it proved successful at trial. Nor was there any suggestion that the existing arrangements would not continue to function pending the resolution of the proceedings, which if expedited need not be delayed too long. In these circumstances, the Court considered that damages might not be a wholly adequate remedy for either party but that they would prove to be far less of an adequate remedy for the contractor than for the council. The balance of convenience, therefore, lay in maintaining the interim injunction. The adequacy of the damages remedy, therefore, seems to be at least one key if not decisive factor in deciding whether interim relief should be granted. Even following this decision there remains a diversity of approach amongst English High Court judges dealing with these matters. In some cases such as European Dynamics SA v HM Treasury27 and B2Net Ltd v HM Treasury28 the judges have been fairly ready to accept that an adequate damages remedy was available. Indeed Akenhead J set out a detailed guide as to how damages could be recovered on a loss of chance basis in European Dynamics and went on as follows: An argument has been advanced that in effect there is a presumption that injunctive relief is the primary remedy and that therefore adequacy of damages should not weigh heavily in the balance if at all. That is not the law and practice in this country as I am bound by the Cyanamid decision. One has to bear in mind that, if any public procurement could be stopped by injunction because there was merely a serious issue to be tried about the procurement, without more, the public authorities would be invariably targeted by the unsuccessful tenderers and public procurements would or could grind to a halt.

In other, often ostensibly quite similar cases, judges have been quicker to find that damages would not afford an adequate remedy. In Morrison v Norwich CC,29 Arnold J applied Lettings in respect of at least one head of claim and accepted that damages would not be adequate and in Alstom Transport v Eurostar International Ltd,30 Vos J did not accept that the loss of the contract, particularly a high profile contract for the claimant, could be compensated for in damages. He stated that valuation of a lost chance is always a difficult process and noted that any reputational and market position losses would be very difficult to compensate for.

  European Dynamics SA v HM Treasury [2009] EWHC 3419 (TCC); [2010] EuLR 397.   B2Net Ltd v HM Treasury [2010] EWHC 51 (QB); [2010] EuLR 61. 29   Morrison v Norwich CC [2010] EWHC 487 (Ch). 30   Alstom Transport v Eurostar International Ltd [2010] EWHC 2747 (Ch). 27 28

Damages: England & Wales and Northern Ireland  69 B.  Recent Northern Irish Cases An application for interim relief was also successful in the Northern Irish case of Partenaire Limited v Department of Finance and Personnel.31 It was accepted that the granting of interim relief by the Court under Regulation 32(5) of the 1993 Regulations was discretionary and that the American Cyanamid principles applied to the exercise of that discretion. This case concerned a challenge to a decision of a contracting authority not to select the applicant as one of the two bidders selected to proceed to the Best and Final Offer stage. The applicant successfully sought an interim injunction to restrain the contracting authority from proceeding to the Best and Final Offer stage, until after final judgment. Coghlin J was convinced that there was a serious issue to be tried. He, therefore, went on to consider whether damages would be an adequate remedy, noting that the contract in question was a long-term contract intended to run for some 20 years. The Judge was of the view that the applicant might succeed in showing that it should have been awarded Preferred Bidder status or simply that it should have been included in the Best and Final Offer stage, which would involve a damages assessment on the basis of loss of a chance. Whilst the assessment of damages might prove difficult, it would not be impossible. Nevertheless, the Court took into account the fact that the applicant’s principal claim for relief was for an order setting aside the decision to exclude it from participating further in the procurement process. In considering the adequacy of damages, Coghlin J concluded that: [I]t is important to bear in mind that the primary objective that the 1993 Regulations and Council Directive 92/50/EEC are intended to implement is the open and transparent award of public service contracts. Such open and transparent competition is not only in the interests of the applicant but also that of the general public. Indeed it seems to me that it might well be argued that the European jurisprudence reflected in the Remedies Directive as interpreted by decisions such as Alcatel [1999] ECR I-7671 intended injunctive relief to be the primary remedy. After giving the matter careful consideration I am not persuaded, given the particular circumstances of this case, that damages would be an adequate remedy. (emphasis added)

It seems, therefore, that Coghlin J was departing from the pure application of American Cyanamid and was at least prepared to contemplate an approach more akin to that suggested in Harmon. The same judge was prepared to grant an interim injunction to prevent a contracting authority from entering into a framework agreement in the case of Henry Brothers Ltd & Others v Department of Education for Northern Ireland.32 The framework agreement involved 12 to 13 projects totalling £54.5 million. Noting this figure, Coghlin J, as in Partenaire, recognised that the   Partenaire Limited v Department of Finance and Personnel [2007] NIQB 100.   Henry Brothers Ltd & Others v Department of Education for Northern Ireland [2007] NIQB 116. 31 32

70  Fiona Banks and Michael Bowsher calculation of damages was not impossible. However, given the context of a framework agreement due to run for a period of four years, any claim for damages would be problematic given that it would be based on the loss of a chance to both participate in the secondary competition and ultimately to secure one or more of the specific projects over such a period. Further, Coghlin J considered that it was unclear whether confirmation of the result of the primary competition would constitute entering into a contract so as to exclude the applicant from obtaining interim relief, by virtue of the application of Regulation 47(9) of the Public Contracts Regulations 2006 (‘the 2006 Regulations’). The Judge repeated his statement in Partenaire before concluding that he was not satisfied that damages would be an adequate remedy. In both cases, therefore, the Judge was prepared to consider whether damages would be an adequate remedy in the context of the aims and objectives of the European procurement regime, leading him to conclude on the facts that damages would be inadequate, despite that fact that in neither case could it be said that the assessment of damages would be impossible.33 The availability of interim relief in order to suspend a procedure aimed at concluding a framework agreement was also the subject of the Northern Irish case of McLaughlin and Harvey Limited v Department of Finance and Personnel,34 this time before Deeny J. Having found that there was a serious issue to be tried, the Judge turned to the adequacy of damages. It was noted that if the applicant was to succeed at the trial, the contracting authority would be in a financial position to meet an order for damages if made. Deeny J contrasted the proposal in question that there be five contractors in the framework agreement to cover a period of four years with the situation in Partenaire where the proposed contract was to run for a period of some 20 years: Certainly retrospectively one would have thought it would be far from impossible to assess the loss of profit to the plaintiff arising from an unlawful deprivation of one of those five places.35

While, therefore, the Judge acknowledged that damages would not be easily assessable, the applicant had not shown that they would be inadequate and so the application was rejected: the fact that the applicant firm wished to do the work and not merely claim damages was insufficient (this clearly contrasts with Coghlin J’s assessment in Partenaire above). In order to show the inadequacy of damages, the applicant firm had to go further and show that it would suffer damage in: 33  In fact interim relief was not granted in Henry Brothers as the public interest in schools modernisation programme prevailed over other factors. Interestingly the relevant injunctive relief was granted almost a year later at the end of trial after the framework agreement in question had been concluded. The court decided to set aside the framework agreement. 34   McLaughlin and Harvey Limited v Department of Finance and Personnel [2008] NIQB 25. 35   McLaughlin judgment, above n 34 at para 9.

Damages: England & Wales and Northern Ireland  71 [S]ome crucial or intangible way over and above the loss of profits from participating in the Framework Agreement. The court was not told the number of employees for example of the company let alone the number who would have been working under this Framework Agreement. Importantly it seems to me that case was not made, because it could not be made, that without access to this Framework Agreement the very existence of the company might be threatened. As I pointed out above this Framework Agreement is one of only a number of significant source of public construction work in the coming years. If it were otherwise that might well be a significant factor in assessing the adequacy of damages.

Deeny J. seems, therefore, to have been more open to treating the damages remedy as inherently adequate and regarding that as a reason in itself for declining to grant interim relief. The Court also took into account the fact that the applicant’s undertaking in damages would not fully compensate the contracting authority in the event that an interim injunction was granted but the defendant succeeded at trial. Deeny J considered another important aspect, which could either be considered as part of the balance of convenience or as a special factor, being that the court, pursuant to the 2006 Regulations, might be able to order the defendant to add the claimant to the list of contractors who benefit from the framework agreement. Finally, in considering the balance of convenience and justice, the Court emphasised a further factor that could weigh heavily in an assessment of this kind: It cannot be in the public interest for the public to both pay one contractor for a project, particularly a large one, and to pay a second contractor the profit on such a project from which he was unlawfully excluded. The risk of such an outcome would clearly lead many public authorities to accept some delay in going forward with their projects, by way of interim order or undertaking.36

This factor, however, was not central to the balancing exercise in McLaughlin, the Department of Finance and Personnel having made clear that this was a risk that it was prepared to undertake on the particular facts of the case. Deeny J has most recently considered the availability of interim relief in this context in the case of Federal Security Services Limited v Chief Constable for the Police Service of Northern Island and Resource Group Limited.37 The claimant in this case (Federal) was the supplier of security, guarding, driving and associated services to the Northern Ireland Police service (‘the Police Service’) pursuant to a contract which was due to end on 1 March 2009. On that date the services of 500 employees of Federal were due to transfer to Resource, the second defendant who had been successfully awarded the contract. Federal sought an injunction preventing the Chief Constable of the Police Service from taking any steps towards implementing the contract so awarded.   McLaughlin judgment, above n 34 at para 18.   Federal Security Services Limited v Chief Constable for the Police Service of Northern Island and Resource Group Limited, [2009] NI Ch 3. 36 37

72  Fiona Banks and Michael Bowsher The Court rejected the defendant’s arguments that the court had no power or jurisdiction to grant an injunction on the basis that the contract had already been awarded. The Court held that Regulation 47(9) of the 2006 Regulations should be read as referring to a contract complying with the principles of Community law including transparency, effectiveness of remedies and equality of treatment. However, this contract was awarded in breach of a Community obligation pursuant to Regulation 47(1): there was no equality of treatment in this case because if the contract was allowed to stand without being considered by the court, Resource would be in a protected position and Federal would be excluded from any possibility of winning the contract even if the procedure adopted was unlawful. It was conceded by the Chief Constable that Federal had shown there was a serious issue to be tried. In considering the adequacy of damages, Deeny J took into account that 70 per cent of Federal’s business was connected with the contract. If an injunction was not granted, TUPE legislation would require Federal to transfer over 500 employees, including a significant part of the management of the company, to the Chief Constable the following Saturday. Deeny J did not, therefore, consider that Federal could restore itself to its then existing position merely by an award of damages.38 With regard to the adequacy of damages for the defendant should Federal ultimately lose, the Judge had no doubt that Federal could continue performing its existing functions for at least another 6 months and would continue to earn a profit over this period. Of particular interest, Deeny J considered that this was not a typical commercial case where the profit of one party may well be the measure of the loss of the other party. Echoing in this comments in McLaughlin, the Judge highlighted that any damages awarded to Federal would be borne by the public. It could not be in the public interest for the taxpayer to pay both the profits of Resource and the lost profits of Federal. The Judge then concluded: ‘It seems to me therefore that the issue of damages and undertakings should weigh less in the context of public procurement than perhaps in truly commercial cases.’ This suggests a movement again by Deeny J away from the straightforward application of American Cyanamid in procurement cases. The Court, therefore, did not need to go on to address the balance of convenience but in any event was of the view that it clearly favoured Federal. The acceptance by the defendant in this case that there was a triable issue excluded any discussion as to the strength of Federal’s case. Although not necessary for the resolution of the application, the Court considered that the public interest in the best economic operator being selected, after a review by the court, might constitute a special factor favouring Federal.

 See Federal, above n 37 at para 38.

38

Damages: England & Wales and Northern Ireland  73

Conclusion

We have not set out the facts of each of the prospective damages claims in detail here as each of these decisions is essentially an exercise of discretion on an assessment as to how the case might develop in the two alternative scenarios in which interim relief is or is not granted. Beyond the proposition that American Cyanamid applies there may be little that can be analysed as a hard-edged legal issue. Rather these cases illustrate a diversity of judicial approach in deciding how the availability to the Claimant of a possible damages remedy should affect the availability of interim relief. The straightforward application of American Cyanamid principles can cause difficulties. For instance, the decision in McLaughlin would appear to be setting too high a threshold for the availability of interim relief if in fact an applicant has to show that the very existence of the company is in jeopardy. By comparison, in Alstom, key evidence of possible reputational damage was adduced and might have been decisive in favour of the grant of interim relief were it not for other public interest and related factors balancing against grant of interim relief. The effect of American Cyanamid in cases such as this is uncertain. Deeny J’s own judgment in Federal repeats concerns seen in Partenaire and Harmon as to whether it is appropriate to apply the American Cyanamid test, a test devised in the context of a commercial action, in the public procurement arena. While some of the cases noted above appear to have contemplated that in some cases damages could be an adequate remedy for a dissatisfied tenderer, dicta in Harmon, Partenaire and Henry Brothers would suggest that where an applicant is seeking primarily the opportunity to have a fresh and fair chance at bidding for a contract. If that is right damages can never be an adequate remedy, particularly in light of the ECJ’s decision in Alcatel. The key legal question is then whether that tension can be reconciled within the intellectual framework provided by American Cyanamid or whether a different framework must be applied to the issues before the Court in these cases. As matters stand there is at the very least considerable uncertainty as to how the availability of a potential damages remedy affects the likely grant of interim corrective relief. Even if there are some indications that the damages remedy is not always sufficient, this is unsatisfactory as it creates serious uncertainty and provides an unwarranted opportunity for contracting authorities to avoid correcting their errors simply by relying upon the availability of the very substantial entitlement to damages for lost profits. Would it not, therefore, be more appropriate for the courts to view any application for interim relief from the starting point that, where possible, infringements should be corrected? This would, on one view, protect the public interest and also the position of the applicant who suffers from the infringement: ultimately the would-be contractor seeking an injunction wants to be given another opportunity

74  Fiona Banks and Michael Bowsher to win the contract on a level playing field. Any interim relief will always be discretionary and so the balance of convenience would still be integral to the assessment. One could argue that it is this remedy (more akin to an administrative or judicial review remedy) which should be the primary remedy. Akenhead J’s judgment in European Dynamics might be extrapolated in reply to this to the effect that such an approach would expose all procurements to an unacceptable risk of disruption from complaints which might not all be meritorious. If that were right, it is less clear where the public interest would lie. Of course the balance in favour of interim injunctive relief might be sig­ nificantly altered by providing expressly that non-damages relief is to be the primary remedy and that damages should be available only in the event that other factors make it inappropriate to grant corrective relief. (It might of course be said that Alcatel more or less says this already). Alternatively, the damages remedy could be limited to recovery of bid costs, as is the case in the US regime and contemplated in new UNCITRAL model law. The damages remedy would then be capped and prima facie inadequate. The ‘damages’ remedy could be provided for as an ancillary, purely statutory entitlement much like the sorts of statutory compensation provided for under utilities legislation for disruption to property. Either route would have to be provided for by legislation. While the first could probably be effected by case law, the reality is that following the approach of the Court of Appeal in Lettings,39 domestic legislation would probably now be required to clarify how the various remedies provided for under the Regulations are to relate to each other. The second route would probably have to be implemented by EU legislation as it would involve providing a less effective remedy than the equivalent remedy of damages for lost profits available (or potentially available) for breach of a Blackpool Aero contract. Any domestic measure reducing the adequacy of the damages remedy for breach of procurement law obligations would probably be said to be invalid as contravening the principles of equivalent and effective remedy.

39   As well as other Court of Appeal authority concerning questions of jurisdiction over public procurement matters.

5 Damages for Breach of Procurement Law The Dutch Situation Jan M Hebly and Folkert G Wilman

I. Introduction

I

n the Netherlands, legal action is regularly taken because of alleged breaches of European procurement law. The major part of these cases are proceedings for interim relief. Claims for damages, however, cannot in principle be submitted in proceedings for interim relief, but must instead be brought in proceedings on the merits. In the Netherlands, such claims for damages are only occasionally brought before the courts. In this chapter, an outline will be given of the framework that is applicable to such claims. This will be done by means of the applicable statutory provisions and – in particular – the available case law.1 Underlying questions in this respect are the barriers a company seeking justice has to overcome to be awarded a claim for damages because of a breach of European procurement law and to what extent it can be stated that the Dutch system provides effective legal protection in this respect. The structure of this chapter will be as follows. First, the general framework for claims for damages due to a breach of procurement law will be set out. Subsequently the basis and conditions for such claims will be discussed. Thereafter, examination will be made, more specifically, of the required causal connection between wrongful conduct by the contracting party (which is presupposed here) and the damage, as well as to the question of damage a company can recover in this respect. Finally, access to the court is discussed for companies that believe that they suffered damage as a result of wrongful conduct in a tendering procedure. Within this context, both the formal legal issues, as well as the use made of this by companies in practice, will be discussed. 1  It should be observed that because of the limited number of court decisions on this subject, no settled case law or generally applicable rules exist (yet).

76  Jan M Hebly and Folkert G Wilman

II.  General framework

In the Netherlands, procurement law is qualified as falling within private law because in the Dutch doctrine the government in principle acts in the same capacity as any other private party. More specifically, a government decision related to a tendering procedure qualifies as an ‘order in preparation of a legal act under private law’. In the Netherlands there is no appeal against such a decision to the administrative court.2 It is therefore in principle the civil court that will have to deal with procurement disputes. Thus, the Dutch civil courts will rule upon, for example, claims for breaking off a tendering procedure, the renewed assessment of the applications or the cancellation of an award decision. Such claims are generally urgent and decisions on these matters are therefore mainly made in proceedings for interim relief. Although it is only a provisional judgment according to the doctrine, in practice the court for interim relief usually gives a final decision about the legal relationship between the parties. In the Netherlands, proceedings for interim relief about a procurement dispute are hardly ever followed up by separate proceedings on the merits. Under Dutch law, on the other hand, in principle no damages can be awarded in proceedings for interim relief.3 For the last-mentioned claim it is therefore necessary to institute proceedings on the merits. Also in these cases the proceedings are proceedings before the civil court. In the past the question has been discussed whether a court would need a specialised ‘procurement division’, but this question was answered in the negative by the legislator. The Netherlands does therefore not have specialised courts that only deal with procurement disputes. Formerly a large part of the Dutch procurement disputes (particularly in the construction industry) was settled in arbitration proceedings. A few years ago, however, the Dutch central government abandoned the custom to automatically include an arbitration clause in the regulations that are applicable to procurement. This example was followed by the majority of the local authorities. Since then most of procurement disputes in the Netherlands have been resolved by the ‘ordinary’ civil courts. It should be noted that a Dutch court recently lodged a reference for a preliminary ruling with the European Court of Justice (ECJ) about the conformity of the present Dutch system of legal protection in the event of tendering procedures with the applicable requirements governed by European law in this area.4 Although it is hard to predict the outcome of these, it does not seem obvious, however, that the answers of the ECJ will be such, that the existing Dutch sys-

 Art 8:3 Dutch General Administrative Law Act.  Cf. Rotterdam District Court for proceedings for interim relief 29 May 2008, LJN BD2742; Utrecht District Court for proceedings for interim relief 29 April 2008, LJN BD0636. 4  Case no C-568/08. 2 3

Damages: The Dutch Situation  77 tem will have to be modified fundamentally.5 Another recent development is related to the transposition of the amended Remedies Directive into Dutch law.6 The legislative proposal for this purpose is limited to strictly necessary implementation. It does not include, at least for the moment, any further adjustments.7 It is partly for this reason that this aspect will largely be disregarded in this paper. This also applies to the new Procurement Act under preparation, particularly because this legislative proposal will not, or is unlikely to have, any consequences for the possibilities for claiming damages.8 III. Basis and conditions for damages

Within the Dutch system, two provisions are a potential basis for damages on account of a breach of procurement law. In the first place, one must refer to the onrechtmatige daad (tort, delict or quasi-delict).9 This is taken to mean, among other matters, a violation of a right, or an act or omission in conflict with a statutory duty. The person who commits an onrechtmatige daad (tort, delict or quasi-delict), which may be imputed to that person, is obliged to compensate the resulting damage that another person suffers. This is the most common basis for the claims for damages discussed in this chapter. Under some circumstances, a breach of contract (wanprestatie) (attributable non-performance) can also be adopted as a basis for liability.10 Invoking a breach of contract (wanprestatie) presupposes of course the existence of a contract. Such a (pre-) contract is usually considered to exist in cases where the contracting party has declared tendering regulations applicable. In such event submitting a tender or showing an interest in the contract put out to tender will be considered as the acceptance by the tenderer of the applicability of these regulations. In this way, a contract has been concluded between the tenderer and the contracting party, in which detailed arrangements are made about the rights and duties of these parties. For the settlement of procurement disputes in practice it is of no importance or of hardly any importance what basis is assumed. At least the case law does not show that this is relevant for the substantive assessment.11 In the legal 5   FG Wilman, ‘Het Nederlandse stelsel van rechtsbescherming bij aanbestedingen onder vuur? Prejudiciële vragen van de rechtbank Assen in case C-568/08’, NTER 2009/166. 6  Dir 2007/66/EC. 7  See for the legislative proposal TK 2008–2009, 32027, nos 1–4. 8  A first proposal for the new Procurement Act, as well as the related consultation document, is available on the website of the Dutch Ministry of Economic Affairs, www.ez.nl. 9  Art 6:162 of the Dutch Civil Code. 10  Art 3:74 of the Dutch Civil Code. 11  In many cases a claimant bases his claim in both bases. The choice of the basis is hardly ever discussed when the dispute is assessed on its merits. See, eg, the course of the proceedings in the judgments of the Dutch Supreme Court of 9 May 2008, LJN BC7679, and of 25 January 2001, NJ 2002/227. The question as to the basis, however, is discussed in the judgment of the Court of Appeal’s-­Hertogenbosch of 26 November 1990, BR 1991/641.

78  Jan M Hebly and Folkert G Wilman literature it is assumed that this distinction is of no (or hardly any) importance in this respect.12 Based on an action arising from an onrechtmatige daad (tort, delict or quasidelict), the most important elements for a successful claim for compensation are: (i) the imputable unlawfulness, (ii) the damage and (iii) the causal con­ nection between these two elements. For the purpose of this contribution, it is assumed that the unlawful conduct can be imputed to the contracting party involved. The elements causation and damage will be discussed in detail below. Because Dutch law does not have a special regulation for claims for damages due to a breach of procurement law, no further special conditions apply within this context. IV. Causation

As regards the issue of causation, the main question is what the relevant criterion is for answering the question whether or not damages can be awarded. Dutch case law and legal literature show that the applicable criterion depends on the circumstances of the case. It is of particular importance whether the claimant takes the position (i) that the contract put out to tender should have been awarded to him, or (ii) that he was wrongly deprived of the chance to make a bid for the contract. The first event occurs, for example, when the contract is awarded by a contracting entity to company A, and it later turns out that this company does not meet the eligibility requirements and its participation is therefore invalid. In such an event company B, that had finished second after company A in the tendering procedure, can take the position that the contract should have been awarded to him. As soon as it has been established that the tender of company A is invalid, the claim for damages of company B is in principle ready to be allowed. In such a case, it is conceivable that the contracting entity adduces two circumstances in an attempt to avoid the claim for damages being allowed. Judging by the present case law and obviously depending on the circumstances of the case, however, the chance of these defences being successful usually seems to be small. First, the contracting entity may argue that the causality connection is broken, because it is in principle entitled during the entire tendering procedure to decide not to award the contract. This might entail that it is therefore not certain that the contract would indeed have been awarded to company B, even if the tender of company A had been declared invalid on time. In general, however, there is no room for such a defence if the contracting entity has not 12  MJ Niersman and DC Orobio de Castro, ‘Aansprakelijkheid bij overheidsaanbestedingen’ (2008) 1 Overheid en Aansprakelijkheid 20 ff; EH Pijnacker Hordijk, GW van der Bend and JF van Nouhuys, Aanbestedingsrecht. Handboek van het Europese en het Nederlandse aanbestedingsrecht (Den Haag, Sdu Uitgevers, 2009), p 622.

Damages: The Dutch Situation  79 actually made use of this possibility for not awarding the contract. If the contracting entity has in fact already awarded the contract, this defence will usually be brushed aside as being implausible and unverifiable.13 There may be more debate about the second possible defence of the contracting entity, namely that the tender of company B – on reflection – also has to be declared invalid. It happens not infrequently that the contracting party once more goes over the tender of company B with a fine-tooth comb, as soon as this party institutes or threatens to institute legal proceedings. It is settled case law that a contract put out to tender cannot be awarded to a tenderer who made an invalid bid, because this would be in conflict with the principle of equal treatment of tenderers. By establishing the invalidity of the claimant›s tender, the required causal connection can be broken in theory.14 The discussion in the Netherlands is in particular focused on the question whether the contracting entity is entitled to invoke this latter scenario, during the proceedings on the merits about the claim for damages. The Court of Appeal in The Hague ruled, for example, that the contracting entity does not have such right. It substantiated its decision by pointing out that in damages proceedings, the interests of third parties – especially other tenderers – are not at stake (anymore). According to this reasoning, there is therefore no longer a threat of a violation of the principle of equality at that moment. The principle of legitimate expectations may entail that the contracting entity forfeited its right to invoke the invalidity of the claimant’s tender as yet, as it had not done so at an earlier moment.15 This reasoning has been criticised from various sides. Within the context of the cassation proceedings against the judgment referred to above, for example, the Advocate General observed that disregarding the invalidity of a tender in proceedings for damages instituted by the tenderer for not being awarded (or a chance of being awarded) the contract, would result in that the tenderer in question might be able to claim the compensation of ‘damage’ that he did not suffer, or at least not due to the failure to secure (or a chance of being awarded) the contract. This is considered unacceptable. According to the Advocate General this is not changed by the fact that the tenderer in question might have had legitimate expectations that his tender was valid and that in proceedings for damages the interests of other tenderers are not at stake. He also observes in this respect that it remains the question whether the interests of other tenderers in this situation are indeed not at stake. Other tenderers, after all, may indeed suffer a loss from a payment to compensate damage not suffered. This view of 13  Rotterdam District Court 8 October 2008, LJN BG3796; Court of Appeal ’s-Hertogenbosch 26 November 1990, BR 1991/641; Niersman and Orobio de Castro, ‘Aansprakelijkheid bij overheidsaanbestedingen’, above n 12 at 26. 14  See, eg, the judgment of the Rotterdam District Court of 8 October 2008, LJN BG3796. 15  See the judgment of the Rotterdam District Court and the Court of Appeal The Hague, as shown in the judgment of the Dutch Supreme Court of 9 May 2008, LJN BC7679. The Dutch Supreme Court did not give an opinion on this matter with respect to content.

80  Jan M Hebly and Folkert G Wilman the Advocate General has been supported in the legal literature and was also followed in a recent decision of a lower court.16 A variation on the aforementioned situation is that mistakes were made during a tendering procedure, but these mistakes did not necessarily affect the outcome of the tendering procedure. Consideration could be given, for example, to procedural mistakes when assessing the tenders. As regards the issue of causation, under Dutch law it is not only relevant in such circumstances whether the tender of the claiming party should have been assessed higher (and thus be awarded the contract as result), but also to which extent these mistakes should have led to a higher score for the other tenderers.17 Subsequently the second possible situation must be considered, namely the situation in which the claimant argues that he was wrongly deprived of the possibility of making a bid for the contract. This may occur, for example, when a contract should have been put out to European tender, but was not. It is usually assumed relatively soon that in such an event at least some damage has been suffered (normally due to the loss of a chance to make a bid for the contract) and that the causation requirement has been met.18 In an oft-cited judgment of the Utrecht District Court, it was decided that in this situation, the question should be answered whether, if the contract had been put out to European tender, the claimant in question: (i) would have been able to compete; and (ii) would have met the reasonable selection requirements that would have been required at that time. According to the District Court, it is the responsibility of the claiming company to make a convincing case that it would have been able to compete (question i). If the company succeeds in doing so, it is subsequently the responsibility of the government institution concerned to substantiate its defence, if any, that this company would not have met the requirements and could therefore not qualify for being awarded the contract (question ii).19 V. Damage

In one recent decision, in which the unlawfulness and the causation in a procurement dispute were determined without too much difficulty, a Dutch court concluded that determining the amount of the damage was ‘no easy task’.20 This is also the picture that emerges from the available case law, in particular in cases in which it is indeed established that the contract was wrongly awarded to a specific party, as this does not establish to which party the contract should 16  Commentary from LC van der Berg to the judgment of the Dutch Supreme Court of 9 May 2008, TBR 2008/183; Rotterdam District Court 8 October 2008, LJN BG3796. 17   Zwolle-Lelystad District Court 31 January 2007, LJN AZ7506. 18  Amsterdam District Court 18 June 2008, LJN BE9537; Niersman and Orobio de Castro, ‘Aansprakelijkheid bij overheidsaanbestedingen’, above n 12 at 23. 19  Utrecht District Court 4 July 2001, BR 2002/91. 20   Zwolle District Court 31 January 2007, LJN AZ7506.

Damages: The Dutch Situation  81 have been awarded instead (for example a contract has wrongly been awarded without a European tendering procedure). Partly for this reason, litigation in the Netherlands regularly takes place in two steps: first the ‘main action’ to establish the unlawfulness (in the course of which the issue of causation is usually also addressed), secondly, the so-called ‘follow-up proceedings for the determination of damages’ to determine the amount of the damage. An order for compensation of damage to be assessed by the court – and therefore the commencement of follow-up proceedings for the determination of damages – will be given if the court believes that the damage cannot be estimated in the judgment in the main action.21 At that stage, the onus on the claimant is to show only that there is a likelihood of damage (including loss of the opportunity of being awarded the contract. 22 Although the threshold for being awarded this claim is relatively low as a result, a claimant who fails to advance and show anything in this respect, may nevertheless still founder on this.23 It should be noted that in practice the follow-up proceedings for the determination of damages are not always completed in full, either because the parties agree upon a settlement as they go along, or because the claimant is satisfied with the fundamental redress (and publicity) deriving from a positive decision in the main action. In Dutch law, however, there is no obligation to have the damage assessed in follow-up proceedings. As stated above, the starting principle is the assessment of damage in the main action. Moreover, in procurement disputes the court itself often sets the amount of the damage at a specific amount in the main action, in the form of a percentage of the tender amount or a fixed amount.24 The law leaves room for the court in this respect: it has only been laid down that the court assesses the damage in the way that is most in line with the nature of the damage. If the extent of the damage cannot be determined exactly, it can be estimated by the court.25 In order to be better able to determine the amount of the damage, an expert may also be appointed.26 In the Dutch system, several items qualify for compensation. In the first place consideration should be given to the issue of loss of profits. In some cases the usual profit margin for the specific products at issue is taken as a basis for these purposes.27 In particular the Court of Arbitration for the Building Industry (Raad van Arbitrage voor de Bouw) – which settled the majority of the procurement

 Art 612 of the Dutch Code of Civil Procedure.  Amsterdam District Court 18 June 2008, LJN BE9537. See also Dutch Supreme Court 25 January 2002, NJ 2002/227. 23  Leeuwarden District Court 14 March 2007, LJN BA0935. 24  See, eg, District Court Zwolle 28 April 2004, TA 2004/12 (see, however, also the judgment in appeal, referred to in n 26). 25  Art 6:97 of the Dutch Civil Code. See, eg, Court of Appeal The Hague 19 May 2009, LJN BI4344. 26  See, eg, Court of Appeal Arnhem 8 November 2005, TA 2006/11. 27  Court of Appeal The Hague 28 April 2005, LJN AU4277. 21 22

82  Jan M Hebly and Folkert G Wilman disputes until a few years ago – tends to do so.28 In other cases a choice is made for an approach whereby the percentage depends on the reasonable profit expectations in the specific matter at hand, as shown by, for example, the tendering budget of the claimant.29 The latter approach, which predominantly seems to be the approach of the regular civil court, may entail that the claimant has to dem­ onstrate that he would have made some profits.30 In general, moreover, a claimant may also claim compensation of costs incurred. These costs are mainly the indirect costs (overheads), such as the item ‘general expenses’ commonly used in the construction sector. Damage on account of under-absorption of the general expenses will in general qualify for compensation.31 In this respect, the court will also take into account the extent to which these costs have been covered because the claimant accepted an alternative contract.32 Accepting an alternative contract may result (among other matters) in the general expenses of a company being covered, as a result of which this item can no longer be claimed as damage. Although the acceptance of an alternative contract may thus furnish a useful defence to a contracting party, it is in practice often difficult to establish to what extent a claimant has been able to sufficiently cover his general expenses with alternative contracts. Other indirect costs may also qualify for compensation, such as the costs that are related to the legal proceedings for the award of damages (calling in experts to determine the damage; lawyers fees).33 If necessary the statutory provision can be followed to this end, in which provision it has been laid down that reasonable costs for determining the damage and liability may be compensated.34 Apart from the general compensation of the legal costs (in practice these constitute only a limited contribution towards the real costs) caused to a party in whose favour the case is decided , this item is not very often claimed as damage. Conversely, damage related to not being able to present the contract in question as a reference work in future tendering procedures does not qualify for compensation. It is assumed that the link between such damage and the dispute in question is too tenuous and is also almost impossible to demonstrate from a practical point of view.35 Whether the costs for drawing up a tender also qualify for compensation will depend on the case. This may be considered as a ‘residual 28  See Pijnacker Hordijk, van der Bend and van Nouhuys, Aanbestedingsrecht. Handboek, above n 12 at p 652; MA van Wijngaarden and MAB Chao-Duivis, Hoofdstukken bouwrecht no 18 (2005), p 99. 29   Zwolle District Court 31 January 2007, LJN AZ7506; Court of Appeal’s-Hertogenbosch 26 November 1990, BR 1991/641. 30   Maastricht District Court 27 August 2003, LJN AI1604. 31  Court of Appeal Den Bosch 4 September 1996, NJ 1996/364; Pijnacker Hordijk, van der Bend and van Nouhuys, Aanbestedingsrecht. Handboek, above n 12 at p 655. 32   Zwolle District Court 31 January 2007, LJN AZ7506; Court of Appeal’s-Hertogenbosch 26 November 1990, BR 1991/641. See also Court of Appeal The Hague 19 May 2009, LJN BI4344. 33  Court of Appeal The Hague 19 May 2009, LJN BI4344. 34  Art 6:96 of the Dutch Civil Code. 35  Maastricht District Court 27 August 2003, LJN AI1604; Pijnacker Hordijk, van der Bend and van Nouhuys, Aanbestedingsrecht. Handboek, above n 12 at p 660; van Wijngaarden and Chao-Duivis, Hoofdstukken bouwrecht , above n 28 at p 113.

Damages: The Dutch Situation  83 item’. A rule of thumb is that such costs will only be compensated if an action because of loss of profits, or lost opportunity, is not possible.36 Not all the aforementioned items, however, will always fully qualify for compensation. In practice there may be reason to base the damage to be awarded on the claimant’s opportunity to be awarded the contract put out to tender. All this depends to a large extent on the circumstances of the case. This opportunity may in some cases be set at 100 per cent, when it has been established that the contract should have been awarded to the claimant. In such a case, the full damage, including loss of profits, can therefore be compensated. If it has not been established that, if the unlawfulness had not occurred, the contract would have been awarded to the claimant, then there may be a chance of 1 in 2, or of 1 in 6, for example.37 The case law shows that in this respect the major criterion is to what extent (and how many) other candidates competed for the contract. This criterion, however, is, obviously, difficult to apply in events where no European (or public) tendering procedure took place, but where the contract was awarded directly to a specific party. In the latter case, a court in effect has no other choice than – if the court deems damage likely – to make a rough estimate.38 As stated before, for this purpose Dutch law does leave margin for manoeuvre to the court. Finally, a less common event of damage as a result of wrongful conduct in a tendering procedure is the situation where a tenderer quotes too low a price by mistake, wins the tendering procedure and then withdraws. It appears that the damage suffered by the contracting party may also be compensated. If the contracting party was not aware of the mistake and the contracting party may therefore claim that this tenderer stands by the offered (low) price, an obligation is created for the latter to compensate the damage suffered by the contracting party. This damage will correspond to the difference between the offered price and the price of the successive tenderer.39 VI. Access to the court

Given the fact that no special legal procedure is available in the Netherlands for claims arising from breach of the European procurement rules, the main rule of the civil law applies: without sufficient interest nobody has a cause of action.40 36   Pijnacker Hordijk, van der Bend and van Nouhuys, Aanbestedingsrecht. Handboek, above n 12 at p 663. See also Rotterdam District Court 8 October 2008, LJN BG3796. 37  Court of Appeal The Hague 19 May 2009, LJN BI4344; Utrecht District Court 4 July 2001, BR 2002/91. See also the opinion of the AG (and the case law referred to in this opinion) to the judgment of the Dutch Supreme Court 25 January 2002, NJ 2002/227. 38  See also AJ Akkermans and EH Pijnacker Hordijk, ‘Schadevergoeding en schadeberekening’, in WH van Boom, CEC Jansen and JV Weijnen, Aanbesteding en aansprakelijkheid (Den Haag, BJU, 2001), p 24. 39  Court of Arbitration 12 January 2005, no 25.387. This decision of arbitrators was confirmed on appeal: Court of Arbitration 6 January 2006, no 70.977. 40  Art 3:303 of the Dutch Civil Code.

84  Jan M Hebly and Folkert G Wilman Interpretation of this main rule in procurement disputes leads to a rather large group of parties who have, at least theoretically, sufficient interest in commencing proceedings. A potential tenderer, for example, has access to the court when he believes that a contract was wrongly not put out to European tender. The same applies to a tenderer who believes that he was wrongly not designated to be the winner, or that a tendering procedure set in motion was broken off for improper reasons.41 A tenderer whose tender has been declared invalid, only has a sufficient interest under Dutch law when he (primarily) objects to the invalidation of his tender. If it has been established that the tender must indeed be considered invalid, the claims of the tenderer in question will be declared inadmissible. In such an event, he will no longer qualify for being awarded a contract and therefore has an insufficient interest. Not until this tenderer has successfully contested the invalidation, may he bring up any other wrongfulness in the tendering procedure. The late defence of contracting parties that the tender of a claimant has to be declared invalid as yet, has been discussed above. The trend in the case law as depicted here is not undisputed in the legal literature. Arguments are also heard in favour of a less restrictive interpretation of the ‘interested party’ concept in situations where a company has invalidly tendered for a contract, partly by relying on the Remedies Directives.42 The period for instituting the aforementioned legal proceedings for damages is in principle five years. This is the standard period under Dutch civil law.43 This period should be distinguished from the much shorter period – of usually 15 working days – which usually applies to actions to challenge the award decision in proceedings for interim relief. Under current Dutch law, this latter period of 15 days has not been laid down by law. Contracting parties usually include this period in the tender documents. Even when they do not do so, the rule applies that tenderers in proceedings for interim relief have to litigate expeditiously, taking the justified interests of the contracting party in particular into account in a rapid completion of the tendering procedure.44 By and large it will not be possible to rely on this expiry period of 15 days (or, more generally, on the fact that the claimant has litigated insufficiently expeditiously) as a defence against a claim for damages in proceedings on the merits. Until now, such defences have not been successful.45 The reason for this is that the claims for damages referred to above are normally claims for monetary damages (see below for more details). In general there is therefore no special urgency. Instituting such a claim – and the possible allowance of such a claim – is no   Cf van Wijngaarden and Chao-Duivis, Hoofdstukken bouwrecht, above n 28 at p 125.   P Heemskerk, ‘Het lot van de ongeldige inschrijver: over belangen en acties’, TA 2007, p 116. See also CEC Jansen, ‘Grenzen aan de ontvankelijkheid van de ongeldige inschrijver’, TA 2009, p 11; A van Heeswijck, ‘De ongeldige inschrijver: wel belang, geen vordering’, TA 2009, p 299. 43  Art 3:310 of the Dutch Civil Code. 44  See, eg, District Court The Hague for proceedings for interim relief 10 May 2007, LJN BB2291. 45  See esp Zwolle District Court 31 January 2007, LJN AZ7506. 41 42

Damages: The Dutch Situation  85 obstacle for the rapid completion of the tendering procedure and the timely performance of the contract put out to tender. Another related defence is that the claimant who did not first contest the award decision in proceedings for interim relief is not entitled to damages. This defence will not in general succeed. Instituting proceedings for interim relief is unrelated in Dutch civil law to the question of whether or not proceedings on the merits are instituted.46 The foregoing does not mean, however, that it is not possible to deviate from the usual five-year period for lodging appeals to the court. As briefly referred to above, tendering regulations are declared applicable to many Dutch tendering procedures. Such regulations are standardised regulations in which the rules that are applicable to a tendering procedure have been worked out in greater detail (in comparison with the relatively limited statutory regulations). With the exception of tendering procedures issued by various ministries and other government bodies, there is no obligation to apply these regulations. Even so, contracting parties often declare these regulations applicable; by tendering for a contract or by showing an interest in the contract put out to tender, a tenderer accepts the applicability thereof. In the majority of these tendering regulations, an expiry period has been included which is also applicable to claims for damages in proceedings on the merits.47 This period is usually 90 working days (or 3 months) and in principle begins on the date when the contract is awarded. If, however, the dispute arises from a circumstance that did not become manifest until after the expiry of the aforementioned period, the period begins on the day that the circumstance in question has become manifest.48 It is assumed that the setting and enforcing of such a period does not infringe European law. Nevertheless, a contracting party imposing (even) shorter periods is met with serious scrutiny.49 It is not required for a successful claim for damages, moreover, that the award decision in the tendering procedure, or the contract entered into as a result, is declared invalid or cancelled. Under Dutch law the starting point is that one thing is unrelated to the other. On the basis of case law of the Dutch Supreme Court, contracts once entered into in principle continue to exist, even though it is established later that the contract was concluded after a wrongful tendering procedure.50 This starting point, however, will have to be adjusted as a result of the amendment of the Remedies Directives by Directive 2007/66/EC. In the events referred to in this Directive (in particular the wrongful direct award of contracts and entering into the contract during the standstill period) a contract 46  See, eg, the proceedings in lower courts leading to the judgment of the Dutch Supreme Court 9 May 2008, LJN BC7679. 47  Court of Arbitration 6 October 2003, no 70.710. 48   Cf art 2.32.2 of the [Dutch] Works Procurement Regulations (ARW 2005); art 67 para 3 of the [Dutch] Uniform Tendering Regulations (UAR-EG 1991). 49   Pijnacker Hordijk, van der Bend and van Nouhuys, Aanbestedingsrecht. Handboek, above n 12 at p 617. 50  Dutch Supreme Court 22 January 1999, NJ 2000/305; Dutch Supreme Court 4 November 2005, NJ 2006/204.

86  Jan M Hebly and Folkert G Wilman once concluded may be cancelled.51 For the time being, it is uncertain what is the right approach in other cases but it seems likely that the aforementioned starting point will apply. Under the law as it currently stands, however, the starting point that contracts once concluded continue to exist in full is not absolute. Under Dutch law, damages are in principle paid in cash. A court, however, is free to award non-cash damages, even though it is not obliged to do so.52 There are instances where the court, for example, prohibited the contracting party from (further) carrying out a contract already entered into, by way of non-cash damages after a breach of procurement law.53 In this respect, it has even been considered in legal proceedings that in the event of breaches of procurement law, the unravelling of what has happened wrongfully, is in general the most satisfactory and the best way to meet the breached interests of the aggrieved party.54 It was added, however, that the interests of the contracting party should also be taken into account, as well as those of the tenderer with whom the contract was entered into, and that it is self-evident and inevitable that, as a result of the lapse of time, the possibilities of a remedy to undo the wrong done will decrease and that an aggrieved party will have to rely primarily on damages in cash.55 In the case where the court for interim relief has been able to decide on the dispute in the first instance, or when this was not done because the claimant failed to start proceedings for interim relief in the proceedings on the merits, an action aimed at the termination of the existing contractual relationship will easily fail.56 In this sense the possibilities of a claimant in the proceedings on the merits are therefore influenced by whether or not proceedings for interim relief have been instituted. In such events the litigating company will still have the possibility of damages in cash. VII. Claims for damages in Dutch legal practice

In comparison with the relatively large number of proceedings for interim relief in the Netherlands in procurement disputes, the number of corresponding proceedings for damages is rather small. As far as is known, on a yearly basis not more than a few proceedings on the merits are brought before the civil court, whereas every year there are more than a hundred proceedings for interim relief.57 It is hard to establish with certainty what the reason is for the limited 51  See for the legislative proposal for the implementation of this amendment TK 2008–2009, 32027, nos 1–4. 52  Art 6:103 of the Dutch Civil Code. 53  Court of Appeal Amsterdam 3 October 2002, BR 2004/551; The Hague District Court for proceedings for interim relief 22 September 2005, LJN AU8609. 54  Court of Appeal Arnhem 24 October 2006, LJN AZ3849. 55  Court of Appeal Arnhem 24 October 2006, LJN AZ3849. 56  Court of Appeal Arnhem 24 October 2006, LJN AZ3849; Amsterdam District Court 18 June 2008, LJN BE9537. 57  The numbers mentioned are the authors’ own estimate, based on their own experience and published case law.

Damages: The Dutch Situation  87 number of claims for damages is. In all probability it is a combination of a number of factors. In the first instance, it is conceivable that precisely the fact that claimants easily find their way to the court for interim relief, has the effect that there is less need to file claims for damages in proceedings on the merits. In proceedings for interim relief the court forms an opinion on the procurement dispute rapidly (normally a judgment is given after about four to six weeks after the issuing of summons) and usually without insurmountable costs. The purport of this opinion is usually whether or not a contract is wrongfully awarded to a specific party. In many cases the possibility of proceedings for interim relief seems to be sufficient for claimants to meet their need for an independent review of the contracting party’s initial assessment. The fact that this judicial review is only a provisional judgment formed on the basis of a somewhat summary procedure, does not seem to matter much to many claimants. This picture was confirmed in research carried out at the request of the Dutch Ministry of Economic Affairs, which showed that tenderers attach more importance to the easy accessibility and independency of the judicial review than to the depth of review.58 The fact that a first opinion in proceedings for interim relief is in practice usually enough, is also illustrated by the fact that the major part of the judgments of the court of first instance for interim relief is not contested in appeal proceedings. This does not alter the fact, however, that other causes can also be given for the small number of proceedings for damages. In the legal literature, it has been observed that a claimant has a good deal to demonstrate (wrongful conduct; causation; damage), before his claim can be awarded. In practice this often turns out to be difficult.59 A lack of information on the part of the claimant may also be a factor in this. For a claimant, it is often difficult to discover – and particularly to prove – what occurred behind the scenes of the contracting party. Dutch law does not have a special procedure for ‘disclosure’. Another factor is probably the fact that proceedings for damages, as discussed above, in principle (and, for a claimant, at best) lead to the award of financial compensation. A company is often more interested, however, in securing a contract or, if not, in being given a new opportunity to do so. Moreover, the duration of proceedings on the merits in the first instance – lasting about eighteen months on average in the Netherlands, although this may vary widely – also seems to be a factor that deters potential claimants. This is particularly so when the corresponding costs for legal assistance are taken into account. Fear of disturbing the relationship with the contracting party also seems to be a factor. This emerged in any event as an important factor during the above research carried out at the request of the Ministry of Economic 58  The results of this research have been published in JM Hebly, ET de Boer and FG Wilman, Rechtsbescherming bij aanbesteding (Zutphen, Uitgeverij Paris, 2007). See esp p 147. 59  LC van der Berg, commentary on the judgment of the Dutch Supreme Court 9 May 2008, TBR 2008/183.

88  Jan M Hebly and Folkert G Wilman Affairs.60 On the other hand, every year a considerable number of tenderers do find their way to the court for interim relief. Relatively protracted proceedings on the merits aimed at being awarded a financial compensation may be experienced as more harmful for the relationship with the contracting party than rapid proceedings for interim relief aimed at (a chance of) being awarded the contract put out to tender. The extent to which this fear plays a part seems to differ for each sector: where starting legal proceedings is considered a ‘part of the game’ in one sector, this is (still) considered as ‘not done’ in other sectors. The general trend is that legal action is taken sooner than in the past. It is quite conceivable that this increasing ‘legalisation’ will in the future lead to an increasing number of proceedings on the merits in procurement disputes. A similar – and possibly a considerably stronger – effect is expected from the possibility soon to be introduced (as a result of the amendment of the Remedies Directives) to cancel concluded contracts. VIII. Conclusion

The Dutch legal framework applying to damages actions for breach of European procurement law has been described in broad outline. It is a fact that such claims are relatively rarely instituted in the Netherlands. It has been shown that it is usually not easy for an (allegedly) aggrieved tenderer to succeed in such a claim, even where the wrongful conduct of the authorities is beyond question. Depending on the circumstances, there may be much debate about both questions as regards the causation as well as the amount of the damage. It will usually not be easy for companies to provide conclusive evidence in this respect. Although it cannot be appreciated immediately from a formal legal perspective why the Dutch system would offer sufficiently effective legal protection to companies, it is likely that these factors contribute to the perception in the market that instituting a claim for damages is usually not an attractive option. In practice, however, other factors seem to be of equal importance in explaining the limited number of claims for damages, like the existence of attractive possibilities for legal protection in proceedings for interim relief, the preference for (or a chance of) the contract being awarded over a financial compensation and the fear of harming the relationship with the contracting party. In as far as desirable, these factors cannot be rectified by a change in the law or other measures. Although the number of actions in proceedings on the merits will probably increase, in particular as a result of the future possibility to have concluded contracts cancelled, it may therefore be assumed that in the future legal protection in tendering procedures in the Netherlands will mainly continue to be provided by civil proceedings for interim relief.

  Hebly, de Boer and Wilman, Rechtsbescherming, above n 58 at p 145.

60

6 State Liability in Public Procurement The Case of Italy Silvia Ponzio

I.  Evolution of the concept of state liability in public procurement procedures

P

ublic procurement tendering procedures are one of the most interesting areas in which liability of public bodies first occurred, and later developed into a more extensive application of this liability.1 The award of public procurement contracts is the outcome of a procedure which is designed to identify a bidder that, on the basis of pre-defined criteria, is the most suitable for the attainment of the specific goal for which the choice is made.2 The selection of bidders must respect European and national principles so as to ensure an objective and impartial award and exact performance of contractual obligations. These include the principles of equal treatment, non-­ discrimination or fairness of public choices, and transparency, to guarantee that public procurements are opened up to competitors.3

1  R Caranta, ‘Scelta del contraente e responsabilità delle amministrazioni aggiudicatrici’ (2009) Responsabilità civile e previdenza 963 observes that the problem of liability for infringement of legitimate interests has not yet been metabolised by the Italian legal system and, in particular, by the administrative courts. GM Racca, ‘La responsabilità della pubblica amministrazione e il risarcimento del danno’ in R Garofoli, GM Racca, M De Palma (eds), Responsabilità della pubblica amministrazione e risarcimento del danno innanzi al giudice amministrativo (Milan, Giuffrè, 2003) 3 ff. See generally: L Torchia, ‘La responsabilità’, in S Cassese (ed), Trattato di diritto amministrativo, diritto amministrativo generale, II (Milan, Giuffrè, 2003) 1649 ff; GD Comporti, Responsabilità della pubblica amministrazione, in S Cassese (ed), Dizionario di Diritto pubblico (Milan, Giuffrè, 2006) 5125 ff; GD Comporti, ‘Responsabilità della pubblica amministrazione’, in S Cassese (ed), Dizionario di Diritto pubblico (Milan, Giuffrè, 2006) 5125 ff; E Casetta, ‘Responsabilità della Pubblica Amministrazione’, Digesto discipline pubblicistiche, XIII (Turin, Utet, 1997) 210 ff. 2   S Ponzio, I capitolati negli appalti pubblici (Naples, Jovene, 2006) 47. 3  R Cavallo Perin and GM Racca, ‘La concorrenza nell’esecuzione dei contratti pubblici’ (2010) Diritto Amministrativo 325ff. GM Racca, R Cavallo Perin, GL Albano, ‘The Safeguard of Competition in the Execution Phase of Public Procurement: Framework Agreements as Flexible Competitive Tools’ (2010) 6 Quaderni Consip available at www.consip.it.

90  Silvia Ponzio Compliance with these principles can only be ensured by providing effective, rapid safeguards to address any unfair behaviour by the public administration capable of harming economic operators. It has been observed that pre-­ contractual liability of the state has found only recent application in administrative case law and has had insufficient application in earlier case law of the civil law courts.4 In the past, in cases of breaches of public procurement rules, the effective judicial protection for tenders was ensured with safeguards that were different from damages awards. This Italian peculiarity is mainly related to the administrative law system that provides for two different jurisdictions.5 Judicial protection from the public administration was traditionally entrusted to two different sets of courts, with jurisdiction determined according to the subjective right for which protection was requested.6 According to this, the ordinary courts had jurisdiction over subjective rights (diritti soggettivi), which concerned situations where the relevant statute exhaustively defined the beneficiaries and content of such legal entitlements (beni della vita) and the public administration could only exercise limited powers (ie statutory duties). Administrative courts, on the other hand, had jurisdiction in respect of legitimate interests (interessi legittimi), where the law gave the administration the power to define the beneficiaries and/or specific contents of legal entitlements (beni della vita) indicating the conditions as to how this power was to be exercised (ie discretionary power).7 Due to this distinction, solely the administrative courts could, before 1998/2000, hear annulment actions concerning award procedures. On the other hand, solely the ordinary courts could award damages. Furthermore, before 1999 no action for damages could be filed for the infringements of interessi legittimi. The limits inherent in the award of damages were primarily related to the type of power exercised by the public authority. In other words, ‘the civil courts could not be called upon to investigate the way public authorities had used their discretionary powers, discretionary powers being linked with lawful interests whose breach could not sound in damages’.8 Therefore, annulment by the administrative courts was the only remedy available in case of breach of public procurement rules. This power was to be 4  GM Racca, ‘La responsabilità contrattuale e precontrattuale della pubblica amministrazione’ in P Rescigno and E Gabrielli (eds), Trattato dei contratti, vol I, I contratti con la pubblica amministrazione, ed C Franchini (Turin, Utet, 2007) 637. 5   See Racca, ‘La responsabilità della pubblica amministrazione’, above n 1 at 3: the liability of the public administration is stated as a ‘principle of civil law based on the evolution of the social conscience’. 6   See generally R Caranta, ‘Public Law Illegality and Governmental Liability’ in D Fairgrieve, M Andenas, J Bell (eds), Tort Liability of Public Authorities in Comparative Perspective (London, BIICL, 2002). 7  F Satta, ‘Giustizia amministrativa’, Enciclopedia del diritto, vol VI (Milan, Giuffrè, 2001) 408 ff. The Supreme Court has to pass judgement on issues of jurisdiction between the ordinary and administrative courts. 8  R Caranta, ‘Public Law Illegality’, above n 6; Corte di Cassazione, unified section (hereafter Cass, s un) , 6 May 1929, Giurisprudenza italiana, 1929, I, c 760. R Cavallo Perin, ‘Il riparto di giurisdizione del Concordato Romano D’Amelio’ (2004) Diritto processuale amministrativo 14 ff.

State Liability: The Case of Italy  91 considered ‘compensation in kind’.9 It is a form of alternative compensation, equivalent to pecuniary sanctions, which restore the successful claimant to the same situation existing prior to the breach. Council Directives 89/665 and 92/13 on Review Procedures provide that in the Member States ‘effective and rapid remedies must be available in case of infringements of Community law in the field of public procurement or national rules implementing that law’. These Directives had one main implication for Italian public procurement law in the field of remedies: they called for implementation of effective remedies to ensure not only correction of procedures and annulment of unlawful decisions, but also the award of damages to persons harmed by an infringement.10 Council Directive 89/665/EEC was enacted by L 142/92, providing for annulment by administrative courts to be followed by an action for damages in the ordinary courts. While this provision ensured compensation for damage in case of award procedures of European relevance, from a different viewpoint it considerably complicated the protection for citizens, due to the need to seek two separate judgments in order to obtain redress.11 The provision on damages for breaches of European Law, in addition to the aforementioned issues, led to two major consequences within the Italian legal system. First, in 1999, the Supreme Court (Corte di Cassazione) overruled the principle that no claim for damages could arise from infringement of legitimate interests. The Court held that damages could also be awarded for infringement of legitimate interests due to unfair behaviour of the public administration. This judgment raised new issues, and this especially in the field of public procurement.12 The need arose to define the difference between unlawful administrative acts on the one hand, and on the other hand wrongful or unfair behaviour by the contracting authority.13 Another problem concerns the definition of the 9  Racca, ‘La responsabilità della pubblica amministrazione’, above n 1 at 33 ff. GM Racca, La responsabilità precontrattuale della pubblica amministrazione tra autonomia e correttezza (Naples, Jovene, 2000) 98 ff, which points out that the administrative courts safeguarded economic operators at a much earlier point in negotiations with respect to what has occurred in relations among private companies where, only much later, the courts began to safeguard the right to precontractual fairness. 10  Art 2, Dir no 2007/66/EC of the European Parliament and of the Council dated 11 December 2007. 11   See Art 13 l. 19 February 1992, no 142, Disposizioni per l’adempimento di obblighi derivanti dall’appartenenza dell’Italia alle Comunità europee (Italian EC law for 1991). 12   See Cass, s un, 22 July 1999, no 500, in (1999) Il Foro italiano 3201, with notes by R Caranta, ‘La pubblica amministrazione nell’età della risarcibilità’; F Fracchia, ‘Dalla negazione della risarcibilità degli interessi legittimi all’affermazione della risarcibilità di quelli giuridicamente rilevanti: la svolta della Suprema corte lascia aperti alcuni interrogativi’ (1999) Il Foro italiano 3212; A Romano, ‘Sono risarcibili, ma perché devono essere interessi legittimi?’ (1999) Il Foro italiano 3222; E Scoditti, ‘L’interesse legittimo e il costituzionalismo. Conseguenze della svolta giurisprudenziale in materia risarcitoria’ (1999) Il Foro italiano 3226. See also F Satta, ‘La sentenza n. 500 del 1999: dagli interessi legittimi ai diritti fondamentali’ (1999) Giurisprudenza Costituzionale 3217 ff. 13  A Romano, ‘I caratteri originari della giurisdizione amministrativa e la loro evoluzione’ (1994) Diritto Processuale Amministrativo 635; E Guicciardi, ‘Diritto, interesse e doppia tutela’, in Studi di giustizia amministrativa (Turin, 1967) 34 ff.

92  Silvia Ponzio constituent elements of the public administration’s pre-contractual liability, and more specifically the subjective element (ie fault), in order to understand, as we shall explain later, the legal nature of such liability.14 Moreover, the European Directives also provided a strong incentive for the reform of administrative law, which was commenced with Arts 33–35 of Legislative Decree no 80,15 on 31 March 1998, then confirmed by law no 205 on 21 July 2000.16 These acts provide that: ‘Administrative Courts have the power to redress damages, including issuing orders for specific performance to the benefit of the injured party.’17 Administrative courts are thus given exclusive jurisdiction over cases concerning the legitimacy of award procedures, including both annulment and damage actions.18 This ensures easier redress for the citizen since it does away with the need to file two different actions, one for annulment, and another for damages.19 This safeguard does not only complete the annulment but ‘bears the characteristics of the right to the compensation of damages’.20 II.  Pre-contractual liability of the State

The Italian administrative courts’ most recent case law identifies two different hypotheses for liability in the award of public contracts. Liability for the adoption of unlawful provisions is characterised, traditionally, as being extra-­ contractual (tortious). Unfair behaviour identified regardless of the lawfulness of the administrative action can give arise to pre-contractual liability under Art 1337 of the Italian Civil Code. The distinction between these two kinds of liability affects, as discussed below, the criteria used for the quantification of damages, since in both hypotheses the existence of the fault (unfairness) of the public administration must be ascertained. When analysing the many stages of development of the administrative courts’ case law on liability and compensation for damages, we can discern the foundations of the pre-contractual liability of the procuring entities.21

  Satta, ‘La sentenza n. 500 del 1999’, above n 12 at 3233 ff.  Leg D no 80, 31 March 1998, Nuove disposizioni in materia di organizzazione e di rapporti di lavoro nelle amministrazioni pubbliche, di giurisdizione nelle controversie di lavoro e di giurisdizione amministrativa, emanate in attuazione dell’art 11, comma 4 della l. 15 marzo 1997, no 59. 16  Law 21 July 2000, no 205, Disposizioni in materia di giustizia amministrativa. 17   See Art 35 of Leg D no 80/98, as amended by Art 7 L 205/2000. 18  Racca, ‘La responsabilità della pubblica’ above n 1 at 1, 4. 19  Caranta, ‘Scelta del contraente’, above n 1 at 966 ff. 20  Cass, s un, 13 June 2006, no 13659, in Il Foro Italiano, 2007, I, 3181. 21  Consiglio di Stato (hereafter Cons Stato), s V, 8 September 2010, no 6489; Cons Stato, s V, 28 May 2010, no 3393; Cons Stato, s V, 8 October 2008, no 4947, which states that in case of (even legitimate) revocation of the public procurement procedure there may be precontractual liability of the p.a. in arousing the expectation; TAR Lombardia, Milan, s I, May 2008, no 1380; TAR Lazio, Rome, s I ter, 12 December 2008, no 11343. 14 15

State Liability: The Case of Italy  93 Constitutional principles require administrative activity to be rapid and impartial (Art 97 of the Italian Constitution); the principles of cost effectiveness, transparency, simplification are defined by Art 1 of L no 241/1990. The Italian Civil Code provides for an obligation of both contracting parties to respect the rules of fairness and good faith during negotiations as well as in the performance of the contract.22 These principles seem to impose a standard of conduct upon the public administration that is coherent and consistent in their relationships with economic operators during award procedures.23 The unfair behaviour of public bodies during pre-contractual negotiations is a ground for liability under Art 1337 of the Civil Code24 and administrative courts have the power to redress the loss caused by ordering specific performance for the benefit of the affected party or by awarding monetary compensation only if the specific redress would create an excessive burden on the wrongdoer.25 This perspective seems to be further supported by the new European Directive 2007/66/EC,26 which amends Council Directives 89/665/EEC and 92/13/EEC, improving the effectiveness of the review procedures concerning the awarding of public contracts. The Directive rules that Member States shall take the measures necessary to ensure that, as regards contracts falling within the scope of Directive 2004/18/EC, decisions taken by the contracting authorities may be reviewed effectively and, in particular, as rapidly as possible . . . on the grounds that such decisions have infringed Community law in the field of public procurement or national rules transposing that law.27 22  GM Racca, ‘Correttezza (dir amm)’, in S Cassese (ed), Dizionario di diritto pubblico, vol II (Milan, Giuffrè, 2006) 1529 ff. Cons Stato, s VI, 11 October 2006, no 6059, with note by S Ponzio, ‘Responsabilità della p.a. per comportamento scorretto e quantificazione del danno’ (2007) Urbanistica e appalti 357 ff; Cons Stato, s IV, 15 November 2004, no 7449, (2004) Il Foro amministrativo – CdS 3173; CGA, s giur, 29 August 2005, no 573, with note by D Casalini, ‘Erronea comunicazione del capitolato speciale e responsabilità precontrattuale dell’amministrazione aggiudicatrice’ (2006) Urbanistica e appalti 225 ff. 23   See Arts 1175 and 1337 in the Italian Civil Code. A Di Majo, item ‘Obbligazione, teoria generale’ in Enciclopedia giuridica Treccani (Rome, 1990) 284; A Del Fante, ‘Buona fede prenegoziale e principio costituzionale di solidarietà’ (1983) Rassegna di diritto civile 122; R Greco, ‘Discrezionalità dell’impresa e rapporto di lavoro: Clausole generali e principi dell’ordinamento nella giurisprudenza sui concorsi privati’ (1990) Il Foro italiano, 2058. Cass, s un, 12 May 2008, no 11656. 24  GM Racca, ‘La responsabilità precontrattuale delle pubbliche amministrazioni nella stipulazione dei contratti pubblici’, available at www.csm.it, 14. 25  Under Art 2058 of the Italian Civil Code, the injured party may request an order for specific performance to be put in the same position as it would have been if not for the tortious action (compensation in specific form). 26  Implementation date of at the latest 20 December 2009. A Bartolini and S Fantini, ‘La nuova direttiva ricorsi’ (2008) Urbanistica e Appalti 1093; G Greco, ‘La Direttiva 2007/66/CE: illegittimità comunitaria, sorte del contratto stipulato ed effetti collaterali indotti’, available at www.giustamm. it; M Lipari, ‘Annullamento dell’aggiudicazione ed effetti del contratto: la parola al diritto comunitario’, available at www.giustamm.it. 27   See Art 1 Directive 2007/66/EC of the European Parliament and Council of 11 December 2007. See also Art 2, para 1. Requirements for review procedures 1. Member States shall ensure that the measures taken concerning the review procedures specified in Article 1 include provision for powers to: (a) take, at the earliest opportunity and by way of interlocutory procedures, interim measures with the aim of correcting the alleged infringement or preventing further damage to the interests concerned, including measures to

94  Silvia Ponzio These provisions run contrary to the traditional national view according to which liability could only arise after the contract is signed because of breaches of contractual obligations.28 This approach excluded any liability before the award of the contract. The European standards instead protect all the economic operators that participate in public procurement procedures. From this perspective, contracting authorities may be held liable to compensate the loss caused by infringements of any of the rules relative to the selection of the contractor, even when the economic operator is unable to demonstrate its right to be awarded a contract.29 In their new role in determining liability, the administrative courts are thus required not only to rule on the legitimacy of administrative acts, but also to evaluate the overall behaviour of the public administration. In analysing their decisions, the distinction between the judgment as to the legality (concerning any challenge to an administrative decision) and that of liability (concerning the behaviour of the public administration during pre-contractual negotiations) becomes clear. The distinction is sometimes indicated in terms of the different subjective interests infringed: the illegality is referred to as the legitimate interest (interesse legittimo); on the other hand, in those cases in which the public administration fails to fulfill its duties of fairness and good faith, this can be seen as an infringement to a subjective right (diritto soggettivo) that, as such, requires compensation.30 The judgment as to validity may result in the annulment of the decisions affected by at least one of the three traditional grounds of illegality. These are: incompetence, infringement of legally binding rules31 and abuse of power (eccesso di potere).32 suspend or to ensure the suspension of the procedure for the award of a public contract or the implementation of any decision taken by the contracting authority; (b) either set aside or ensure the setting aside of decisions taken unlawfully, including the removal of discriminatory technical, economic or financial specifications in the invitation to tender, the contract documents or in any other document relating to the contract award procedure; (c) award damages to persons harmed by an infringement. 28  Arts 11 and 12 Legislative Decree 12 April 2006, no 163, Codice dei contratti pubblici relativi a lavori, servizi e forniture in attuazione delle direttive 2004/17/CE e 2004/18/CE: which introduce the possibility of a provisional award. See: Cons Stato, s VI, 17 December 2008, no 6264 and TAR Lazio, Rome, s I ter, 12 December 2008, no 11343, with note by GM Racca, ‘Contratti pubblici e comportamenti contraddittori delle pubbliche amministrazioni: la responsabilità precontrattuale’ (2009) La Rivista nel diritto 281 ff. 29  Dir 2007/66/Ec. See also Racca, La responsabilità precontrattuale, above n 9. 30  A Romano Tassone, ‘La responsabilità della p.a. tra provvedimento e comportamento (a proposito di un libro recente)’ (2004) Diritto amministrativo 409 ff. 31  Art 21 octies, Law 7 August 1990, no 241, Nuove norme in materia di procedimento amministrativo e di diritto di accesso ai documenti amministrativi amended by Law 11 February 2005, no 15, Modifiche ed integrazioni alla legge 7 agosto 1990, no 241, concernenti norme generali sull’azione amministrativa. See R Cavallo Perin, ‘Violazione di legge (atto amministrativo)’, Digesto delle discipline pubblicistiche, vol XV (Turin, Utet, 2000) 657. 32  Broadly speaking, unreasonable behaviour that includes both failure to give sufficient reasons and instances of substantive unfairness. See R Cavallo Perin, Validità del provvedimento e dell’atto amministrativo, Digesto delle discipline pubblicistiche, vol XV, (Turin, Utet, 2000) 612 ff. These terms are further considered also in GM Racca, ‘Il risarcimento del danno e l’interesse legittimo’ in R Garofoli, GM Racca, M De Palma (eds), Responsabilità della pubblica amministrazione e risarcimento del danno innanzi al giudice amministrativo (Milan, Giuffrè, 2003) 99.

State Liability: The Case of Italy  95 The judgment on the issue of liability enables the administrative courts to evaluate the overall behaviour of the public administration during the competitive bidding procedure for public contracts. Improper behaviour during precontractual negotiations may lead, when all the elements for liability are ascertained, to a judgment requiring the contracting entity to compensate the damages incurred by private parties.33 Actions for illegality and liability, though often overlapping, are legally independent and, for this reason, can have different outcomes.34 This is particularly the case when a contracting authority decides to cancel an award procedure. Under Italian law, this may be done through different types of decision, namely self-annulment or withdrawal. Self-annulment may be justified with reference to the specific legal defects affecting the procedure withdrawn. The withdrawal from the award procedure may be decided because reasons of expediency militate against the conclusion of the contract originally envisaged (eg due to budget cuts). In any case, the public administration must give specific reasons as to the public interest beyond the withdrawal.35 It is therefore possible for the public administration to act illegally and then subsequently to correct its errors without incurring liability under Art 1337 of the Civil Code, provided that its behaviour is characterised by fairness and good faith.36 Reciprocally, and this is particularly evident in the context of negotiations for the conclusion of a public contract, the public administration may follow a lawful course of action, ie one that leads to a decision which is not affected by the flaws indicated and therefore cannot be annulled, but it may still be liable because it withdrew improperly from the negotiations.37 Indeed, the acknowledged legality of a self-annulment decision does not preclude the finding of pre-contractual liability. In the award procedures, for example, the administration must ensure correct behaviour during the negotiations. From this perspective, even in the case of a legal withdrawal, it is necessary to  Racca, ‘Il risarcimento del danno e l’interesse legittimo’, above n 32 at 99 ff.  D Casalini, ‘L’interpretazione delle clausole di esclusione dalla gara pubblica e la colpa dell’amministrazione aggiudicatrice’ (2005) Servizi pubblici e appalti 409, note to Cons Stato, s V, 10 January 2005, no 32. The same decision is published in (2005) Urbanistica e appalti 825 ff, with a comment by A Mandarano, ‘La colpa della p.a. nel danno da provvedimento’. See also FG Scoca, ‘Risarcibilità ed interesse legittimo’ (2000) Diritto pubblico 31 ff. 35  TAR Lazio, s I, 23 October 2006, no 10900, with note by C Costagliola, ‘Il legittimo esercizio del potere di autotutela nel settore dei pubblici appalti. L’obbligo motivazionale secondo la giurisprudenza’ (2007) Giurisprudenza di merito 2710 ff. 36  In this perspective, see Cons Stato, s IV, 19 March 2003, no 1457; GM Racca, ‘Giurisdizione esclusiva e affermazione della responsabilità precontrattuale della pubblica amministrazione’ (2002) Urbanistica e appalti 199, note to Cons Stato, s V, 12 September 2001, no 4776; as already remarked above, text corresponding to n 23, unfair behaviour will lead to liability. 37  Caranta, ‘Scelta del contraente’ above n 1. Racca, La responsabilità precontrattuale, above n 9. The leading case is: Cons Stato, Ad Plen, 5 September 2005, no 6. See also Cons Stato, s V, 8 October 2008, no 4947, www.giustizia-amministrativa.it; Cons Stato, s IV, 4 October 2007, no 5176, www. giustizia-amministrativa.it; Cons Stato, s IV, 4 October 2007, no 5174, www.giustizia-amministrativa. it; TAR Lazio, Rome, s III, 13 July 2007, no 6369; TAR Lazio, Rome, s III, 10 January 2007, no 76. 33 34

96  Silvia Ponzio assess the general behaviour of the public administration in relation to the respect of the obligations of fairness and good faith.38 Unjustified and thus unfair withdrawal from negotiations has been found: a) in cases of unjustified ‘revocation’ of concessions previously awarded, or when the justification is based on weak excuses, b) when the negotiations were undertaken and continued without verifying the willingness to conclude the contract, and c) on the basis of reasons that should have been known to the administration from the outset.39 The distinction between the judgment on the legality question and judgment on liability is obvious in those all too frequent cases in which the procuring entity, after starting procurement proceedings and calling for bids (expressing the will to conclude a specific contract) and after awarding it to a tenderer, cancels the procedure due to the lack of the necessary funding. Shortage of financial means to cover the contract is a hindrance to the conclusion of the contract. Consequently, in these cases administrative courts confirm the legality of the revocation or annulment decision based on the principle of good administration recognised by Art 97 of the Constitution. Indeed, the public administration may take actions pursuing a public interest as defined by the law, even when prejudicial to the interests of the winning bidder.40 Even if the cancellation of the procedure is lawful, the administrative courts often deem improper the behaviour of the procuring entity which failed to verify that it had the necessary financial coverage for performance of the contract before starting the procedure. This is an infringement of the principle of fairness and good faith pursuant to Art 1337 of the Italian Civil Code that damages trust in public procedure.41 In case of improper withdrawal, the administrative court can find the public administration liable to pay damages if the other conditions for liability are present.42 38  TAR Lazio, s III, 3 August 2006, no 6911, (2006) Il Foro amministrativo – TAR 2545; TAR Lazio, s III, 10 January 2007, no 79, www.giustizia-amministrativa.it; TAR Lazio, s III, 13 July 2007, no 6369, with note by G Afferni, ‘La responsabilità precontrattuale della pubblica amministrazione tra risarcimento e indennizzo’ (2008) Danno e responsabilità 636. 39  TAR Lazio, s I, 11 July 2006, no 5766, (2006) Il Foro amministrativo – TAR 2470; TAR Sicilia, s I, 18 April 2005, no 560, with note by L Gastaldi, ‘In tema di responsabilità precontrattuale della pubblica amministrazione’ (2005) Contratti dello Stato e degli enti pubblici 426. 40  TAR Lazio, s I, 11 July 2006, no 5766. The finding of illegitimacy of revocation would impose on the public administration to stipulate a contract in the absence of the necessary funding, in obvious conflict with the principle of satisfactory performance of the administrative action. In effect, the administrative court cannot oblige the public administration to stipulate a contract without the necessary financial resources. 41  Cons Stato, s V, 6 December 2006, no 7194, with note by FF Tuccari, ‘La responsabilità precontrattuale della pubblica amministrazione al cospetto del giudice amministrativo’ (2006) Urbanistica e appalti 595; TAR Calabria, s I, 27 November 2006, no 1452; Cass, s III, 10 June 2005, no 12313, in CD ROM Foro italiano 2008. 42  Racca, ‘Contratti pubblici e comportamenti contraddittori’, above n 28 at 282 ff; Cons Stato, Ad Plen, 5 September 2005, no 6 and Cons Stato, s V, 8 October 2008, no 4947, finding pre-­ contractual liability for unfair behaviour while considering the ‘revocation’ of the award procedure legitimate. In the same way, also: Cons Stato, s IV, 4 October 2007, no 5179, Cons Stato, s IV, 4 October 2007 no 5177, Cons Stato, s IV, 4 October 2007, no 5176, Cons Stato, s IV, 4 October 2007,

State Liability: The Case of Italy  97 The Plenary Chamber of the State Council (Supreme Court in public law matters), in deciding a case of this kind, deemed legitimate the revocation for lack of funds of a contract for chauffeur services. However, it identified an infringement by the public administration of its duties of fairness and good faith in failing to monitor and coordinate its various economic commitments. In this case the administrative court held that the procuring entity had communicated its decision not to proceed with conclusion of the contract with unacceptable delay and therefore awarded damages.43 Unfair behaviour (in particular concerning withdrawal from negotiations) is usually blamed on the contradictory nature of the choices made by the procuring entity ‘even in formal decisions’. The wrongful action resulted in compensation of the damage for infringement of the pre-contractual obligations, despite the lawful annulment of the administrative act.44 The lack of financial resources also underpinned another recent decision of the State Council. Here too, the administrative court considered lawful the annulment of the award, but found the public administration liable for damages due to unfair behaviour. The unfair behaviour had to do with the contradictory determinations adopted by the contracting administration which had induced the tenderer to expect a possible ‘validation’ of the cancelled contract. In particular, the contradictions that gave rise to the right to compensation took the form of the choices on definition of the subject-matter of the contract made by the newly elected government offices who did not even try to take into account the public interest underlying the contract as foreseen by the previous administrators.45 Self-annulment of the contract procedure due to erroneous indications in the tendering rules of the subjective qualifications necessary for performance of the works required by the contract was also deemed legitimate by the State Council to prevent ‘additional damages in performance of the contract’. But also in this case the error made in preparing the tendering documentation caused damage to the expectation of the private company in the fairness of the procedure. The possibility of an excusable error was ruled out and the court awarded damages to the claimant.46 no 5174; TAR Puglia Bari, 14 September 2010, no 3459; TAR Lazio Rome, s III, 13 July 2007, no 6369, TAR Lazio Rome, s III, 10 January 2007 no 76. 43  Cons Stato, Ad Plen, 5 September 2005, no 6. 44  In this perspective, see Cons Stato, s IV, 19 March 2003, no 1457, www.giustizia-amministrativa. it.; GM Racca, ‘Giurisdizione esclusiva e affermazione della responsabilità precontrattuale della pubblica amministrazione’ (2002) Urbanistica e appalti 199. 45   See Cons Stato, s V, 14 January 2009, no 122, www.giustizia-amministrativa.it. TAR Lazio, s III, 3 August 2006, no 6911; TAR Lazio, s III, 10 January, 2007, no 79; TAR Lazio, s III, 13 July 2007, no 6369, with note by G Afferni, ‘La responsabilità precontrattuale’ above n 38 at 636 ff. 46  Cons Stato, s VI, 16 January 2006, no 86, , with note by M Steccanella, ‘La pregiudiziale amministrativa è ancora in forse? Risarcimento del danno peraltro riconosciuto “non ingiusto” perché cagionato da provvedimento giudicato legittimo!’ (2007) Contratti dello Stato e degli Enti Pubblici 307.

98  Silvia Ponzio Even when the judgments on annulment and damages have converging outcomes (illegitimacy-unfairness or legitimacy-fairness) the administrative courts perform the two evaluations independently.47 Assessing the liability of the public administration is thus always a separate exercise from that concerning the annulment of the unlawful decision. The State Council has held that the exercise of the power of self-annulment of the entire tendering procedure is subject to the obligation to provide adequate reasons. The need to restore the legality is by itself not a sufficient reason for self-annulment. Against this, the expectations of the companies concerned are to be taken into account. Moreover, the rules of procedural participation are to be respected. If the administration does not comply with these principles in the procedures of awarding public contracts, in addition to the illegality of the challenged decision, there may also be, under additional circumstances, a case of pre-contractual liability which involves the obligation for the administration to pay damages.48 Specifically, the finding of ‘extra-contractual’ liability on the part of the public administration is not a consequence of the objective fact of the illegality of the administrative action, but requires that the fault of the public authority as an organisation be ascertained as well.49 The illegality of the provision can, however, be invoked by the tenderer as a presumptive indication of the fault of the public administration.50 Therefore, liability may depend not just on the breach of the rules applicable to procurement procedures but also upon the breach of legitimate expectations of the bidders.51 III. Illegalty and fault of the public administration

The definition of the public administration’s liability as being extra-­contractual, as a consequence of the adoption of illegal provisions, results in the application 47  Cons Stato, s IV, 11 October 2006, no 6059, with note by S Ponzio, ‘Responsabilità della p.a. per comportamento scorretto’, above n 22 at 357 ff. 48  Cons Stato, s VI, 10 January, 2006, no 26, available at www.giustizia-amministrativa.it. 49  Cons Stato, s V, 8 September 2008, no 4242, F Moretti and S Capacci ‘L’affidamento mediante gara non può discriminare l’offerente sulla base della forma giuridica assunta’ (2008) Appalti e Contratti 82 ff. 50  Among the most recent cases: Cons Stato, s VI, 13 February 2009, no 775, with note by R Caranta, ‘Variazioni “comun italiane” in tema di colpa ed errore scusabile’ (2009) Urbanistica e appalti 734; Cons Stato, s VI, 9 June 2008, no 2751, with note by F Manganaro, ‘L’elemento soggettivo nell’illecito della pubblica amministrazione tra causalità materiale e causalità giuridica’ (2008) Urbanistica e appalti 1285; Cons Stato, s VI, 11 May 2007, no 2306, with note by V Gabrieli, ‘Divieto di subappalto delle opera “superspecializzate” e categoria OG11’ (2008) Rivista trimestrale appalti 213; Cons Stato, s V, 20 March 2007, no 1346, with note by R Proietti, ‘La prova per presunzioni della responsabilità della pubblica amministrazione e della quantificazione del danno’ (2007) Urbanistica e appalti 1374. 51  In this perspective Casalini, ‘L’interpretazione delle clausole di esclusione’, above n 34 at 409; Cons Stato, s VI, 1 March 2005, no 816, www.lexitalia.it. Racca, ‘La responsabilità della pubblica amministrazione’, above n 1 at 133 ff.

State Liability: The Case of Italy  99 of Art 2043 ff of the Italian Civil Code and in the need to further identify all the core elements of such liability.52 More specifically, these elements are: the harmful event; the unlawful damage which affects an interest which is considered relevant within the legal order (subjective right or lawful interest); and the intentional or negligent conduct of the public administration.53 Therefore, tortious liability does not automatically flow from an unlawful procurement decision since the evidence of fault (or intention) on the part of the contracting authority must also be present.54 This represents a development from the older case law, when Italian courts made reference to the concept of culpa in re ipsa, holding that the adoption and voluntary execution of an unlawful decision amounted by itself to a negligent act.55 The proof of the subjective element is not related to the behaviour of the civil servant having taken the unlawful decision. The overall operation of the public body must be considered (‘fault of the organisation’, akin to the French faute du service), in order to ascertain whether it adheres to the rules on lawfulness, good administration and impartiality, which under Art 97 of the Constitution must govern the public administration’s activities.56 The fault of the organisation may derive from the lack of organisation in the management of human resources, means and resources of the offices charged with the adoption or execution of an illegal decision.57 Therefore, extra-contractual and pre-contractual liability of contracting authorities are both linked to the breach of the obligations of impartiality, fairness,58 and good administration.59 52  Cass, un s, 22 July 1999, no 500. See also TAR Toscana, s III, 18 February, 2005, no 842, with note by N Pecchioli, ‘L’irresponsabilità della pubblica amministrazione per eccessiva complessità dei fatti’ (2005) Sanità pubblica eprivata 67. 53  Cons Stato, s V, 26 May 2010, no 3367, www.giustamm.it; Cons Stato, s V, 13 April 2010, no 2029, www.giustamm.it; Cass, s III civ, 5 June 2007, no 13061. 54  Cons Stato, s V, 8 September 2008, no 4242, www.giustizia-amministrativa.it; see R Caranta, Attività amministrativa e illecito aquiliano (Milan, Giuffrè, 2001) 145 ff. S Cimini, La colpa nella responsabilità civile delle amministrazioni pubbliche (Turin, Giappichelli, 2008). 55  Fault was identified in the knowledgeable breach of laws, regulations and unwritten rules of conduct: see: Cass, 22 October 1984, no 5361, in Foro italiano, 1985, I, 2358; Cass, 24 May 1991, no 5883, in Foro italiano, 1992, I, 453; Cass, s III, 9 June 1995, no 6542, in Giurisprudenza Italiana, 1996, I, 1, 196 ff. See: Cass, 27 August 1999, no 9004; Cass, 3 July 1998, no 6509; Cass, 1 September 1997, no 8297; Cass, 13 May 1997, no 4186; Cass, 9 June 1995, no 6542. More recently TRGA, Trentino-Alto adige, s Trento, 18 April 2005, with note by A Simonati, ‘Responsabilità dell’amministrazione in mala fede e risarcimento del danno’ (2005) Il Foro amminstrativo – TAR 1410. Against: Cass, s III civ, 5 June 2007, no 13061. 56  From this perspective, see Cass, s I, 18 June 2005, no 13164, in Repertorio Foro italiano, voce Responsabilità civile [5760], no 382; Cass, s I, 4 September 2004, no 17908 (2005: I) Foro italiano, 2444; Cass, s I, 23 July 2004, no 13801, in Repertorio Foro italiano, 2004, Responsabilità civile [5760], no 390; Cass, s I, 4 April 2003, no 5259, in Mass, 2003; Cass, s III, 29 March 2004, no 6199, in CD-Rom Foro italiano, 1987–2004; Cons Stato, s IV, 29 September 2005, no 5204 (2005: I) Consiglio di Stato 1625; Cons Stato, s V, 1 March 2003, no 1133, www.lexitalia.it.; Cons Stato, s VI, 19 July 2002, no 4007 (2003) Finanza locale 908. 57  Cons Stato, s V, 10 January 2005, no 32. 58  On the principle of fairness see: Racca, ‘Correttezza’, above n 22 at 1529 ff. 59  Art 1218 civ Code; see Cons Stato, s IV, 12 march 2010, no 1467; Cons Stato, s V, 12 December 2009, no 7800; TAR Sardegna, 16 April 2010, no 688; TAR Sardegna, s I, 19 May 2009, no 720; Cass, s I, 10 January 2003, no 157; CGA Regione Sicilia, Regulation no 267 of 8 May 2002, that submits

100  Silvia Ponzio Administrative courts have had difficulties in defining the element of fault. As a result, the courts instead have had a tendency to lessen the claimant’s burden of proof. The burden of proving the ‘fault of the organisation’ may be discharged by means of simple presumptions and circumstantial evidence in compliance with Art 2727 ff of the Italian Civil Code.60 It should be underlined that the mere unlawfulness of the decision, even if it is not the same as the fault, may by itself give rise to a presumption of fault that must be rebutted by the contracting bodies.61 In this way the administrative courts have in effect reversed the burden of proof.62 This presumption may be strengthened by the claimant by adducing further circumstances aimed at showing the existence of an inexcusable mistake.63 The gravity of the breach, together with the absence of any discretion, and the clarity of the legislation applicable to the matter at hand are all circumstantial elements that the claimant might use to demonstrate the fault of the public administration.64 A number of circumstances may also be relevant when assessing the gravity of the breach. Among them, the breadth of the possible discretionary powers, the existence of precedents, and the participation of the parties in the actual procedure.65 In this way, while paying lip service to the tort liability rules normally requiring a fault, the Italian systems ultimately allocates the burden of proof on lines similar to those provided for in the case of contractual liability.66 This has resulted in the ‘objectification’ of the fault which is almost the same as a no-fault rule.67 It should also be remarked that in the hypothesis of pure pre-contractual liability as well, the unfairness of the decision is usually inferred from such objective circumstances as the public administration’s belated communication to the successful bidder on the annulment of the tendering procedure due to irregularity of the bid.68 In other cases, unfairness is found in the mere fact that the matter to the Plenary Meeting of the State Council on the basis of the appeal on Decision no 1559, 12 August 2000 of the TAR Sicilia Catania. 60  Cons Stato, s V, 20 March 2007, no 1346. 61  Caranta, ‘Scelta del contraente’, above n 1 at 981. 62  Cass, s un, 22 July 1999, no 500, which makes reference to the ‘rules of impartiality, correctness and good administration to which to public administration must aim at and that the judge may consider, as being external limits to discretion’. More recently, TAR Sicilia, Catania, s III, 26 June 2007, no 1102, (2007) Il Foro Amministrativo TAR 2225. 63  Cons Stato, s VI, 11 May 2007, no 2306. 64  Cons Stato, s V, 20 March 2007, no 1346. 65  Cons Stato, s IV, 12 January 2005, no 43, (2005) Il Foro amministrativo – CdS 65 in which liability was found to lie in re ipsa due to the misapplication of an unlawful but existing provision of a lex specialis of the bid. 66  Art 1218 cod Civ. The debtor that fails to provide an exact performance is obliged to redress damages, unless he proves that the non-execution or delay was due to causes not ascribable to him. Non-execution, in the matter at hand, refers to fairness and good faith obligations. 67  As in Casalini, ‘L’interpretazione delle clausole di esclusione’, above n 34 at 409. 68  Cons Stato, s VI, 1 March 2005, no 816, with note by GM Racca, ‘Vendita di cosa futura e recesso corretto della parte pubblica dalle trattative’ (2005) Urbanistica e Appalti 944. This decision

State Liability: The Case of Italy  101 the public administration advertised a bid despite its lack of funds.69 In the end, quite independently from the categorisation of liability as pre-contractual rather than tortious, what is relevant for awarding damages is the breach of principles of impartiality, fairness and good administration.70 From this perspective, fault (or unfairness) has been identified in the direct award of a public service (ticket-office management and advertisement distribution);71 in the lack of justification for an (unlawful) exclusion from the tendering procedure;72 in the failure to exclude a bidder lacking the necessary qualifications.73 Given that an exclusion is possible in exceptional circumstances only, in contrast with the European principles of favor partecipationis and widest competition possible,74 an exclusion due to unclear requirements would amount to a fault.75 Manifest breaches of fair competition obviously amount to a fault. For instance, the State Council has found that a contracting authority committed a fault in allowing under the guise of ‘clarification’ a bidder to replace its flawed original offer with an improved offer.76 Consistently with the approach outlined above, it is up to the procuring entity to show that its illegal decision was the result of some excusable mistake.77 Different circumstances may contribute to this end.78 A mistake may be excusable in the case of conflicting judicial decisions (there is no stare decisis rule in Italian law); where there are factually or legally complex matters; or due to mistakes caused by other parties (eg providing false or incorrect statements during refers to the annulment of an informal tender due to breach of European and national regulations on public procurement. Pre-contractual liability was excluded (as redress of damages) due to the timely communication of interruption and annulment of the negotiation to the private company involved. 69  Cons Stato, Ad Plen, 5 September 2005, no 6. 70  Cass, s I, 22 December 2006, no 27498; Cas, s III, 4 July 2006, no 15259; Cass, s III, 21 October 2005, no 20358; Cass, s I, 23 July 2004, no 13801, in Repertorio Foro italiano, 2004, entry ‘Responsabilità civile’ [5760], no 390; Cass, s I, 4 April 2003, no 5259, in Mass, 2003; Cass, s III, 29 March 2004, no 6199, in CD-Rom Foro italiano, 1987–2004; Cass, s III, 28 March 2000, 3726; Cass, s III, 23 July 2002, no 10739. 71  Cons Stato, s VI, 15 June 2009, no 3829, www.giustizia-amministrativa.it. The excusable mistake is excluded since no ‘circumstances of objective uncertainty or unclear regulation’ have been reported. The damage consists in the plaintiff’s loss of the chance of participating and winning the award had the public bid been advertised. 72  Cons Stato, s VI, 13 February 2009, no 775. 73  Cons Stato, s VI, 21 May 2009, no 3144, www.giustizia-amministrativa.it. 74  Cons Stato, s VI, 12 June 2008 no 2893; S V, 14 April 2008 n0 1665; 11 March 2008 no 1146; 4 March 2008 no 874; s IV, 1 October 2007 no 5040. 75  Cons Stato, s V, 16 June 2009, no 3879, www.giustizia-amministrativa.it. 76  Cons Stato, s V, 12 June 2009, no 3750, www.giustizia-amministrativa.it. 77  Cons Stato, s, VI, 13 February 2009, no 775. Cons Stato, s VI, 9 June 2008, no 2751. Cons Stato, s VI, 9 March 2007, no 1114 (2008) I Giurisprudenza italiana 230. Cons Stato, s IV, 29 September 2005, no 5204 (2005) I Consiglio di Stato 1625. 78  Cass, s I, 21 October 2005, no 20454, in Mass, 2005, 1460; Cass, s III, 9 February 2004, no 2424, with note by M Poto, ‘Responsabilità della pubblica amministrazione per inesatte informazioni e rilevanza dell’errore scusabile’ (2004) Responsabilità civile 731; see also TAR Calabria, s II, 14 December 2004, no 2380, with note by S Tarullo, ‘Colpa dell’amministrazione e diligenza professionale’ (2004) Giustizia amministrativa 1336.

102  Silvia Ponzio the procedure); or where the statute upon which the decision was grounded was subsequently declared in breach of the Constitution and nullified.79 For instance, the Council of State was ready to condone the mistake of a procuring entity which, in due application of a national provision later found in breach of European law, excluded a bidder who was not incorporated as a public company as was required under national law. The Council held that, prior to the decision by the Court of Justice, the inconsistency between national and European law was not manifest and therefore the mistake was excusable.80 Adherence to the prevailing case law is considered enough to exclude the liability for damage. Therefore, the ‘unforeseeable’ illegality of a decision (ie exclusion from a tendering procedure) because of changes in the case law does not give right to compensation in damages.81 As it is well known, the Court of Justice ruled that a Portuguese provision conditioning the award of damages upon the evidence of fault was inconsistent with EU public contracts law.82 Given the substantial inversion of the burden of proof imposing on the contracting entity to provide evidence of an excusable mistake, the Italian case law seems in line with EU law.83 IV. Access to courts: Heads of damages and quantum

The award of damages is one of a panoply of remedies available in public procurement cases. The new remedies Directive 2007/66/EC has to a substantial extent rewritten the rules on remedies, prompting changes in the national legislation. Review mechanisms in the Member States must strive to redress violations of European law, especially ‘at a time when infringements can still be corrected’.84 Damages actions will be considered within the context of this overall system of remedies. 79  Cons Stato, s VI, 9 June 2008, no 2751; Cons Stato, s V, 20 March 2007, no 1346; Cons Stato, s VI, 09 November 2006, no 6607, with note by S Mirate, ‘Offerte anomale e ctu: il (concreto) accesso al fatto del giudice amministrativo’ (2007) Urbanistica e appalti 183. Cons Stato, s VI, 23 June 2006, no 3981, www.giustizia-amministrativa.it. 80  Cons Stato, s V, 8 September, 2008, no 4242. Art 113(5), lett a) of Leg D n. 267/2000, provided that the supply of the service is carried out in compliance with the applying rules and in conformity with Community regulations. The service is awarded to ‘ a) Joint-stock companies identified by means of public procurement tendering procedures’. 81  Cons Stato, s VI, 23 March 2009, no 1732, www.giustizia-amministrativa.it: in this case the offer had been excluded because of the presence of the figure zero in some items of price, which according to the case law then prevailing prevented the administration from applying a mathematical formula for the appraisal of the offer. 82  Court of Justice EC, 14 October 2004 (C-275/03), with note by M Protto, ‘Per il diritto europeo la responsabilità della p.a. non richiede la prova dell’elemento soggettivo’ (2005) Urbanistica e Appalti 36. In European law, a public administration’s liability does not require evidence of the subjective element. See R Caranta, ‘Damages for Breaches of EU Public Procurement Law: Issues of Causation and Recoverable Losses’, below ch 9. See also Court of Justice EC, 30 September 2010, no C-314/2009. 83  Cons Stato, s VI, 13 February 2009, no 775; Cons Stato, s VI, 9 March 2007, no 1114. 84   Whereas no 3, Dir no 66/2007/EC.

State Liability: The Case of Italy  103 The 2006 Italian Public Procurement Code contains a few provisions on remedies.85 Even before the implementation of the new remedies Directive, Art 11, cl 10 of the Italian Public Contracts Code, laid down a standstill clause, providing for a period of 30 days between the decision to award a contract and the conclusion of the same contract. Under Art 79, the procuring entity has a duty to communicate, on one hand, the award of the contract to all participants to the procedure, and, on the other hand, the motivation of the exclusion to any economic operators excluded. This provision was introduced to guarantee effective judicial protection for the tenderers. However, the breach of the standstill provision was not sanctioned; no automatic suspension of the standstill in case of notification of a recourse was provided for; the standstill period was not coordinated with the deadline for starting a review procedure (60 days from the communication of the award of the contract).86 Even if the standstill was provided for, there was a risk that contracts would be concluded before a court could stay or annul the procedure. In any case, an interim measure could be refused, and the contract be concluded. Somewhat anticipating the legislation implementing Directive 2007/66/EC, the Grand Chamber of the Corte di cassazione affirmed the jurisdiction of the administrative courts not only with reference to actions for the annulment of either illegal awards or of entire bidding procedures, but also in relation to requests by bidders unlawfully excluded to ‘restore their position’ thereby depriving the contract already stipulated of its effects.87 Italy has recently implemented the new Remedies Directive with Legislative Decree no 53, March 2010, which modified the Public Contracts Code.88 A few  Leg Decr no 163 of 2006.   See R De Nictolis, ‘Il recepimento della Direttiva ricorsi nel Codice appalti e nel nuovo codice del processo amministrativo’, available at www.giustizia-amministrativa.it; R Caranta, ‘Le contentieux des contrats publics en Italie’ (2011) Revue Française de droit administratif 54 ff. Racca, Cavallo Perin, Albano, ‘The Safeguard of Competition’, above n 3. 87   See Cass, s un, 10 February 2010, no 2906, with note by F Cardarelli available at www.giustamm. it; the Corte di cassazione and the Consiglio di Stato fought for a while before the matter was settled: Cons Stato, Ad Plen, 30 July 2008, no 9, with note by CE Gallo, ‘Contratto ed annullamento dell’aggiudicazione: la scelta dell’adunanza plenaria’ (2008) Il Foro amministrativo – CdS 2364; Cass, s un, 18 July 2008, no 19805, (2008) Urbanistica. e appalti 1140, Cass, 28 December 2007, no 27169, with note by M Ramajoli, ‘La Cassazione riafferma la giurisprudenza ordinaria sul rapporto contrattuale tra amministrazione e aggiudicatario’ (2008) Diritto processuale amministrativo 514. Cons Stato, s V, 12 February 2008 no 490, available at www.giustizia-amministrativa.it. See also: Cons Stato, s VI, 4 April 2007, no 1523, (2007) Il Foro amministrativo – CdS 1235 and 1236; Cons Stato, s VI, 6 July 2006, no 4295, (2006) Il Foro amministrativo – CdS 2234; Cons Stato, s V, 29 November 2005, no 6759, with note by S Ponzio, ‘Il criterio dell’offerta economicamente più vantaggiosa e la valutazione in termini numerici delle offerte’ (2006) Il Foro amministrativo – CdS 485; Cons Stato, s V, 28 September 2005, no 5196, with note by S Tassone, ‘Illegittimità della procedura ad evidenza pubblica e sorte del contratto privatistico medio tempore stipulato’ (2006) Giurisprudenza italiana 413; Cons Stato, s VI, 5 May 2003, no 2332, (2004) Diritto processuale amministrativo 177 and thereafter, with note by F Goisis, ‘In tema di conseguenze sul contratto dell’annullamento del provvedimento di aggiudicazione conclusivo di procedimento ad evidenza pubblica e di giudice competente a conoscerne.’ 88  Leg Decr 20 March 2010, no 53, Attuazione della Direttiva 2007/66/CE che modifica le direttive 89/665/CEE e 92/13/CEE per quanto riguarda il miglioramento dell’efficacia delle procedure di ricorso in materia d’aggiudicazione degli appalti. 85 86

104  Silvia Ponzio months later, in July 2010, the Italian Parliament approved the Administrative Procedure Code and moved some provisions on remedies to this code. A new special procedure for public contracts litigations was thus introduced in the Administrative Procedure Code.89 The standstill period is now fixed at 35 days. At the same time, the deadline for challenging award procedures was reduced to 30 days, thus making sure that contracting authorities cannot conclude the contract before the affected bidder has had the opportunity to ask for interim measures. The standstill period has thus been coordinated with the deadline for lodging an action with the administrative courts. Directive 2007/66/EC for the first time has provided for instances in which a contract entered into in breach of some of the provisions of the same Directive is to be considered as ineffective, and therefore not capable of producing effects. Under the new Administrative Procedure Code, the administrative courts have been given the power to declare the contract ineffective. Art 121 of the Administrative Procedure Code provides for ineffectiveness in the same instances of grave breaches listed in Art 2(d) of Directive 89/665/EEC as amended by Directive 2007/66/EC. Moreover, Art 122 vested in the administrative courts a general power to declare ineffective the contract for any breach of any rule applicable to the award procedure. It is a discretionary power, in that the court has to balance the consequences of any such decision on the parties, including taking into account the stage of performance of the contract concerned. Should the court not decide to declare the contract ineffective, then the claimant is expected to be awarded damages. Under the Remedies Directives,90 breaches of procurement law, which cannot be otherwise corrected during the procedures,91 give rise to a remedy in damages which must be both real and adequate.92 In principle, breaches should be remedied in kind, for instance in the form of (prompt) renewal of the competition (cancelled or illegitimately revoked) or with readmission of the competitors who were illegitimately excluded. Only if this is impossible, will monetary compensation be available. For instance, the participation costs are relevant as emerging damage

89  Leg Decr 2 July 2010, no 104, Attuazione dell’articolo 44 della legge 18 giugno 2009, no 69, recante delega al governo per il riordino del processo amministrativo. G Soricelli, ‘Il punto sulla disciplina legislativa della pregiudiziale amministrativa alla luce del Codice del processo amministrativo’, www.giustamm.it, no 8/2010. 90  Dir 89/665/CEE; 92/13/CEE, first applied through Art 13, l. 19 February 1992, no 142, abrogated by c V of Art 35, Leg Decr 80/98. 91   See the recent Directive on remedies, Dir 2007/66/EC. EEC Court of Justice, s VI, 27 February 2003, Santex SpA vs. Unità Socio Sanitaria Locale n. 42 di Pavia, www.europa.eu.int; Cons Stato, s IV, 9 November 2005, no 6236, (2005) Il Foro amministrativo – CdS 3253; EEC Court of Justice Case 108/88 of June 22, 1989, F lli Costanzo spavs Com di Milano (1991: IV) Il Foro italiano 129. 92   See also, on the consequences of violation of the principle of equal treatment between men and women: EEC Court of Justice, 22 April 1997, suit 180/95, Draehmpaehl c Urania Immobilienservice ohG.

State Liability: The Case of Italy  105 only when the enterprise is excluded for illegitimate reasons, because in that case the subjective right of the contracting party not to be involved in useless negotiations has to be considered. This damage, however, is made good, with the maximum priority and preferentiality, in specific form, through renewal of the competition procedure and, only where this is not possible, must be repaid by equivalence.93

However, a remedy in kind is not always possible or sufficient to make good the damage. In these cases financial compensation must substitute or supplement the specific remedy.94 In application of this principle, the State Council has ruled that the partial performance of a service contract by the contractor unlawfully chosen is only partially remedied by awarding the contract to the successful claimant for the remaining contract period; the loss incurred with reference to the time already passed must be made good by financial payment.95 Substituting the contractor is not possible when the award of the contract implies technical evaluations that are not within the province of the administrative judge,96 when the contract has already been fully performed, or when substitution would be too cumbersome or costly for the public administration.97 In all these cases, financial compensation is the only option. Administrative courts may themselves award the damages. However, they may also limit their task to the identification of the ‘criteria’ for calculating the damages.98 On this basis, the procuring entity must submit a proposal to the claimant, who may either accept it or challenge it before the courts.99 93  Cons Stato, s VI, 21 May 2009, no 3144, www.giustizia-amministrativa.it; see also: Cons Stato, s VI, 4 September 2002, no 4435, www.giustizia-amministrativa.it. In this case reimbursement of the emerging damage is excluded, and renewal of the procedures lead only to a new evaluation of the impropriety of the offer, but not to a new participation in the competition. Any additional costs that the enterprise may have incurred for participation are excluded and it is considered that the damage has already been fully repaired in specific form. Effectively, by granting reimbursement by equivalence of the costs of participation in the competition, in addition to repairing the damage in specific form, the participant in a public contract competition would receive a greater benefit than it would from regular participation, and even by winning the contract, ie repayment of costs that are ordinarily for the account of the participating enterprise. 94  On damages remedies in kind M De Palma, ‘Il risarcimento del danno in forma specifica’, in R Garofoli, GM Racca, M De Palma (eds), Responsabilità della pubblica amministrazione e risarcimento del danno innanzi al giudice amministrativo (Milan, Giuffrè, 2003) 589 ff. 95  Cons Stato, s V, 14 April 2008, no 1666 and Cons Stato, s V, 14 April 2008, no 1667, www. giustizia-amministrativa.it. TAR Veneto, s I, 26 November 2007, no 3744, relative to cancellation of the assignment of a two-year meal service contract, provided by way of reparation that the plaintiff would succeed to the contract for the entire term originally foreseen. 96   eg, in case of damage due to failure to assign contracts after cancellation for jurisdictional reasons of the relative procedures determining the identification of different competitors as possible legitimate contractors: Cons Stato, s IV, 27 December 2004, no 8244, www.giustizia-amministrativa. it. 97  Cons Stato, s V, 20 May 2008, no 2360, with note by SR Masera, ‘La eliminazione del danno ingiusto tra tutela di annullamento e tutela risarcitoria’ (2008) Urbanistica e appalti 974. 98  Art 7, l. 21 July 2000, no 205, Provisions on the subject of administrative justice, amending Art 35 of Leg Decr no 35 of 31 March 1998, no 35. 99  Reference is made for detailed analysis of these criteria to R Garofoli, ‘Il risarcimento per equivalente’, in R Garofoli, GM Racca, M De Palma (eds), Responsabilità della pubblica amministrazione e risarcimento del danno innanzi al giudice amministrativo (Milan, Giuffrè, 2003) 667 ff; and, lastly, R Garofoli, G Ferrari, Manuale di diritto amministrativo (Roma, NelDiritto, 2010) 1349 ff.

106  Silvia Ponzio In theory, the recoverable loss depends on the qualification of the liability (pre-contractual vs. tort). With reference to pre-contractual liability, compensation for damages was traditionally limited to the ‘negative interest’ consisting of the ‘costs unnecessarily incurred to prepare the tender and losses incurred for not having been able to exploit other contract opportunities’. More generally, the ‘negative interest’ is the interest in not becoming involved in useless negotiations.100 The ‘lost income’ is not reimbursable notwithstanding that the bidder believed in the conclusion of the contract101 or in the issuance of a favourable decision.102 However, in practice, the administrative courts often equate the ‘loss of other business opportunities’ to the conventional lump amount of 10 per cent which is used to calculate the loss of profits relevant in tort liability. Indeed, the negative interest is referred to infringement of the pre-contractual obligations but does not affect either the amount of the damages or the criteria for calculating it, which is up to the courts to assess.103 Amongst the heads of loss, one can list the costs incurred in participating in the bidding process, and the loss of profit.104 The distinction between precontractual liability linked to the lawful but unfair adoption of detrimental decisions on the one hand, and on the other hand ‘extra-contractual liability’ due to the adoption of illegitimate provisions, affects the quantification of damages. In the former, the administrative courts admit the redress of the damage ‘within the limits of the negative interest’.105 In case of tortious liability, damages cover the so-called ‘positive interest’ which are designed to place the injured party in the same position in which it would have been if the public administration had acted lawfully. Two scenarios must be distinguished. On the one hand, there are cases in which the improper action of the administration prevents the competitor from winning the contract. On the other, there are cases in which the competitor can only prove that he or she had a serious chance of winning the contract.106 When 100   See eg Cons Stato, s V, 14 April 2008, no 1667. Racca, La responsabilità precontrattuale, above n 9 at 364 ff. Racca, ‘Contratti pubblici e comportamenti contraddittori’, n 28 above at 289 f. 101  A correct interruption of the selective procedure is always possible. See Art 41, Dir 31 March 2004, no 2004/18/EC. Contracting authorities shall as soon as possible inform candidates and tenderers of decisions reached concerning the conclusion of a framework agreement, the award of the contract or admittance to a dynamic purchasing system, including the grounds for any decision not to conclude a framework agreement or award a contract for which there has been a call for competition or to recommence the procedure or implement a dynamic purchasing system; that information shall be given in writing upon request to the contracting authorities. See in the Italian legal system Art 79, Leg D no 163/2006. 102  Cons Stato, s IV, 7 July 2008, no 3380; TAR Toscana, s II, 12 February 2008, no 174. Caranta, ‘Scelta del contraente’, above n 1 at 980. Cass s III, 10 June 2005, no 12313. 103  F Benatti, ‘Responsabilità precontrattuale, (diritto civile)’ in Enciclopedia giuridica Treccani, vol. XVII, 9 (Rome, 1991). 104  Cons Stato, s V, 12 February 2008, no 491, www.giustizia-amministrativa.it. 105  Cons Stato, s V, 6 December 2006, no 7194, www.giustizia-amministrativa.it. 106  Among the most recent: Cons Stato, s VI, 27 April 2010, no 2384; Cons Stato, s V, 14 January 2009, no 122; Cons. Stato s VI, 3 April 2007, no 1513 and Cons Stato, s VI, 3 April 2007, no 1514,

State Liability: The Case of Italy  107 the claimant is able to prove that, in the absence of the improper and illegitimate action it would have won the contract, he or she is normally awarded the lump sum of 10 per cent of the contract value as lost profit.107 The 10 per cent criterion was actually foreseen by Art 345 of law of 1865 no 2248, sched. F to calculate the amount due to the contractor in case of advance termination (even for legitimate reasons) of a contract by the unilateral decision of the public administration. However, the courts considered this a good indicator as to the average profit in public contracts. The exact amount due is calculated on the basis of the starting bidding price minus the rebate offered by the tenderer. It is fair to say that this reduction is not always made by the courts.108 The offer, by necessity, must be lower than the starting price. Referring to the bidding price rather than to the starting price makes it possible to quantify the damage on the basis of an actual and specific criterion (the price offered) instead of a merely abstract one.109 Certainty as to the expectation of winning the contract is possible when contracts are awarded on automatic criteria (lowest price) or also when a procedure is annulled because of the failure to exclude the winner leaving in place the criteria of selection of the contracting party.110 If the claimant is unable to demonstrate that in the absence of improper behaviour (and illegitimate decision) it would have won the contract, he must at least show ‘a definite probability of victory’.111 In these cases, the 10 per cent of the rebated contract value is which awards 1/15 of the profit considered at the rate of 5% of the total cost of the works, as loss of opportunity for failure to assign a contract to each plaintiff. Cons Stato, s V, 6 December 2006, no 7194. 107  The more restrictive orientation of case law where the plaintiff is not able to prove that, in the absence of the impropriety, it would have won the contract: TAR Lazio, Rome, s III, 5 June 2008, no 5491, in Il Foro Amministrativo TAR (2008) 1756; TAR Liguria, s II, 11 October 2007, no 1725, Il Foro Amministrativo TAR (2007) 3045. 108  TAR Lombardia, s III, 23 December 1999, no 5049, with notes by L Carrozza and F Fracchia, ‘Art 35 d.leg. 80/98 e risarcibilità degli “interessi meritevoli di tutela”: prime applicazioni giurisprudenziali’ (2000) Il Foro italiano 198; TAR Puglia, Lecce, s II, 14 February 2001, no 746, www.giustiziaamministrativa.it. 109  In broader terms, Garofoli, ‘Il risarcimento per equivalente’, above n 99 at 676, 677. 110  Caranta, ‘Scelta del contraente’, above n 1 at 985. Cons Stato, s V 30 July 2008, no 3806; Cons Stato, s VI, 9 June 2008, no 2751. They quantify the loss of income at 10% of the contract value net of the rebate: Cons Stato, s VI, 9 March 2007, no 1114. Cons Stato, s V, 23 October 2007, no 5583 and Cons Stato, s V, 10 May 2005, no 2338, relative to the lack of exclusion due to failure to provide all documentation (geological report relative to the project). Cons Stato, s V, 24 May 2007, no 2606, in a case relative to lack of exclusion due to lack of requisites; Cons Stato, s V, 6 December 2006, no 7200, lack of exclusion for use of modes of demonstration of the economic and financial capability of the enterprise different from those foreseen in the competition documents. Cons Stato, s V, 25 June 2007, no 3645 and Cons. Stato, s V, 24 May 2007, no 2605. On the illegitimacy of exclusion: Cons Stato, s V, 16 May 2006, no 2780; Cons Stato, s V, 18 January 2006, no 127; Cons Stato, s V, 14 April 2006, no 2080. On the failure or illegitimate audit of abnormally low offers: Cons Stato, s V, 6 February 2007 no 487. 111  Cons Stato, s V, 23 October 2007, no 5592. According to R Cavallo Perin and D Casalini, ‘L’in house providing: un “impresa dimezzata”’ (2006) Diritto. Amministrativo 1 ff. The opportunity is, thus, a concrete and effective favorable possibility of obtaining a benefit in life and, consequently, a source of economic wealth that can be evaluated independently and that leads to repayment of the damages incurred where loss of the favorable opportunity can be proven.

108  Silvia Ponzio discounted taking into account the number of the participants showing the requisite level of chances to be awarded the contract.112 In a case where objective criteria for the evaluation of the technical offer were missing and the award commission had unlawfully used an overall total numerical score, the Council of State awarded damages in the measure of 1 per cent of the contract value considering that ten firms had taken part in the procedure.113 This method to calculate lost profit is difficult to apply in cases in which no public competition was announced. In these cases, the case law specifies that it is necessary to hypothesise by way of averages and presumptions as to the probable number of participants in a competition, if there had been one, and divide the profit thus calculated by the presumed number of participants to obtain the measure of the recoverable damage.114 An interesting case involved an illegitimate recourse to a negotiated procedure for the repetition of similar supplies in a particularly complex contract whose execution demanded highly sophisticated technical means. This meant that only a limited number of firms could have participated in the bidding procedure. The Council of State, considering the peculiarities of the case, identified the loss of earnings at 8 per cent of the price of the supply. This amount was then reduced to 2 per cent because the plaintiff had not incurred participation costs.115 In other cases, the administrative courts have moved from the average participation to procedures for the award of similar contracts. In one case concerning the direct award of restoration and maintenance works to be performed in respect of a building listed as having historical interest, the court calculated the profit at 5 per cent of the contract value. It then considered that average parti­ cipation in procedures for the award of similar works involved about 15 to 20 participants. Consequently, it calculated the one-fifteenth of 5 per cent . The amount thus obtained was then increased, by reason of further damage consisting in this case in the loss of opportunity relative to the requisites of qualification and evaluation that could be invoked in subsequent competitions (a point to which we will revert).116 The amount of 10 per cent is anyway rarely awarded. Sometimes this profit is quantified at a lower percentage which may correspond to 5 per cent , 6 per cent  Cons Stato, s VI, 18 December 2001, no 6281, www.giustizia-amministrativa.it.  Cons Stato, 22 June 2006, no 3851. 114  Cons Stato, 15 June 2009, no 3829, www.giustizia-amministrativa.it, relative to the direct assignment (illegitimately) of a contract for services of ticket selling and advertising distribution by a company qualifiable as a public company. The following criterion is indicated for quantification of the damage: the foreseeable annual profit on the basis of the contract stipulated multiplied by the number of years of its duration. The damage is calculated at 10% of this amount. The amount is then divided by ten (the Council of State estimates the possible participation of ten bidders) and further decreased by 50% in consideration of the use of the workers and equipment for other contracts during the duration of the contract by the plaintiff. 115  Cons Stato, s IV, 6 October 2004, no 6491. 116  On this point see Cons Stato, s VI, 3 April 2007 no 1513; Cons Stato, s VI, 3 April 2007 no 1514. 112 113

State Liability: The Case of Italy  109 or other similar percentages.117 A fair reduction of the damages is often decided when the claimant is unable to demonstrate the ‘loss of other opportunities’.118 It is felt, in particular, that the damage caused to a company due to failure to win a contract is quantifiable in the measure of the unearned profit (10%), only if and to the extent that the company can prove its inability to use the means and workforce left available, in the performance of other services, and when this is not proved it is understood that the company may have reasonably reemployed the means and workforce in the performance of other, similar services, thereby partially reducing its loss of profit, with consequent fair reduction of the recoverable damages.119 The aforementioned discounting may be at least partially be offset because a wronged competitor may also recover damages for the harm to its business image. This is an independent item of damage, the so-called ‘curricular damage’ that prevents the company from enhancing its professional curriculum. In other words, the performance of a public contract (regardless of the income earned with the price paid by the contracting client), is the source of an economically appraisable advantage in that it increases the company’s ability to compete in the market and thus its chances to win further and future contracts. This is compensated on an equitable basis with reference to a percentage variable between 1 per cent and 5 per cent, which is at times applied to the total value of the contract, and on other occasions times calculated on the amounts already liquidated for loss of income.120 The behaviour of the claimant may also be an issue in the reduction of the damages granted. In particular, the unified chambers of the Supreme Court, despite having recently denied that challenging the administrative decision is a necessary procedural step before suing for damages, considered that failure to bring an annulment action can be qualified as contributory negligence.121 In another case, a firm was excluded for having submitted a security deposit in a way different from that foreseen by the contract notice. The Council of State held that the exclusion was unlawful, and considered the variance as a mere irregularity. When awarding damages, however, the court first decreased 117  Cons Stato, s VI, 21 May 2009, no 3144, www.giustizia-amminstrativa.it, quantifies the lost income as 6% of the offer presented, then decreases it further to 3%, in relation to failure of the enterprise to demonstrate that it would not have been able to perform, during the period in which it should have been engaged in the disputed contract, other lucrative activities incompatible with those for which it demands reimbursement of the damage. 118  Cons Stato, s VI, 10 November 2008, no 5574; Cons Stato, s V, 6 December 2006, no 7194. 119  Cons Stato, s VI, 21 September 2010, no 7004, www.neldiritto.it; Cons Stato, s V, 14 April 2008, no 1666, Cons Stato, s VI, 9 March 2007, no 1114, Cons Stato, s V, 12 February 2007, no 593, Cons Stato, s IV, 31 October 2006, no 6456; Cons Stato, s IV, 22 May 2006, no 2983, Cons Stato, s V, 27 January 2006, no 236; Cons Stato, s V, 9 September 2005, no 4642; Cons Stato, s V, 4 May 2005, no 2168; Cons Stato, s VI, 10 November 2004, no 7256; Cons Stato, s V, 27 September 2004, no 6322; Cons Stato, s V, 27 September 2004, no 6302; Cons Stato, s V, 12 November 2004, no 7346; Cons Stato, s IV, 27 December 2004, no 8244; Cons Stato, s IV, 26 October 2003, no 6666. 120  Cons Stato, s VI, 9 June 2008, no 2751. Cons Stato, s VI, no 1514 del 2007. Cons Stato, s VI, 21 May 2009, no 3144: recognises curricular damage of 5% of the amount liquidated for lost income. 121  Cass, s un, 23 December 2008, no 30254.

110  Silvia Ponzio the lost profit to 5 per cent due to the failure of the firm to demonstrate that it could not have performed other services in the meantime. This amount was further decreased to 2.5 per cent because the enterprise, using ordinary diligence in preparing its documents for participation in the competition could have easily avoided the exclusion thus contributing to prevent the occurrence of the damage.122 Recovery of the lost profit excludes repayment of the expenses incurred for participating in the procedure.123 This is not just to prevent excessively large disbursements for the liable administration, but because no recovery of the participation costs is foreseen for the winner of a procurement procedure.124 According to the prevalent case law the enterprise which has obtained damages for not having been awarded the contract (or loss of the opportunity to win it) cannot also recover the costs for taking part into the competition. This is based on the principle that through the award of damages, the enterprise may not obtain a greater benefit than those that would have derived from winning the contract.125 Finding unfair (or illegal) behaviour on the part of the contracting authorities does not always result in the award of damages. This was the case, for example, of a recent decision by the State Council concerning a service contract for the operation and maintenance of water treatment plants. On the basis of a protocol agreement with the relevant trade unions and following a provisional adjudication, the procuring entity had asked the winning bidder to hire the personnel previously working at the plant. This protocol was reached after the procurement procedure and was not mentioned in the call for bids. The court confirmed the legality of the revocation of the procedure based on the fact that, if it had not been revoked, this would have caused a serious economic imbalance with respect to the tenderer’s offer. The court found the public administration’s behaviour as contradictory and unfair in that it prevented the conclusion of the contract. In this case, however, it denied the right to compensation of the damage in relation to the absence of proof of the loss of other business opportunities.126  Cons Stato, s IV, 11 October 2006, no 6059.  Cons Stato, s VI, 9 June 2008, no 2751. Contra see Cons Stato, s V, 2007, no 5476 recognises, in addition to the damage for loss of the opportunity to win the contract, an additional sum of 2% of the offer to reimburse the expenses incurred to participate in the competition that, in any case, would not have been spent by the enterprise if it had won the contract. 124  Cons Stato, s V, 13 June, 2008, no 2967, www.giustizia-amministrativa.it; Cons Stato, 14 April 2006, no 2080; Cons Giust amm, Reg Sicilia, 22 June 2006, no 315. 125  Cons Stato, s VI, 9 June 2008, no 2751, www.giustizia-amministrativa.it. 126  Cons Stato, s VI, 17 December 2008, no 6262. See also: Cons Stato, 6 November 2008, no 5633. The case was concerned with annulment by the administrative court of a classification followed by the decision of the public administration not to renew the tendering procedure because the work no longer met the new public needs. The State Council excludes pre-contractual liability and compensation of damage in relation to the expectation in the tendering documents of the possibility for the public administration not to stipulate the contract. Cons Stato, s V, 30 November 2007, no 6137, www.giustizia-amministrativa.it: pre-contractual liability is excluded for the timely adoption of the measure of self-protection. 122 123

State Liability: The Case of Italy  111

V. Conclusion

The evolution of legislation and case law in Italy has led to the introduction of effective instruments to safeguard the economic operators who participate in public contract bidding. These instruments, in line with the provisions of European law, place the emphasis on the regularity of the procedures. For the cases in which this solution is impossible, some sort of compensation is foreseen which, by a monetary equivalence, can make good the loss incurred. This is the case when the public administration acts unlawfully, but also in other cases. For example, it may be possible to claim damages also in case of improper behaviour in the presence of legitimate actions, such as the revocation or annulment of the award or of the entire bidding procedure for lack of funds, which is qualified as improper withdrawal from the negotiations.127 Moreover, the administrative courts recognise the right to damages also in case of failure to call for bids on a public contract, resorting illegitimately to a negotiated procedure.128 Although the system of remedies appears rather advanced, there are still a number of matters that can also hinder judicial findings in favour of the economic operators who have unfairly treated by the public administration in the context of awarding procedures. From an analysis of the cases concerning the quantum of damages, it can be seen that there is a vast variance among the solutions adopted by administrative courts in cases on very similar facts. From this perspective we can see how, at times, the damages awarded appear too high with respect to the violations committed. At other times, even after serious breaches by the awarding administrators have been established, the claimant is still asked to prove the ‘loss of other opportunities’, which is often impossible.129 The failure to provide this proof may lead not only to the reduction of the amount payable, but sometimes even to the denial of any redress, which is an obvious violation of the obligations imposed by EU law. This problem could be overcome by a law establishing uniform criteria for quantification of the damage, which would prevent adding, to the mistakes of the awarding administrators, unequal treatment by the administrative courts.130 127  The leading case is: Cons Stato, Ad Plen, 5 September 2005, no 6. See also: Cons Stato, s V, 8 September 2010, no 6489; Cons Stato, s IV, 7 September 2010, no 6485; Cons Stato, sez V, 28 May 2010, no 3393; Cass, s I, 18 June 2005, no 13164; Cons Stato, s IV, 11 November 2008, no 5633; Cons Stato, s V, 8 October 2008, no 4947; Cons Stato, s IV, 4 October 2007, no 5176; Cons Stato, s IV, 4 October 2007, no 5174; TAR Lombardia, Milan, s I, May 2008, no 1380; TAR Lazio, Rome, s I ter, 12 December 2008, no 11343; TAR Lazio, Rome, s III, 13 July 2007, no 6369; TAR Lazio, Rome, s III, 10 January 2007, no 76. R Caranta, ‘Scelta del contraente’,above n 1 at 979. Racca, La responsabilità precontrattuale, above n 9. 128  Cons Stato, 15 June 2009, no 3829; Cons Stato, s IV, 6 October 2004, no 6491. 129  Cons Stato, s VI, 10 November 2008, no 5574; Cons Stato, s V, 6 December 2006, no 7194. 130   See: Racca, ‘Contratti pubblici e comportamenti contraddittori’, above n 28 at 283 ff.

112  Silvia Ponzio From a different standpoint, the effective protection of the competitors in public contract bidding is enhanced by the decision to give the administrative courts exclusive jurisdiction in the procedures for the award of public contracts, with the consequence of simplifying and concentrating the decisions regarding the annulment of illegitimate acts and those serving for redress of the damage.131 In conclusion, the development of more uniform criteria for awarding damages and the attribution to the administrative courts of a wider jurisdiction as to the effects of the annulment of the award decision on the following contract seems capable of improving the effective protection of the economic operators.

131  Cons Stato, Ad Plen, 30 July 2008, no 9, with note by CE Gallo, ‘Contratto ed annullamento dell’aggiudicazione: la scelta dell’adunanza plenaria’ (2008) Il Foro Amministrativo – CdS 2364.

7 The New Remedial Landscape in Public Procurement in Ireland Catherine Donnelly

I. Introduction

T

he aim of this chapter is to outline the remedies available against contracting authorities for breaches of EU public procurement procedures in Ireland. At the outset, it should be observed that Irish case law has focused significantly more on procedural access to remedies, rather than on the substantive remedies themselves. Access to court to seek remedial protection for breaches of public procurement rules, including damages remedies, has also been policed very strictly; and the number of cases in the jurisdiction is quite small.1 As a consequence, regrettably, there has been limited exploration of the principles underpinning the important question which is the focus of this book, namely, quantification of damages. Thus, although some views will be offered on the relevant principles which may apply,2 the primary focus of this chapter will be more general. The remedial scheme for breaches of public procurement law is regulated by overlapping schemes of EU directives, Court of Justice of the European Union (CJEU) case law, domestic regulations and domestic case law. Ireland’s implementation of Directive 89/665 (‘the Public Sector Remedies Directive’)3 and Directive 92/13 (‘the Utilities Remedies Directive’)4 (together, ‘the Original Remedies Directives’) will be reviewed, alongside an assessment of the Public

1  For comparative discussion on the impact of procedural rules such as time limits on access to damages awards, see, S Treumer, ‘Damages for Breach of the EC Public Procurement Rules – Changes in European Regulation and Practice’ (2006) 15 Public Procurement Law Review 159. 2   See below text to n 188–204. 3   Dir 89/665 EEC on the co-ordination of the laws, regulations and administrative provisions relating to the application of review procedures to the award of public supply and public works contracts [1989] OJ L395/33. 4   Dir 92/13 EEC co-ordinating the laws, regulations and administrative provisions relating to the application of Community rules on the procurement procedures of entities operating in the water, energy, transport and telecommunications sectors [1992] OJ L76/14.

114  Catherine Donnelly Sector Remedies Directive as amended by Directive 2007/66 (‘the Amended Remedies Directive’).5 Structurally, after a brief overview of the relevant legislation (section II), this chapter will be divided into a further three sections. First, there will be an examination of the availability of remedial protections which seek to obviate the need for judicial redress, or pre-judicial remedial protections (section III). Second, the procedures governing access to judicial remedies will be reviewed (section IV); and this section will include consideration of the important CJEU cases on time limits in public procurement actions, Uniplex6 and Commission v Ireland.7 Third, the chapter will consider the judicial remedies themselves, including the principles potentially applicable to quantification of damages (section V). As will be seen, as a result of Directive 2007/66, the remedies regime is now significantly more complex in Ireland than it was previously: although the remedial scheme has largely been improved, in certain very specific respects, protection has actually been lowered from that available previously and certain aspects of the regime are confusing. On balance, the new regime benefits those challenging contracting authority decisions; however, its positive effects are not unqualified. II. The Legislative Framework

The procurement procedures which must be followed in Ireland are set out in the following regulations: • European

Communities (Award of Public Authorities Contracts) Regulations 2006 (‘the Public Sector Award Regulations’),8 which implement Directive 2004/18/EC (‘the Public Sector Award Directive’)9; and, •  European Communities (Award of Contracts by Utility Undertakings) Regulations 2007 (‘the Utilities Award Regulations’),10 which implement Directive 2004/17/EC (‘the Utilities Award Directive’).11

The Original Remedies Directives, setting out the criteria to be satisfied by remedies for breaches of EU procurement rules, were implemented into Irish law by the following regulations: 5   Dir 2007/66/EC amending Council Dirs 89/665/EEC and 92/13/EEC with regard to improving the effectiveness of review procedures concerning the award of public contracts [2007] OJ L335/31. 6   Case C-406/08 Uniplex (UK) Ltd v NHS Business Services Authority, Judgment of the Court (Third Chamber), 28 January 2010. 7   Case C-456/08 Commission v Ireland, Judgment of the CJEU (Third Chamber), 28 January 2010. 8   SI No 329 of 2006. 9   Dir 2004/18/EC on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts [2004] OJ L134/114. 10   SI No 50 of 2007. 11   Dir 2004/17/EC coordinating the procurement procedures of entities operating in the water, energy, transport and postal services sectors [2004] OJ L134/1.

The New Remedial Landscape: Ireland  115 • European

Communities (Review Procedures for the Award of Public Supply, Public Works and Public Services Contracts) (No 2) Regulations 1994 (‘the Public Sector Remedies Regulations’);12 •  European Communities (Review Procedures for the Award of Contracts by Entities operating in the Water, Energy, Transport and Telecommunications Sectors) Regulations 1993 (‘the Utilities Remedies Regulations’); 13 and •  Rules of the Superior Courts (No 4) (Review of the Award of Public Contracts) Rules, 1998 (‘the 1998 Rules’) which inserted Order 84A into the Rules of the Superior Courts (‘Old Order 84A’).14 The amendments to the Public Sector Remedies Directive are implemented by the European Communities (Public Authorities’ Contracts) (Review Procedures) Regulations 2010 (‘the New Remedies Regulations’).15 At the time of writing, a new version of the Rules of the Superior Courts (‘New Order 84A’) has just been published to accommodate the New Remedies Regulations, and are just about to be brought into force. In general, as is well accepted, it was considered necessary to enact Directive 2007/66 due to the heterogeneous operation of Member States’ national review procedures and to give effect to the evolving jurisprudence of the CJEU. Of particular concern was a desire to strengthen pre-contractual review and to bolster remedies for direct and illegal award of contracts, considered to be ‘the most serious breach of Community law in the field of public procurement’.16 The Commission was concerned about the so-called ‘race to signature’ and the fact that national arrangements often did not allow the signing of disputed contracts to be prevented in time.17 In many Member States, the result of the signing of the contract was often that the disputed award decision became irreversible, other than allowing a claim for damages for any losses suffered.18 Moreover, the remedy of damages did not, in many cases, provide a deterrent to contracting authorities, because in a number of Member States, bidders who considered that their interests had been harmed had to prove that they had a   SI No 309 of 1994.   SI No 104 of 1993. 14   SI No 374 of 1998. 15   SI No 130 of 2010. The amendments to the Utilities Remedies Regulations have been implemented by the European Communities (Award of Contracts by Utility Undertakings) (Review Procedures) Regulations 2010 (SI 131 of 2010). 16  Case C-26/03 Stadt Halle v Arbeitsgemeinschaft Thermische Restabfall- und Energieverwertungsanlage TREA Leuna [2005] ECR I-1. 17   See also Recitals (3)–(4), Dir 2007/66; Commission, ‘Proposal for a Directive of the European Parliament and of the Council amending Council Directives 89/665/EEC and 92/13/EEC with regard to improving the effectiveness of review procedures concerning the award of public contracts’, COM (2006) 195 final/2, 14 June 2006, 5; Commission, ‘Commission Staff Working Document, Annex to the “Proposal for a Directive of the European Parliament and of the Council amending Council Directives 89/665/EEC and 92/13/EEC with regard to improving the effectiveness of review procedures concerning the award of public contracts: Impact Assessment Report – Remedies in the Field of Public Procurement”’, COM (2006) 195, 4 May 2006, s 4. 18   Commission, ‘Proposal’, n 17 above, 2. 12 13

116  Catherine Donnelly serious chance of being awarded the contract, which was often very difficult.19 Important efforts by the CJEU, such as holding that a contract awarded in breach of the procurement rules resulted in an adverse effect on free movement of services which would subsist throughout the duration of the contract, highlighted the seriousness of the issue.20 In particular, the provisions introduced in the Amended Remedies Directive relating to standstill and ineffectiveness seek to address many of these concerns.21 As considered below,22 to an extent, the revised remedial framework in Ireland was less urgently in need of amendment than elsewhere in the EU, given that Irish courts had the power, and had used the power, to declare concluded contracts null and void. III.  Pre-Judicial Remedial Protection

A.  The Standstill i.  The Length of the Standstill The Amended Remedies Directive provides for different standstill periods, depending on the means of communication used, and Article 2a(2) of each provides that the contract cannot be concluded: •  Before the expiry of a period of at least 10 calendar days with effect from the day following the date on which the contract award decision is sent to the tenderers and candidates concerned if fax or electronic means are used; or, •  If other means of communication are used, before the expiry of a period of either at least 15 calendar days with effect from the day following the date on which the contract award decision is sent to the tenderers and candidates concerned or at least 10 calendar days with effect from the day following the date of receipt of the contract award decision.23

19  R Williams, ‘A New Remedies Directive for the European Community’ (2008) 17 Public Procurement Law Review NA19–25. 20   Cases C-20/01 & C-28/01Commission v Germany [2003] ECR I-3609, para 36; Case C-503/04 Commission v Germany [2007] ECR I-6153, paras 33, 36–39. See also S Treumer, ‘Towards an Obligation to Terminate Contracts Concluded in Breach of the EC Public Procurement Rules: The End of the Status of Concluded Public Contracts as Sacred Cows’ (2007) 16 Public Procurement Law Review 371. 21  Ancillary aims of Dir 2007/66 include: amending the corrective mechanism and repealing the remedies of attestation of contracting authorities (Utilities Remedies Directive Arts 3–7) and conciliation (Utilities Remedies Directive Arts 9–11) in the utilities context as neither mechanism had attracted contracting authorities or tenderers: see Dir 2007/66, Recitals (29)–(30)). 22   See text to nn 164–187. 23  New Art 2a(2). According to New Art 2a(2), tenderers are deemed to be concerned if they have not yet been definitely excluded; and candidates are deemed to be concerned if the contracting authority has not made available information about the rejection of their application before the notification of the contract award decision to the tenderers concerned.

The New Remedial Landscape: Ireland  117 In general, commentators have considered the period of the standstill – a minimum of 10 calendar days – to be reasonable, drawing an appropriate balance between the need to ensure bidders have sufficient time to examine the validity of an award decision and to have the possibility of bringing a claim to correct the potential breach and the need to avoid unnecessary delay of the conclusion of the contract.24 The interests of certainty and clarity may have been better promoted with one standstill period to which all should adhere; but as has been observed, the different options reflect the reality of the 27 EU Member States, where rapid means of communication, such as electronic means, may not be equally widely available in all Member States.25 In Ireland, both the Public Sector Award Regulations and the Utilities Award Regulations provided that a contracting authority should not enter into a public contract with a successful tenderer unless at least 14 days had elapsed since the date on which tenderers were informed of the contract award decision.26 In the case of an accelerated procedure for a public sector contract, or urgency in the utilities context, a 7-day standstill period was required; however, if within this 7-day period, the authority was notified in writing of the intention of a tenderer to seek a review of the contract award decision, it should not enter a public contract until at least 10 days had elapsed since tenderers were informed of the contract award decision.27 Moreover, both the Public Sector Award Regulations and the Utilities Award Regulations imposed an obligation on the contracting authority to use the most rapid means of communication possible, such as electronic mail or telefax.28 When read together, these provisions largely satisfied the requirements of the Article 2a of the Amended Remedies Directive, and Ireland actually opted for its 14-day period in the Public Sector Award Regulations and the Utilities Award Regulations after the proposal for Directive 2007/66 had been published.29 In the New Remedies Regulations, Ireland has chosen to retain the 14-day period;30 supported by the fact that Recital (5) of Directive 2007/66 expressly states that the periods suggested therein are ‘minimum standstill periods’. Accommodation had to be made for slower methods of communication, however – in accordance with Recital (5) of Directive 2007/66 which suggests that the duration of the 24  See J Golding and P Henty, ‘The New Remedies Directive of the EC: Standstill and Ineffectiveness’ (2008) 17 Public Procurement Law Review 146, 148. 25  Ibid. 26   Public Sector Award Regulations, Reg 49(5). 27   Public Sector Award Regulations, Reg 49(6) (see also Regs 46(10) and 46(11)); Utilities Award Regulations, Reg 51(9). 28   Public Sector Award Regulations, Reg 49(1); Utilities Award Regulations, Reg 51(1). 29  The Public Sector Award Regulations were enacted on 29 June 2006 and the Utilities Award Regulations were enacted in 2007. The Commission’s initial proposal was published on 4 May 2006: Commission, ‘Proposal for a Directive of the European Parliament and of the Council amending Council Directives 89/665/EEC and 92/13/EEC with regard to improving the effectiveness of review procedures concerning the award of public contracts’, SEC(2006) 557, COM(2006) 195, 4 May 2006 (reference to 10-day standstill period at 6). 30  New Remedies Regulations, Reg 5(4)(a).

118  Catherine Donnelly minimum standstill period ‘should take into account different means of communication’ – and that accommodation is made by a new 16-day standstill.31 ii.  Derogations from the Standstill The question of derogations from the standstill period provides an example of the Amended Remedies Directive leading to lowering of protection in Ireland. In the prior Public Sector Award Regulations and Utilities Award Regulations in Ireland, no derogations had been provided from the operation of the standstill period.32 The Amended Remedies Directive permits four derogations from the application of standstill provided by new Article 2b,33 all four of which, Ireland has decided to implement:34 •  contracts for which prior publication of a contract notice is not required under the Public Sector Award Directive or the Utilities Award Directive;35 •  procedures in which there is only one tenderer concerned within the meaning of Article 2a(2), the successful tenderer;36 •  contracts based on (1) framework agreements (for public sector contracting only)37 and (2) dynamic purchasing systems (for public sector or utilities contracting),38 as long as the value of the individual contract is under the EU thresholds, and specific requirements of the Public Sector Award Directive and the Utilities Award Directive39 have been followed. iii.  Scope of Protection of the Standstill Previously Regulation 49(1) of the Public Sector Award Regulations and Regulation 51(1) of the Utilities Award Regulations required notification of a decision about entering into a contract, framework agreement or dynamic purchasing system to ‘candidates and tenderers’.40 However, according to corre Ibid, Reg 5(4)(b).  As noted above, shorter standstill period of 7 days applied in respect of an accelerated procedure pursuant to the Public Sector Award Regulations (used in cases of urgency) or, as formulated in the Utilities Award Regulations, cases of urgency: see text to n 27. 33   Some uncertainty is created by the fact that the specific list is not set out in the text of Dir 2007/66 for the purposes of standstill derogations, although a specific list is set out in the Recitals for the purposes of avoiding the sanction of ineffectiveness: see Recitals (14)–(16). See also Golding and Henty, n 24 above, 149. 34  New Remedies Regulations, Reg 5(2). 35  New Remedies Regulations, Reg 5(2)(a). 36  New Remedies Regulations, Reg 5(2)(b). 37   See Public Sector Award Directive, Art 32; New Remedies Regulations, Reg 5(2)(c). 38  Public Sector Award Directive, Art 33; Utilities Award Directive, Art 15; New Remedies Regulations, Reg 5(2)(d). 39  Public Sector Award Directive, Art 32(4), Art 33(5) or (6); and Utilities Award Directive, Art15(5) or (6). 40  A candidate is defined as an economic operator that has sought an invitation to participate in a restricted or negotiated procedure or a competitive dialogue: Public Sector Award Directive, Art 1(8); 31 32

The New Remedial Landscape: Ireland  119 sponding Regulation 49(5) and Regulation 51(8), the 14-day standstill period ran from the date on which tenderers were notified. If candidates and tenderers were notified at different times, with candidates being notified later than tenderers, the 14-day protection applied only to benefit tenderers. This has been rectified, as required by the Amended Remedies Directive, so that the standstill provision can protect ‘each tenderer and candidate concerned’.41 A candidate will only be deemed to be ‘concerned’ if the contracting authority has not made available information about the rejection of their application before the notification of the contract award decision to the tenderers concerned.42 Meanwhile, a tenderer shall be deemed to be concerned if not yet definitively excluded.43 B.  The Standstill Letter Article 2a(2) of the Amended Remedies Directive provides that when an award decision is communicated to tenderers it must be accompanied by a summary of the relevant reasons as set out in Articles 41(2) and 49(2) of Public Sector Award Directive and Utilities Award Directive respectively, in addition to a precise statement of the exact standstill period applicable. In Ireland, under the Public Sector and Utilities Award Regulations, it was necessary to inform candidates and tenderers of a decision about entering into a public contract or framework agreement or admission to a dynamic purchasing system.44 However, if a contracting authority decided not to enter into a framework agreement or a contract for which there has been a call for competition, to restart the procedure, or not to implement a dynamic purchasing system, the authority was required to include in the decision the grounds on which it was based.45 Additional information could also be requested.46 Clearly, as is reflected in Regulation 6(2) of the New Remedies Regulations, the Amended Remedies Directive has had a threefold effect: first, reasons have to be provided on communication of any award decision, and not just in the specified situations listed above; second, a request for information is no longer required to trigger the obligation to provide it; and third, the appropriate standstill period must be stated in the information provided.47 Turning to the requirement to give reasons for any award decision, Regulation 6(2)(c) of the New Remedies Regulations requires that a ‘summary of the reasons’ Public Sector Award Regulations, Reg 3. A tenderer is defined as an economic operator who has submitted a tender: Public Sector Award Directive Art 1(8); Public Sector Award Regulations, Reg 3. 41  New Remedies Regulations, Reg 5(3). 42  Amended Remedies Directive, Art 2a(2); see New Remedies Regulations, Reg 2(3)(b). 43  Amended Remedies Directive, Art 2a(2); see New Remedies Regulations, Reg 2(3)(a). 44   Public Sector Award Regulations, Reg 49(1). 45   Public Sector Award Regulations, Reg 49(2). 46   Public Sector Award Regulations, Reg 49(3); Utilities Award Regulations, Reg 51(5). 47  New Remedies Regulations, Reg 6(2)(b).

120  Catherine Donnelly for rejection of an application to tender or tender be provided and Regulation 6(3) maps the language of Article 41 of the Public Sector Award Directive and requires that the following be provided:48 (a) the characteristics and relative advantages of the tender selected, (b) the name of the successful tenderer, or, in the case of a framework agreement, the names of the parties to it, and (c) in the cases referred to in paragraphs (9) to (11) of Regulation 23 of the Public Authorities’ Contracts Regulations, the reasons for the contracting authority’s decision of non-equivalence or its decision that the works, supplies or services do not meet the performance or functional requirements.

An attempt is made to provide practical guidance to contracting authorities on what precisely is required. Thus, Regulation 6(4) provides that the scores of the unsuccessful tenderer and any unsuccessful candidate and the scores of the successful tenderer or lowest-scoring candidate to meet the pre-qualification requirements may be conveyed, by way of complying with the obligation to provide a ‘summary of reasons’.49 Given the uncertainty about precisely what information has to be shared to comply with the Amended Remedies Directive,50 these provisions will be welcome to contracting authorities. However, some doubt must exist as to whether providing the scoring mechanism will suffice to satisfy the requirement in the Amended Remedies Directive to ensure that dissatisfied persons have ‘sufficient time for effective review of the contract award decisions’,51 since the scoring mechanisms often reveal very little about the substance of the decision taken. IV.  Procedures Governing Access to Judicial Remedies

A.  Notification Requirement Both the Original and the Amended Remedies Directives grant Member States the option of requiring that a person seeking review of a public procurement decision must previously have notified the contracting authority of the alleged infringement and of his intention to seek review.52 Ireland had availed itself of this option,53 and this has been retained.54 However, to the former notice obligation, the New Remedies Regulations have added an obligation to provide slightly more  As is proposed in Recital (7) of Dir 2007/66.   See New Remedies Regulations, Reg 6(4)–(6). 50   See, eg, Procurement Lawyers’ Association, ‘UK Implementation of the Remedies Directive, 2nd Consultation: Response of the Procurement Lawyers’ Association’, July 2009, paras 14–16 (discussing the issue in the UK context). 51  Amended Remedies Directives, Art 2a(1). See also P Lee, ‘Which 7 key differences in the new Remedies Regulations do you need to pay special attention to?’ White Paper Conference, 24 June 2010, www.whitepaperdocuments.co.uk (last accessed 16 July 2010). 52   Public Sector Remedies Directive, Art 1(3); Utilities Remedies Directive, Art 1(3). 53   Public Sector Remedies Regulations, Reg 5; Utilities Remedies Regulations, Reg 5. 54  New Remedies Regulations, Reg 8(4). 48 49

The New Remedial Landscape: Ireland  121 detailed information: the person seeking review must also notify the contracting authority of ‘the matters that in his or her opinion constitute the infringement’.55 It is not entirely clear what this obligation adds, or whether a challenger could be penalised for not complying with it. The latter seems unlikely though, given that the obligation is not actually mentioned in the Amended Remedies Directive. B.  Judicial Review In Ireland, the ‘ordinary recourse for an aggrieved party is to a judicial review action’.56 Like the Public Sector Remedies Regulations and Utilities Remedies Regulations, the New Remedies Regulations provide that the review procedures and powers shall be carried out and exercised by the High Court;57 while both Old and New Order 84A create a form of ‘specialist’ judicial review proceeding for challenging public procurement decisions.58 The application has to be made by originating Motion on Notice, grounded upon a statement.59 C.  Absence of Leave Requirement Unlike in conventional judicial review proceedings in Ireland, neither Old nor New Order 84A require that the applicant seek ‘leave to apply’.60 This has not been amended by the New Remedies Regulations. D. Standing i.  The Sufficient Interest Test Generally, in Ireland, in conventional judicial review proceedings, standing requires demonstrating a ‘sufficient interest’.61 Broadly, this means that ‘the officious man of straw’62 will not be permitted to pursue proceedings; but otherwise the courts have striven to strike a fair balance between affording redress for  New Remedies Regulations, Reg 8(4).  P McGovern, ‘Ireland’, in Hans-Joachim Priess (ed), Getting the Deal Through: Public Procurement 2010 (London, Law Business Research) 129; available at www.gettingthedealthrough. com/books/33/public-procurement/. 57   See New Remedies Regulations, Regs 3(1) and 11(1). See Reg 4(1) of the Public Sector Remedies Regulations and Utilities Remedies Regulations. 58   See, eg, Dekra Éireann Teoranta v Minister for the Environment and Local Government and SGS (Ireland) Ltd [2003] IESC 25; [2003] 2 IR 270, 273; [2003] 2 ILRM 210, 212 (Denham J referring to the: ‘development of specialist law fields of judicial review. These include . . . more recently, public contracts’). 59  New Ord 84A, r 3. 60   Contrast Old and New Ord 84A and Ord 84, r 20(1). 61  Ord 84, r 20(4). 62   Cahill v Sutton [1980] IR 269, 284. 55 56

122  Catherine Donnelly persons legitimately aggrieved on the one hand, and not interfering with or inappropriately delaying public affairs or projects on the other. Neither Old nor New Order 84A specifically include a ‘standing’ requirement, and to date, the question of standing has received only limited attention in procurement cases, as cases have generally involved proceedings by aggrieved economic operators who participated in the procurement process, and who unquestionably had standing to challenge. In Ryanair v Minister for Transport,63 Ryanair challenged the award of a route to a competing airline due to alleged procedural irregularities, even though it had not, itself, bid for the particular route. Although not a case under the Public Sector or Utilities Award Regulations, the case gives some indication of how Irish courts address the question of standing. The alleged irregularities arose from the fact that the Minister had chosen the successful bidder, CityJet, who then withdrew; and proceeded to negotiate with the second bidder, Aer Arann, to reach slightly different terms from those which had been reached with CityJet. Ryanair asserted that once CityJet withdrew, the Minister should either have awarded the contract on the same terms to Aer Arann or have started a new tender process, in which it, Ryanair, could have participated. Finlay Geoghegan J applied the general administrative law ‘sufficient interest’ test to the effect that: sufficient interest is a mixed question of fact and law which must be decided upon legal principles but, it should be added, there is greater importance to be attached to the facts because it is only by an examination of the facts that the court can come to a decision as to whether there is a sufficient interest in the matter to which the application relates.64

Reasoning from this that sufficiency of interest had to be assessed by reference not only to the relief sought, but also the ground on which leave had been granted, Finlay Geoghegan J accepted that Ryanair had standing, due to the nature of the breach alleged. However, she stressed that had Ryanair simply been alleging a more general procedural breach, for example, of the principle of equal treatment of tenderers, Ryanair would not have had standing. ii.  The ‘Eligible Person’ Test Regulation 4 of the New Remedies Regulations creates the new concept of ‘an eligible person’, defined in a way which appears to be narrower than ‘sufficient interest’. To be an ‘eligible person’, an applicant must satisfy two requirements: first, the applicant must be someone who ‘has, or has had, an interest in obtaining the reviewable public contract’,65 and second, the applicant must allege that she has been harmed or is at risk of being harmed by an infringement of

  Ryanair v Minister for Transport [2009] IEHC 171.   State (Lynch) v Cooney [1982] IR 337, 369. 65  New Remedies Regulations, Reg 4(a). 63 64

The New Remedial Landscape: Ireland  123 Community or EU law in the field of public procurement or of national law transposing any Community or EU law.66 Thus, although for example, in a case like Ryanair, Ryanair might, on the facts, satisfy the test of being an ‘eligible person’, the question is now due to be determined using more specific criteria than is the case with the ‘sufficient interest’ test. Indeed, prior to the New Remedies Regulations, the ‘harm’ requirement had only applied to the specific remedy of damages after a contract had been concluded – as opposed to more general review – and Regulation 7 of the Public Sector Remedies Regulations and Regulation 6 of the Utilities Remedies Regulations provided that, after the contract has been concluded, damages may be awarded to ‘any person harmed by an infringement’. Clearly, a degree of prejudice is required by the requirement to be an ‘eligible person’ – although, as Arrowsmith has noted in a different context, a requirement of ‘harm’ should not extend to refusing to treat a claim as actionable where the provider would not have succeeded in winning the contract.67 In addition, standing should be available for those who have not bid, if this has been caused by, for instance, the contracting authority’s failure to advertise the contract.68 However, the clear intent of the New Remedies Regulations appears to be that standing to review should not be extended too broadly. On a procedural point, Regulation 10(1) of the New Remedies Regulations provides that the rules of court may provide for a preliminary procedure to decide whether an applicant is an ‘eligible person’ and New Order 84A now provides for such a preliminary application, which may be made by motion on notice.69 Pursuant to the ‘sufficient interest’ test, Irish courts have generally preferred to determine this issue at the substantive hearing, rather than at a preliminary hearing.70 However, given that the ‘eligible person’ test is not defined, as was the ‘sufficient interest’ test, by reference to the sufficiency of the applicant’s relationship to the relief or grounds of challenge, it may be that there will be greater use of preliminary hearings to determine standing going forward. Finally on this issue, the New Remedies Regulations only apply to ‘reviewable public contracts’, which are defined as those which are regulated by the Public Authorities Contracts Regulations.71 This may create complications in practice, as the ‘sufficient interest’ test – which is potentially broader in scope (although this has not really been tested) – would continue to apply to contracts falling outside the scope of the Public Authorities Contracts Regulations, whether  Ibid, Reg 4(b).   S Arrowsmith, The Law of Public and Utilities Procurement, 2nd edn (London, Sweet and Maxwell, 2005) para 21.52. 68  Arrowsmith, n 67 above, para 21.6; R v Avon County Council Ex p Terry Adams Ltd [1994] Env LR 442 (CA). 69  New Ord 84A, r 6(2). 70   See, eg, Ryanair, n 633 above. 71  New Remedies Regulations, Reg 2(1). 66 67

124  Catherine Donnelly those contracts attract the application of the general Treaty principles due to a cross-border element72 or whether they are of entirely domestic interest.73 E.  Time Limits i.  General Judicial Policy The importance of seeking review of procurement decisions quickly has long been emphasised by the Irish courts. The Amended Remedies Directive (and the Original Remedies Directives) emphasise effectiveness and rapidity in seeking remedies: it is stipulated that Member States must take any measures necessary to ensure that decisions taken by the contracting authorities may be reviewed ‘effectively, and in particular, as rapidly as possible’.74 Irish courts have repeatedly stressed the policy of urgency in this context and made decisions in furtherance of that policy. In Dekra Éireann Teoranta v Minister for the Environment and Local Government,75 (involving the procurement of the national car-testing regime), Denham J referred to the ‘essential feature’ of ‘a policy of urgency and rapidity’ which underpinned the EU and Superior Court Rules on procurement review.76 This policy was justified, according to Denham J, by concerns about ‘the prejudice to the parties and the State in delayed proceedings’77 and ‘any prejudice to the public, the common good’.78 In language which has often been quoted in Irish courts, Fennelly J also observed in Dekra that: [P]ublic procurement decisions are peculiarly appropriate subject matter for a comparatively strict approach to time limits. They relate to decisions in a commercial field, where there should be very little excuse for delay.79

Similarly, in the case of Kelly v The County Council of Leitrim and An Bord Pleanála, Clarke J noted that ‘the clear intention’ behind the time limits in public procurement matters is that: 72  See, eg, C-324/98 Telaustria Verlags Gmbh [2000] ECR I-10745; C-507/03 Commission v Ireland [2007] ECR I-9777; Federal Security Services Ltd v Chief Constable for the Police Service of Northern Ireland and Resources Group Ltd [2009] NICh 3. 73  Interestingly, even assuming the ‘sufficient interest’ test is more generous than the ‘eligible person’ test, this would not appear to breach the EU rule on equivalence of remedial protection as between domestic and EU causes of action (see, eg, Case 33/76 Rewe-Zentralfinanz eG and Rewe-Zentral AG v Landwirtschaftskammer für das Saarland [1976] ECR 1989; Case 158/80 Rewe-Handelsgesellschaft Nord mbH v Hauptzollampt Kiel [1981] ECR 1805), since EU and domestic awards falling outside the scope of the Public Authorities Contracts Regulations are treated equivalently. 74   Public Sector Remedies Directive, Art 1; Utilities Remedies Directive, Art 1. 75   Dekra, n 58 above, [2003] IESC 25; [2003] 2 IR 270; [2003] 2 ILRM 210. 76   Dekra, n 58 above, [2003] 2 IR 270, 283; [2003] 2 ILRM 210, 221. See also Dekra [2003] 2 IR 270, 286; [2003] 2 ILRM 210, 224 (adding that: ‘Since urgency and rapidity is an underpinning policy of applications regarding public contracts, the test requires that such applications be made rapidly and an applicant must explain reasonably any delay’). 77   Dekra, n 58 above, [2003] 2 IR 270, 287; [2003] 2 ILRM 210, 224. 78   Dekra, n 58 above, [2003] 2 IR 270, 288; [2003] 2 ILRM 210, 225. 79   Dekra, n 58 above, [2003] 2 IR 270, 288, 304.

The New Remedial Landscape: Ireland  125 [B]oth the public authorities who would wish to get on with the projects which were the subject of the public contract concerned and a successful tenderer for such contract should be entitled to know for certain that the contract can go ahead within a short period of time.80

Such is the emphasis on speed that the strict time limit has been held to apply to damages claims, as well as to claims which seek the setting aside of the award ‘on the basis that the existence of such a [damages] claim would have an “upsetting and disruptive” effect on the contractual relations established by the awarding decision’.81 The obligation to seek review rapidly was also set out in Old Order 84A, Rule 4, which provided as follows: An application for the review of a decision to award or the award of a public contract should be made at the earliest opportunity and in any event within three months of the date when grounds for the application first arose, unless the court considers that there is good reason for extending such period.

It appears though that the Irish courts over-emphasised the importance of speed in review, and as a result of two recent CJEU judgments – the Uniplex 82 and Ireland 83 judgments – the case law on time limits has been radically overhauled. ii.  The Obligation to Bring Proceedings ‘at the Earliest Opportunity’ First, differing views had been expressed by the Supreme Court regarding whether it would suffice to bring proceedings within three months (as opposed to at the earliest opportunity). Denham J suggested in the Dekra case that there was discretion to refuse an application even within the three months specified in Old Order 84A if it was not brought at the earliest opportunity.84 By contrast, Fennelly J rejected the suggestion that the obligation to apply ‘at the earliest opportunity’ in Old Order 84A was distinct from the requirement to apply ‘in any case within three months from the date when the grounds for the application first arose’ and said that this would involve an ‘unduly restrictive reading of this provision’.85 In his view, a claim could not normally be defeated for delay if commenced within the period stipulated in the Rules and, for this to happen, 80   Kelly v Leitrim County Council and An Bord Pleanála [2005] IEHC 11; [2005] 2 IR 404, 412. See also Noonan Services Ltd v Labour Court [2004] IEHC 42 (Kearns J) (noting that: ‘Delay on the part of an applicant may be regarded as all the more serious when viewed in the context of the nature of the decision being challenged. This is particularly the case where public service contracts are concerned, particularly where they refer to major infrastructural projects where huge expense and inconvenience inevitably may be expected to arise where delay occurs’). 81   Dekra, n 58 above, [2003] 2 IR 280, 304–05; [2003] 2 ILRM 210, 240. See also Veolia Water UK plc, Bowen Water Technology Ltd, South Midland Construction Ltd and CLG Developments Ltd, trading as The Veolia Water Consortium Applicants v Fingal County Council (No 1) [2006] IEHC 137; [2007] 1 IR 690, 708, para 51; [2007] 1 ILRM 216, 231–32 (citing Dekra); SIAC Construction v National Roads Authority [2004] IEHC 128. 82   Uniplex, n 6 above. 83   Ireland, n 7 above. 84   Dekra, n 58 above, [2003] 2 IR 270, 285; [2003] 2 ILRM 210, 222. 85   Dekra, n 58 above, [2003] 2 IR 270, 300; [2003] 2 ILRM 222, 236.

126  Catherine Donnelly there would need to be ‘some quite special factor such as prejudice to third parties’.86 However, Fennelly J did note that the fact of delay within the period may affect the approach of the court to time falling without.87 In general, though, it seemed that the more usual position was that, provided an applicant acted within the relevant period, it was unlikely that the application would be considered out of time.88 The issue was clarified in the Ireland case and the CJEU indicated its dis­ approval of the requirement to bring proceedings ‘at the earliest opportunity’. While accepting that it was ‘legitimate’ for a Member State to ‘require interested parties to be diligent in bringing actions for review’,89 the CJEU was concerned that the provision relating to ‘earliest opportunity’ meant that the possibility could not be excluded that national courts would be empowered to dismiss an action as out of time even before the three-month period if the courts took the view that the application was not made ‘at the earliest opportunity’.90 In light of the comments of Denham J, outlined above, the CJEU would seem to be correct on this point; and the CJEU added that this situation meant, in turn, that parties could not predict what the limitation would be as this question was subject to the discretion of the competent court.91 The Irish government argued that no application had ever been dismissed on the basis that it had not been brought at the ‘earliest opportunity’; but the CJEU was satisfied that the legislation itself harboured the insufficiencies of transposition.92 In addition, the discretion set down in Old Order 84A for the national court to extend the period for bringing actions where there was ‘good reason’ did not compensate for the shortcomings of the ‘earliest opportunity’ requirement, given the inability of the litigant to ‘predict with certainty which period will be accorded to it for the purpose of bringing proceedings’.93 iii.  Applying the Time Limit to Improprieties before the Award Decision Second, the Irish courts had held that the time limit in Old Order 84A ran from the particular impropriety, not the award decision. It had been argued before the national courts that since the language of Old Order 84A referred only to, ‘review of a decision to award or the award of a public contract’, the time limit should run from the award decision. This argument was rejected in SIAC   Dekra, n 58 above, [2003] 2 IR 270, 302; [2003] 2 ILRM 222, 237.   Ibid. 88   See also H Delany ‘Extension of Time Limits in Judicial Review Proceedings’ (2003) 21 Irish Law Times 156–60; H Delany ‘The Requirements to Act “Promptly” in Judicial Review Proceedings’ (2005) 23 Irish Law Times 229; but see Director of Public Prosecutions v Macklin [1989] ILRM 113, 116; Director of Public Prosecutions v Kelly [1997] 1 IR 405, 416; [1997] 1 ILRM 497, 508 (judicial review application brought four days short of expiration of time limit should fail for delay). 89   Ireland, n 7 above, para 73. 90   Ireland, n 7 above, para 74. 91   Ireland, n 7 above, para 75. 92   Ireland, n 7 above, para 77. 93   Ireland, n 7 above, para 81. 86 87

The New Remedial Landscape: Ireland  127 Construction Ltd v National Roads Authority, and it was held that time ran from the particular challenged act or decision in the award procedure – in that case, the decision to use the negotiated award procedure – and not from the award decision at the end of the procedure.94 To hold otherwise was described as ‘absurd’.95 In SIAC, Kelly J relied, in particular, on Rule 9 of Old Order 84A, which provided that an interim or interlocutory application could be made to the court for the taking of interim measures, including ‘measures to suspend or ensure the suspension of the procedure for the award of the contract’. If time ran from the award of the contract, for Kelly J, this would suggest that Old Order 84A could only deal with challenges after the award, and Rule 9 would be rendered nugatory. In practical terms, this meant that a potential applicant could not overlook improprieties during the course of the award process, in the hope of building a favourable relationship with the contracting authority, and then challenge the award at the end of the process. This again has been rejected by the CJEU in the Ireland case. Here, in the CJEU’s view, the primary flaw was the lack of legal certainty,96 given that the express language of Old Order 84A suggested that time ran in respect of ‘[a]n application for the review of a decision to award or the award of a public contract’. This lack of legal certainty had the potential to result in the right of review ‘being deprived of its practical effectiveness’. 97 As the CJEU put it: [I]t is not compatible with the requirements of Article 1(1) of that directive if the scope of the period laid down in Order 84A(4) of the RSC is extended to cover the review of interim decisions taken by contracting authorities in public procurement procedures without that being clearly expressed in the wording thereof.98

The CJEU added that Member States had an obligation to ‘create a legal situation that is sufficiently precise, clear and foreseeable to enable individuals to ascertain their rights and obligations’;99 and the objective of rapidity did not permit Member States to disregard the principles of effectiveness.100 Moreover, the CJEU was not persuaded that the practice of the Irish courts of interpreting the national rules in conformity with the relevant directives was adequate given that it was necessary for the law to be ‘sufficiently clear and precise’ to ensure parties were ‘fully informed of their rights’.101 iv.  Triggering the Time Limit Third, according to the Irish case law, knowledge of the applicant was previously not necessary for time to run. Following closely the language of Old   SIAC Construction Ltd v National Roads Authority, n 81 above.  Ibid. See also Danninger v Bus Átha Cliath [2007] IEHC 29, para 56. 96   Ireland, n 7 above, paras 61 and 63. 97   Ireland, n 7 above, para 57. 98   Ireland, n 7 above, para 58. 99   Ireland, n 7 above, para 61. 100   Ireland, n 7 above, para 63. 101   Ireland, n 7 above, para 65. 94 95

128  Catherine Donnelly Order 84A which referred to the date ‘when grounds for the application first arose’, it had been held in the Veolia case that time will run from the date when the events giving rise to the grounds upon which the challenge is brought occur, rather than at the point when the relevant bidder acquires knowledge of the events.102 This issue was not considered by the CJEU in the Ireland case; however, it did arise in the Uniplex judgment (of the same date) which involved a preliminary reference in respect of an equivalent understanding in English law that time ran from the date on which the ground of challenge arose. The CJEU concluded that effective review could only be guaranteed if the periods laid down for bringing proceedings started to run from the date on which the claimant knew or ought to have known of the alleged infringement.103 The CJEU observed that learning that an application or tender has been rejected does not place a potential applicant in a position effectively to bring proceedings; it was only when informed of the reasons for elimination that a tenderer could establish whether there had been illegality.104 This conclusion was bolstered for the CJEU by the fact that the Public Sector Award Directive (in Article 41(1) and (2)) requires contracting authorities to notify unsuccessful candidates and tenderers of the reasons for the decision concerning them as, for the CJEU: Such provisions are consistent with a system of limitation periods under which those periods start to run from the date on which the claimant knew, or ought to have known, of the alleged infringement of the provisions applicable in the field of public procurement.105

The CJEU also referred to Article 2c of the Amended Remedies Directive which provides that the decision of the contracting authority is to be communicated to each candidate or tenderer accompanied by a summary of relevant reasons and that the period for making an application for review expires only after a specified number of days following that communication.106 v.  Summary of the Impact of Uniplex and Ireland In sum, after Ireland and Uniplex, the following could be said of the time limit in Old Order 84A: • First,

the requirement to bring proceedings ‘at the earliest opportunity’ had to be removed; •  Second, if the intention is that the time limit should run from the interim decision, as opposed to from the award decision, Old Order 84A had to be amended so that its express language reflected this;   Veolia, n 81 above, [2007] 1 IR 690, 706–07, para 48; [2007] 1 ILRM 216, 230–31.   Uniplex, n 6 above, para 32. 104   Uniplex, n 6 above, paras 30–31. 105   Uniplex, n 6 above, para 33. 106   Uniplex, n 6 above, para 34. 102 103

The New Remedial Landscape: Ireland  129 •  Third, the time limit could only run from the date on which the applicant knew or ought to have known of the alleged illegality. In practical terms, this means that challengers should not have to depend on the discretion of the court to seek an extension of time where they acquired knowledge of the infringement after the expiry of the time limit. The New Remedies Regulations seek to remedy all three defects in the previous time limit regime and Regulation 7(2) provides as follows: An application referred to in subparagraph (a) or (b) of Regulation 8(1) shall be made within 30 calendar days after the applicant was notified of the decision, or knew or ought to have known of the infringement alleged in the application.

Regulation 8(a) refers to the ability of an eligible person to apply to the Court for an interlocutory order to correct an infringement, while Regulation 8(b) refers to applications for review of the contracting authority’s decision to award the contract to a particular tenderer or candidate. The purposes of Regulation 7(2) are threefold: first, to make it explicit, in the way that Old Order 84A did not, that the time limit runs from the infringement under challenge, even if it is an interim infringement (Ireland); second, to trigger the time limit by the actual or constructive knowledge, and not the occurrence, of the infringement (Uniplex); and third, to provide certainty to the time limit in the form of the 30-day period (Ireland). One concern that may be raised, however, is whether Regulation 7(2) is sufficiently clear. While the CJEU has indicated that having a time limit run from an interim infringement is acceptable,107 it may be argued that on its face, the Regulation does not compel the applicant to challenge an interim decision/ infringement on actual or constructive knowledge, but rather offers a choice between the two options. To this could be added the fact that the ordering of the relevant language in Regulation 7(2) (notification of decision or knowledge of infringement) does not follow the sequence of the types of challenge in Regulation 8(1)(a) (interlocutory orders) and (b) (review of the decision). It is arguable that the Regulation does not ‘create a legal situation that is sufficiently precise, clear and foreseeable to enable individuals to ascertain their rights and obligations’, as is required by the Ireland case.108 As against this, of course, such an interpretation obviously runs counter to the rapidity policy concerns expressed so often by Irish judges and by Article 1 of the Amended Remedies Directive. In brief, the intention of Regulation 7(2) is obvious to those familiar with the context; however, from the perspective of ensuring legal certainty, it would have been preferable had Regulation 7(2) made it clear that an application could be brought within 30 days after the applicant was notified of the decision, or knew or ought to have known of the infringement alleged in the application, whichever is the earlier.   Ireland, n 7 above, para 51.   Ireland, n 7 above, para 61.

107 108

130  Catherine Donnelly From the perspective of a challenger, a further comment to make regarding the new time limit is that it is noticeably shorter than the previous three-month time limit. Decisions on whether to litigate must be taken very quickly, something which must be borne in mind even if an aggrieved tenderer or candidate enters into correspondence with the authority to complain or to seek redress for the grievance. If the issue is not resolved quickly, proceedings must be initiated in order to avoid missing the deadline. vi.  New Order 84A: Justifying an Extension of Time Regulation 10(1) of the New Remedies Regulations provides that the new court rules may provide for the court to grant leave to bring an application after the latest time permitted by Regulation 7(2), if it considers that there is ‘good reason’ to do so, and Rule 4(2) of New Order 84A provides for this. In determining whether an extension of time will be granted, the Irish courts have established a number of general principles, and have established obligations for both applicants for review, and for contracting authorities defending review procedures. In terms of general principles,109 it has been established that: • The

principle of effectiveness must not be violated.110 Clarke J stressed in Veolia: [A]mongst the matters that must properly be taken into account by the court in considering whether to extend time is to ensure that time will be extended in any case where a refusal to extend time could be said to establish a breach of the principle of effectiveness.111

• When

considering whether to extend time, each ground or group of grounds which an applicant put forward should be considered separately so that an applicant cannot ‘piggy-back’ a set of grounds for which an extension of time should not be made on a ground or grounds where such an order should properly be made.112 In Veolia, Clarke J refused to extend time in relation to grounds concerned with the failure to evaluate provisional items in the evaluation process;113 extended time in relation to grounds contending that the respondent had inappropriately included the successful tenderer in the evaluation and ranking process when the relevant tender did not contain a price for an upgrade of the processes as required in the tender documents;114 and required further submissions on one of the applicant’s grounds, relating to the

109  It should be noted that, it had been held that an extension of time could be granted whether the ‘earliest opportunity’ occurred within or outside the three month limit: Dekra, n 58 above, [2003] 2 IR 280, 287; [2003] 2 ILRM 210, 224 (Denham J). After the Ireland judgment, this is no longer a relevant consideration. 110   Veolia, n 81 above, [2007] 1 IR 690, 701–02, 707, paras 32–33; [2007] 1 ILRM 216, 226, 231. 111   Veolia, n 81 above, [2007] 1 IR 690, 707, para 48; [2007] 1 ILRM 216, 231. 112   Veolia, n 81 above, [2007] 1 IR 690, 708, para 54; [2007] 1 ILRM 216, 232. 113   Veolia, n 81 above, [2007] 1 IR 690, 716, para 82; [2007] 1 ILRM 216, 238–39. 114   Veolia, n 81 above, [2007] 1 IR 690, 716–17, paras 85–86; [2007] 1 ILRM 216, 239.

The New Remedial Landscape: Ireland  131 possible upgrading of the successful tenderer’s technology, to decide whether arguable grounds existed in relation to that ground.115 •  Generally, the question of extending time requires a balancing process.116 •  The absence of prejudice to the respondent or third parties will not, without more, justify an extension of time. The decision to be made by the court, relates ‘only to the reason and explanation for the delay’117 and ‘cannot, without more, invoke the absence of any prejudice to the opposing party as the sole basis for the suggested good reason’.118 The applicant’s obligations have been outlined as follows: •  There is an onus on the applicant to show that there are reasons which both explain the delay and offer a justifiable excuse for it.119 •  An applicant is obliged to act with additional expedition where it obtains late knowledge of the existence of grounds such that it becomes likely that the 30-day limit will be exceeded.120 •  Applicants should seek to find out information in the fastest way possible and where, for instance, a bidder declines to accept the offer of a meeting with a contracting authority and insists on communication by writing, it must accept the consequences.121 The obligation of transparency on the awarding authority does not absolve a potential applicant from an obligation to make reasonable enquiries if she is not to be fixed with that delay.122 •  While there is ‘no obligation on a party, per se, to engage in preliminary work’, if a party is subject to a strict time limit, as in the procurement context, and a portion of the time limit has already expired, it ‘cannot escape being blamed, at least in part, for delay in issuing proceedings if it has failed to take appropriate preliminary steps’.123 The courts have held that the respondent contracting authority is subject to the following obligations: •  The policy reasons behind the strict time limits in public procurement have been held to ‘cut both ways’.124 When considering whether to grant an extension of time, the court will also take into account the conduct of the contracting authority, and in particular, it was held in Veolia that there is ‘a 115   Veolia, n 81 above, [2007] 1 IR 690, 717, para 87; [2007] 1 ILRM 216, 240 (Clarke J later granted leave to extend on this ground). 116   See, eg, Veolia, n 81 above; Dekra [2003] 2 IR 270, 287; [2003] 2 ILRM 210, 224 (Denham J noting: ‘The necessary balance to protect fair procedures is met in the saver that the court may extend time for such application for good reason’). 117   Dekra, n 58 above, [2003] 2 IR 270, 289; [2003] 2 ILRM 210, 226 (Denham J). 118   Dekra, n 58 above, [2003] 2 IR 270, 304; [2003] 2 ILRM 210, 240 (Fennelly J). 119   Dekra, n 58 above, [2003] 2 IR 270, 289; [2003] 2 ILRM 210, 226 (Denham J). 120   Veolia, n 81 above, [2007] 1 IR 690, 717, para 86; [2007] 1 ILRM 216, 239. 121   Veolia, n 81 above, [2007] 1 IR 690, 713, para 71; [2007] 1 ILRM 216, 236. 122   Veolia, n 81 above, [2007] 1 IR 690, 705, para 43; [2007] 1 ILRM 216, 229. 123   Veolia, n 81 above, [2007] 1 IR 690, 714, para 74; [2007] 1 ILRM 216, 237. 124   Veolia, n 81 above, [2007] 1 IR 690, 710, para 60; [2007] 1 ILRM 216, 234.

132  Catherine Donnelly clear obligation on the awarding authority to deal with any reasonable queries in a timely fashion’;125 ‘timely’ is to be ‘considered in light of the’ time limit.126 •  In Veolia, it was relevant in considering whether to grant an extension of time that a delay of almost five weeks by the contracting authority responding to a request for information was unacceptable;127 and that the contracting authority had ‘failed to give clear answers to clear questions’.128 vii.  Time Limits: The Remedy of Ineffectiveness The Amended Remedies Directive establishes new minimum time limitations in respect of seeking the remedy of ineffectiveness,129 all of which have been implemented by the New Remedies Regulations.130 So, where a contract award notice is published, and in the case of a contract awarded without prior publication of a contract notice, the contract award notice justifies the decision not to publish a contract notice, Ireland has adopted the available time limitation period – 30 days;131 likewise where tenderers or candidates concerned are informed of the conclusion of the contract, provided that they are provided with a summary of reasons in accordance with Regulation 6(2).132 Where no contract award notice is published, the Amended Remedies Directive requires a limitation period of at least six months from the day following the date of the conclusion of the contract.133 Commentators have noted that it is unclear exactly why such a long period is required.134 It is also, arguably, not consistent with the general principle of national procedural autonomy, according to which national procedural rules should only be impugned where they render the exercise of EU rights excessively difficult or impossible.135 Clearly, this new provision undermines some of the benefits emphasised repeatedly by Irish courts of acting with speed in this context;136 arguably however it is compatible with the concern for effectiveness exhibited by the CJEU in Ireland and Uniplex.  Ibid.  Ibid. 127  Ibid. 128   Veolia, n 81 above, [2007] 1 IR 690, 713, para.72; [2007] 1 ILRM 216, 237; see also [2007] 1 IR 690, 715, para 77; [2007] 1 ILRM 216, 238 (the contracting authority had failed to give ‘a straight answer to a straight question’). 129  Amended Remedies Directive, Art 2f(1). 130  New Remedies Regulations, Reg 7(3). 131  Amended Remedies Directive, Art 2f(1)(a); New Remedies Regulations, Reg 7(3)(a). 132  Amended Remedies Directive, Art 2f(1)(a); New Remedies Regulations, Reg 7(3)(b). See similarly Reg 7(3)(c) in respect of a contract based on a framework agreement and a dynamic purchasing system. 133  Amended Remedies Directive, Art 2f(1)(b); New Remedies Regulations, Reg 7(6). 134  Golding and Henty, n 24 above, 153. 135  Ibid. 136   See text accompanying nn 74–83. 125 126

The New Remedial Landscape: Ireland  133 Confusion in the New Remedies Regulations regarding the time limits applying to a declaration of ineffectiveness emerges when the time-limit provisions are read alongside the provisions regarding a declaration of ineffectiveness. A court is not obliged to make a declaration of ineffectiveness where the contracting authority has not published a contract notice, but where it has, inter alia, published a notice complying with Regulation 1150/2009137 or a ‘Voluntary Ex Ante Transparency Notice’ (‘VEAT Notice’).138 However, the relationship between a ‘contract award notice’ which triggers the 30-day time limit and a ‘Voluntary Ex Ante Transparency Notice’ is unclear. Both notices perform broadly similar functions, although the requirements for a VEAT Notice are more specific. In order to benefit from the 30-day time limit and to avoid the court being obliged to make a declaration of ineffectiveness, it seems that contracting authorities should therefore issue a contract award notice and a VEAT Notice. Yet proceeding in this way seems to produce undesirable duplication. F.  Security for Costs It is possible for a contracting authority to seek an order requiring the provision of security for costs in an application for the review of the award of a public contract regulated by EU law.139 However, a contracting authority should not delay in seeking such an order. In Dublin International Arena v Campus and Stadium Ireland, judicial review proceedings were issued on 7 May 2002,140 yet the security for costs issue was only raised by motion issued on 11 February 2003.141 The Supreme Court found that an order of security for costs might have been appropriate, given that the bidder had only nominal assets, and there was credible evidence that it would be unable to pay the costs of proceedings if the authority was successful.142 However, the requirement of rapid proceedings pursuant to Old Order 84A and the Public Sector Remedies Directive provided ‘special circumstances’ which justified refusing the order. Denham J observed that the contracting authority’s delay ‘in seeking the order for security for costs was contrary to the express and implied terms of the rules, national and European, for the review of’ public contracts.143 She reasoned that: [T]he State (and this includes the Courts) has an obligation to ensure that the decision relating to the public contract be reviewed as effectively and rapidly as possible. An 137   Commission Regulation (EC) of 10 November 2009 amending Regulation (EC) No 1564/2005 as regards the standard forms for the publication of notices in the framework of public procurement in accordance with Council Directives 89/665/EEC and 92/13/EEC. 138   See New Remedies Regulations, Reg 11(3) and (8). 139   Dublin International Arena v Campus and Stadium Ireland and Others [2007] IESC 48; [2008] 1 ILRM 496, 506, para 24. 140   Dublin International Arena, n 139 above, 499, para 5. 141   Dublin International Arena, n 139 above, 499, para 6. 142   Dublin International Arena, n 139 above, 504, para 17. 143   Dublin International Arena, n 139 above, 509, para 27.

134  Catherine Donnelly application for security for costs should not infringe this, and should be brought and determined within the overall time frame set out in the Remedies Directive and [Old] Order 84A.144

V.  Judicial Remedies

A. Proof The burden of proof is on the applicant; however, the burden may shift.145 So for example, if a bidder could prove that another bidder had prior access to relevant information, the burden of proof might switch to the contracting authority to demonstrate that all bidders were given adequate information and adequate time to absorb such information, in order to enable them to bid on a fair and competitive basis with any bidder that had prior access to information.146 The standard of proof is the balance of probabilities,147 as for example, where the applicant is seeking to demonstrate that the contracting authority relied on irrelevant information. B.  Standard of Review The standard of review applied by Irish courts will vary depending on the nature of the breach. Where there has been a failure to respect the principles of equality, transparency or objectivity, there is ‘no question’ of permitting a margin of discretion to the contracting authority.148 Where the tender has been on the basis of the lowest price, and this has not been followed, courts must be prepared to restrain any breach.149 If there is an allegation of misconstruction of the tender documents, it has been held that: [T]he range of appreciation of fact is quite narrow and therefore, range of discretion on the part of the decision maker correspondingly confined, and hence the existence or absence of error much more easily or clearly discernible than in a situation where the decision maker had to consider and weigh a broad range of, perhaps, conflicting factual material.150

Where the decisions involved entail appreciation of fact, such as determining the most economically advantageous tender, there will be a margin of discretion here for the contracting authority, but ‘it is clear that unlimited discretion   Dublin International Arena, n 139 above, 508, para 27.  McGovern, n 56 above, 100. 146  Ibid. 147   Clare Civil Engineering Ltd v Mayo County Council [2004] IEHC 135. 148   SIAC Construction Ltd v Mayo County Council [2002] 3 IR 148, 176; [2002] 2 ILRM 401, 425. 149  Ibid. 150   Clare Civil, n 147 above (O’Neill J). 144 145

The New Remedial Landscape: Ireland  135 cannot be permitted’.151 The standard of review is that of ‘manifest error’. This was established in the case of SIAC Construction Ltd v Mayo County Council,152 the Supreme Court relying on the standard used in CJEU jurisprudence to review the award of contract by a European institution.153 The High Court in SIAC had considered whether the contracting authority’s decision was unreasonable, in that it plainly and unambiguously flew in the face of fundamental reason and common sense, a test which on review to the Court of Justice, Advocate-General Jacobs deemed ‘extreme’.154 For the Supreme Court, the ‘word, manifest, should not be equated with any exaggerated description of obviousness’, and decisions should be annulled where there has been a ‘clearly established error’.155 While there is an ‘explicit concession of a wide margin of discretion to awarding authorities’,156 the Supreme Court reasoned that a test such as requiring a decision to ‘plainly and unambiguously fly in the face of fundamental reason and common sense’ would ‘run the risk of not offering what the Remedies Directive clearly mandates, namely a judicial remedy which will be effective in the protection of the interests of disappointed tenderers’.157 In SIAC, it was held that a decision, in a most economically advantageous process, not to award to the lowest tender had been ‘adequately explained’ by the contracting authority, where its expert engineer had advised that the lowest tenderer’s approach to pricing ‘would render management and control of the contract and particularly its price significantly more difficult’.158 C.  Overview of Remedies An array of remedies is available under the New Remedies Regulations. First, the Court may set aside, vary or affirm any decision; declare a contract ineffective; and impose alternative penalties.159 Second, the Court may set aside any discrim­ inatory technical, economic or financial specification in an invitation to tender, contract document or other document relating to a contract award procedure.160 Third, the Court may suspend the operation of a decision or contract.161 Fourth,   SIAC, n 148 above, [2002] 3 IR 148, 176; [2002] 2 ILRM 401, 425–26.   SIAC, n 148 above. 153  See SIAC [2002] 3 IR 148, 174 (Fennelly J referring to cases: T-139/99 Alsace International Car Service v Parliament [2000] ECR 2849, para 39; 56/77 Agence Européenne d’Interims v Commission [1978] ECR 2215, para 20; T-19/95Adia Interim v Commission [1996] ECR II-321, para 49; T-203/96 Embassy Limousines & Services v Parliament [1998] ECR II-4239, para 56). 154   Case C-19/00 SIAC Construction Ltd v Mayo County Council [2001] ECR I-7725 (Opinion, para 53). 155   SIAC, n 148 above, [2002] 3 IR 148, 176; [2002] 2 ILRM 401, 425–26. 156   SIAC, n 148 above, [2002] 3 IR 148, 176; [2002] 2 ILRM 401, 425. 157  Ibid. 158   SIAC, n 148 above, [2002] 3 IR 148, 177; [2002] 2 ILRM 401, 426. 159  New Remedies Regulations, Reg 9(1). 160  Ibid, Reg 9(3). 161  Ibid, Reg 9(5). 151 152

136  Catherine Donnelly the Court may award damages.162 Fifth, where a contract is declared ineffective, the Court may make any order necessary in the interests of justice to ensure that proper payment is made for any work done, or goods or services provided, in good faith in reliance on a contract that has been declared ineffective.163 Thinking about the impact of the Amended Remedies Directive on Ireland’s remedial framework, it is worth noting that the list does not include set aside of the contract; a remedy which had existed under the prior remedial framework. Unlike in many other Member States, the remedy of set aside had been available in respect of a concluded public sector contract in Ireland, although not required by the Original Remedies Directives. Thus, previously, pursuant to the Public Sector Remedies Regulations, the High Court could, in the exercise of its powers: •  Declare the contract, or any provision of the contract, to be void;164 •  Declare that the contract may have effect only subject to such variation as the Court thinks fit. This includes a variation required to protect the interests of a party to the contract who was not responsible for the infringement of the law concerned;165 •  Make such other order concerning the validity of the contract or any provision of it as the court shall think fit.166 Although not often, on occasion, Irish courts had availed themselves of this power to declare contracts null and void due to non-compliance with the procurement procedures.167 For example, in the Advanced Totes case,168 a contract was set aside because the published award criteria had not mentioned an import­ ant criterion; yet this is not a breach that would now result in the remedy of mandatory ineffectiveness. Whether the New Remedies Regulations would permit a declaration of ineffectiveness in such circumstances is not entirely clear, although the more obvious reading of the new provisions seems to be that they would not. It could be argued that Regulation 8(3) (which provides an eligible person may apply to the Court for a declaration that the contract is ineffective) confers a free-standing discretion on the Court to make a declaration of ineffectiveness, including in circumstances such as those in the Advanced Totes case. On the other hand, Regulation 11 (which discusses the circumstances in which a declaration of ineffectiveness should be made and is discussed further below), could be read as dealing exhaustively with issues of ineffectiveness and as setting out all the circumstances in which mandatory and discretionary declarations can be ordered by the Court, leaving no scope for such declarations in  Ibid, Reg 9(6).  Ibid, Reg 11(9). 164  Ibid, Reg 6(a). 165  Ibid, Reg 6(b). 166  Ibid, Reg 6(c). 167   See, eg, Advanced Totes Ltd v Bord na gCon and Scientific Games Worldwide Ltd [2006] IESC 17; [2006] 3 IR 77; [2006] 2 ILRM 425. See also Advanced Totes Ltd (No 2), n 173 below, 103. 168   Advanced Totes Ltd, n 167 above, and Advanced Totes Ltd (No 2), n 173 below, 103. 162 163

The New Remedial Landscape: Ireland  137 other situations, such as that in Advanced Totes. Viewed as such, this provides another example of a lowering of protection introduced by the Amended Remedies Directive from that previously existing. Turning then to the new remedial framework, the remedies which require most consideration are: interim relief; damages; and ineffectiveness. D.  Interim Relief In accordance with the requirements of the Amended Remedies Directive,169 an application for review to a court precludes the contracting authorities from concluding the contract until the court has determined the issue.170 Prior to the New Remedies Regulations, the onus had been on the applicant to bring an application for an interlocutory injunction in order to prevent the conclusion of the contract. An interesting question is whether, when the contracting authority applies to the court for the suspension to be lifted, the factors usually considered by the court in determining the availability of an interlocutory injunction will still be reviewed. Previously, considering whether to award an interlocutory injunction, the same factors considered by the court generally in interlocutory injunction proceedings were reviewed: namely, whether the applicant has raised a fair, substantial, bona fide question for determination, whether damages would provide adequate compensation for the applicant if successful at trial, whether the applicant’s undertaking as to damages would provide adequate compensation for the respondent if successful at trial, the balance of convenience, and any special factors.171 Unlike their UK counterparts,172 the New Remedies Regulations do not require the court to review these factors in determining whether to lift a suspension. Rather, the guidance is more general; Regulation 9(4) of the New Remedies Regulations indicates that the High Court may take into account the probable consequences of the interim/interlocutory measures for all interests likely to be harmed, as well as the public interest, and if the negative consequences of any interim/interlocutory measures could exceed their benefits. It will be interesting to see how the courts deal with applications to lift suspensions: arguably though, even if the courts apply the usual interim injunction factors, the onus of proof will have to shift to the contracting authority to persuade the court that the factors do not justify suspension; moreover, any requirement for an undertaking to give damages by the applicant would appear to be contrary to the scheme of the Amended Remedies Directive.  Art 2(3).  New Remedies Regulations, Reg 8(2).   Campus Oil Ltd v Minister for Industry and Energy [1983] IESC 2; Clane Hospital Ltd v Voluntary Health Insurance Board, High Court, 1998 (Quirke J) 22 May 1998; H Delany, Equity and the Law of Trusts in Ireland, 4th edn (Dublin, Thomson Round Hall, 2007) 509–43. 172   Public Contracts Regulations 2006 (SI No 5 of 2006), Reg 47H. 169 170 171

138  Catherine Donnelly The case of Advanced Totes Ltd v Bord na gCon and Scientific Games Worldwide Ltd (No 2)173 provides an unusual example of the use of injunctive relief, in the context of an award procedure, although not to suspend the procedure itself. Bord na gCon had invited tenders for provision of a totalisator system at various greyhound stadia and entered into a contract (‘the First Contract’), but since it had violated various procurement law requirements, the First Contract was declared null and void.174 Following the Supreme Court’s order of certiorari, Advanced Totes requested that the successful bidder, SGW, remove its equipment from the stadia of Bord na gCon and that Bord na gCon issue a new tender.175 Bord na gCon responded that it had commenced a new procedure, but refused to remove the equipment of SGW pending completion of the tender process. Bord na gCon also entered into a contract with SGW to commence on the date of the order of the Supreme Court (‘the Second Contract’).176 The Second Contract was a short-term service contract of limited duration – two months – and fell below the EU threshold.177 However, the Second Contract provided for the possibility of a further contract being awarded which would be co-terminous with the First Contract, which had been declared void.178 Advanced Totes claimed that the Second Contract was a continuation or renewal of the impugned contract and that SGW had an unfair advantage since its equipment was already installed in the stadia, and the cost of installing the totalisator system had to be included in the tender.179 Smyth J granted a prohibitive injunction as to the use of the system. He reasoned that Bord na gCon should not use the equipment, since it was aware that its course of conduct in granting the First Contract was in violation of EU law; and the defendants were seeking to ‘retain the advantage of being in situ (in the new tender process) arising from the impugned contract – in short to adhere to the advantage (for the second defendant in particular) of the contract entered into without the law’.180 The defendants could not seek to deny the applicant injunctive relief when ‘they committed themselves under the cloud of legal challenge on a course that was found by the Supreme Court as non-compliant with’ public procurement rules.181 Smyth J was concerned that ‘the equality of treatment to be accorded at all tenders is not available as matters stand at this

173   Advanced Totes Ltd v Bord na gCon and Scientific Games Worldwide Ltd (No 2) [2006] IEHC 161; [2006] 3 IR 101. 174   Advanced Totes Ltd v Bord na gCon [2006] IESC 17; [2006] 3 IR 77; [2006] 2 ILRM 425. 175   Advanced Totes Ltd No 2, n 173 above, [2006] 3 IR 101, 103–04. 176   Advanced Totes Ltd No 2, n 173 above, 104–06. 177   Advanced Totes Ltd No 2, n 173 above, 105. 178   Advanced Totes Ltd No 2, n 173 above, 107–09. 179   Advanced Totes Ltd No 2, n 173 above, 108–09. 180   Advanced Totes Ltd No 2, n 173 above, 111. 181  Ibid.

The New Remedial Landscape: Ireland  139 stage’.182 As far as he was concerned, damages would not have been an adequate remedy, either as to equal treatment or equal opportunity,183 and it was difficult to conceive how damages might be considered as adequate if on trial it was determined that the impugned contract, the [Second Contract] and a probable third contract were merely a series of transactions which were, in reality, one contract that had been subdivided to circumvent the requirements of the directives, and perhaps a possible abuse of the threshold provisions.184

Given the disadvantages the plaintiff would suffer, the balance of convenience favoured it.185 However, a mandatory injunction directing removal of the totalisator system was not appropriate as it would determine the substantive issue.186 It is worth noting that this case may also be of relevance to the courts in exercising their discretion to make any order necessary in the interests of justice to deal with the consequences of a declaration of ineffectiveness;187 it is precisely these kinds of questions (removal of equipment from sites and so on) which will have to be resolved in the context of ineffectiveness. E. Damages The New Remedies Regulations provide that a court ‘may award damages as compensation for loss resulting from a decision that is an infringement of Community law, or of a law of the State transposing Community law’.188 The reference to ‘an infringement of Community law’ seems to have the objective of making it explicit that damages are available for breaches of, for example, the principles of the CJEU’s case law.189 According to the Original and Amended Remedies Directives, Member States can provide that where damages are claimed on the ground that a decision has been taken unlawfully, the contested decision must be set aside by a body with the necessary powers.190 Ireland has not exercised this option, and as Fennelly J noted in Dekra, ‘[u]nder the Regulations, the High Court may declare a contract or a provision of a contract void, but it may also award damages whether or not it exercises any of its other powers’.191

182   Advanced Totes Ltd No 2, n 173 above, 113 (referring to Case C-243/89 Commission v Denmark [1993] ECR I-3353). 183  Ibid. 184  Ibid. 185   Advanced Totes Ltd No 2, n 173 above, 113–14. 186   Advanced Totes Ltd No 2, n 173 above, 111. 187   See text above to n 163. 188  New Remedies Regulations, Reg 9(6). 189  Incidentally, the reference also provides an express statutory basis for Francovich damages: Case C-6 & 9/90 Francovich and Bonifaci v Italy [1991] ECR I-5357. 190   Public Sector Remedies Directive, Art 2(5); Utilities Remedies Directive, Art 2(6). 191   Dekra, n 58 above, [2003] 2 IR 270, 295–96; [2003] 2 ILRM 210, 232.

140  Catherine Donnelly Failure to comply with the procedures on the part of a contracting authority amounts to a breach of statutory duty. The restitutio in integrum principle of compensation in tort requires that the plaintiff is placed in the same position as she had been before the commission of the tort.192 In the procurement context, obviously, if the disappointed tenderer would not, in any event, have secured the contract, she has suffered no loss. A disappointed tenderer, who could prove that she would have been successful in the absence of an infringement of the rules, is able to recover her loss of profits,193 which entails the difference between projected profits on the contract, and the costs of submitting the tender. Difficulties may arise, of course, if the person did not even participate in the procedure because the contract was not advertised. In the UK, the possibility of recovering damages for ‘loss of chance’194 has been recognised, although it only applies where there would have been ‘a real or substantial chance as opposed to a speculative one’ of obtaining the benefit.195 In the Harmon case, Harmon showed that it would ‘have stood as good a chance as any of being awarded the contract and better than most – probably 70 : 30’,196 and was held by the court to be entitled to the full amount of its projected profits subject to reduction to take account of the risks of construction.197 It has been argued by Arrowsmith that a bidder able to, for example, demonstrate a 60 per cent chance of success of winning the contract, should be able to recover 60 per cent of its estimated profits, as a starting point.198 To date, while the question of loss of chance has been considered in various contexts by the Irish courts,199 this issue does not appear to have been considered for procurement. It seems likely that it would apply in the manner that Arrowsmith suggests however. For example, where a fixed-term franchise had been wrongfully terminated, the court found that on the facts, there would have been a significant risk that the plaintiff would not have been able to continue as a franchisee beyond the duration of the fixed-term, but that in all the circumstances, it was more probable than not that he would have so continued.200 Consequently, Clarke J considered it appropriate to reduce the profits attribut192   BME McMahon and W Binchy, Law of Torts, 3rd edn (Dublin, Butterworths, 2000), para 44.07. 193  It is known, for instance, that damages were awarded for loss of profits in Clare Civil (n 147 above), although the judgment does not discuss the issue. 194   See, eg, Chaplin v Hicks [1911] 2 KB 786; Allied Maples Group v Simmons and Simmons [1995] 1 WLR 1602 (CA). 195   Allied Maples Group, n 194 above, 1614. 196   Harmon CFEM Facades (UK) Ltd v The Corporate Officer of the House of Commons (1999) 67 Con LR 1, QBD, para 319. 197   Harmon, n 196 above, para 320. 198  Arrowsmith, n 67 above, para 21.20. 199   See, eg, Hawkins v Rodgers (1950) 85 ILTR 128 (loss of chance for racehorse to secure prize money and enhanced value through winning races); Vavasour v O’Reilly [2005] IEHC 16 (continuation of a franchise after breach of contract); Philip v Ryan [2004] IEHC 77 (medical negligence); Cronin v Eircom Limited [2006] IEHC 380 (loss of opportunity to gain experience and pursue promotion in employment). 200   Vavasour, n 199 above (Clarke J).

The New Remedial Landscape: Ireland  141 able to any period after the fourth year to 60 per cent of their full value to reflect the loss of opportunity. A ‘reasonable chance’ of securing prize money has been sufficient for a court to award damages for the lost chance.201 Loss of chance has also arisen in medical negligence cases,202 although it is difficult to derive clear guidance from these cases that may be applicable for procurement cases. Overall, while the courts have accepted that damages may be sought for loss of chance, what has not been determined authoritatively is whether there can be any recovery at all where the chance is ‘less than evens’ or less than 50 per cent.203 It has been suggested though that ‘[t]he principle of lost chances cannot be relied upon where the loss is wholly speculative or there is no evidence available to assess the value of the claim’.204 F. Ineffectiveness i. Application The New Remedies Regulations mirror the provisions in the Amended Remedies Directive very closely.205 Thus, first, ineffectiveness will be required where contracts are awarded without prior publication of a contract notice or prior call for competition where this is not permissible under the Public Sector Award Directive or the Utilities Award Directive,206 unless the contracting authority considered that the award without prior publication of a contract was permissible, publishes a notice in the Official Journal of its intention to conclude the applicable contract and applies a standstill period.207 There is a wide range of circumstances in which direct awards may be acceptable and quite a significant range of exceptions therefore to the remedy of ineffectiveness.208 However, any contracting authority with a borderline direct award would be well advised to issue a notice and apply a standstill period because the contract would ultimately remain effective if it went unchallenged prior to conclusion. Second, ineffectiveness is available where there is a failure to observe the standstill period or to suspend the conclusion of a contract after an application for judicial review has been brought, and (a) this deprives the applicant of the possibility to pursue pre-contractual remedies, and (b) non-observance of the   See, eg, Hawkins, n 199 above.   See, eg, Philip, n 199 above (the ‘chance’ of longer life expectancy with proper diagnosis had to be shown ‘on the balance of probabilities’). For discussion, see R Ryan and D Ryan, ‘Recent Judicial Approaches to “Loss of Chance” in Medical Negligence Cases’ in C Craven and W Binchy (eds), Medical Negligence Litigation: Emerging Issues (Dublin, First Law, 2008) 1. 203  Contrast Philip, n 199 above, and Philp v Ryan [2004] IESC 105; [2004] 4 IR 241, 249 (Fennelly J). 204   PA McDermott, Contract Law (London, Butterworths, 2001), para 22.170. 205   See New Remedies Regulations, Reg 11. 206  Amended Remedies Directive, Art 2d(1)(a); New Remedies Regulations, Reg 11(2)(a). 207  Amended Remedies Directive, Art 2d(1)(a), Art2d(4); New Remedies Regulations, Reg 11(3). 208   See, eg, Dir 2007/66, Recitals (13)–(16); Public Sector Award Directive, Art 31; Utilities Award Directive, Arts 18–26, 40(3). 201 202

142  Catherine Donnelly standstill period is combined with an infringement of the Public Sector Award Directive or the Utilities Award Directive which has affected the chances of the applicant for review obtaining the contract.209 In the case of (a), a permissible direct award, with a notice indicating the intention to conclude a contract and observance of a standstill or in the case of (b) a simple breach of the standstill period – which is not combined with deprivation of the possibility of pursuing pre-contractual remedies and infringements of the Public Sector Award Directive or the Utilities Award Directive affecting the chances of applying for review – the New Remedies Regulations provide that alternative penalties shall involve either the imposition on the contracting authority of a civil financial penalty of up to 10 per cent of the value of the contract; or the termination, or shortening of the duration, of the contract.210 Third, ineffectiveness can apply to contracts based on framework agreements and dynamic purchasing systems where there have been specific infringements of the Public Sector Award Directive211 or the Utilities Award Directive,212 the value of the contract is above the threshold, and the relevant EU Member State has invoked the derogation from standstill for framework agreements and dynamic purchasing systems.213 Ineffectiveness will not be required, however, if the contracting authority considers that the award of the contract is in accordance with specific provisions of the Public Sector Award Directive214 or the Utilities Award Directive,215 a contract award decision and summary of reasons have been sent to the tenderers concerned, and a standstill period has been applied.216 Finally, the New Remedies Regulations have also granted discretion to national courts to declare a contract ineffective where there has been a breach of the standstill or failure to suspend conclusion of a contract on the bringing of a challenge to court, not accompanied by depriving the tenderer applying for review of the possibility of pursuing pre-contractual remedies or an infringement of the Public Authorities’ Contracts Regulations affecting the chances of the tenderer to apply for review.217 ii. Operation Article 2d(1) of the Amended Remedies Directive provides that Member States ‘shall ensure that a contract is considered ineffective’ in the three particular 209  New Remedies Regulations, Reg 11(2)(b); Public Sector Remedies Directive New, Art 2d(1)(b); Utilities Remedies Directive New, Art 2d(1)(b). 210  New Remedies Regulations, Reg 13(2). This mirrors Amended Remedies Directive, Art 2e(1). 211  Infringements of Public Sector Award Directive, Art 32(4) or Art 33(5) or (6). 212  Infringements of Utilities Award Directive, Art 15(5) or (6). 213  Amended Remedies Directive, Art 2d(1)(c); New Remedies Regulations, Reg 11(2)(c). 214   Public Sector Award Directive, Art 32(4) and Art 33(5) or (6). 215  Utilities Award Directive, Art 15(5) and (6). 216  Amended Remedies Directive, Art 2d(5); New Remedies Regulations, Reg 11(2)(c) and 11(4). 217  New Remedies Regulations, Reg 11(7).

The New Remedial Landscape: Ireland  143 cases provided for in the Directive, which reads as a mandatory obligation. Article 2d(3) however provides that Member States may enable a review body to find that there are overriding interests relating to a general interest which require that the effects of the contract should be maintained.218 The discretion of the courts is further circumscribed since economic interests may only be considered ‘if in exceptional circumstances ineffectiveness would lead to disproportionate consequences’.219 Even more restrictively, economic interests directly linked to the contract concerned shall not constitute overriding reasons relating to a general interest. Economic interests directly linked to the contract include, inter alia: •  the costs resulting from the delay in the execution of the contract; •  the costs resulting from the launching of a new procurement procedure; •  the costs resulting from the change of the economic operator performing the contract; and •  the costs of legal obligations resulting from the ineffectiveness. Ireland has adopted these provisions directly from the Directive.220 They have been criticised as being unduly restrictive:221 there will be many cases in which overriding reasons in the general interest will involve economic interests which it will be difficult to consider are not directly linked to the contract.222 iii. Consequences The Amended Remedies Directive presents Member States with a choice as to the consequences of ineffectiveness: retroactive cancellation of all contractual obligations, or cancellation of those obligations which still have to be performed. If the latter option is chosen, it must be combined with other penalties, namely, the imposition of fines or the shortening of duration of the contract.223 Ireland has opted for prospective cancellation.224 However, the New Remedies Regulations do not make it clear that alternative penalties must be added to the declaration of ineffectiveness; rather, alternative penalties are presented as obligatory in specific circumstances where ineffectiveness is not declared.225 In this respect, it may be debatable whether the New Remedies Regulations implement the Amended Remedies Directive properly.

 Ibid, Reg 11(5).  Ibid, Reg 14(6).  Ibid, Reg 11(6). 221  Golding and Henty, n 24 above, 151. 222   See, eg, BSF Group Ltd v Secretary of State for Defence and Purple Foodservice Ltd [2006] EWHC 1513 (Ch). 223   Public Sector Remedies Directive, as amended, Art 2d(2) and Art 2e(2); Utilities Remedies Directive, as amended, Art 2d(2), 2c(2). 224  New Remedies Regulations, Reg 12. 225  New Remedies Regulations, Reg 13(1). 218 219 220

144  Catherine Donnelly iv.  Ineffectiveness in the Irish Context While the new effectiveness remedy will involve an innovation in Ireland insofar as utilities contracts are concerned, its primary impact in the public sector context appears to be to circumscribe the discretion currently enjoyed by the Irish courts. As was considered above,226 under the Public Sector Remedies Regulations, Irish courts had the power to declare contracts void, effective subject to variation, or to make such other order as the court saw fit. This power applied in the context of any breach of the procurement rules, and not just the cases identified in the New Remedies Regulations. For these three particular cases, the courts will now be required to grant the remedy of ineffectiveness, unless there are ‘overriding interests in the general interest’. Previously, Irish courts had power to declare contracts void for any breach of the rules, and, a contract has been declared void where the award criteria in the tender documentation did not comply with EU requirements.227 Consequently, the impact of these new provisions in the Irish context will be equivocal. On the one hand, the discretion of the courts will be constrained, and they will be required to declare contracts ‘ineffective’ in the particular circumstances listed. On the other hand, however, the Amended Remedies Directive and the New Remedies Regulations, as indicated above, will result in a potential narrowing (at least outside the three specific cases discussed above) of the remedies that were previously available in Ireland. VI. Conclusion

As has been seen, Irish law has not paid much attention to the quantification of damages in the public procurement context; and has instead focused on rigorous policing of access to remedial protection. The recent Uniplex and Ireland cases will have an impact in this regard. Now that the Irish courts are precluded from requiring applications to be brought ‘at the earliest opportunity’ from the date on which the grounds, as opposed to knowledge, arose, it may be that a greater number of cases will reach substantive consideration. That said, from a different perspective, interestingly, the impact of the Amended Remedies Directive on remedies in Ireland for breaches of EU public procurement rules has been double-edged. From one perspective, the new remedy of declaring ineffectiveness may prove useful and the mandatory suspension of proceedings after the initiation of proceedings will be very attractive for potential challengers; from another perspective, however, the new regime may be considered to have lowered remedial protection by expanding the availability of derogations from the standstill period and potentially removing the discretionary set-aside powers the Irish courts had previously enjoyed in respect of any procedural breach.   See text accompanying nn 164–68 above.   Advanced Totes Ltd, n 174 above.

226 227

The New Remedial Landscape: Ireland  145 The time-limit provisions are quite confusing, while the shorter time-limit increases the pressure on potential challengers to act quickly. Thus, overall, the Amended Remedies Directive and the New Remedies Regulations have not been unequivocally positive for those seeking to challenge decisions of contracting authorities.

8 Basis and Conditions for a Damages Claim for Breach of the EU Public Procurement Rules Steen Treumer*

I. Introduction

A

ctions for damages in the field of EU public procurement is an area with increasing importance in legal practice in several Member States even though this remedy for many years received only little attention in legal practice, legislation and legal literature.1 It was as late as the mid1990s that Brown rightly stated2 that a striking feature of the case law in the field of enforcement of the EU public procurement rules was the almost total absence of successful actions for damages. This feature has rapidly changed and there are now many examples of successful actions in various Member States and in the supplementing Member States parties to the EEA Agreement. There are at least several cases from France, Denmark and Norway including cases where damages for loss of profit have been granted and some cases from

*  See also my article ‘Damages for Breach of the EC Public Procurement Rules – Changes in European Regulation and Practice’, (2006) (4) Public Procurement Law Review, 159–70. Special thanks to Dr Deividas Soloveicikas, Faculty of Laws of the University of Vilnius for information on the Lithuanian state of law. 1   The literature in English analysing this particular issue is still relatively limited. For a comparative analysis covering several Member States see the special issue of the Public Procurement Law Review, no 4 of 2006, on Damages for Violations of the EC Procurement Rules, pp 159–240, and S Treumer & François Lichère (eds) Enforcement of the EU Public Procurement Rules 1st edn (Copenhagen, DJOF Publishing, 2011). See also H Leffler, ‘Damages Liability for Breach of EC Procurement Law: Governing Principles and Practical Solutions’ (2003) Public Procurement Law Review 1; S Treumer, ‘Damages for Breach of the EC Public Procurement Rules from a Danish Perspective’ (2005) 5 European Business Organization Law Review 563 and S Arrowsmith, The Law of Public and Utilities Procurement, 2nd edn (London, Sweet & Maxwell, 2005) esp pp 1421 ff. 2  A Brown, ‘Effectiveness of Remedies at National Level in the field of Public Procurement’ (1998) Public Procurement Law Review 89, 93. This article is of particular interest as some of the information in the article of Adrian Brown was derived from a study, which his law firm, Herbert Smith, had co-ordinated for the European Commission in 1996, involving a comparative assessment of procurement remedies in all of the Member States (15 at that time).

150  Steen Treumer Germany,3 Austria,4 the United Kingdom, the Netherlands, Sweden, Lithuania and Iceland.5 In England the case law is surprisingly sparse, and the Harmon6 case appears to be the only decision in which damages have been claimed successfully.7 The purpose of this chapter is to analyse a number of fundamental questions of general interest concerning damages for breach of the EU public procurement rules and to highlight some of the most important trends in the domestic law on damages in this context. The structure of this piece will be as follows. Section II gives an analysis of the legal basis for a claim of damages for breach of EU public procurement law, and the conditions for damages are considered in section III. Section IV is an analysis of the highly interesting examples of the creation of new law on damages at national level based on EU law principles, with a conclusion in section V. II.  Legal basis for claim of damages for breach of EU public procurement law

A.  Introduction with Focus on Legal Sources at Supranational Level Remedies and procedural law concerning breach of Community law are as a starting point to be considered matters for the national legislator, due inter alia to the principle of national and remedial autonomy. This autonomy is clearly subject to a number of limitations namely the principles of equivalence and effectiveness which are overlooked by many as it appears to be a common misunderstanding that the question of damages for breach of the EU public procurement rules is exclusively a question of national regulation.8 It follows from the principle of equivalence that the substantive and procedural conditions for damages laid down by the national law of the Member States must not be less favourable than those relating to similar domestic claims. From the principle of effectiveness follows that the conditions for damages must not make it virtually 3   Loss of profit has been granted in some cases, see A Rubach-Larsen, ‘Damages under German Law for Infringement of EU Procurement Law’ (2006) Public Procurement Law Review 179. 4   Loss of profit has also been granted in this Member State. 5   In Iceland, the Supreme Court granted damages for loss of profit in a case of 17 November 2005, cf S Magnússon, ‘Complaints and Remedies in Iceland: The Icelandic Model’ in J Fejø and S Treumer (eds), EU’s udbudsregler: implementering og håndhævelse i Norden’ [The EC Public Procurement Rules: Implementation and Enforcement in the Nordic Countries] (Copenhagen, DJØF Publishing, 2006). 6   Harmon CFEM Facades v Corporate Officer of the House of Commons (1999) 67 ConLR 1. 7   See F Banks and M Bowsher, ‘The Availability and Primacy of the Damages Remedy for Breach of Procurement Obligations in England, Wales and Northern Ireland’ ch 4 above, and M Bowsher and P Moser, ‘Damages for Breach of the EC Public Procurement Rules in the United Kingdom’ (2006) Public Procurement Law Review 195. 8  Unfortunately this misunderstanding was supported by the former formulation of Art 2(6) in the Remedies Directives, cf n 12 below.

Basis and Conditions for a Damages Claim  151 impossible or excessively difficult to obtain reparation.9 It is highly interesting that the principle of effectiveness has been used in some national jurisdictions as a lever for creation of new law when national courts or complaints boards have deviated from their respective traditional national law on damages. This phenomenon will be considered below in section IV. These above-mentioned general principles of law are supplemented by the Remedies Directives in the field of public procurement and from these Directives follow a number of basic requirements to the public procurement remedies available for violation of the EU Public Procurement Directives.10 The Remedies Directives were recently amended by Directive 2007/66 but the provisions concerning damages remained unchanged. It follows from the Remedies Directives11 that the review bodies must be able to award damages to persons injured by the infringement of the rules but the details of the issues concerning damages is not regulated in detail and their formulation does not contribute much to the creation of a clear legal situation and even generates doubt on some points.12 It is not even clear from these Directives whether they require the award of lost profit or not which is of crucial importance for the efficiency of the remedy of damages.13 However, it is normally presumed in both theory14 and frequently in the case law of the Member States15 that tenderers under certain conditions can require the award of lost profit for breach of the EU public procurement rules although this has been unclear from the outstart and even disputed in legal literature in Sweden.16 The issue of damages for breach of the EU public procurement rules express regulation on damages in the Remedies Directives has to date hardly been subject to any decisions from the Community courts.17 However, the case law from the Court of Justice concerning the liability of Member States for infringements of Community law is by many considered to be a relevant source of law as well as the case law concerning the EU institutions’ liability for procurement   See the formulation in Joined cases C-6/90 and C-9/90 Francovich [1991] ECR I-5357, para 43.   It is to be assumed that you can also claim damages for violation of the public procurement regime outside of the EU public procurement directives. See section IIIb of this chapter. 11   cf Art 2(1) of the Remedies Directive and Art 2(7) of the Utilities Directive. 12  For instance by the former formulation of Art 2(6) in the Remedies Directives according to which the effects of the exercise of the powers provided for under the Directive on a contract concluded subsequent to its award are to be determined by national law. This is basically correct but with the important addition that the national regulation has to comply with namely the principles of effectiveness and equivalence. Art 2(7) of the Utilities Remedies Directive also give rise to doubts. 13   A high percentage of aggrieved tenderers do not consider it worth the effort to initiate an action seeking to recover the costs of preparing a bid or participation in the procurement procedure. 14   See eg Leffler, n 1 above at 161 note 6 and Arrowsmith, n 1 above, at 1422 with fn 89. 15  This is established in the case law of the Supreme Courts of France, Germany, Denmark, Norway, Sweden and Iceland. 16   See M Slavicek with references in the article ‘Damages for Breach of the EC Public Procurement Rules in Sweden’ (2006) Public Procurement Law Review 233. 17   An exception from recent case law is C-275/03 Commission v Portugal, where the Court of Justice ruled that it was a violation of the Remedies Directive to make damages conditional on proof of intentional or negligent breach. See also C-314/09 Strabag and C-568/08 Spijker commented in further detail later in this chapter. 9

10

152  Steen Treumer breaches.18 It has also been submitted that EU gender discrimination law including the case law on this matter can be relevant by way of analogy as follows from the analysis in section III below concerning the conditions for damages. Finally the implementation of the Remedies Directives in the various Member States19 and national case law can suggest answers to issues of general interest and serve as an inspiration to the legislature and review bodies in other Member States. As an example the Norwegian Supreme Court explicitly supported its interpretation in the Nucleus case on case law from the Swedish and Danish Supreme Courts and German law and consequently decided in favour of the creation of a legal basis for recovery of loss of profit.20 However, one constantly has to remember that the national interpretations are firmly rooted in national law on damages. B.  National Regulation of Damages for Breach of the EU Public Procurement Rules In the absence of Community rules governing the matter and in consequence of the doctrine of procedural autonomy, it is up to the national legislator to fix the conditions necessary for successful and effective relief. For this reason, it is of particular interest to consider the trends in national implementation of the Remedies Directives with regard to damages. In Norway21 and Sweden22 the legislature has basically limited itself to a general provision which only establishes that damages can be claimed for breach of the EU public procurement rules and this also appears to be the situation in the United Kingdom.23 In Lithuania, it follows explicitly from the law on public procurement that you can claim damages for breach of the law.24 In Denmark, the regulation is even more sporadic as there is no general provision on damages corresponding to the above-mentioned provisions but it is clear from a specific provision in the law on the Enforcement of the Procurement Rules that the 18   It is however important to keep in mind that the legal basis for the responsibility of the EC institutions’ differs as there is an explicit legal basis for this responsibility in Art 288 of the EC Treaty (now Art 340 of the Treaty). See for the same reservation H Leffler, n 1 above and Arrowsmith, n 1 above, 1421 and fn 87. 19   An example is the implementation of Art 2(7) in the Remedies Directive 20   See the Nucleus case RT 2001.1062. 21   See the K Krüger, ‘Action for Damages Due to Bad Procurement – On the Intersection between EU/EEA Law and National Law, with a Special Reference to the Norwegian Experience’ (2006) Public Procurement Law Review 211. 22   See Slavicek, n 16 above, who adds that according to the preparatory works from 1992/1993 the compensation includes not only unnessesary costs of the tendering procedure but also the remuneration of loss of profit. 23   See Arrowsmith, n 1 above, at 1421 and Bowsher and Moser, n 7 above. Only the latter publication is based on the new implementation regime in the United Kingdom which entered into force 31 January 2006. 24   See Art 96 of the Law on Public Procurement. The same provision also contains the legal basis for a claim against a tenderer for misuse of procedural rights.

Basis and Conditions for a Damages Claim  153 Board can award damages for breach of the EU public procurement rules. It follows from the preparatory works to the same law that both the Board and the ordinary courts are competent to award damages in this respect and that they have to apply the ordinary Danish law on damages, which basically involves the application of general principles of law developed by the judiciary. The preparatory works to the laws in the Nordic countries carry considerable authority and are often relied upon by national courts and in the legal literature. As Krüger points out: ‘one might have expected more comprehensive comments in the ministerial preparatory works’ and ‘On the issue of liability for bad procurement, the legislators’ approach has been extraordinarily low profiled and modest in the Nordic countries’.25 In Portugal, a new provision has recently been enacted in Article 7(2) of the Act on the Administration and Public Entities Civil Liability as a follow-up to the rulings of the Court of Justice against Portugal on its regulation of damages for breach of the EU public procurement rules.26 This new provision has already given rise to discussions in Portuguese legal literature and critics have pointed out the difficulty to determine, for sure, the conditions for damages for breach of the EU public procurement rules.27 In some countries, the legislation on damages for breach of the EU public procurement rules is even more limited. In the Netherlands, there is not a specific regulation of claims for damages for breach of procurement law, and instead two provisions of the Dutch Civil Code can be seen as the legal basis for such a claim.28 The regulation in France is also limited as the implementation of the Remedies Directives provisions on damages did not lead to alterations in the existing legislation on public procurement.29 As pointed out by Lichère and Gabayet,30 the consequence is that no distinction is made between damages for violation of national public procurement rules and those based upon EU public procurement rules. The Remedies Directives have so far had no effect on damages for violation of the EU public procurement rules. It is hardly surprising that EU law in such a situation has had no effect as most lawyers and judges will tend to overlook that there is de facto a difference and that a distinction therefore is relevant.31 As pointed out above, remedies and procedural law concerning   Krüger, n 21 above.  See C-275/03 Commission v Portugal and C-70/06 Commission v Portugal and Eiró and Mealha, ch 3, p 44 above. 27  Eiró and Mealha, ch 3, p 45 above. 28   See JM Hebly and FG Wilman, ‘Damages for breach of Procurement Law: The Dutch situation’, section 3 of the chapter in the current publication. 29  F Lichère, ‘Damages for violation of the EC public procurement rules in France’ (2006) Public Procurement Law Review 171 where this is partly explained by the longstanding tradition in the case law of the Council of State (Conseil d’Etat) with regard to damages when an award of a public contract is declared unlawful. 30   See Lichère, n 29 above; Gabayet, ‘Damages for Breach of Public Procurement Law: A French Perspective’, ch 1 above. 31   Compare with the point of view of Lichère, n 29 above, who in his introduction to his article writes that ‘If the conditions for compensation regarding the claimant are present . . . it is not necessary to seek the origin – ie national or European – of the violated rules’. 25 26

154  Steen Treumer breach of Community law are in principle considered matters for the national legislator but this autonomy is clearly subject to a number of limitations and the principle of effectiveness has been used in some national jurisdictions as a instrument for the creation of new legislation when national courts or complaints boards have deviated from their traditional national law on damages. However, the French system appears to be amongst the most developed and efficient national systems in the EU. Lichère points out that the main weakness of the system is the lengthy procedures before the administrative courts, which can take several years.32 One could contemplate whether the French system has another important deficiency with regard to the situation where contracts are awarded directly without any advertising as it is practically impossible to get damages33 and having the contract set aside is complicated34 and will take even more time than the usual ‘several years’. This may explain why the case law of the Conseil d’Etat introduced in 2007 a new remedy open to certain third parties (the rejected competitors) to challenge the contract directly. But this weakness seems to be present in the entire enforcement system and therefore shared by all other national systems. This issue of general interest is closely related to the question whether the violation of the EU public procurement rules can lead to an obligation to terminate the contract in question or ineffectiveness of the contract.35 The regulation of the damages issue in Germany deviates from the abovementioned trend as the regulation is rather detailed but it has nevertheless proved to be of minor practical importance.36 Furthermore, the regime lacks clarity despite its many and quite elaborate provisions37 and has been subject to controversial discussions on the compatibility with EU law.38 The regulation is a 32  Although, under certain circumstances, the claimant can ask for a interim measure called ‘référé provision’. 33   See Lichère, n 29 above, with regard to the French system. See also S Treumer, ‘The Discretionary Powers of Contracting Entities – Towards a Flexible Approach in the Recent Case Law of the Court of Justice?’ (2006) Public Procurement Law Review 71, 81, where it is argued that the possibility of obtaining damages in such a situation in general is close to impossible. If there has not been a tender there are no bidding costs and the chances of obtaining damages for loss of profit are extremely low as it is normally required in national public procurement law on damages that the tenderer in question proves that it would have obtained the contract. 34   The procedure (for other third parties than rejected competitors) is explained by Lichère, n 29 above: A third party can’t seek directly annulment of the contract but has first to seek annulment of the detachable act such as the decision to award the contract and then has bring the case before the judge who has jurisdiction over the contract who might not be identical to the judge having jurisdiction over the detachable act. The latter judge must then consider if the first annulment has an effect on the contract. 35   See S Treumer, ‘ Towards an Obligation to Terminate Contracts Concluded in Breach of the EC Public Procurement Rules: the End of the Status of Concluded Public Contracts as Sacred Cows’ (2006) Public Procurement Law Review 371 and Art 2(d) in the Remedies Directives on ineffectiveness. 36   See M Burgi, ‘Damages and EC Procurement Law: German Perspectives’, ch 2, section I above, and the introduction to the article of Rubach-Larsen, n 3 above. 37   See Burgi, ch 2, section 1 above. 38   See Burgi, ibid.

Basis and Conditions for a Damages Claim  155 codification of the general rules and principles of German civil law and efficient interim measures were introduced by means of the Act Amending Procurement Law and thereby has reduced the need for damages claims.39 In Germany, there appears so far only to have been one case where the bidder was awarded damages on the basis of §126 of the Act Against Restriction of Competition (GWB) and compensation for loss of profit under §311(2) of the German Civil Code (BGB) has only been awarded in very few published cases, which all seem to deal with very extraordinary circumstances and/or very clear infringements of procurement law.40 To conclude the sources of law on damages for breach of the EU public procurement rules are very limited and often unclear both at Community level and at national level which obviously does not promote efficient enforcement of the public procurement rules.41 The primary source of law is, in most instances, national case law on damages and sometimes not even from the field of public procurement. The state of law even lacks in clarity when the issue exceptionally is regulated in detail at national level. III.  Conditions for damages

It is necessary to make a fundamental distinction between violation of the public procurement rules contained in the Directives and violation of the Treaty provisions and principles of Community law. A claim for damages in this field is normally always related to a violation of the Public Procurement Directives whereas a claim for damages relating only to the Treaty provisions on free movement and the general principles of equal treatment of tenderers and of transparency is, in practice, an exception. In the absence of Community rules governing the matter and as a consequence of the doctrine of procedural auto­ nomy, it is up to the national legislator to fix the necessary conditions for successful and effective relief. A.  Violation of the Public Procurement Directives The wording of the Remedies Directives does not make it clear whether damages are available for all violations of the EU Public Procurement Directives or whether other conditions apply. Article 2(1)(c) of the Remedies Directive indicates only that the Member States are obliged to award damages to persons   See Rubach-Larsen, n 3 above.   See Rubach-Larsen, n 3 above, sections 2.4 and 3.3.   Brown, n 2 above, stressed that the lack of actions for damages about a decade ago presumably partly was caused by the uncertainty surrounding the availability and particularly the quantum of damages. Other reasons are also relevant as pointed out in JM Hebly and FG Wilman, ‘Damages for Breach of Procurement Law: The Dutch Situation’, ch 5, section VII above. 39 40 41

156  Steen Treumer harmed by an infringement. The wording of Article 2(7) of the Utilities Remedies Directive is more detailed, but lacks clarity, and is only concerned with the conditions for claiming damages for the costs of preparing a bid or of participating in an award procedure42 and not with the potential loss of profit. However, it is clear from the ruling of the Court of Justice in C-275/03 Commission v Portugal that it is contrary to the Remedies Directive to make damages conditional on proof of intentional or negligent breach. In this case it also seems that the Commission proceeded on the assumption that any breach of the public procurement rules was in itself sufficient ground for liability. It has been submitted in legal literature43 that it is appropriate to draw an analogy from the approach concerning gender discrimination law which would imply that damages are available for illegality per se. Analogy is drawn with the Court of Justice decision in C-177/88 Dekker44 in which it was held that ‘any breach of the prohibition of discrimination must in itself, be sufficient to make the employer liable’. There are a number of important similarities between substantive gender discrimination law and public procurement law as they both aim at securing full equality of opportunity and their remedies regimes both appear to aim at ensuring the effectiveness of the rules as such, as well as at protecting the individual who has suffered a loss from a breach. Furthermore, it is argued that the ‘legal environments’ in which the respective remedies are implemented are similar in important aspects as the core of both sets of law concern comparisons between two or more candidates and aim at eliminating discrimination.45 The similarities mentioned above are important and it cannot be ruled out that the Court of Justice will adopt this approach if the question is considered by the Court. Others46 argue in favour of the application of the general conditions introduced by the Court of Justice with regard to the liability of the Member States for violation of Community law according to which the conditions are that the rule of law infringed must be intended to confer rights on individuals; the breach must be sufficiently serious; and there must be a direct causal link between the breach of the obligations resting on the State and the damage sustained by the   It follows from Article 2(7) of the Utilities Remedies Directive that the person making the claim shall be required only to prove an infringement of Community Law in the field of procurement or national rules implementing that law and that he would have had a reel chance of winning the contract and that, as a consequence of that infringement, that chance was adversely affected.

42

43   See Leffler, n 1 above, and R Nielsen, Udbud af Offentlige Kontrakter (2002), pp 276–78 and esp on p 278. Nielsen agues that there is the same need for a restrictive approach in cases concerning violation of the fundamental provisions of free movement as in gender discrimination law, although she also stresses that many of the detailed public procurement rules are less fundamental. Compare with Arrowsmith, n 1 above, at 1422 fn 89 on the possible analogy from gender discrimination law. 44  C-177/88 Dekker [1990] ECR I-3941, para 25. 45   cf Leffler, n 1 above, at 155. 46   eg, Treumer, n 1 above, at 567. See also the preparatory works to the public procurement law reform in Norway in 1999, cf. section 3 and fn 18 in Krüger, n 21 above, where it was assumed that a substantial violation is necessary. Arrowsmith, n 1 above, leaves the question open at p 1422.

Basis and Conditions for a Damages Claim  157 injured parties.47 The condition of primary interest is that the breach must be ‘sufficiently serious’48 which implies that it is not enough to prove that there is a mere breach of the public procurement rules and that it takes more than fault in the usual understanding of the concept to make the contracting authority liable. This approach would be in accordance with the traditional approach to state liability in the Member States. Compensation for violation of the EU public procurement rules are basically a question of state liability as the defendant in an action for damages for breach of the EU public procurement rules will be a contracting authority and thereby normally a public entity. A third possibility suggested by Krüger49 based on subsidiarity policies is that the question is still a matter of national law provided that the remedy in national law complies with the principles of equivalence and effectiveness. The Court of Justice has in recent years on various occasions emphasised the fact that the Member States have a margin of discretion in implementing the Public Procurement Directives and that the Directives do not lay down a uniform and exhaustive body of Community rules.50 It is therefore definitely also possible that the Court would allow the Member States a wide discretion with regard to the regulation of the conditions of damages. However, lack of clarity in the area of damages has inhibited the effectiveness of this remedy for many years and it is therefore desirable for that Court to set a uniform standard and thereby remove the discretion of the Member States in this respect.51 Whether the Court would rule that all violations can lead to damages for loss thereby caused or whether it would choose to require a ‘sufficiently serious’ breach is not of great importance in practice as this is unlikely to be decisive for the outcome in many cases. The latter follows from the fact that violations typically are ‘sufficiently serious’ before anybody makes a claim for damages due to the typically52 lengthy and costly procedures and the risk of being blacklisted53 by the contracting authority.   Cf Cases C-46 and 48/93 Brasserie de Pêcheur and Factortame III [1996] ECR I-1029.   The factors which the competent court may take into consideration include the clarity and precision of the rule breached, the measure of discretion left by the rule to the national or Community authorities, whether the infringement and the damage caused was intentional or involuntary, whether any error of law was excusable or inexcusable, the fact that the position taken by a Community institution may have contributed towards the omission, and the adoption or retention of national measure or practices contrary to Community law, cf cases C-46 and 48/93 Brasserie de Pêcheur and Factortame III [1996] ECR I-1029, consideration 56. 49   See Krüger, n 21 above. 50   Cf S Treumer, n 1 above, mainly based on an analysis of rulings from the Court of Justice within the past five years with emphasis on the most recent case law. Enforcement of the public procurement rules is addressed in section 5 of the article. 51   Contrary to the point of view of Krüger, n 21 above. 52   In Denmark the complainants are in a privileged position as the Complaints Board can award damages and a complainant can not be ordered to cover the costs of the contracting authority if damages are not awarded. The complainant only has to pay a symbolic fee and to cover his own costs. 53   The fear of being blacklisted by the contracting authority is a well-known phenomenon from legal practice. It is very difficult to establish whether this fear is justified or not and the answer appears to differ considerably from Member State to Member State. It is only in exceptional cases that Danish contracting authorities are so blunt in their statements that the latter could be 47 48

158  Steen Treumer Since there is considerable uncertainty with regard to the conditions for damages, it is of particular interest to consider the national regulation and case law on this issue and to establish whether there is a common trend at national level. In the United Kingdom, the judge in the Harmon case apparently took the view that any violations will suffice per se without the need to prove a serious breach although he concluded that in any case a sufficiently serious breach did exist and that the English regulations implementing the Remedies Directives did not expressly limit damages to cases of sufficiently serious breach.54 However, the judge did not base this result on the analogy with cases on damages for breach of EU law prohibiting gender discrimination.55 In France, the legal position is even more clear as any violation of the procurement rules is sufficient provided the violation has led to loss. It is clear that no other standard such as a serious or manifest mistake applies.56 In Germany, it appears that a person who claim damages on the basis of §126 GWB for the costs of preparing a tender or for participating to the procurement action is only required to prove that an infringement of the EU public procurement rules57 has taken place and that he would have had a real chance of winning the contract without this infringement, but not that the contracting authority was acting negligently when breaching procurement law.58 This has nonetheless been subject to debate in the German legal literature as some have argued that fault is a condition for the award of damages in this context.59 However, when damages are sought on the basis of the principle of culpa in contrahendo – codified in various provisions and namely §311(2) BGB60 – it is a condition that the contracting authority has breached the procurement rules negligently. This follows from §276 BGB according to which liability pursuant to the German Civil Code presupposes that the defendant has acted wilfully or negligently.61 It is important to stress that, although this at first glance appears to put a serious limitation on claims for damages of this sort, this is unlikely to be the case in practice as the contracting authority is presumed to have knowledge of the public procurement rules and is interpreted as a threat of blacklisting. In Greece blacklisting appears to be rather common, cf. the study of D Pachnou, ‘Bidders Use of Mechanisms to Enforce EC Procurement Law’ (2005) Public Procurement Law Review, 256. 54   Cf Arrowsmith, n 1 above, at 1422. 55  Even though he could have done this, cf Arrowsmith, n 1 above, at 1422 fn 87a. 56   cf F Lichère, n 30 above with reference to O Guézou et F Lichère (eds), Droit des marchés publics, Editions du moniteur, III630, p 1-35 ; N Gabayet, ‘Damages for breach of public procurement law: a French Perspective’, Chapter 1, p8 above. 57  §126 GWB applies only to procurement procedures subject to the EC Public Procurement Directives, cf. Rubach-Larsen, n 3 above. 58   See M Burgi, ‘Damages and EC Procurement Law: German Perspectives’ section V of the chapter in this publication and section 2 in the article of Rubach-Larsen, n 3 above. 59   Cf M Burgi, ibid in section IV of his article with references in footnote 15 to the relevant authors. 60  Normally loss of profit can not be claimed on the basis of §311(2) but it has been awarded in a few published cases, cf section 3 in the article of Rubach-Larsen, n 3 above. 61   Cf section 3.1.3. in the article of Rubach-Larsen, n 3 above.

Basis and Conditions for a Damages Claim  159 obliged to ensure that planned actions comply with procurement law and if in doubt to seek competent legal advice before acting.62 The trend in the Nordic countries is less clear but would seem to have been more in the direction of a requirement of negligence or ‘sufficiently serious’ violations. Substantial infringements were required in the above-mentioned Nucleus case which is the leading Norwegian case on damages for loss of profit, which therefore seems to support the ‘sufficiently serious’ condition. The Norwegian Supreme Court recently confirmed this approach in Trafikk & Anlegg with explicit reference to the case law from the Court of Justice on Member State liability for breach of Community law.63 It has been questioned in Norwegian legal literature whether this approach is in accordance with the requirements for effectiveness underlying the EU remedies regime.64 However whether this condition also applies for the recovery of bid costs and for costs related to the participation in the tender procedure is an open question.65 In Sweden, it followed from the Supreme Court ruling in Tvättsvamparna66 that if the breach was not deemed serious the bidder should not receive full compensation ie for all of its lost profit.67 However, the Swedish Supreme Court adopted a fundamentally different approach in Ishavet68 and ruled that consideration should not be taken of the character of the violation. It is instead decisive whether the claimant has proven that it was likely to be the winner of the competition for the contract. In Denmark, the Complaints Board for Public Procurement ruled on the issue in the ruling of 8 March 2005, Per Aarsleff A/S mod Amager Strandpark I/S, and the Board ruled that any violation as such is not enough. The Board emphasised that the conditions correspond to the traditional approach in the Danish law on damages,69 which does not refer to the ‘sufficiently serious’ condition.70 Also in Lithuania the approach has been to require a fundamental breach of the public procurement rules and proof of fault. Furthermore, in this country level of fault will have an impact on the amount of damages that is awarded. Very recent case law from the Court of Justice of the European Union has addressed the conditions of damages, notably the cases of C-314/09 Strabag and C-568/08 Spijker. However, this case law appears to cause more confusion than 62   Cf Rubach-Larsen, n 3 above, with reference to Boesen, Vergaberecht, Kommentar zum 4. Teil des GWB, 1 Aufl 2000, §126 Rn 51. 63  See Trafikk & Anlegg Rt 2008 p 1481 and the remarks in Krüger, n 21 above. 64   Cf JF Bernt and K Krüger, ‘Hvor mye EØS rett tåler norske kommuner?’ in Bonus Pater Familias. Festskrift til Peter Lødrup (2002) 121–56. 65   Cf Krüger, n 21 above. 66   See the criticism of Slavicek on this point, n 16 above. 67   See the articles of Leffler (n 1 above) and Slavicek (n 16 above). 68   Ishavet NJA 2007 349. See the article of D Björklund and T Madell, ‘Skadestand vid offentlig upphandling’ (2008) 7 Svensk Juristtidning 578, 591. 69   cf the preparatory works to the law on the Complaints Board. 70   It was stressed in the preparatory works that it frequently will be relevant to consider the relationship as if it was within contract as the contracting authority has given a valid promise about the award of the contract based on known criteria.

160  Steen Treumer clarity. In C-314/09, Strabag, the Court of Justice ruled that the Remedies Directive 89/665 precludes national legislation which makes the right to damages for an infringement of public procurement law conditional on that infringement being culpable. This result was surprising as the issue in principle comes under the procedural autonomy of the Member States. Furthermore, the national legislation in question even rests on the presumption that the contracting authority is at fault which normally would make it very easy to satisfy this condition. The Court of Justice based this dynamic and far-reaching interpretation on the principle of effectiveness.71 The approach in the Strabag case appears indirectly to rule out that a Member State may make damages for breaches of EU public procurement law conditional of a ‘sufficiently serious’ breach or ‘substantial’ breaches. Thus it would appear from this ruling that any breach of the EU public procurement rules in principle is sufficient ground for damages. It can be added that the reasoning of the Court in the Strabag case is not beyond criticism. It is for instance far from obvious that the legislation as such entails that the tenderer runs a risk of only ‘belatedly being able to obtain damages’.72 It would be more appropriate to consider such a risk a simple consequence of having to bring the case before the courts. It is more the rule than the exception that court procedures on damages takes years in the national courts of the European Union. The subsequent ruling from the Court of Justice of the European Union in C-568/08 Spijker, takes a fundamentally different approach. In this ruling the Court emphasized the procedural autonomy of the Member States in an answer to a preliminary question on the conditions for damages. The Court concluded that it is for the Member States to establish the relevant criteria under observance of the principles of effectiveness and equivalence.73 The ruling does not appear to be in compliance with the ruling in the Strabag case as it does not clarify that another Chamber of the Court had developed the law far beyond the starting point of national procedural autonomy, in the Strabag case. The ruling in the Spijker case could thus be interpreted as an overruling of the approach in the Strabag case and it is also noteworthy that the Court only refers to paragraph 33 of the later judgment and not paragraph 39 which is the essential paragraph. Consequently it remains uncertain what the Court of Justice considers as the state of law in this area. Presumably the Member States will uphold their different national approaches until the EU law limitations have been clarified in the case law of the Court of Justice. The next time the issue arises it would appear appropriate to address it before a Grand Chamber of the Court. To conclude, it is not clear if it follows from EU law whether any violation of the EU public procurement rules is sufficient ground for damages or if a ‘suffi  See C-314/09 Strabag, para 39 of the judgment.  See Strabag, n 71 above, para 42 of the judgment. 73   See C-568/08 Spijker, para 92. 71 72

Basis and Conditions for a Damages Claim  161 ciently serious’ violation is required. The question would still seem to be left to the discretion of the national legislator. In the national regulation, the dominant trend appears to be that any violation is sufficient. However, there has been a movement in some countries – the Nordic countries and Lithuania – towards a requirement of negligence or a requirement of ‘sufficiently serious’ violations, at least when it comes to the grant of loss of profit. Nevertheless recent case law from Sweden and Denmark appears to overrule a requirement for a ‘sufficiently serious’ violation. It is interesting to observe that there also seem to be a related difference in the approach to causation where some legal systems namely in the Nordic countries require a ‘certain’ causal link whereas others are content with a judgment based on a balance of probabilities.74 The approach thereby appears to be more strict both as regards the requirements to the character of the breach and causation. B. Damages for Violation of the Treaty Provisions on Free Movement and the General Principles of Public Procurement Law (The Principles of Equal Treatment and of Transparency) A claim based on principles of equal treatment and transparency could very easily become relevant as it is to be presumed that it would not be difficult to find violations of the public procurement regime outside of the Public Procurement Directives. This regime is essentially based on relatively recent case law from the Court of Justice of the European Union75 relating to services concessions and contracts falling below the so-called threshold values which are decisive for whether the Public Procurement Directives apply or not. However, it is noteworthy that there appears to be only very few public procurement cases at national level where somebody has initiated a law suit or a complaints case for violation of the transparency obligations and the case law where a claim for damages is brought in this context is presumably very limited. Nevertheless, it is of relevance to consider the possible legal basis for a damages claim in this context. It is submitted76 that the relevant conditions for a damages claim are the standard conditions established by the Court of Justice with regard to the liability of the Member States for violation of Community law and therefore that the breach must be sufficiently serious.77

74  See Roberto Caranta, ‘Damages for Breaches of EU Public Procurement Law: Issues of Causation and Recoverable Losses’, ch 9, section IV below. 75   See C-324/98 Telaustria and subsequent case law. See also Caranta, ch 9 section III below. 76   See also Arrowsmith, n 1 above, esp p 1421 with fn 87. 77   See above for further comments to this condition. See also the elaborate remarks of Roberto Caranta, ch 9 below, on the issue with emphasis on the implications of the principle of effectiveness.

162  Steen Treumer

IV.  Legal Activism at National Level based on Community Law

As pointed out above, remedies and procedural law concerning breach of Community law are generally to be considered as matters for the national legislator, according to the principle of national and procedural autonomy. It is therefore very interesting that the principle of effectiveness appears to have been used in some national jurisdictions as a lever for the creation of new law when national courts or complaints boards have deviated from their respective traditional national law on damages. Examples of this phenomenon can be found at least in the case law in the United Kingdom, Denmark, Sweden and Norway. The relevant case law under English law is the Harmon case,78 from Sweden the Supreme Court ruling in Tvättsvamparna,79 and from Norway the Supreme Court ruling in Nucleus80 and from Denmark the Complaints Board cases in the Magnus case81 and the Judex case.82 The judge in Harmon considered that the effectiveness principle allows recovery of losses whether or not formally recoverable in English law and for that reason he allowed recovery of the tender costs and profits of other companies in the same group as Harmon, regardless of whether English law would generally allow this.83 The Norwegian Supreme Court ruling in the Nucleus case is of particular interest because the Court explicitly supported its interpretation of the case law from the Swedish and Danish Supreme Courts and the state of law in Germany and consequently decided in favour of the creation of a legal basis for recovery of loss of profit. The first voting judge explicitly stressed that consideration of the effectiveness of the public procurement rules must be taken when settling the question of whether damages for recovery of loss of profit was available and that a limitation to the recovery of bid costs frequently would not serve well in this context. As the judge pointed out,84 the bid costs often concern small amounts with the consequence that it is not evidently in the interest of a tenderer to initiate a law suit for damages. Furthermore, and emphasised by the judge, a limitation of the availability of damages to the recovery of bid cost would not sufficiently incentivise the contracting authorities to comply with the public procurement rules. However, it was noteworthy that the Norwegian Supreme Court in the same ruling required substantial infringement as a condition for damages for loss of profit. This approach was recently confirmed by the Norwegian Supreme Court in Trafikk & Anlegg with explicit reference to the case law from the Court of Justice on Member State liability for breach of   Harmon CFEM Facades v Corporate Officer of the House of Commons (1999) 67 Con. LR1.   Tvättsvamparna NJA 2000. 712. 80   Nucleus RT 2001.1062. 81   Forlaget Magnus A/S v Told- og Skattestyrelsen, ruling of 22 November 2001. 82   Judex A/S v Århus Amt, ruling of 3 July 2002. 83   See Arrowsmith, n 1 above, esp p 1422 with fn 89. 84   Nucleus, n 80 above, 1077 and 1078 of the judgment. 78 79

Basis and Conditions for a Damages Claim  163 Community law.85 As mentioned above, it has been questioned in Norwegian legal literature whether this condition for damages is in accordance with the requirements for effectiveness underlying the EU remedies regime. In Denmark, the award of damages for breach of the public procurement rules used to be exclusively a matter for the ordinary courts. However, the enforcement system was changed and, as of 1 July 2000, the Danish Complaints Board for Public Procurement is now competent to award damages for infringement of the public procurement rules. The background to this change in the enforcement system was public criticism of the system’s lack of efficiency, on the basis of a number of concrete cases brought before the Complaints Board, and an awareness of various weaknesses in the system of that time. It was explicitly stated in the preparatory works86 to the Law on the Complaints Board that the granting of power to award damages to the Board entailed that the Board must apply the ordinary Danish rules on damages in business relations. The Complaints Board was clearly aware of this limitation and it is therefore very interesting that one may question whether the Board actually applied ‘ordinary’ Danish rules on damages in business relations in its first leading cases on damages.87 In the Magnus case, the Danish Complaints Board for Public Procurement submitted various general statements on the application of its power to grant damages for breach of the EU public procurement rules. In the introduction to its ruling, the Board stressed that it would apply the ordinary rules on damages, bearing in mind that the rulings on damages also contribute to the motivation of the contracting authorities to comply with the relevant EU public procurement rules. Furthermore, it went on to stress that as a consequence, it would not set restrictive requirements on the proof concerning the causal link or the quantum of the loss. It has been questioned whether these general statements submitted by the Board are correct and in compliance with the ordinary rules on damages, as these are not aimed at preventing infringements of the law, the idea being that these rules are strictly concerned with compensation of loss. It is noteworthy that the general statements of the Complaints Board and the concrete award of damages in the case88 were an interpretation clearly aimed at promoting the effective impact of the substantive Procurement Directives and its line of reasoning seems closely related to that of the Norwegian Supreme Court in the Nucleus case mentioned above. In the Judex case, the Danish Complaints Board considered the conditions for granting compensation for loss of profit which are of utmost importance in practice and deviated from the ordinary Danish approach to such a claim for damages. The starting point according to Danish law is that a successful action   See the end of section IIIA of this chapter.   According to Danish legal tradition, the preparatory works are of utmost importance and often decisive for a given interpretation 87   See Treumer, n 1 above, at 573 ff. 88   See Treumer, n 1 above, at 574 for an analysis of this. 85 86

164  Steen Treumer for the recovery of loss of profit presupposes that the tenderer can establish that it would have been likely to win the contract had there been no infringement. It will be extremely difficult to present this evidence in most procurement cases, because contracting authorities tend to award contracts on the basis of the ‘most advantageous tender’ allowing a wide discretion to the contracting entity. In the Judex case only one tenderer (Judex A/S) submitted a bid, but the contracting authority considered the bid to be irregular and decided to launch a call for tenders under the negotiated procedure based on Article 6(3)(a) of the former Services Directive. The contracting authority then violated the principle of transparency and equal treatment in various ways. For example, it violated the principle of equal treatment by inviting the other tenderers, but not Judex A/S, to submit a tender based on a specific solution, and it also engaged in illegal price negotiations by putting pressure on several tenderers to reduce their prices by saying their prices were higher than that of one of the other tenderers. The Danish Complaints Board considered that it was not feasible to assess the likelihood that the tenderer (Judex A/S) would have won the contract if the contracting authority had not violated the EU public procurement rules. It then emphasised that this was the result of the illegal actions of the contracting authority and that this should be to the disadvantage of the contracting authority, thereby effectively reversing the burden of proof. As a consequence, the tenderer was granted compensation for loss of profit. However, the ruling was instantly appealed to the Court of Appeal which issued a ruling on 16 March 2004.89 Like the Complaints Board the Court considered it to be unclear whether the tenderer would have won the contract if the contracting authority had not violated the EU procurement rules. The Court of Appeal also held that the requirements concerning the proof in support of the claim of the tenderer should be reduced but did not effectively reverse the burden of proof. It was therefore not surprising that the Court of Appeal did not find it proven that the tenderer would have been likely to win the contract, in spite of the reduced requirements concerning proof, and therefore did not grant compensation for loss of profit. Instead the tenderer received compensation for the costs relating to its participation in the negotiated procedure. It ought to be mentioned that the Danish Complaints Board’s rulings on damages in recent years has been in general compliance with the traditional approach in correspondence with the approach of the ordinary Danish courts. The ruling of the Swedish Supreme Court in Tvättsvamparna was very interesting and important as it concerned the burden of proof related to a claim for damages for the loss of profit. The preparatory works of the Swedish Procurement Act had established that the claimant needs to show that he would have won the contract (in the absence of the violation of the procurement breach) in order to be awarded damages for the loss of profit.90 As in Denmark 89   Cases B-2567-01 and B-1979-02 Århus Amt v Judex A/S From the Court of Appeal in Jutland (Vestre Landsret). 90   cf Leffler, n 1 above, at 167–68.

Basis and Conditions for a Damages Claim  165 the preparatory works are of utmost importance and often decisive for a given interpretation. However, the Swedish Supreme Court held that the claimant should only be required to demonstrate it to be likely that it would have won the contract which was contrary to the point of view expressed in the preparatory works. The Court reasoned that the right to damages would be eroded contrary to the preventive aim of the provision of the Remedies Directives on damages if it was required that the claimant should demonstrate that he would have won the contract.91 The above-mentioned interpretations were all in favour of the claimants and concerned fundamental aspects of the conditions for claiming damages. It is particularly interesting to note the national judges’ and complaints board members’ awareness of the importance of damages for the loss of profit and the burden of proof. It is equally important to note the purpose-oriented interpretations made in these rulings which are an approach very similar to the wellknown interpretation style of the Court of Justice. V. Conclusion

The sources of the law on damages for breach of the EU public procurement rules are limited and often unclear both at Community level and at national level which clearly does not promote efficient enforcement of the public procurement rules. The primary source of law is in most instances national case law on damages and sometimes not even from the field of public procurement. Even in countries where the issue is regulated in further detail there seem to be considerable lack of clarity and uncertainty as to the conditions for claiming damages for a violation of the EU public procurement rules. It is not clear if it follows from EU law that any violation of the EU public procurement rules is sufficient ground for damages or if a ‘sufficiently serious’ violation is required and the question might still be left to the discretion of the national legislator. In the national regulation, the dominant trend appears to be that any violation is sufficient although there has been a movement in some countries – the Nordic countries and Lithuania – towards a requirement of ‘sufficiently serious’ violations, at least when it comes to the grant of damages for the loss of profit. Nevertheless, recent case law from Sweden and Denmark appears to overrule a requirement for a ‘sufficiently serious’ violation. Remedies and procedural law concerning breach of EU law are basically to be considered matters for the national legislator.92 However, this autonomy is clearly subject to a number of limitations such as the principles of equivalence and effectiveness which are overlooked by many. It is therefore highly interesting that the principle of effectiveness or efficiency considerations have been used in 91   Tvättsvamparna NJA 2000 712 esp at 724 f with reference to the preparatory works 1992/93:88 on public procurement 103, cf Björklund and Madell, n 68 above, at 588. 92  Namely, the principle of national and remedial autonomy.

166  Steen Treumer some national jurisdictions as a lever for creation of new law when national courts or complaints boards have deviated from their respective traditional national law on damages. Examples of this phenomenon can be found at least in the case law from the United Kingdom, Denmark, Sweden and Norway. These national judges’ and complaints board members’ have been highly aware of the importance of the availability of damages for the loss of profit and the burden of proof. It is remarkable that they have made purpose-oriented interpretations very similar to the well-known interpretation style of the Court of Justice.

9 Damages for Breaches of EU Public Procurement Law Issues of Causation and Recoverable Losses ROBERTO CARANTA

I. INTRODUCTION: THE PROBLEM

W

HILE IN PRINCIPLE it is not difficult to see the rationale for providing damages in cases of breaches of EU public procurement law, issues of causation and recoverable losses are difficult to tackle. The reason, put simply, is that showing a breach of the rules is not tantamount to showing actual harm. Indeed, in many cases it is far from certain whether the claimant would have been awarded the contract if the breach had not occurred and the procedure had been properly conducted.1 Very different situations may be envisaged. A non-exhaustive list ranging from the more difficult to the easiest cases must include the following scenarios, which are discussed below: (a) breaches of the rules in advertising; (b) unlawful exclusions from the bidding phase in two-stage procedures (eg restricted procedures); (c) unlawful exclusion of tenderers and tenders; (d) mistakes in assessing and ranking tenders. A. Breaches of the Rules on Advertising Any potential contractor may challenge the decision not to, or not properly to, advertise a future contract. Indeed, under Article 1(3) of Directive 89/665/EEC,

The problems discussed here are not confined to breaches of public procurement law; for discussion of the relationships of legality and damages issues see D Fairgrieve, State Liability in Tort (Oxford, Oxford University Press, 2002); R Caranta, ‘Public law illegality and governmental liability’ in D Fairgrieve, M Andenas, J Bell (eds), Tort Liability of Public Authorities in Comparative Perspective (London, BIICL, 2002) 271. 1

168 Roberto Caranta Member States must ensure that the review procedures are available ‘at least to any person having or having had an interest in obtaining a particular public supply or public works contract and who has been or risks being harmed by an alleged infringement’. However, there is no way of knowing who would have been awarded the contract if no breach had been committed. The same situation applies to breaches of the rules on qualification and/or technical specifications at the advertisement stage leading either to non-participation in the procedure or to the annulment of the notice or part thereof (eg because the requirements were in breach of the non-discrimination or the proportionality principles). B. Unlawful Exclusions from the Bidding Phase in Two-Stage Procedures (eg Restricted Procedures) In these cases it is possible to rule that a candidate should have been offered the opportunity to submit a tender, but it is close to impossible to know which chances of success were lost because of the exclusion since no bid was actually submitted. C. Unlawful Exclusions of Tenderers and Tenders Tenderers and tenders may be excluded because of the perceived (possibly wrong) failure in meeting the qualification requirements or the technical specifications. They may also be excluded in case of abnormally low tenders. If the exclusion is unlawful, it may be possible to forecast what ranking the bid would have had if it had not been excluded.2 However, a distinction may be made in respect of some Member States between annulments based on formal and procedural grounds, on the one hand, and those based on the substance of the decision taken by the procuring entities, on the other hand. For instance, the annulment of a decision to exclude a bid because of a failure to meet the technical specifications3 may be due to insufficient reasons given for the exclusion. This does not mean that the bid at issue should not have been excluded at all. Exclusion of an abnormally low tender may be quashed because of formal or procedural mistakes, such as the failure to consult the tenderer as provided for under Article 55(2) of Directive 2004/18/EC, or, and again, no or insufficient reasons given. Here too the tender could very well deserve exclusion on the merits. This obviously renders issue of causation more complicated to assess in any legal proceedings. The Swedish Arkitekttjänst case could be taken as an instance: K Krüger, ‘Action for Damages Due to Bad Procurement – On the Intersection between EU/EEA Law and National Law, with a Special Reference to the Norwegian Experience’ (2006) Public Procurement Law Review 211. 3 Which under Art 23(3)(b) of Directive 2004/18/EC, maybe performance-based. 2

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D. Mistakes in Assessing and Ranking the Tenders Especially when tenders are ranked according to the award criterion of the most economically advantageous tender,4 the assessment and consequent ranking of different tenders may be vitiated due to mistakes which may affect both the winning bid and/or the one submitted by the claimant. Again, normally it should not be impossible to establish which tenderer should have been awarded the contract.5 However in some legal system courts may only be empowered to annul the illegal award or anyway may prefer to leave the decision to the procuring entity, in both cases stopping short of deciding which firm should have won the procurement.6 Except for marginal cases, it is difficult or very difficult in most of the instances given above to simply say which firm should have been awarded the contract under a regular tendering procedure. Nonetheless, this is not the only scenario in state liability case in which uncertainties arise as to whether a person would have been the recipient of a discretionary benefit. Public law entities are often vested with discretionary powers – meaning that their choices are not bound by the strict letter of the law.7 A decision refusing some benefit may be unlawful, without this necessarily meaning that the benefit sought should be conferred upon the claimant. One main instance, although by no means the only one, is the case of merely formal or procedural illegalities.8 Unlawfulness here does not necessarily rhyme with any entitlement to the benefit sought. The problem would be more acute in those legal systems where courts refrain from going into the merits of the decision taken by the public bodies.9 Of course many legal systems have found ways to navigate this uncertain scenario and provide at least some remedy in damages in situations where certainty is not an option and chances are what can be argued about.10 A possible added complication is that most of the above hypotheses involve not just one but many claimants and of course the firm whose winning bid is Under Art 53(1)(a) of Directive 2004/18/EC. See, eg, V Eiró and E Mealha, ‘Damages under Public Procurement: The Portuguese Case’, ch 3 above, at p 49. 6 The latter is the situation in Italy: see S Ponzio, ‘Public Administration’s Liability in Public Procurement: The Italian Case’, ch 3 above, at p 104f; in some jurisdictions, courts seems to be moving from a very hands off approach to a position where they step into the shoes of the procuring entities to solve by themselves the ‘what if’ question: with reference to Portugal see Eiró and Mealha, ch 3 above, at p 48f. 7 The issue is discussed in many of the papers collected by S Prechal and B van Roermund (eds), The Coherence of EU Law. The Search for Unity in Divergent Concepts (Oxford, Oxford University Press, 2008). 8 See generally Fairgrieve, State Liability in Tort, above n 1. 9 A hands-off approach characterise Nordic systems: see M Slavicek, ‘Damages for Breach of EC Public Procurement Rules in Sweden’ (2006) Public Procurement Law Review 234. As Fairgrieve State Liability in Tort, n 1 above, 548 ff, remarks, courts may lean too much in favour of the defendant public law entities when second-guessing what could have been a legal outcome; moreover, as he points out, procedural rules are often laid down for the protection of the right to fair hearing, and it is difficult to know what would have been the choice taken following the appropriate procedures. 10 Again Fairgrieve, State Liability in Tort, n 1 above. 4 5

170 Roberto Caranta challenged may also cross-challenge the status of other claimant(s), trying to have them and/or their tenders disqualified and/or excluded and/or assessed in less favourable ways. The role of competition – the underlying principle of European and most countries public procurement law – inevitably results in a cloud of uncertainty concerning the identity of the bidder who will be awarded the contract. Here again this is not something entirely new. Competition is today the rule of the game for choosing the recipients of the benefits apportioned by public law entities, as is the case under Article 10 of Directive 2006/123/EC on services in the internal market.11 Legal systems which allow for some remedy in damages will first assess whether it is possible to establish a causal link between the breaches of public procurement law and any loss suffered. Then (but the two aspects are often closely interwoven), choices will have to be made as to which heads of damages are recoverable and as to which circumstances may act as a mitigating factor in calculating the redress offered to the claimants. The analysis on these issues will be structured as follows. We shall first examine the scant provisions found in the Remedies Directives and will then consider whether the Court of Justice’s case law on remedies generally provides any additional clarification. Subsequently, we shall turn to the case law in different EU Member States and in other selected jurisdictions to try and find the patterns followed by the courts charged with providing remedies to disaffected bidders. II. THE REMEDIES DIRECTIVES

The Remedies Directives do not provide much assistance in clarifying questions of causation and damages. Article 2 (1)(c) Directive 89/665/EEC simply provides that, beside the power to adopt interim and annulment measures, national courts and other bodies competent for review procedures may be given the power to ‘award damages to persons harmed by an infringement’. Directive 92/13/EEC is slightly more eloquent. Article 2(1)(d) is written on the same lines as Article 2 (1)(c) of Directive 89/665/EEC. However, it is stated in Article 2 (1) (7) of Directive 92/13/EEC that: Where a claim is made for damages representing the costs of preparing a bid or of participating in an award procedure, the person making the claim shall be required only to prove an infringement of Community law in the field of procurement or national rules implementing that law and that he would have had a real chance of winning the contract and that, as a consequence of that infringement, that chance was adversely affected.

11 See R Caranta, ‘Transparence et concurrence’ in J-M Auby and U Stelkens, Traité de contrats publics (Bruxelles, Bruyllant, 2010) 145.

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The most recent Directive 2007/66/EC has not materially changed the rules just described. Article 2 (1)(c) Directive 89/665/EEC is left unchanged by the rewriting of both Article 1 and Article 2 enacted with Article 1 of Directive 2007/66/ EC. Both Articles 2(1)(d) and 2(7) of Directive 92/13/EEC were not touched by the new directive.12 National law is drawn upon to add flesh to the bare provisions on damages found in the Directives. These provisions constitute a minimum, and thus Member States have the power to improve upon the remedies provided in the Directives as is made clear by the fact the Article 2(1) of both Remedies Directives stipulates that the remedies afforded at national level must include – and therefore may exceed – those listed by the provision. A first doubt is whether the specific provision laid down in Article 2 (1)(7) Directive 92/13/EEC is applicable by analogy with reference to contracts ruled under Directive 2004/18/EC? Notwithstanding the European institutions missed the opportunity to redraft Directive 89/665/EEC along the same lines as provided in Article 2 (1)(7) Directive 92/13/EEC, there is no reason why the issue of the recoverable damages should be treated differently under the ‘classical’ Directive as opposed to the ‘utilities’ Directive.13 What is manifest from Article 2 (1)(7) of Directive 92/13/EEC is that claims made for damages representing the costs of preparing a bid or of participating in an award procedure are under a lighter burden of proof as to causation when compared with claims related to other types of damages, such as for instance ‘lost profit’. The standard laid down in the provision is, however, somewhat uncertain. While the provision itself places the burden on the claimant to prove that, but for the breach of EU law, it would have had ‘a real chance of winning the contract’, the recitals state that, where a claim is made for damages representing the costs of preparing a bid or of participating in an award procedure, the person making the claim is not be required, in order to obtain the reimbursement of his costs, to prove that the contract would have been awarded to him in the absence of such infringement.

The provision may seem less demanding on the claimant, since a ‘real chance’ falls quite short of a standard of proof requiring certainty, which is ruled out by the recital.14

12 This notwithstanding the EU Commission stressed the need to award lost profit already in Green Paper Public Procurement in the European Union: Exploring the Way Forward (1996) COM 583 (final). 13 See S Treumer, ‘Damages for Breach of the EC Public Procurement Rules – Changes in European Regulation and Practice’ (2006) Public Procurement Law Review 159, 164. 14 The same is true of the French and the Italian versions of the directive; Art 2(7) of the Italian version refers to ‘una possibilità concreta di ottenere l’aggiudicazione dell’appalto’.

172 Roberto Caranta III. THE CASE LAW ON EFFECTIVE JUDICIAL PROTECTION

The case law on effective judicial protection of Community – now rather European – rights (and, to a lesser extent, on equivalency of remedies for national and European rights) is obviously relevant for breaches of procurement rules too.15 The scope of the Remedies Directive is designed on the basis of the coverage of the ‘substantive’ Directives 2004/17/EC and 2004/18/EC, so that the Remedies Directives in principle apply to the same contracts covered by the ‘substantive’ Directives. As is well known, the coverage of the latter Directives is not exhaustive. Amongst the public contracts falling outside the scope, the most relevant are below the thresholds contracts, service concessions, and, to a more limited extent, the so-called ‘non-priority’ or ‘List B’ services. In the past few years, a steady flow of judgments from the Court of Justice has made clear that being outside the coverage of the Directives does not mean being outside the reach of European law.16 Quite the contrary, the Court held that the general principle of non-discrimination on the ground of nationality, along with the ancillary principles of transparency and equal treatment of tenderers, also applies to contracts not or not fully regulated by the Procurement Directives.17 For instance, in the recent Correos case,18 the Court reaffirmed that although certain contracts are excluded from the scope of Community directives in the field of public procurement, the contracting authorities which conclude them are nevertheless bound to comply with the fundamental rules of the Treaty and the principle of nondiscrimination on grounds of nationality in particular.19 See S Treumer, ‘Damages for Breach of the EC Public Procurement Rules’, above n 13, 160 f. See also the Commission’s Interpretative Communication on the Community law applicable to contract award not or not fully subject to the provisions of the Public Procurement Directives (2006/C 179/02) and the comments by A Brown, ‘Seeing Through Transparency: the Requirement to Advertise Public Contracts and Concessions Under the EC Treaty’ (2008) Public Procurement Law Review 1; R Williams ‘Contract Awarded Outside the Scope of the Public Procurement Directives’ (2007) Public Procurement Law Review NA1. 17 Case C-458/03 Parking Brixen [2005] ECR I-8585, at paras 48 f; in the same vein, Case C-532/03 Commission v Ireland [2007] ECR I-11353; Case C-119/06 Commission v Italy [2007] ECR I-; the last two judgments mentioned are commented by A Brown, ‘The Commission Loses another Action against Ireland Owing to Lack of Evidence: A Note on Case C-532/03 Commission v Ireland’ (2008) Public Procurement Law Review NA92; A Brown, ‘Application of the Directives to Contracts to Nonfor-profit Organisations and Transparency under the EC Treaty: A Note on Case C-119/06 Commission v Italy’ (2008) Public Procurement Law Review NA96; R Caranta, ‘Attività pubblica, attività no-profit, e disciplina dei contratti pubblici di servizi’ (2008) Urbanistica e appalti 293; the latter is also reported in (2008) Foro amminstrativo – CdS 1984, note M Mattalia, ‘Convenzionamento diretto o procedure concorsuali nell’affidamento del servizio di trasporto sanitario?’; see also A Albanese ‘L’affidamento di servizi socio-sanitari alle organizzazioni di volontariato e il diritto comunitario: la Corte di giustizia manda un monito agli enti pubblici italiani’ (2008) Rivista italiana di diritto pubblico comunitario 1453. 18 Case C-220/06, Asociación Profesional de Empresas de Reparto y Manipulado de Correspondencia [2007] ECR I-12175; see D McGowan ‘A Contract or Not? A Note on Asociación Profesional de Empresas de Reparto y Manipulado de Correspondencia (Case C-220/06)’ (2008) Public Procurement Law Review NA204. 19 Correos, n 18 above, para 71; Case C-264/03 Commission v France [2005] ECR I-8831, para 32 is quoted. 15 16

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According to the Court, [t]hat is particularly the case in relation to public service contracts whose value does not reach the thresholds fixed by Directive 92/50. The mere fact that the Community legislature considered that the strict special procedures laid down in the directives on public procurement are not appropriate in the case of public contracts of small value does not mean that those contracts are excluded from the scope of Community law.20

The most logical conclusion is that, even if the Remedies Directives do not apply, the rules deriving from the principle of effective judicial protection will extend to public contracts which are not (or not fully) covered by the ‘substantive Directives’. An important indication in this sense is to be found in a dictum by AG Sharpston in Loutraki. She has indeed maintained that in so far as the claim for damages is based on an infringement of one of the fundamental rules and principles of the Treaty which apply to the procurement procedure in question, then the right to effective judicial protection and the requirements of the principles of equivalence and effectiveness will still apply, even if the procedure itself is found to fall outside the scope of the Services Directive, and thus of the Remedies Directive.21

Following the well-known Francovich case, the Court of Justice has consistently held that the principle of state liability for loss and damage caused to individuals as a result of breaches of Community law for which it can be held responsible is inherent in the system of the Treaty.22 There is no reason why a general principle of liability should not apply to breaches of public procurement provisions.23 The Remedies Directives are simply laying down (possibly) more detailed and/or more stringent liability rules. Indeed, the general principles ‘are supplemented by the Remedies Directives’.24 In the pressetext Nachtrichtenagentur case, AG Kokott pointed out that the principles of equivalence and effective judicial protection are reflected in the 89/665/ECC Directive at Article 1(2) and 1(1) respectively.25 The case law on liability for breaches of European law may supplement the Directives in two different ways. The first is the one already mentioned. Where the Directives do not apply, the case law on effective judicial protection still holds. Moreover, the case law may help where the provisions in the Directives do not, as is the case with liability issues, provide enough details.26 Correos, n 18 above, para 72; the Court quotes Order in Case C-59/00 Vestergaard [2001] ECR I-9505, para 19, and Commission v France [2005] ECR I-8831, para 33. 21 Joined Cases C-145/08 and C-149/08, Club Hotel Loutraki, nyr, para 125; the Court came close to address the issue in Case C-57/01 Makedoniko Metroand Mikhaniki [2003] ECR I-1091, but the reply is anything but clear: see paras 69 f. 22 Joined Cases C-6/90 and C-9/90 Francovich and others [1991] ECR I-5357, para 35; Joined cases C-46/93 and 48/93 Brasserie du pêcheur and Factotame IV [1996] ECR I-1029, para 31. 23 The English authority for this proposition is Harmon CFEM Facades v Corpotate Officer of the House of Commons (1999) 67 Con LT 1. 24 Treumer, ‘Damages for Breach of the EC Public Procurement Rules’, n 13 above, 161. 25 Case C-454/06 pressetext Nachrichtenagentur GmbH v Austria [2008] ECR I-4401, at 155; see also by AG Kokott, conclusions to Case C-406/08 Uniplex (UK) [2010] ECR I-0000, at 21, and Case C-456/08 Commission v Ireland [2010] ECR I-0000, at 41. 26 A different approach in Krüger, ‘Action for Damages’, n 2 above. 20

174 Roberto Caranta Unfortunately, the case law on liability for breaches of European law does not provide much assistance on issues concerning causation and damages (which, as an aside, poses problems for domestic legislation referring to the EU law conditions for liability such as in the case of Portugal).27 It should be noted that the judgment in Francovich referred to causation and damages as separate conditions, while Brasserie du pêcheur fused them as a third condition of liability28 holding that ‘there must be a direct causal link between the breach of the obligation resting on the State and the damage sustained by the injured parties’.29 The problem is that the Court of Justice has left most of the issues of causation and damages to the national courts: ‘As for the third condition, it is for the national courts to determine whether there is a direct causal link between the breach of the obligation borne by the State and the damage sustained by the injured parties.’30 As usual, application of national law is subject to some caveats descending from the principles of non-discrimination and effective judicial protection. Consequently, ‘the conditions laid down by the applicable national laws must not be less favourable than those relating to similar domestic claims or framed in such a way as in practice to make it impossible or excessively difficult to obtain reparation’.31 A few remarks in the Brasserie du pêcheur decision are, however, of obvious relevance here. Prompted by the national courts, the Court of Justice affirmed the possibility of taking into account contributory negligence on the part of the claimant. Moreover, it held that [t]otal exclusion of loss of profit as a head of damage for which reparation may be awarded in the case of a breach of Community law cannot be accepted. Especially in the context of economic or commercial litigation, such a total exclusion of loss of profit would be such as to make reparation of damage practically impossible.32

The position on loss of profit has been reiterated a few times in the case law. In Manfredi the Court held that:

Eiró and Mealha, ch 3 above, at p 46. Over and above the pre-conditions of the infringement of a rule intended to confer rights on individuals and the sufficiently serious breach. 29 Brasserie du Pêcheur, n 22 above, para 51. 30 Brasserie du pêcheur, n 22 above, para 65. 31 Brasserie du pêcheur, n 22 above, para 74; see also paras 82 f: Reparation for loss or damage caused to individuals as a result of breaches of Community law must be commensurate with the loss or damage sustained so as to ensure the effective protection for their rights. In the absence of relevant Community provisions, it is for the domestic legal system of each Member State to set the criteria for determining the extent of reparation. However, those criteria must not be less favourable than those applying to similar claims based on domestic law and must not be such as in practice to make it impossible or excessively difficult to obtain reparation. Moreover, para 89 allows for exemplary damages in so far as they are provided for under national law in similar circumstances. 32 Brasserie du pêcheur, n 22 above, para 87. 27 28

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[I]t follows from the principle of effectiveness and the right of any individual to seek compensation for loss caused by a contract or by conduct liable to restrict or distort competition that injured persons must be able to seek compensation not only for actual loss (damnum emergens) but also for loss of profit (lucrum cessans) plus interest.33

Referring to interests, it appears from the case law on non-discrimination between men and women, that the Court of Justice considers payment of interests as due under the principle of effective judicial protection. In Metallgesellschaft, the Court did its best to dissipate any lingering uncertainty on this subject, emphasising the dicta in its previous judgments to the effect that full compensation for the loss and damage sustained cannot leave out of account factors, such as the effusion of time, which may in fact reduce its value, and that the award of interest is an essential component of compensation for the purposes of restoring real equality of treatment.34

Given the parallelism between the liability of Member States and European institutions established by Brasserie du pêcheur and Bergaderm, some assistance could be drawn from the case law concerning procurements of EU institutions.35 It seems, however, difficult to draw definitive conclusions from the precedents of the Court of First Instance which seem to contradict each other on the points relevant here.36 IV. CAUSATION

Issues of causation are notoriously difficult to tackle. Theorisations abound. The condition sine qua non and the balance of probabilities are just two of the conceptual frameworks available,37 and they are dear to the German and the English courts respectively.38 The distinct impression, however, is that, more often than not, courts find their way more through instinct rather than by logic.39 Joined Cases C-295/04 to C-298/04 Manfredi and Others [2006] ECR I-6619, para 94; see also para 95: Total exclusion of loss of profit as a head of damage for which compensation may be awarded cannot be accepted in the case of a breach of Community law since, especially in the context of economic or commercial litigation, such a total exclusion of loss of profit would be such as to make reparation of damage practically impossible. Brasserie du pêcheur, n 22 above, para 87 and Joined Cases C-397/98 and C-410/98 Metallgesellschaft and Others [2001] ECR I-1727, para 91 are quoted here. 34 Joined Cases C-397/98 and C-410/98 Metallgesellschaft, para 94; the Court goes on holding that ‘The award of interest was held in that case to be an essential component of the compensation which Community law required to be paid in the event of discriminatory dismissal.’ 35 Case C-352/98 P Laboratoires Pharmaceutiques Bergaderm SA [2000] ECR I. 36 See the cases discussed by Eiró and Mealha, ch 3 above, at p 48, n 40; see also Krüger, ‘Action for Damages’, n 2 above. 37 See, generally, R Goldberg, Perspectives on Causation (Oxford, Hart Publishing, 2011). 38 eg M Bowsher and P Moser, ‘Damages for Breach of EC Public Procurement Rules in the United Kingdom’ (2006) Public Procurement Law Review 195, 205; and Burgi, ‘Damages and EC Procurement Law: German Perspectives’, ch 2 above, at p 31f. 39 See Fairgrieve, State Liability in Tort, n 1 above. 33

176 Roberto Caranta This is very much so in administrative law too. The point is, the outcome of award procedures (but the same could be said of any administrative procedure) is not determined by a chain of events capable of being unveiled by the application of physical or other natural rules.40 Specific answers vary very much from country to country, but it does not seem that the differences depend upon distinct theoretical points of view. It is rather policy choices leading to readings of causation more or less limiting liability. Some legal systems require a ‘certain’ causal link.41 Others are content with a judgment based on the balance of probabilities.42 As regards public procurement specifically, some jurisdictions settle with something less demanding, such as a serious chance,43 or, as the Harmon decision had it in England, a ‘real and substantial chance’ of being awarded the contract.44 Along the lines of Directive 92/13/EEC, German legislation refers to a ‘real’ or ‘genuine’ chance.45 The earlier in the procedure the breach takes place, the more difficult the divining exercise actually is. From this perspective, an easy case is the annulment of the award decision because the successful bid should have – but was not – disqualified. In many legal systems, this would be taken as proof of causation to the benefit of the second-best tenderer.46 Some jurisdictions are, however, quite demanding. According to one opinion, in Germany: [O]nly such undertakings, whose bids did not have to be excluded from the competition for formal reasons or because of an exorbitantly low price, who fulfil the qualitative selection criteria and whose bid, when applying the evaluation criteria, could have been considered for the award of the contract, i.e. were in the top ranking of the bidders, can be considered to have had a real chance of being awarded a contract.47

The most difficult cases are those where advertisement rules were infringed (but also cases involving wrongful application of the most economically advantageous award criterion may be quite tough).48 Here the discussion necessarily Ibid. This seems to be the case in many Nordic countries: Krüger, ‘Action for Damages’, n 2 above. 42 The latter is the usual common law standard, also applied in Ireland: see C Donnelly, ‘Remedies in Public Procurement Law in Ireland’ (2009) Public Procurement Law Review 28. 43 N Gabayet, ‘Damages for Breach of Public Procurement Law: A French Perspective’, ch 1 above, at p 9ff. 44 Harmon, n 23 above, discussed by F Banks and M Bowsher, ‘The Availability and Primacy of the Damages Remedy for Breach of Procurement Obligations in England and Wales and Northern Ireland’, ch 4 above, at p 63f. 45 Burgi, ch 2 above, at p 24 stating that ‘Even the bidder who is not able to offer the lowest bid, but whose bids fulfils other aspects, may have good chances to win the award’; see also A Rubach-Larsen, ‘Damages under German Law for Infringement of EU Procurement Law’ (2006) Public Procurement Law Review 179. 46 eg Gabayet, ch 1 above, at p 11. 47 Rubach-Larsen, ‘Damages under German Law, n 45 above, 182 and see also 192; according to Burgi, ch 2 above, at p 31ff, the approach to causation is somewhat less strict, but quite divergent scholarly opinions are duly referred to. 48 On the contrary, identifying the bidder who should have been awarded the contract is much easier when the lowest tender criterion is used: see the Danish Fårup Sommerland case discussed by Krüger, ‘Action for Damages’, n 2 above; see also Burgi, ch 2 above, at p 32. 40 41

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focuses on chances. It goes without saying that different jurisdictions are more or less ready to accept chances as a substitute to certainty (if it is really possible to speak here of the certain demonstration of a causal link).49 Courts usually enjoy a more or less wide margin of discretion in assessing the chances.50 The number of participants in the relevant procurement procedure – or average number of participants in similar procedures – is usually one relevant element when assessing the chances (and again, applying both to causation and damages),51 while cases of breach of advertisement rules inevitably lead to rough estimates.52 It is to be remarked that the importance of the chance lost by the claimant might also be relevant in terms of determining which heads of loss are actually recoverable.53 In any case, Member States do not normally choose just one causation test. Different heads of loss may require different tests (and the issue might be discussed as one of damages rather than as one of causation).54 According to the provision of Article 2 (1)(7) of Directive 92/13/EEC, a slim chance will normally be sufficient in order to claim costs incurred in taking part in the procedure.55 The most liberal stance on causation is probably that taken in Italy, France and the Netherlands. It is enough for the claimant to make a convincing case that it would have been able to compete (which in theory at least allows for multiple successful claimants).56 Italian administrative courts seem to display the most in terms of ingenuity. The chances of potential bidders in case of unlawful direct contracting have been evaluated on the basis of the average number of participants in similar procedures. For instance, if the contract concerns very specific services which few firms provide, the average number would be five. For more standard contracts, the number would be higher, but it will not normally exceed twenty. In the former case, the chance will be set at 20 per cent, in the latter at 5 per cent.57 The French and English case laws have been analysed by Fairgrieve, State Liability in Tort, n 1 above, fn 548ff; for a discussion of the English case law in the context of public procurements see Bowsher and Moser, ‘Damages for Breach . . . in the United Kingdom’, n 38 above, 206 ff. 50 Indeed so far German courts seem to have refrained from a univocal choice: Burgi, ch 2 above, at p 24ff. 51 See again Ponzio, ch 6 above, at p 107f; it is to be remarked that the possibility of awarding damages to multiple claimants does not find support in Nordic systems. 52 JM Hebly and FG WIlman ‘Damages for Breach of Procurement Law: The Dutch Situation’, ch 5 above, at p 83. 53 Gabayet, ch 1, above at p 9. 54 See Eiró and Mealha , ch 3 above at p 52f; in Germany, different heads of damages, requiring different tests for causation, are applied depending on the cause of action chosen: Burgi, ch 2 above, at p 32f. 55 Gabayet, ch 1 above, at p 9; the lovely French expression is ‘le candidat n’était pas dépourvu de toute chance d’emporter le marché’. 56 In France a chance of 1% would be considered enough by courts: see Gabayet, ch 1 above, at p 9; see also Slavicek, ‘Damages for Breach . . . in Sweden’ n 9 above, at 238. 57 See the cases referred to by Ponzio, ch 6 above, at p 107; it is to be noted that Italian courts are not being too analytical here, and they reasons about chances without worrying whether it is a problem of causation or damages. 49

178 Roberto Caranta Notwithstanding a generally generous approach to causation, in France on the contrary no damages will be awarded in the absence of any advertisement, annulment being the only remedy available in this case.58 We are faced here with a catch 22 situation. Direct awards are the worst breaches possible of public procurement rules. Establishing causation, however, is quite problematic and – as it will be seen – there were not, in this scenario, even bidding costs, which are relatively easy to recover through damages. In France, the damages remedy is thus in checkmate (and the same situation is found in Germany).59 This speaks volume in favour of the need for a different remedy such as ineffectiveness, which was introduced by Directive 2007/66/EC.60 V. DAMAGES

The first head of damages relevant in relation to public contracts is costs incurred in taking part into the award procedure, the so called ‘negative interest’,61 including costs for drafting tenders which of course may be quite substantial depending on the size of the procurement.62 These costs have been recoverable in France since the 1930s63 and they are the only head of damage awarded to this day in the USA.64 As already remarked, a weak or relatively weak causation test is normally sufficient in relation to participation costs.65 Claimants should not have too much difficulty in discharging the burden of proof concerning participation costs,66 being able to refer to the time and costs of the staff working on the procedure and possibly to consultants’ fees, but courts may prefer to determine this themselves.67 Notwithstanding the Brasserie du pêcheur decision, a more controversial head of damages is lost profit.68 While in some jurisdictions their recoverability still poses problems,69 damages for lost profit have been awarded by French administrative courts since the 1970s.70 Lost profit was also considered recoverGabayet, ch 1, above, at p 12. Rubach-Larsen, ‘Damages under German Law’, n 45 above, 181 and 187. 60 S Treumer, ‘Towards an Obligation to Terminate Contracts Concluded in Breach of the EC Public Procurement Rules: the End of the Status of Concluded Public Contracts as Sacred Cows’ (2007) Public Procurement Law Review 371. 61 Ponzio, ch 6 above, at p 106; Krüger, ‘Action for Damages’, n 2 above. 62 See the figures quoted in the French report: Gabayet, ch 1 above, at p 12f; see also Bowsher and Moser, ‘Damages for Breach . . . in the United Kingdom’, above n 38, 196. 63 Gabayet, ch 1 above; these days they are recoverable all over Europe: 64 DI Gordon and MR Golden,‘Money Damages in the Context of Bid Protests in the United States’, ch 11 below, at p 202. 65 Germany requires to this effect a ‘real’ or ‘genuine’ chance: Burgi, ch 2 above, at p 22; Rubach-Larsen, ‘Damages under German Law’, n 45 above, 181. 66 See Burgi, ch 2 above, at p 23. 67 This seems to be the case in France: Gabayet, ch 1 above at p 13. 68 Brasserie du pêcheur, n 22 above, para 87. 69 eg Burgi, ch 2 above, at p 27; the German situation is somewhat peculiar, since recoverable damages may vary according to the cause of action chosen: see p 35. 70 Gabayet, ch 1, above at p 10. 58 59

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able in England in Harmon, a case of intentional breach (because the procuring entity – the British Parliament – was pursuing a buy national policy).71 Starting from the overall value of the contract at issue, different yardsticks might be used to measure lost profit. The more accurate but time-consuming approach is to examine the tendering budget of the claimant.72 When available, specific industry indexes may provide useful indication as to the average return.73 Other presumptive indicators might also be referred to, such as the strength of the competition in the relevant market.74 In the Swedish Arkitekttjänst case, the Court included in the calculation of lost profit a sum referred to additional works executed by the unlawfully chosen contractor.75 Italian courts start from a presumed average profit at 10 per cent, and then possibly apply mitigating factors.76 An additional specific issue relates not to the nature of the contract but rather to the overall professional standing of the disaffected bidder. It might be said that, due to the procurement breach, such a bidder was deprived of the opportunity of referring to the award of such a contract in the future to buttress its qualifications in successive award procedures. This head is recoverable in Italy, where its importance is possibly inflated by the need to find a counterweight to the theory that lost profit is not recoverable in cases of pre-contractual liability. In these cases, lost profit is not, but the so-called ‘curricular’ damages is, and more often than not the amount awarded is the same.77 On the contrary, in the Netherlands, such damage is considered to be too remotely linked with the wrongful decision by the contracting authority.78 Other heads of damages might also be relevant, very much depending on the idiosyncrasies of each legal system. In Harmon the Court considered that the award of punitive damages was not necessary to ensure effective judicial protection.79 The loss of chance theory may also have an impact upon the quantum of damages. In cases of loss of a chance (generally, a ‘serious’ chance is required), the methodology may vary. On the one hand, the courts may choose to award full damages (varying according to which of the above-mentioned heads of

Harmon, n 23 above; on the intentional element of the case see Bowsher and Moser, ‘Damages for Breach . . . in the United Kingdom’, n 38 above, 202. 72 See Hebly and Wilman, ch 5 above, at p 82, and Krüger, ‘Action for Damages’, n 2 above. 73 Again Hebly and Wilman, ch 5 above, at p 82. 74 Which is frequently referred to by French courts to limit the redress offered: Gabayet, ch 1 above, at p 12f. 75 See Slavicek, ‘Damages for Breach . . . in Sweden’, n 9 above. 76 Ponzio, ch 6 above, at p 107f. 77 Ponzio, ch 6 above, p 109; this should be added to lost profit in tort liability cases, but the impression is that Italian courts will very rarely exceed the magic 10% thresholds, finding ways to play with the addends without affecting the resulting sum. 78 Hebly and Wilman, ch 5 above, at p 82; the problem is considered not relevant in Germany: Burgi ch 2 above, at p 33. 79 Harmon, n 23 above, at 351 ff. 71

180 Roberto Caranta damages are considered recoverable).80 Or they might choose, as is quite often the case in procurement, to reduce the redress proportionately to the chances the claimant had to be awarded the contract.81 This latter approach accords more closely to traditional causal strictures: damages are being awarded for the ‘lost chance’ rather than the resultant harm. As has already been remarked, Italian courts tend to refer to the notion of chances so as to reduce the compensation awarded to affected firms.82 Finally, while interest on the sums awarded do not seem to pose any problem, the recovery of legal expenses will normally depend on the usual rules applicable in the given jurisdiction.83 VI. MITIGATING FACTORS AND DEFENCES

Some mitigating factors might be taken into consideration when assessing the damages suffered. Some of these may be traced to cases of contributory negligence. One possibility is that the bidder itself is partly responsible for mistakes made by the contracting authority, eg by submitting an offer containing errors or irregularities,84 or at least was knowledgeable of the illegality but having failed to inform the procuring entity.85 A more common occurrence – or at least one often raised by defendant authorities – is that, not having being awarded the contract, the claimant was free to use its means and personnel in performing different contracts.86 While of course a contractor will be advised not to sit on its hands waiting for redress, the merits of the defence will hinge on different circumstances. Some will pertain to the nature of the claimant. A bidder mainly relying on its own resources will normally not be able to handle many contracts at any given time, while a firm mainly operating through subcontractors will. Other relevant circumstances will be market-specific and will include the demand–offer balance point. The duration of the contract might also be relevant, since the longer the duration, the greater the possibility of finding alternative business opportunities.87 Quite puzzlingly for Continental lawyers is the English discussion as to whether This is the case in France: Gabayet, ch 1 above, at p 13; these also seems to be the case in Ireland: see Donnelly ‘Remedies . . . in Ireland’, n 42 above, 31 ff. 81 This is the case in Portugal: Eiró and Mealha, ch 3 above at p 50; Norway: Slavicek, ‘Damages for Breach of EC Public Procurement Rules in Sweden’ n 9 above; and England: Bowsher and Moser, ‘Damages for Breach . . . in the United Kingdom’, n 38 above, 207. 82 Ponzio, ch 6 above, at p 107. 83 Bowsher and Moser ‘Damages for Breach . . . United Kingdom’, n 38 above, 210. 84 One such case is discussed by Ponzio, ch 6 above, at p 109f. 85 The latter being considered in Germany: Rubach-Larsen, ‘Damages under German Law’, n 45 above, 184. 86 The possibility is referred to by Hebly and Wilman, ch 5 above, at 82; Italian courts routinely take into account the possible revenues from other contracts: see the cases referred to by Ponzio, ch 6 above, at p 109; this mitigation clause is refused in France see: Gabayet, ch 1 above, at p 13. 87 See Slavicek, ‘Damages for Breach . . . in Sweden’, n 9 above, 239. 80

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causation is nullified by the fact that, due to a very competitive market, the bidder would have placed its tender even in the knowledge of the possibly unlawful behaviour of the procuring entity.88 An issue which is often discussed is whether the failure or delay in instituting legal proceedings to have the unlawful award decision quashed has any impact on the redress offered by courts. Some jurisdictions answer the question in the negative.89 In Italy, the battle to make the annulment of the award decision a pre-condition to a successful claims for damages was lost, but this has instead given way to a sort of compromise leading to reduced compensation for the firms which neglected to ask for annulment as well.90 Finally, tender preparation costs will not normally be awarded by courts when compensation is granted for lost profit (or will be offset against it).91 The rationale is plain enough. Any successful bidder will have its costs covered by the profit and deciding otherwise would lead to overcompensation.92 The French situation is somewhat peculiar, however, as this mitigating factor is not taken into account and the claimant thus increases its profit.93 In respect of defences, in the Netherlands contracting authorities cannot successfully make the case that they could have anyway decided not to award the contract, nor can it plead that the claimant’s bid should also be disqualified.94 The latter proposition is somewhat contentious and the preferred solution may be due to some peculiar procedural arrangement making it difficult for the successful bidder to cross-challenge the qualification of the claimant who was ranked second in the same procedure. The situation is different in France, where administrative courts are quite ready to go to the merits of the case and therefore to withdraw redress from claimants which should have been disqualified.95

eg Bowsher and Moser, ‘Damages for Breach . . . in the United Kingdom’, n 38 above, 205. Hebly and Wilman, ch 5 above, at p 85; see also Rubach-Larsen, ‘Damages under German Law’, n 45 above, 184; the German instance is even more relevant since generally, under § 839 BGB, failure to take legal actions to redress the wrong has a binding on the same possibility to recover damages; according to Burgi, ch 2 above, at p 26, failure to challenge the invalid procurement decision can lead to the award of damages being denied or simply reduced. 90 See the judgement by the Corte di cassazione referred to by Ponzio, ch 6 above, at p 103; the compromise was ratified by the 2010 Administrative Procedure Code, on which R Caranta (ed), Il nuovo processo amministrativo (Turin, Zanichelli, 2011). 91 eg Donnelly, ‘Remedies . . . in Ireland’, n 42 above, 31; Hebly and Wilman, ch 5 above, at p 181; Slavicek, ‘Damages for Breach . . . in Sweden’, n 9 above, 236. 92 See Ponzio, ch 6 above, at p 110. 93 Gabayet, ch 1 above, at p 11f. 94 Hebly and Wilman, ch 5 above, at p 181; the first defence seems however to be accepted in the Norewegian Faber Bygg case: see Krüger, ‘Action for Damages’, n 2 above, who also considers other Nordic cases to the same and the opposite effect, while in Germany its value may depend on the specific tort which was litigated: Rubach-Larsen ‘Damages under German Law’, n 45 above, 183 and 187. 95 Gabayet, ch 1 above, at p 10f. 88 89

182 Roberto Caranta

VII. SOME PROCEDURAL ISSUES

Given the difficulty in assessing damages, which indeed is at times listed as a reason to provide interim relief,96 quite often courts end up adopting an equitable approach to both causation and/or more frequently damages,97 referring to what is the usual profit in a particular trade,98 or just awarding a lump sum to the successful claimant.99 If the latter is the case, then a finding of intentional wrongdoing or any other assessment as to the seriousness of the breach may have an impact on the sums awarded to the claimant.100 In the process, the usual rules as to the burden and the standard of proof are inevitably relaxed.101 Moreover, it is not uncommon for the exact amount of the damages to be determined in a different stage of the judicial proceedings, often paving the way to some form of negotiated settlement.102 Actually, in some jurisdictions, such as the United Kingdom, most claims are settled even before the start of court proceedings.103 In Italy, a provision generally applicable to damages claims brought against public law entities gives courts the power to give directions to the defendant administration to propose a sum for negotiated settlement,104 while in Portugal an agreement on the amount of the damages between the claimant and the procuring entity is foreseen when annulment is impossible.105 Recourse to experts is often adopted in the assessment of damages.106 However, it may be that the expert’s indications are not followed by the court.107 VIII. CONCLUSIONS

The issues analysed here give us a good blueprint of a very common set of patterns in comparative law research (at least in so far as the research is restricted to systems all belonging to the western legal tradition).108 The first pattern is that of very similar starting points. To be true, a most basic question underlies See the discussion of the English case law by Banks and Bowsher, ch 4 above, at p 65. For an interesting case see Eiró and Mealha, ch 3 above, at p 49f. 98 Burgi, ch 2 above, at p 34f. 99 See the two Danish cases quoted by Krüger, ‘Action for Damages’, n 2 above; see also Ponzio, ch 6 above, at p 106. 100 See Burgi, ch 2 above, at p 35. 101 eg Burgi, ch 2 above, at p 35. 102 Hebly and Wilman, ch 5 above, at p 81. 103 Bowsher and Moser, ‘Damages for Breach . . . in the United Kingdom’, n 38 above, 196. 104 See R Caranta, Attività amministrativa ed illecito aquiliano. La responsabilità della p.a. dopo la l. 21 luglio 2000, n. 205 (Milano, Giuffré, 2001) 198 ff. 105 Eiró and Mealha, ch 3 above, at p 43. 106 Hebly and Wilman, ch 5 above, at p 81. 107 For an interesting case Gabayet, ‘ch 1 above, at p 13. 108 See more generally R Caranta, ‘Pleading for European Comparative Administrative Law: What is the Place for Comparative Law in Europe?’ ( 2009) REALaw – Review of European Administrative Law 155. 96 97

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all arguments focusing on liability for breach of public procurement law (and to a certain extent, all discussion on liability of the State and other public law entities), namely whether or not to provide redress in damages. While in the United States,109 damages are not perceived as a necessary remedy for breaches of public procurement rules (note also that the revised UNCITRAL Model Law also illustrates some caution as to damages awards),110 in the EU the desire to open up tightly closed national markets empowering competitors as private enforcers of procurement law has resulted in damages being given a prominent role in the Remedies Directives.111 Given the choice, the starting point of all Member States – and to a large extent also EEA countries112 – share, is to identify those claimants deserving damages, considering that it is usually quite difficult to know which firm would have been awarded the contract if procurement law had been abided by.113 Starting from a similar problem, the way in which this has been addressed varies from country to country because of diverging answers to more general questions, first and foremost that of the relationships between the administration and the judiciary (other potential theoretical issues, such as possibly diverging concepts of causation, don’t seem to play much of a role). French administrative courts are more ready to substitute their views to those entertained by the procuring entities and as a consequence they face less difficulties in awarding damages.114 Indeed, ‘the French system with regard to damages appears to be amongst the most developed and efficient national systems in the EC’.115 Italian administrative courts, while being more prone to theorise reasons for a ‘hands-off’ approach, quite often provide redress on what is a rather equitable basis.116 Nordic systems on the contrary, seem to rely very much on the margins of choice enjoyed by procuring entities to reach a negative conclusion as to the existence of a causal link between the breach and the loss claimed.117 German courts employ to the same effect private law notions such as the freedom of contract and pre-contractual relations.118

Gordon and Golden, ch 11 below, at p 207f. Though it would seem that the Guide will explain that, enacting States might wish to permit compensation for lost profits, so as to provide appropriate incentives for filing complaints and appeals: C Nicholas ‘Remedies for Breaches of Procurement Regulation and the UNCITRAL Model Law on Procurement’, ch 12 below, at p 218ff. 111 See Treumer, ‘Damages for Breach’, n 13 above, 163. 112 The peculiar situation of EEA countries is analysed by Krüger, ‘Action for Damages’, n 2 above. 113 Quite rightly Krüger, ‘Action for Damages’, n 2 above, remarks that ‘private remedies are meant to be the primary instrumental enforcement measure in procurement law’ (emphasis in the text). 114 See Gabayet, ch 1 above, at p 10f. 115 Treumer, ‘Damages for Breach’, n 13 above, 163. 116 See the cases discussed by Ponzio, ch 6 above, at p 105ff. 117 See Krüger, ‘Action for Damages’, n 2 above. 118 Burgi, ch 2 above, at p 34ff; Rubach-Larsen, ‘Damages under German Law’, n 45 above, 183 and 186. 109 110

184 Roberto Caranta Of late, under pressure from European law and case law (in this case the specific need to provide redress in damages as foreseen by the Remedies Directives), the differences at a national level seems to be lessening somewhat. Some traditionally hands-off courts must now try to find ways to offer some remedy, possibly without overdoing the exercise to the detriment of budgetary concerns (the ‘pay twice’ issue).119 From this perspective, national courts quite often end up following the same steps already trodden by others, most notably the French, especially concerning the theory of the loss of chance.120 As it as been remarked, the implementation of the Remedies Directives in the various Member States and national cases from the various Member States can suggest answers to issues of general interest and serve as an inspiration to the legislature and review bodies in other Member States.121 It is, however, to be remarked that the evolution towards stricter standards of judicial review is these days a quite general trend, by no means confined to public procurement.122

At the same time, important differences remain.123 In the common law, Nordic and German systems the recovery of the loss of profits is still quite exceptional, so much so that interim relief and annulment, and now ineffictiveness, are the remedy of choice. On the contrary, Latin countries tend to rely very much on the corrective and possibly dissuasive effects of liability actions. While all Member States must offer the full panoply of remedies laid down in the directives, their relative importance varies from country to country, damages having the leading role in some theatres and a small supporting part in others.

See Krüger, ‘Action for Damages’, n 2 above. See, concerning Portugal, Eiró and Mealha, ch 3 above, at p 49f, and, as to England Harmon, n 23 above, discussed by Banks and Bowsher, ch 4 above, at p 65 (the authors point out that anyway English courts are still quite wary of awarding damages, preferring to redress wrong – or to prevent them from consolidating – with interim relief measures). 121 Treumer, ‘Damages for Breach’, n 13 above, 162, also providing some instances of crossfertilisation. 122 See again the papers collected in O Essens, A Gerbrandy and S Lavrijssen (eds), National Courts and the Standard of Review in Competition Law and Economic Regulation (Groningen, Europa Law Publishing, 2009). 123 Treumer, ‘Damages for Breach’, n 13 above, 162, rightly cautions that ‘the national interpretations are firmly rooted in national law on damages’. 119 120

10 Procedures and Access to Justice in Damages Claims for Public Procurement Breaches Duncan Fairgrieve and François Lichère

I. Introduction

O

ver and above the substantive legal issues arising from a claim in damages for breach of public procurement rules, the surrounding procedural framework is of substantial interest in itself. Indeed, procedure is one feature which continues to provide a point of divergence across the national systems, far from the harmonising influence of the European instruments. Prior to examining these issues, however, a preliminary question should be raised, which is of a somewhat existential nature. Should damages be available at all for procurement breaches?1 It may seem somewhat paradoxical to raise this in a publication which is given over entirely to that very issue. And yet, the relevance of the question is illustrated by the fact that one major jurisdiction, that of the United States, has restricted the availability of monetary redress in this context.2 The US federal bid protest forums have declined historically and universally to countenance the payment of lost profits.3 The only heads of damage awarded in the US are thus the expenses incurred by the procurement, the so-called ‘negative interest’. On first blush, this feature of the US systems strikes one as quite surprising. There is of course no bar on the recovery of damages for lost profits in general commercial disputes under US law. Moreover, one could hardly accuse the 1  See also R Caranta, ‘Damages for Breaches of EU Public Procurement Law: Issues of Causation and Recoverable Losses’, ch 9 above, at p 183. 2  Note also that the revised UNCITRAL Model Law has historically shown caution as to the availability of damages awards: see C Nicholas, ‘Remedies for Breaches of Procurement Regulation and the UNCITRAL Model Law on Procurement’, ch 12 below. 3  See DI Gordon and MR Golden, ‘Money Damages in the Context of Bid Protests in the United States’, ch 11 below.

186  Duncan Fairgrieve and François Lichère American legal system of being faint-hearted in its approach to damages awards generally. Indeed, the counter-accusation is more often heard, particularly by defence counsel and their clients in class actions,4 or by those who are the target of punitive damages claims. The availability of damages in the United States is underpinned by a broader consideration which advocates the importance of ‘private’ as well as public enforcement in US theory and practice, whereby damages claims strengthen the efficacy of the public regulatory system. Interestingly, therefore, the case of public procurement would seem to be a counter-cultural example, namely an area in which the US system illustrates scepticism of damages awards whereas, on the other hand, European systems have, as we have seen, embraced this as part of the necessary remedial backdrop. The explanation for the US approach in the field of public procurement is fascinating. One cannot understand the reluctance of damages awards within the US system, unless one views the system as a whole, not just from a damages perspective. A key feature of the US federal procurement system is that the winning of a protest (or challenge) invariably allows for successful applicants (who by definition are potential awardees of the contract) another opportunity to compete for the contract. This of course contrasts with the traditional approach in many European systems. In the Netherlands, for instance, as we have seen, there is a long-standing case law of the Dutch Supreme Court, according to which ‘contracts once entered into continue to exist, even though it is established later that the contract was concluded after a wrongful tendering procedure’.5 On the contrary, in the US system, various mechanisms allow for another opportunity to compete, in particular the automatic stay under the US federal system. This means that it is not too late to ensure that, if the protest is upheld, the procurement competition can be re-opened (which the GAO commonly directs). As Dan Gordon and Michael Golden remark, the ‘protester will be given a ‘second bite at the apple’.6 From this angle then, it is perhaps less surprising that lost profit awards are outlawed as the US procedures allow for alternative solutions, in general, to prevail.7 Moreover, it should not be thought that the US system excludes all monetary compensation entirely. Monetary relief may sometimes be awarded to protesters in the form of reimbursement of the bid costs (including attorneys’ fees).  See, eg, J Kortmann, The Tort Law Industry (Amsterdam, Amsterdam University Press, 2009).  See JM Hebly and FG Wilman, ‘Damages for Breach of Procurement Law: The Dutch Situation’, ch 5 above, at p 85. Note that this restrictive position will need to change as a result of the amendment of the Remedies Directives by Directive 2007/66/EC. 6  See Gordon and Golden, ch 11 below, at p 209. 7  This approach could also be a response to the endless head-ache of lost chance claims (ie unlawfully depriving a contractor of the opportunity to make a profit). As we shall see, there are disagreements about the practicality and appropriateness of claims for lost chances to make profits. How easy is it to assess the chance accurately? Isn’t a lost chance inherently speculative? Do the courts have the necessary procedures to review what the contracting authority would have done absent the unlawfulness, and put a statistical figure on that? A simple answer is provided by the US system to these existential questions – simply get the authority to re-open the competition! 4 5

EU: Procedures and Access to Justice  187 It is nonetheless very instructive to observe that a legal system which is often stigmatised by European commentators as illustrating a ‘compensation culture’ in fact takes a very restrictive approach to damages in this sphere. It would seem that it is simply considered that the available remedies do not require the extra incentive of lost profit claims. As Gordon and Golden put it: In the authors’ view, the more than 1,000 protests that are filed each year challenging federal procurements is a significant number, and there is no reason to posit that lost profits should be made available to ensure that more protests are filed.8

In the current chapter, the European approach will be examined. It will be structured as follows. Section II deals with the fundamental question of whether monetary compensation in this sphere should be a public law remedy or otherwise. Section III provides an analysis of the relationships between annulment procedure, interim relief and damages actions. Section IV deals with limitation periods, time limits and standing for such claims, and section V with the frequency of the claims. Finally, in section VI we shall examine the interface between the models of procedure and the relevant substantive law. II.  Damages for Procurement Breaches: A Public Law Remedy or Otherwise?

As we have already noted, the shape of procedural law in this area is somewhat heterodox. As the principle of procedural autonomy applies from a European perspective, it is not surprising to find very different solutions from one Member State to another. On a global stage, the differences are further reinforced. As Caroline Nicholas notes in respect of the UNCITRAL Working Group: [T]here remains a broad range of approaches to remedies provisions in different legal systems, in that States differ significantly in their approach to enforcement and in the extent to which they offer review at the instigation of the supplier (largely reflecting the fundamental conceptual and structural aspects of the legal system in each State).9

A fundamental issue of procedure in this sphere is the forum before which a claim may be brought for breach of public procurement rules. Should this follow the ordinary competence for public law claims or rather the rules applying to damages claims generally? The answer to this question of course depends greatly upon the pre-existing institutional structures for administrative justice, which of course differ greatly across Europe.10 In some countries, the courts which undertake judicial review and interim relief of the original award decisions will also have jurisdiction over damages claims for breach of public procurement rules. Administrative courts thus deal  See Gordon and Golden, ch 11 below, at p 212.  See C Nicholas, ‘Remedies for Breaches of Procurement Regulation and the UNCITRAL Model Law on Procurement’, ch 12 below, at p 221. 10  See, eg, OMIJ, La Justice Administrative en Europe (Paris, PUF, 2007). 8 9

188  Duncan Fairgrieve and François Lichère with damages claims in France, Portugal and Italy. Interestingly, European law has influenced Italian law in this regard, with damages actions for breach of public procurement rules being transferred from civil courts to administrative courts as of 2000. As Sylvia Ponzio states: Administrative Courts are thus given exclusive jurisdiction over cases concerning the legitimacy of award procedures; including both annulment and damage actions. This ensures easier redress for the citizen since it does away with the need to file two different actions, one for annulment, and another for damages.11

A specialised administrative jurisdiction is of course by no means the sole model. Indeed, the fact that issues of liability are raised by these cases can result in a different solution. Some Member States take the view that this is a damages issue rather than a public procurement question and therefore consider that the ordinary, civil courts should be competent. Such is the case in Holland and Germany and also – obviously – in countries where there is no autonomous public law jurisdiction (such as Ireland and the UK). In Germany, the competence of the civil courts flows naturally from the fact that public procurement rules are themselves considered as falling within the civil law. Within this latter category, the situation can nonetheless vary as in some cases the particularity of either the defendant (a public authority) or the rules in question (public procurement) will be taken into account and might alter the general rules governing damages. In Germany, for instance, the damages action based on the pre-­ contractual culpa in contrahendo doctrine deriving from the Civil Code12 is available alongside a regulation specifically addressing damages in the public procurement sphere,13 as well as a claim based on cartel law. The fact that EU law is at stake may also be taken into consideration. As Burgi puts it, ‘the principles of equivalence and effectiveness (effet utile) are still valid and affect central issues of the secondary legal remedies procedure’.14 The case of Denmark is of particular interest since legislation in 2001 transferred the adjudication of damages in public procurement disputes from the civil courts to the board in charge of reviewing the award process. According to Treumer: [T]he background to this change in the enforcement system was public criticism of the system’s lack of efficiency, on the basis of a number of concrete cases brought before the Complaints Board, and an awareness of various weaknesses in the system of that time.15

This change might also prove that when it comes to damages for violation of EU public procurement rules, the Danish legislator thought that the solution lies more in the appreciation of public procurement rules than in damages princi See S Ponzio, ‘State Liability in Public Procurement. The Case of Italy’, ch 6 above, at p 92.   Laid down in the combination of provisions of §§ 280 I, 241 II, 311 II German civil code.   § 126 Act against the Restraints of Competition of the GWB. 14  See M Burgi, ‘Damages and EC Procurement Law: German Perspectives’, ch 2 above, at p 21. 15  See Treumer, ch 8 above, p 163. 11 12 13

EU: Procedures and Access to Justice  189 ples, which is also the case for Latin countries. Interestingly, this position has not been exported to other Scandinavian countries.16 The tension between the application of the rules on damages and the taking into consideration of the fact that public procurement rules are at stake is felt not only when it is an issue of jurisdiction or forum but also for other aspects of the access to courts as we shall see below. III. Relationship between annulment procedures, interim relief and damages actions

The general trend seems to be, at a European level, that there is no fixed relationship between the various remedies. As a starting point, the annulment of the unlawful award is generally not a condition precedent to a claim for damages. This is notably the case in Portugal, France, Holland and Germany. Furthermore, the courts generally do not consider that the failure to apply for annulment is per se evidence of contributory negligence and it therefore does not necessarily affect the quantum of damages. However, in Italy, the position is more nuanced. According to Roberto Caranta,17 although the battle to make the annulment of the award decision a precondition to a successful claim for damages has been lost, a sort of compromise has emerged whereby a claimant who has failed to ask for annulment is likely to receive commensurately reduced compensation. In most Member States, the annulment of a tender procedure by the courts does not preclude a claim for damages. In other words, one can ask for annulment of a procedure and at the same time – or later on – ask for damages. This is the case in Portugal and France. In France, it has even been accepted that a contract can be annulled by a court and that a court (which might not be the same one) can also grant damages to the unlawfully rejected bidder.18 However, the position in practice can differ in certain Member States. In Portugal, there seems to be no actual cases where a claimant seeking damages has not first obtained the annulment of the award decision (or an application for interim relief) prior to the damages claim. Furthermore, there would seem to be certain scenarios where the availability of one specific remedy has had an impact on another remedy. Under English law, it would seem that the likelihood of being awarded damages will preclude any claimant from challenging the award decision in interim relief.19 There is a 16  See K Krüger, ‘Action for Damages due to Bad Procurement’ (2006) 4 Public Procurement Law Review 211. 17  Caranta, ch 9 below, at p 181. 18  CAA Nancy, 1 February 2007, available on www.legifrance.gouv.fr. In this case, the court however refused to grant damages because the claimant had not a serious chance to win the contract. The courts are not necessarily the same since a distinction between the judge of the contract and the judge of the illegality of the award decision is made. 19  See F Banks and M Bowsher, ‘The Availability and Primacy of the Damages Remedy for Breach of Procurement Obligations in England & Wales and Northern Ireland’, ch 4 above.

190  Duncan Fairgrieve and François Lichère question-mark, however, about the compatibility of this system with the EU principle of effectiveness, as well the current conditions where the judge in charge of the award of damages is not bound by the previous decision of the judge in charge of the interim relief. IV. Time limits for bringing claims and standing for action

The time periods for bringing claims vary considerably across the jurisdictions studied but there is a common trend: the limitation period for damages claims is much longer than the time limit for challenging an award decision by way of judicial review or interim relief. In itself, this is not surprising, given that the time limit for bringing a damages action for procurement breaches is aligned with that for bringing an action for damages against public authorities, which is generally substantial in most Member States. Given that an action for annulment can lead either to a prohibition on the signature of a contract or, since the 2007 review Directive, to the termination of the contract, legal certainty (and economic demands) requires that a shorter period is applicable. On the contrary, the award of damages does not jeopardise the contract and the action can therefore be brought much later after the contract has been signed and even performed. Fewer differences can be found when it comes to the length of the principal limitation or prescriptive period, even though some countries apply the standard rules for extra-contractual liability (deriving from a Civil Code otherwise) and others set a specific time limit within the context of State laibility (such as France). In the first scenario, the case of Portugal is of particular interest since the administrative courts apply the rules deriving from the Civil Code. Eiró and Mealha, referring to a specific case, have underlined that: [C]onsidering that the action of the contracting authority was in fact unlawful and that it was, at the time of the ruling, impossible to quash the decision, the court decided that the claimant had had a right to participate in the public tender, and therefore lost a chance to be successful. This loss of chance should be compensated, ruled the Court, through the use of Article 566/3 of the Civil Code that grants the judge powers to determine the amount of damages using equitable principles.20

However, a different limitation period is sometimes applied to State liability cases. In France, application is made of a 1968 statute governing public authority liability, whereby the action for damages must be brought within a period of 4 years. The starting date of this period is calculated from the 1st of January of the year following that during which the cause of injury occurred or during which the claimant was able (‘en mesure de’) to discover this cause. 20  See V Eiró and E Mealha, ‘Damages under Public Procurement: The Portuguese Case’, ch 3 above, at p 50.

EU: Procedures and Access to Justice  191 Interestingly, the rule is very similar in Germany, even though in this case the Civil Code (BGB) is applicable : the relevant time limit is only 3 years but the starting date is calculated in a similar way to that in French law, namely as of the end of the year in which the grounds for the application first arose or when the bidder acquired knowledge of the unlawful act. As Burgi writes, ‘there has been no academic discussion yet as to whether this relatively short time-frame is compatible with Community Law’.21 It is true that this is shorter than French law but this time period is either identical or longer than other jurisdictions. In Portugal, there are separate time limits. The principal one is 3 years from the date when the complainant acquires knowledge of the circumstances that ground the claim. If this is not applicable because, for example, he or she has not acquired the relevant knowledge, then a long-stop period of 20 years applies, namely as of the unlawfulness in procurement cases. According to the administrative courts’ decisions quoted by Eiró and Mealha, the knowledge of the circumstances giving rise to the claim does not mean that the claimant must have technical knowledge of the legal regime, but only that he knows that he has suffered damages and that they have occurred because of an unlawful decision.22

In the Netherlands, the period to lodge an application in damages claims is 5 years. However, Dutch law allows the contracting authority to derogate from that period in contractual documents, and thereby provide for a much shorter period, which is generally 90 days. Potential claimants are bound by this period since they submitted to the public tender procedure and by doing so accepted this reduction of the time limit for bringing an action. In any case the starting date is the day where the unlawfulness has become ‘manifest’. Hebly and Wilman add that: If, however, the dispute arises from a circumstance that did not become manifest until after the expiry of the aforementioned period, the period begins on the day that the circumstance in question has become manifest. It is assumed that the setting and enforcing of such a period does not infringe European law.23

It may however be debatable as to whether this restrictive position is EU lawcompatible. As regards standing for claims, there is generally no distinction made between interim relief and judicial review. In France and Portugal, any unsuccessful tenderer (at any stage) and any potential tenderer who was deprived of tendering because of an unlawfulness has standing for a claim when it comes to interim relief and judicial review. French law has gone even further by allowing a ‘référé précontractuel’ from a firm who had not tendered and had not been prevented from doing so but whose particular expertise corresponds to the subject matter of the contract.24 In respect of a claim in damages, the case law is understandably  Burgi, ch 2 above, at p 36.  See Eiró and Mealha, ch 3 above, at p 58. 23  See Hebly and Wilman, ch 5 above, at p 85. 24  Conseil d’Etat, 8 August 2008, Région de Bourgogne, available on www.legifrance.gouv.fr 21 22

192  Duncan Fairgrieve and François Lichère more demanding as the claimant must obviously have tendered in order to be in a position to ask for damages, whether that be for bid costs or for loss of profits. For example, in Germany, the claimant has to prove a ‘genuine chance’. According to Martin Burgi: A claimant with this kind of chance is allowed to seek compensation irrespective of the infringement: it does not matter whether the bidder has not been informed of tender, excluded from the tendering process, whether his bid was unlawfully considered not responsive or abnormally low or if his bid was unlawfully postponed to another bid etc. This inevitably means that even enterprises which may not have ultimately been granted the award (given that the infringement never happened) may nonetheless claim for compensation on the base of § 126 GWB.25

V.  Frequency of claims

There is a mixed picture in terms of the number of damages claims brought in the various Member States. The situation varies from one jurisdiction to another as numbers depend upon the readiness of tenderers to challenge procurement procedures. There are considerable differences between European Member States when it comes to judicial review and interim relief in the field of public procurement, ranging from a reluctance to challenge in the UK with only a few cases a year (although this has increased recently) to a considerable number of challenges in France and Italy (more than 4000 cases a year), with Germany in between (about 1000 case a year). This might be due to cultural differences as well as legal costs. Not surprisingly, the trends identified in respect of judicial review and interim relief are noticeable also for damages: countries with a high level of judicial review of the award procedure are likely to have more damages actions than countries with a low rate of legal proceedings. Nonetheless, it appears that as a general rule in all Member States, damages actions are not looked upon favourably by claimants. The number of such claims are thus still somewhat low. The reasons for such a trend are more difficult to identify. In Holland, only a few actions for damages are brought even though hundreds of applications for interim relief are made as against award decisions. In France, there are approximately 20 damages claims per year, which is a drop in the ocean compared with other remedies in the public procurement sphere (about 4000 cases a year). In France, the low occurrence of such claims exists even though there is under French law an efficient interim relief mechanism linked to damages: the ‘référé provision’ allows a claimant to be awarded by a judge provisional damages (when the claim ‘is not seriously debatable’) before being granted by a court definitive damages when the exact amount of damages is known. Therefore, it is perhaps not surprising to find also very few cases in Germany where such a remedy does not exist and where more than a thousand  See Burgi, ch 2 above, at p 36.

25

EU: Procedures and Access to Justice  193 actions in interim relief or judicial review are lodged every year against award decisions. The main reason for this gap between the number damages actions and the number of interim relief or setting aside of award decision seems to be the ease and speed of the interim relief procedure. Damages claims, on the other hand, necessarily involve greater complication. Other factors may also include difficulties of access to information (eg for quantum purposes), the legal costs (which are higher with damages), evidential difficulties (as not only the breach must be proved but also the damage and the causal link, contrary to interim relief and setting aside where only the breach needs to be proven). However, the main alternative reason seems to be that firms prefer to secure a contract rather than to obtain damages, especially when the latter is hypothetical and also because gaining the contract provides both compensation for the costs incurred, as well as an enhancement of reputation for future bids. Burgi thus explains that: Owing to the fact that seeking full compensation (lost profits) is very difficult to obtain, damages cannot be a real compensation for the lost contract (lost chances). In addition, difficulties in proving the detailed conditions of such a claim remain and render a damages claim less favorable and attractive.26

The European Commission, quoted by Véra Eiro and Esperança Mealha has its own ideas of the causes which explains the low occurrence of damages claims: ‘(i) actions in damages have no real corrective effect; (ii) damages actions are hampered by practical difficulties; (iii) the process is lengthy and costly’.27 The absence of a corrective effect is, however, questionable. Whilst it is possible that the deterrent effect of damages may differ from one Member State to another, depending upon the scope and level of damages awarded (eg whether lost profits may be recovered), as well as other factors, such as whether judicial review and damages claims can be cumulated, it does seem counter-intuitive to assert that a tendering authority would not be deterred from unlawful behaviour by such potential financial consequences. If only from an economic perspective, such unlawful activity would of course render the procurement procedure more costly, as well as the attendant risks and delays involved in defending a damages suit. It may be that the low frequency of claims has softened the deterrent element, as tendering authorities perhaps assume – as it happens, correctly – that a suit for monetary redress is unlikely to follow. That must of course militate in favour of the facilitation of claims, thereby allowing for both providing adequate compensation, and also reinforcing the integrity of the procurement process by underlining the link between unlawfulness and budgetary consequences.

 See Burgi, ch 2 above, at p 38–39.  Eiro and Mealha, ch 3 above, at p 58.

26 27

194  Duncan Fairgrieve and François Lichère VI. Remedies and Substantive Law

A final issue is the way in which underlying procedural models may impact on the features we have described above, such as frequency of claims, as well as on substantive issues, such as the scope and level of damages awards, or the tests of causation within the context of such damages claims. European Member States all possess diverse procedural traditions within which the procurement rules described in this book have been developed. What effect do these differences have on substantive law? Do pre-existing structures have an influence on the norms which result? Is the project of harmonisation not therefore hampered, and perhaps ultimately undermined, by differences in the procedural DNA of the legal systems in question? Limits on time and space preclude us from analysing this question in detail across the various legal systems. Instead, let us say a word about two very different legal systems, the French and the English, on specific issues relating to public procurement claims. As is well known, the inquisitorial character of the administrative courts’ procedure in France28 contrasts greatly with the adversarial nature of English courts and the ‘umpire’ role of the English judge. Indeed, in a pioneering study in the 1990s, John Allison argued that the inquisitorial nature of the French courts had assisted in the resolution of polycentric administrative disputes, whereas the English courts have been handicapped by adversarial procedures.29 Allison thus argued that the dependence of the English courts in terms of both fact and law upon the litigating parties had affected the development of English administrative law, including the law of governmental liability.30 The French inquisitorial procedure does indeed allow for recourse to informa­ tion and views beyond those of the immediate parties, thanks to the procedural techniques for fact-gathering by the court itself, or by court-appointed experts, as well in relation to the law itself by means of the contributions from the rapporteur public (formerly known as the Commissaire du Gouvernement), who has the time and resources to look at important legal questions in the round and from an independent perspective, thereby analysing complex legal questions beyond the bipolar context of the litigation. It may be that these institutional structures have given the French administrative courts the confidence to develop intricate doctrines, such as loss of a chance. 28  R Chapus, Droit du contentieux administratif, 9th edn (Paris, Montchrestien, 2001), para 958; O Gohin, Contentieux administratif, 2nd edn (Paris, Litec, 1999) para 264. The administrative judge plays an interventionist role, and the procedure is undoubtedly much more inquisitorial than conventional common law proceedings (see CE 25 July 1975, Ville de Lourdes Rec 445: the judge ‘directs’ the proceedings). However, as John Bell correctly points out the Conseil d’Etat follows a qualified inquisitorial procedure, certainly in contrast with the approach of the French juge d’instruction. (see J Bell, French Legal Cultures (London, Butterworths, 2001) 160–62). 29   JWF Allison, A Contintental Distinction in the Common Law: A Historical and Comparative Perspective on English Public Law (Oxford, Clarendon Press, 1996). 30  Ibid.

EU: Procedures and Access to Justice  195 In the common law, there is certainly some evidence that judicial restraint in governmental liability has been influenced by the adversarial character of English legal proceedings. Lord Diplock referred to ‘the adversary procedure and rules of evidence adopted in English courts of law’ as a reason for reluctance in adjudging the civil liability of the Home Office arising from the liberal regime adopted for borstals in the case of Dorset Yacht v Home Office.31 Indeed, there has traditionally been a very different approach to state liability in France and England, with the substantive law in the latter system being markedly more protective (of the state) than in France,32 albeit with some changes in more recent times.33 Certainly, the tone of the debate is strikingly different in English and French law. French commentators generally view modern administrative law as evolving towards a more pro-victim approach,34 and this view is supported by developments in the case law. On the other hand, in English law, the underlying theme has until recently very much been that of judicial restraint. This may have had an impact on the procurement context. It is perhaps unsurprising that damages claims in this sphere are so low, given that the broader monetary remedy against public authorities has been marked by judicial restraint. Indeed, it seems likely that until English law has developed a coherent and adequate structure for public authority generally, then the remedy will be under-utilised in specific areas such as public procurement.

31   Dorset Yacht v Home Office [1970] AC 1004, 1067. As opposed to the negligence arising from the implementation of that chosen framework. 32   See the contrasting approaches to five factual scenarios: B Markesinis, J-B Auby, D CoesterWaltjen and S Deakin, Tortious Liability of Statutory Bodies: A Comparative and Economic Analysis of Five English Cases (Oxford, Hart Publishing, 1999). 33  See generally D Fairgrieve, State Liability in Tort: A Comparative Law Study (Oxford, Oxford University Press, 2003). 34   See, eg, M Deguergue, ‘Le contentieux de la responsabilité: politique jurisprudentielle et jurisprudence politique’ (1995) AJDA 211, 220.

11 Money Damages in the Context of Bid Protests in the United States Daniel I Gordon and Michael R Golden

I. Introduction

T

he bid protest system, which is a key component of the US federal procurement system, has evolved significantly since its origins in the 1920s. It has grown from a non-statutory, ad hoc system to the current, statutorily grounded system, with more than a thousand challenges filed each year to the procurement actions of various federal agencies. Today, a ‘dis­ appointed offeror’ that wishes to challenge an award of a federal contract has three options – the contracting agency, the Government Accountability Office (GAO), or the US Court of Federal Claims (COFC). As explained in this chapter, none of these bid protest forums generally allows for the remedy of money damages, referred to in the draft revisions to the UNCITRAL Model Law on Procurement of Goods, Construction and Services as ‘loss or injury suffered by the supplier or contractor submitting the complaint in connection with the procurement proceedings’.1 The only monetary relief sometimes awarded to protesters comes in the form of reimbursement of the costs of preparing the protester’s proposal and of protesting the government’s handling of the procurement (including attorneys’ fees). This chapter sets out the history and characteristics of the three US protest forums, including the relief available at each, and then discusses possible explanations for the rejection, in the US federal system, of money damages as part of the bid protest system.

Views expressed in this chapter are those of the authors alone. They do not necessarily reflect the positions, policies, or perspectives of the Office of Management and Budget, GAO or any other organisation with which the authors are now or have previously been affiliated. The authors thank Cherie J Owen, a senior attorney in GAO’s bid protest office, for her assistance in researching and editing this chapter. 1  UN Doc. A/CN.9/WG.I/WP.66/Add.4, Art 60(5) (2008).

200  Daniel I Gordon and Michael R Golden

II.  Government Accountability Office (GAO)

The Government Accountability Office, headed by the Comptroller General of the United States, began as the General Accounting Office, and was established through the Budget and Accounting Act of 1921.2 In its early years, GAO’s work primarily involved checking vouchers to ensure that expenditures complied with the law.3 An important function in those years involved claims settlement and settlement of the federal government’s accounts.4 Following the tradition of the office’s predecessor, the Comptroller of the Treasurer, GAO issued decisions addressing the appropriate use of funds, typically related to whether certain payments were lawful or could be paid out of a specific congressional appropriation. The Accounting Act also provided in section 312(c) that ‘[t]he Comptroller General shall specially report to Congress every . . . contract made by any department or establishment in any year in violation of law’.5 The law at the time in fact required that all contracts be deposited at GAO and be accompanied by the bids received, or an abstract of the bids.6 In that regard, even in its early years, GAO issued a number of decisions related to federal procurement matters, including such matters as breach of contract questions and contractor claims for increases in contract prices due to changed conditions.7 Beginning in the mid-1920s, GAO agreed to consider, under its settlement-of-accounts authority, complaints by private companies alleging irregularities in the bidding procedures – what were apparently the world’s first non-judicial procurement review or challenge processes, which came to be known in the United States as bid protests.8 GAO’s role as a forum to hear protests continued to grow and expand in the following decades. However, it was not until the enactment of the Competition in Contracting Act of 1984 (CICA) that GAO was granted explicit statutory authority to hear bid protests.9 CICA gave a statutory basis to various aspects of GAO’s protest process, including the rules for standing, referred to in CICA (using GAO’s long-established terminology) as ‘interested party’ status. CICA also gave GAO, for the first time, a firm deadline for issuing its rulings on protests, which is now (after amendments over the ensuing years) 100 calendar days.10 2   Budget and Accounting Act of 1921, Pub L No 67-13, 42 Stat 20 (1921); see Daniel I Gordon, ‘In the Beginning: The Earliest Bid Protests Filed with the US General Accounting Office’ (2004) 13 Public Procurement Law Review 147, 147. 3   Gordon, ‘In the Beginning’, n 2 above, 148; FC Mosher, The GAO: The Quest for Accountability in American Government (Boulder, Colo, Westview Press, 1979), Ch 3. 4  See Gordon, ‘In the Beginning’, n 2 above, 148; see Budget and Accounting Act of 1921, § 305. 5   Budget and Accounting Act of 1921, see n 2 above , § 321(c); see Gordon, ‘In the Beginning’, n 2 above, 148. 6  See Gordon, ‘In the Beginning’, n 2 above, 149. 7  Ibid. 8   Gordon, ‘In the Beginning’, n 2 above, 154. 9  Competition in Contracting Act of 1984 (CICA), Pub L No 98-369, 98 Stat 494, tit VII (1984). 10   31 USC § 3554 (a)(1) (2006).

Money Damages in Bid Protests in the US  201 Perhaps the most important innovation in CICA was the imposition of automatic interim relief for protesters: the filing of a protest at GAO automatically triggers a stay of the procurement, so that the federal agency is prohibited from awarding the contract (if none had been awarded before a protest was filed) or from proceeding with performance (if a protest was filed within specified time periods after award).11 CICA allows agencies to override these ‘automatic stays’ in certain circumstances, but those ‘overrides’ must be accompanied by particular determinations and signed at a relatively high level, and they have been relatively rare in the quarter century since CICA was enacted.12 The result is that, when GAO reaches a conclusion about the merits of a protest, it is not too late for the protester to be considered for award – a critical issue, at least from the US perspective, with regard to the need for monetary damages. GAO’s location in the legislative branch and its lack of judicial power mean that GAO cannot direct the contracting agencies – the great majority of which are in the executive branch – to take any particular action. However, CICA provides GAO with authority to ‘recommend’ remedial action based on a protest where GAO concludes that the agency has violated a procurement statute or regulation in its conduct of an acquisition.13 That recommendation almost always gives the protester another opportunity to win the contract and CICA virtually ensures that the agency will follow GAO’s recommendation by providing that, if it does not, GAO is to report that failure to four different congressional committees.14 Not surprisingly, in the years since CICA was enacted, except in rare instances, agencies have followed GAO’s recommendations.15 Specifically, CICA provides that, if GAO sustains a protest, it may recommend that the agency refrain from exercising any of the options under the contract; recompete the contract immediately; issue a new solicitation; terminate the contract; award a contract consistent with the requirements of such statute and regulation; implement any ‘combination’ of the above; or any other recommendation that GAO determines necessary in order to promote compliance with procurement statutes and regulations.16 GAO has never interpreted that last ‘catchall’ provision to allow for monetary damages, for reasons explained partly by the structure of CICA and partly by historical context. In terms of CICA’s structure, the statute explicitly addresses the issue of GAO recommending the payment of costs to successful protesters. It provides that GAO may recommend that the federal agency conducting the procurement reimburse a successful protester the costs of : (a) filing and pursuing the protest, including reasonable attorneys’ fees and consultant and expert witness fees; and

  31 USC § 3553.  Ibid.   31 USC § 3554. 14   31 USC § 3554 (e)(1). 15   GAO, B-401197, Report to Congress on Bid Protests Involving Defense Procurements, 4 (2009). 16   31 USC § 3554(b)(1); 4 CFR § 21.8(a) (2009). 11 12 13

202  Daniel I Gordon and Michael R Golden (b) bid and proposal preparation costs.17 Neither CICA nor the implementing regulations provide for a recommendation of lost profits. GAO’s Bid Protest Descriptive Guide states explicitly – ‘GAO never recommends that agencies pay lost profits or other common law damages.’18 In terms of historical context, GAO’s rejection of monetary damages as appropriate relief has been consistent since long before the enactment of CICA. In the early 1970s, GAO stated that prospective contractors had no right to recover losses, including compensatory damages, in the event they were not awarded a contract.19 The rule that recovery of anticipated profits was not appropriate was confirmed in the period leading up to the passage of CICA. In Houston Fearless 76, for example, GAO sustained the protest of an improper sole-source award, but denied the request for compensation for the alleged loss of business.20 Subsequent to the passage of CICA, GAO has consistently continued to follow the same rule. In Introl Corp, GAO sustained Introl’s protest that the agency had improperly solicited quotations on one basis and then placed an order on another basis.21 Since the equipment under the order had been delivered, and no other remedy was available, consistent with its CICA authority, GAO recommended that the protester receive its costs of preparing its ‘quotation’ (the equivalent of proposal preparation costs) and the costs of filing and pursuing the protest.22 However, GAO rejected Introl’s claim for lost profits.23 GAO concluded that anticipated profits may not be recovered, even in the presence of wrongful government action, and stated specifically that it had no authority to recommend the award of such costs.24 Since the enactment of CICA in 1984, GAO has repeatedly stated that there is no legal basis that would permit recovery of anticipated profits or similar monetary damages even if a firm had wrongfully been denied a contract.25 While the decisions do not provide any detailed discussion of GAO’s position, there are indications that GAO was accepting the logic adopted by the predecessor of the COFC, which held that lost profits could not be recovered under the implied 17   31 USC § 3554(c)(1); see 4 CFR § 21.8 (d); Bid Protests at GAO: A Descriptive Guide, 9th edn (2009) 27, available at www.gao.gov/decisions/bidpro/bid/d09417sp.pdf [hereinafter Bid Protest Guide]. 18   Bid Protest Guide, n 17 above, at 28. 19   Velonex, A Div of Varian, B-171612, 19 Mar 1971 (citing Lawshe Instrument Co, Inc, B-169547, 10 Feb 1971; Teledyne, Adcom, B-168485, 29 Oct 1970; The Adams & Westlake Co, B-169425, June 12, 1970; Ctl‑Dixie, Inc, B-167733, 9 Feb 1970). 20   Houston Fearless 76, B-209576, 15 Apr 1983, 83-1 CPD 412. 21   Introl Corp, B-218339, 9 July 1985, 85-2 CPD 35. 22   Introl Corp, n 21 above, at 3. 23  Ibid. 24  Ibid. (citing Effective Learning, Inc – Req for Review of Prior Claim Decision, B-215505, 19 Feb 1985, 85-1 CPD 207). 25   AdaRose Inc – Protest & Costs, B-299091.2, 14 Jan 2008, 2008 CPD 18 at 2, fn 1; Firebird Constr. Corp – Recons, B-246182.2, 27 May 1992, 92-1 CPD 473 at 2; TLC Sys, B-226531.2, 30 July 1987, 87-2 CPD 116 at 4; Adrian Supply Co – Recons., B-225440.2, 30 Mar 1987, 87-1 CPD 357 at 4; Sterling Millwrights, Inc, B-219242, 22 July 1985, 85-2 CPD 69 at 2.

Money Damages in Bid Protests in the US  203 contract theory that, at the time, provided the court a basis to review a claim by a firm that its bid or offer was not fairly or honestly considered.26 For example, in the Effective Learning decision, GAO advised that: [W]e know of no situation where anticipated profits may be recovered when the underlying claim is based upon equitable, rather than legal principles . . . Here, since a contract between the government and Effective Learning never came into being, the only relief possible was equitable in nature. Hence, the monetary recovery in this situation was limited to the reasonable value of services and did not encompass any potential profits that might have been earned by Effective Learning.27

GAO’s history and its placement in the federal government point to additional reasons for its rejection of monetary damages in protest cases. GAO is not a court, and, just as GAO has not embraced the judicial remedy of monetary damages, it has consistently declined to adopt other features common in court proceedings. For example, GAO has consistently declined to permit depositions as part of discovery – in fact, GAO declines to use the court-like terms ‘discovery’ and ‘motions’ to refer to the elements of its process that serve those roles.28 More importantly, GAO’s historical role in account settlement, set out above, suggests that its focus has never been on making disappointed bidders whole. This was underscored in the legislative history of CICA, which indicates that the statutory bid protest process at GAO was not founded to compensate aggrieved protesters.29 Rather, as envisioned in CICA, GAO’s role is focused on providing accountability and transparency into the federal acquisition system and helping support Congress’s oversight role.30 In contrast with the situation in countries in which procurement award disputes are resolved through the ordinary court system, GAO thus does not see protests as simply another form of litigation between parties, but rather a unique way of ensuring accountability and protecting the integrity of the procurement system. III.  Federal Courts

There has traditionally been scepticism in the United States about whether disappointed bidders should have the right to ‘sue the government’ in court over the conduct of a public procurement. This scepticism reflects the underlying belief that bidders lack a right to a federal contract, so that they have no legal basis to complain if they fail to receive a contract. Most notably, in 1940, the Supreme Court, in Perkins v Lukens Steel Co, held that aggrieved protesters   McCarty Corp v United States, 204 Ct Cl 768 (1974); Keco, 428 F.2d 1233.   Effective Learning, B-215505, at 3 (citing 27 Am Jur 2d Equity § 112 (1966)).   4 CFR § 21.3 (2009). 29   GAO, B-401197, Report to Congress on Bid Protests Involving Defense Procurements (2009) 13–14. 30  Ibid. 26

27 28

204  Daniel I Gordon and Michael R Golden lacked standing to challenge government contract awards in federal courts.31 The Perkins decision concluded that the public procurement statute governing the case (the Public Contracts Act of 193632) was designed solely to protect the government.33 After the Perkins decision, challenges to procurement actions could be filed with the predecessor of today’s COFC34 only on a limited basis under a theory that the government made an implied contract with prospective bidders to fairly consider their bids.35 The court derived this authority from the Tucker Act,36 which granted the court jurisdiction to render judgment upon any claim against the United States founded on implied contracts. The history of protests at the COFC and its predecessors begins in 1956 with the decision in Heyer Products Co v United States.37 In Heyer, the Court held that implied in every request for bids was a commitment that each bid would be fairly and honestly considered.38 In this case, the Court made an exception to the Perkins holding and held that an unsuccessful bidder had the right to file a claim for bid preparation expenses in the Court of Claims.39 However, the Court also made it clear that an unsuccessful bidder could not recover anticipated profits it would have made from the contract, even though its bid was rejected in violation of the law, because the contract under which the bidder would have made such profits never actually came into existence.40 Congress enacted the Federal Courts Improvement Act of 1982,41 which gave the predecessor of today’s COFC specific statutory jurisdiction to grant declaratory and injunctive relief in bid protest actions. However, the court’s jurisdiction was limited to cases brought before a contract was awarded.42 While Heyer and its progeny established the right of an unsuccessful bidder to file a claim for bid preparation costs at the predecessor of today’s COFC,43 the Court also made it clear that an unsuccessful bidder could not recover anticipated profits it would have made from the contract, notwithstanding that its bid was unlawfully rejected, because the contract under which the bidder would   Perkins v Lukens Steel Co, 310 US 113 (1940).   41 USC § 35 f 33   Perkins, n 31 above, at 125. 34   Predecessors of today’s Court of Federal Claims were called the United States Claims Court and the Court of Claims. The current name dates to the enactment of the Federal Courts Administration Act of 1992, Pub L No 102-572, § 902(a), 106 Stat 4506, 4516. The jurisdiction of the court, both the current one and its predecessors, has varied over time. 35   Heyer Products Co v United States, 140 FSupp 409, 412–13 (Ct Cl 1956). 36   28 USC 1491 f (2008). This Act, enacted in 1887, waived sovereign immunity on all claims arising from the Constitution, statutes, regulations, or contracts with the federal government. Government Contracts Research Guide, George Washington University Law School, at 6. 37   Heyer, n 35 above. 38   Heyer, n 35 above, at 412–13. 39   Heyer, n 35 above, at 414. 40   Heyer, n 35 above, at 413. 41  The Federal Courts Improvement Act of 1982, Pub L No 97-164, 96 Stat 25 (1982) created the United States Claims Court, which was renamed the Court of Federal Claims in 1992. See n 35 above. 42   United States v John C Grimberg Co, Inc, 702 F.2d 1362, 1374 (Fed Cir 1983). 43   Heyer, n 35 above, at 414. 31 32

Money Damages in Bid Protests in the US  205 have made such profits never actually came into existence.44 For example, in rejecting a claim for lost profits, the Court stated that: [P]laintiff’s demand for lost profits is off-point . . . as a matter of law, the disappointed bidder’s right to monetary relief is limited to the recovery of bid preparation costs and related expenses . . . Anticipated profits based on a contract that the prospective bidder was not awarded are not available. Put in terms of basic contract doctrine, the law grants damages to the disappointed bidder based on his reliance interest, not his expectation interest.45

In 1970, the US Court of Appeals for the District of Columbia Circuit, in Scanwell Laboratories v Shaffer, held that in the Administrative Procedure Act (APA), 5 USC §§ 551-59 (1946), Congress had statutorily reversed the Supreme Court’s rule in Perkins and that APA review of the procurement decisions of government agencies and officials was now available in district courts.46 Subsequent decisions confirmed this jurisdiction.47 As a result, disappointed bidders could now challenge contract awards in federal district court for alleged violations of procurement laws and regulations, or for alleged lack of rationality.48 When they considered protests under Scanwell jurisdiction, the federal district courts, like the predecessor of today’s COFC, concluded that the recovery of lost profits was not allowable because the APA did not authorise such recovery.49 For example, in Cincinnati Electric Corp v Kleppe, involving an appeal of a federal district court ‘protest’ decision, the Sixth Circuit held that the only recognised loss which an unsuccessful bidder sustains is the cost of preparation of bids or proposals and that only these costs may be recovered in an action in the Court of Claims.50 In 1996, Congress passed the Administrative Dispute Resolution Act (ADRA), which provided that the COFC and district courts would have concurrent jurisdiction over bid protest actions, and that the courts ‘shall review the agency’s decision pursuant to the standards set forth in section 706 of title 5’ of the APA.51 ADRA also contained a sunset provision stating that the district courts’ jurisdiction over bid protests was to terminate on 1 January 2001, unless   Heyer, n 35 above, at 413.   La Strada Inn Inc v United States, 12 Cl Ct 110, 115 (1987) (citations omitted); see Restatement (Second) of Contracts § 344 (1981) (reliance interest is one’s interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as one would have been in had the contract not been made). 46   Scanwell Lab Inc v Shaffer, 424 F.2d 859, 867 (DC Cir 1970). 47  See Impresa Construzioni Geom Domenico Garufi v United States, 238 F.3d 1324, 1331 (Fed Cir 2001). 48   Scanwell, n 46 above. The APA states that the court may set aside agency action that is, inter alia, ‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law’ or ‘in excess of statutory . . . authority’ 5 USC § 706(2). 49   Cincinnati Elec Corp v Kleppe, 509 F.2d 1080, 1089 (6th Cir 1975). 50   Ibid (citing M Steinthal & Co v Seamans, 455 F.2d 1289, 1302 (DC Cir 1971); Keco Industries Inc v United States, 192 Ct Cl 773 (1970); Robert F Simmons & Assoc v United States, 175 Ct Cl 510 (1966); Heyer Prod Co v United States, 147 Ct Cl 256 (1959)). 51  Administrative Dispute Resolution Act of 1996 (ADRA), Pub L No 104-320, 110 Stat 3870 (1996); 28 USC § 1491(b)(4) . 44 45

206  Daniel I Gordon and Michael R Golden extended by Congress, and the COFC was then to have exclusive jurisdiction over pre- and post-award bid protest actions.52 As of 1 January 2001, the federal district courts’ authority was not extended, making the COFC the exclusive judicial forum for the resolution of bid protests.53 Under the COFC’s procedures,54 there is no automatic stay of procurements, as provided for GAO protests under CICA. Instead, the protested procurement can continue, in the absence of a temporary restraining order (or preliminary injunction) from the court or a voluntary agreement by the government to stay the procurement pending the court’s decision on the protest. Also, while there is no statutory deadline at the COFC comparable to GAO’s 100-day CICA deadline, in fact the Court gives protests priority and decides them within a roughly comparable timeframe. In terms of relief for successful protests, ADRA states that: [T]o afford relief in such an action, the courts may award any relief that the court considers proper, including declaratory and injunctive relief except that any monetary relief shall be limited to bid preparation and proposal costs.55

In light of this clear statutory limit, the COFC has concluded that ADRA did not alter its long-standing rule that an unsuccessful bidder cannot recover lost profits.56 IV. Contracting Agencies

At least as an informal matter, disappointed bidders have always been allowed to complain to the contracting agency about how a procurement has been conducted. That process became more formal when, as part of the procurement reform efforts of the mid-1990s, President Clinton issued Executive Order No 12979, which directed heads of executive departments and agencies to develop administrative procedures for resolving protests of awards of procurement contracts within their agencies at a level above the contracting officer.57 In January 1997, the Federal Acquisition Regulation (FAR) was revised to implement this Executive Order.58 Under FAR § 33.102, a contracting officer must consider all protests and seek legal advice, whether protests are submitted before or after award and whether filed directly with the agency or with GAO.59  ADRA § 12(d).  Ibid; see Alabama Aircraft Indus, Inc – Birmingham v United States, 85 Fed Cl 558, 563 (2009). 54  R Ct Fed Cl 65. 55  ADRA § 12(b)(2); 28 USC § 1491(b)(2). 56   Lion Raisins Inc v United States, 52 Fed Cl 115, 119 (2002). 57   Exec Order No 12979, 60 Fed Reg 55, 171 (25 Oct 1995). 58   62 Fed Reg 270 (2 Jan 1997) (amending FAR § 33.103(c) to instruct agencies to provide for the inexpensive, informal, procedurally simple, and expeditious resolution of protests); Michael J Schaengold, T Michael Guiffré and Elizabeth M Gill, Choice of Forum for Bid Protests, Thompson West Briefing Papers, Second Series (Oct 2008) at 7. 59   48 CFR § 33.102(a) (2009). 52 53

Money Damages in Bid Protests in the US  207 FAR § 33.103(f) provides for a stay of agency actions pending resolution of the agency-level protest.60 If, in connection with a protest, the head of an agency determines that a solicitation, proposed award or award does not comply with the requirements of law or regulation, the head of the agency may: (1) take any action that could have been recommended by the Comptroller General had the protest been filed with GAO; (2) pay appropriate costs as stated in FAR § 33.104(h); and (3) require the awardee to reimburse the government’s costs where a post-award protest is sustained as the result of an awardee’s intentional or negligent misstatement, misrepresentation or miscertification.61 With regard to reimbursement of costs where the agency ‘sustains’ the agency-level protest, the agency may award costs consistent with the same rules applicable to GAO.62 FAR § 33.103(h) provides that the agency may pay to an appropriate protester the cost, exclusive of profit, of filing and pursuing the protest, including reasonable attorneys’, consultant, and expert witness fees, and bid and proposal preparation costs.63 No mention is made of lost profits, and the rule is read to mean that payment of lost profits is not authorised even when an agency finds a protest meritorious. V.  Why Not Reimburse Lost Profits?

As explained above, the federal bid protest forums, historically and universally, have declined to consider the payment of lost profits as a proper remedy. This might be viewed as a surprising position, since in ordinary contract litigation in the United States, lost profits might be recoverable.64 The difficulties of calculating   48 CFR § 33.103(f) (2009). The language at FAR § 33.103(f) provides as follows –

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(1) Upon receipt of a protest before award, a contract may not be awarded, pending agency resolution of the protest, unless contract award is justified, in writing, for urgent and compelling reasons or is determined, in writing, to be in the best interest of the Government. Such justification or determination shall be approved at a level above the contracting officer, or by another official pursuant to agency procedures. ... (3) Upon receipt of a protest within 10 days after contract award or within 5 days after a debriefing date offered to the protester under a timely debriefing request in accordance with 15.505 or 15.506, whichever is later, the contracting officer shall immediately suspend performance, pending resolution of the protest within the agency, including any review by an independent higher level official, unless continued performance is justified, in writing, for urgent and compelling reasons or is determined, in writing, to be in the best interest of the government. Such justification or determination shall be approved at a level above the contracting officer, or by another official pursuant to agency procedures.   § 33.102(b).   § 33.102(b)(2). 63   § 33.104(h). 64  See 24 Richard A Lord, Williston on Contracts, 4th edn (Eagan, MN, Thomson/West, 1990) and Supp. (2007) § 64:1; Geophysical Co of Am, Inc v Bolt Assocs, Inc, 584 F.2d 1164, 1172 (2d Cir 1978). Indeed, where the government breaches a contract, that might be true even for a public procurement contract. eg, if the government fails to order the guaranteed minimum quantity of 61 62

208  Daniel I Gordon and Michael R Golden lost profits, and their uncertainty, have not prevented them from being paid in ordinary contract cases. One could argue, as well, that forcing the government to pay lost profits would serve as a healthy incentive to government officials to ensure that procurement rules are followed. Moreover, to the extent that protests are viewed as a useful policing mechanism for the procurement system – with protesters serving as ‘private attorneys general,’ in the words of the Scanwell decision65 – the availability of money damages could encourage protesters to step forward, thus strengthening the protection of the procurement system. So why have US federal authorities so consistently rejected money damages, other than attorneys’ fees and proposal preparation costs? Because GAO is the oldest and most widely-used protest forum in the federal system, one could be tempted to attribute the rejection of money damages to GAO’s unique constitutional status as a legislative-branch agency fulfilling a quasi-judicial role overseeing executive-branch agencies’ procurements. But that cannot be the answer, since the COFC, its predecessors, and even the federal district courts (when they had protest jurisdiction under Scanwell) all rejected money damages in protest cases. In the authors’ opinion, the answer is a matter of both practicality and principle, which, while rooted in the US context, has implications for other countries and their protest systems. A number of practical considerations can be pointed to as an explanation for the refusal to provide money damages in the United States. First, in the US federal system, money damages are seen as unwarranted. Unlike in some other systems, in order to have standing to protest to GAO or the COFC, an entity must be a potential contractor: ordinary taxpayers, subcontractors, and others generally cannot file protests.66 In award challenges (the majority of protests), in fact, the protester must have actually competed for the award of the contract.67 Successful protesters in the United States are thus by definition potential awardees of the contract, and winning the protest generally gives them another opportunity to compete for the contract. This is in contrast to public procurement systems where, once a contract has been signed, a protest – even a successful protest – cannot lead to the contract being terminated. In those systems, no supplies or services under an Indefinite-Delivery/Indefinite-Quantity (ID/IQ) contract (the US version of framework agreements under the European Union Procurement Directive), that might constitute a breach of contract that could entitle the contractor to anticipatory profits on unordered portions of the guaranteed minimum quantity. Marko W Kipa et al, ‘Conquering Uncertainty in an Indefinite World: A Survey of Disputes Arising Under IDIQ Contracts’ (2008) 37 Public Contract Law Journal 415, 440–41; In re Jim Phillips Contracting, Inc, 04-1 BCA 32, 416. The result is different, however, if the government terminates the contract for convenience prior to its expiration. Then, the contractor’s recovery is limited by the applicable termination for convenience clause and the contractor may not recover anticipatory profits on unordered portions of the guaranteed minimum quantity. Jim Phillips, above, at 446; Montana Ref, 00-1 BCA 30,694, at 151, 627–29. 65  See Scanwell, n 46 above, at 864. 66   4 CFR 21.0 (a) (2009). 67  Ibid.

Money Damages in Bid Protests in the US  209 other relief may be available, other than money damages.68 In the US federal system, CICA’s automatic stay (or the voluntary or court-ordered stay at the COFC) ensures that, if the protest is sustained, it will not be too late to re-open the procurement and let the protester compete.69 GAO routinely recommends, and the COFC routinely directs, that government agencies re-open procurement competitions where an awarded (and signed) contract is found to have been improperly awarded. If the result of the re-opened competition is that another firm wins the contract, the originally awarded contract will be terminated.70 Because the protester will be given a ‘second bite at the apple,’ requiring the government to also pay lost profits to the protester is seen as unjustified. Moreover, since the procurement is usually being re-opened, there is the valid question of whether the protester, even given a fair chance, will actually win the contract. If it does, the government will be paying its contract price, including its profits. But if the firm does not win the re-opened and now fair competition, why should the government pay its lost profits? Second, calculating the appropriate amount of lost profits (if they were to be paid) seems particularly difficult, and more difficult than in ordinary litigation. The most extreme example is raised by those protests (albeit a minority) that are not challenges to the selection of a competitor, but rather occur earlier on in the process – they are challenges to the ground rules of the competition. In these pre-award protests, which typically involve disputes about the specifications required in the solicitation, the result of a successful protest will virtually always be a modification of the ground rules and then a competition. In those cases, a successful protester would normally always have a chance to compete for the contract, so that payment of ‘lost’ profits seems particularly unjustified – but calculating the amount of its lost profits also seems particularly problematic. In the federal system, the government routinely negotiates with offerors before a final price is established (in contrast to the EU system, for example, where negotiated procurements are the exception), so that the eventual contract price is wholly conjectural at the time of a pre-award protest, and the offeror/protester’s lost profits are at least as uncertain. Simply put, calculating lost profits without 68  The new European Union Remedies Directive’s imposition of a ‘standstill’ period prior to the signing of a contract may weaken the case for lost-profit damages in the EU, since successful protesters may be afforded an opportunity to compete for the disputed contract. Council Directive 2007/66/ EC [2007] OJ L335/31. 69  The Supreme Court of Ohio, in addressing the appropriateness of awarding lost profits, concluded that ‘injunctive relief provides a remedy that prevents excessive costs and corrupt practices, as well as protects the integrity of the bidding process, the public, and the bidders’ Cementech Inc v City of Fairlawn, 849 NE 2d 24, 27 (Ohio 2006). As relevant to the federal bid protest process, the Court reasoned that the availability of interim injunctive relief to preserve the status quo while a challenge to the bidding was resolved by the Court would serve the public interest better than recovery of lost profits as a remedy. As discussed earlier, interim stay procedures pending resolution of a protest are available at the agency and GAO through an automatic stay, and injunctive relief is available at the COFC.

 See, eg, ACCESS Sys, Inc, B-400623.3, 4 Mar 2009, 2009 CPD 56 at 10.

70

210  Daniel I Gordon and Michael R Golden a contract price is difficult. While the fact that no contract came into being can be pointed to as removing a legal basis for claiming lost profits, it may be just as important that the absence of a contract means that, in a system where negotiations over price typically precede the award of a contract, there is an absence of an agreed price upon which lost profits could be based. The same problem arises even for many post-award protests that are upheld in the United States. The remedy provided by GAO and the courts is, as explained in this chapter, typically that the procurement be re-opened. Because that frequently means re-opening negotiations, the contract price and at least some of the contract terms, are typically uncertain at the re-opening of the procurement. In that situation, too, making lost profits available would again force the calculation of lost profits based on a speculative contract price.71 An additional practical consideration is that, if lost profits were available, that could lead to further litigation. Protest litigation needs to be quick to avoid burdening the procurement system, and, as noted above, protests at both GAO and the COFC are typically resolved in a matter of weeks (with 100 days as the outer limit at GAO). Protests also need to be inexpensive, to avoid unjustified burdens on protesters and the government. Yet allowing the remedy of lost profits could easily lead to collateral litigation which could, at least potentially, drag on longer than the procurement itself. These practical considerations might not have led to the exclusion of lost profits as a remedy, were it not for a matter of principle that has meant that lost profits were not viewed as important. A central purpose of the protest system is to protect the procurement system and the taxpayers; it is part of the American way of holding the government accountable. The disappointed bidders and their interests are important, but they are not the sole, and perhaps not the main, reason that the protest system exists. Because money damages go largely to making the protester whole, they are viewed as largely irrelevant to protecting the procurement system. As envisioned by Congress in enacting CICA, the protest process offers a number of valuable benefits.72 For example, a protester acts as a ‘private attorney general’ who uses the protest process to identify and pursue complaints concerning the procurement system, with a resultant benefit to the public, for example, promoting an enhanced and fairer competition.73 It is interesting to 71   It should be recognised, though, that there are situations in the US that are outliers, where the successful protester is given no chance to compete for the contract, but the protester is still denied lost profits. This can be because a GAO protest was filed too late to obtain a stay under the strict timeframes required by CICA, or a COFC protester did not obtain an injunction (court-ordered or voluntary) of the procurement--and yet the protester ultimately prevailed in the protest. Those cases are relatively rare, but they do arise. Where no other relief is available, GAO has recommended that the successful protester be reimbursed its proposal preparation costs. See, eg, Wyse Tech, Inc, B-297454, 24 Jan 2006, 2006 CPD 23 at 7. 72  GAO, B-401197, Report to Congress on Bid Protests Involving Defense Procurements, 13 (2009). 73  See Scanwell, n 46 above, at 864; Department of the Navy--Modification of Remedy, B-284080.3, May 24, 2000, 2000 CPD ¶ 99.

Money Damages in Bid Protests in the US  211 point out that the DC Circuit in Scanwell echoed this view in discussing why it believed aggrieved parties could file ‘protests’ in the federal district courts.74 In a protest decision recognising this principle, GAO stated that: The protest served precisely the purpose anticipated by CICA [by] highlight[ing] a failure by GSA to properly maintain the FSS program . . . [W]e think CICA clearly anticipates that the government should reimburse [the protester] for acting as a private attorney general in shining the light of publicity here.75

Another rationale for the protest process is that it provides a form of indirect congressional oversight of the procurement process.76 As stated by the court in Ameron, Inc v US Army Corps of Engineers: The bid protest resolution process created by CICA is also intended to inform Congress of the operation of existing procurement laws, and to use the pressure of publicity to enforce compliance with those laws . . . [by enabling] disappointed bidders to compel the executive to explain some of its procurement decisions to the Comptroller General.77

These considerations apply with equal force to the role of the Court, currently the COFC, as a bid protest forum. Congress has recognised that a strong bid protest mechanism serves a number of valuable public interests – providing accountability and transparency concerning the procurement system, and protecting the integrity and legitimacy of a competitive and robust procurement process.78 These benefits go beyond the adjudicatory process that focuses on whether the protester or agency has prevailed in a particular case. With respect to the value of ‘private attorneys general’, one could suggest that paying their lost profits would encourage more potential protesters to step forward. That assumes, however, that firms will not protest, at least not in adequate numbers, without the availability of lost profits. That, in turn, assumes that we have ‘too few’ protests today. Determining the ‘right’ number of protests seems unduly speculative, and the presumption that a system has so few that lost profits must be made available seems unwarranted. Where a protest   Scanwell, n 46 above, at 864: Instead of designating the Attorney General, or some other public officer, to bring such proceedings, Congress can constitutionally enact a statute conferring on any non-official person, or on a designated group of non-official persons, authority to bring a suit to prevent action by an officer in violation of his statutory powers; for then, in like manner, there is an actual controversy, and there is nothing constitutionally prohibiting Congress from empowering any person, official or not, to institute a proceeding involving such a controversy, even if the sole purpose is to vindicate the public interest. Such persons, so authorized, are, so to speak, private Attorney Generals [sic].

74

75   Department of the Navy – Modification of Remedy, B-284080.3, 24 May 2000, 2000 CPD 99 at 3. 76  See Ameron Inc v US Army Corps of Eng’rs, 809 F.2d 979 (3d Cir 1987). 77   Ibid at 984. 78  HR Conf Rep No 98-861, at 1435 (1984), reprinted in 1984 USCCAN 2123; GAO, B-401197, Report to Congress on Bid Protests Involving Defense Procurements (2009) 13; Gary L Kepplinger, ‘GAO’s Bid Protest Role: Referee of the Procurement Process’, Federal Times (19 Jan 2009), available at www.federaltimes.com/index.php?S=3905597.

212  Daniel I Gordon and Michael R Golden mechanism exists but is rarely used, it would be more useful to inquire into other reasons. These include: the availability of interim relief (that is, a stay of the procurement pending resolution of the protest); fair procedures allowing the protester the opportunity to pursue the protest, including gathering facts and potentially asking questions, in writing or orally, of the officials who conducted the procurement; the willingness of the protest forum to rule in favour of the protester; and the availability of other forms of final relief, such as the opportunity to compete again for the contract.79 In the authors’ view, the more than 1,000 protests that are filed each year challenging federal procurements is a significant number, and there is no reason to posit that lost profits should be made available to ensure that more protests are filed. VI. Conclusion

Historically, GAO and the courts have rejected the award of lost profits to successful protesters. This rule has been confirmed by statute and regulation; thus, the respective federal bid protest forums, including the agency-level protest forum created by executive order, have no authority to reimburse a successful protester’s lost profits. There is no indication that the longstanding rule in the federal protest system that lost profits cannot be awarded as a remedy will change. Federal procurement legislation affecting the federal bid protest system since 1984 has not contained any proposal to reverse this longstanding policy,80 In the authors’ view, the US protest system works well without the remedy of lost profits, and, while the US protest system continues to evolve, adding that remedy is not needed, either at GAO or the COFC.

79   Daniel I Gordon, ‘Constructing a Bid Protest Process: The Choices that Every Procurement Challenge System Must Make’ (2006) 35 Public Contract Law Journal 427. 80  See, eg, Federal Acquisition Streamlining Act of 1994, Pub L No 103-355, 108 Stat 3243 (1994); Competition in Contracting Act, Pub L No 98-369, 98 Stat 494, tit VII (1984).

12 Remedies for Breaches of Procurement Regulation and the UNCITRAL Model Law on Procurement Caroline Nicholas*

I. Background

C

hapter VI of the 1994 UNCITRAL Model Law on Procurement1 sets out its provisions on ‘Review’, otherwise known as challenge or bid protest (see articles 52–57 of that Model Law). The Guide to Enactment that accompanies the Model Law2 introduces the provisions by noting that: An effective means to review acts and decisions of the procuring entity and procedures followed by the procuring entity is essential to ensure the proper functioning of the procurement system and to promote confidence in that system.

However, when the then draft Model Law was being debated in the early 1990s, considerable disagreement was expressed as to whether it was appropriate to include any provisions on the topic at all, and further disagreement was evident as to their extent and scope. Some delegations considered that primacy should be afforded to the procuring entity in international procurement; others that each enacting State should be left to decide on review procedures depending on its domestic legal system, and among the group generally views were expressed that the provisions were alternatively too broad or too narrow. There * The opinions expressed in this article are personal and are not to be viewed as representing official views of the United Nations. A version of this paper was published as ‘Remedies for Breaches of Procurement Rules and the UNCITRAL Model Law on Procurement’ (2009) 4 Public Procurement Law Review, NA 151, and this paper draws on that publication by kind permission of the publishers, Sweet and Maxwell/Thomson Reuters 1  See Official Records of the General Assembly, Forty-ninth Session, Supplement No 17 and corrigendum (A/49/17 and Corr.1), annex I. The full text is available at www.uncitral.org/uncitral/en/ uncitral_texts/procurement_infrastructure/1994Model.html. All websites referred to in this article were accessed on 25 August 2009. 2  A/CN.9/393, ‘Guide to Enactment of UNCITRAL Model Law on Procurement of Goods and Construction’, available at www.uncitral.org/pdf/english/texts/procurem/ml-procurement/ml-­ procure.pdf (accessed 02 June 2011).

214  Caroline Nicholas was also extensive discussion of who should be entitled to review, with respect to what type of actions and the stage at which review may be sought, the extent to which review should suspend procurement proceedings, and the type of relief that should be available.3 In summary, there was reticence about addressing the issue, because remedies and enforcement in procurement touched on the legality of government acts and upon the interaction of executive and the judicial branches of a particular State, an area not within UNCITRAL’s mandate and unlikely in any event to lead to consensus. The result was, inevitably, a compromise. Provisions were included in the 1994 Model Law, but, noting the wide variety of regulation in practice, the Guide to Enactment states that: in order to avoid impinging upon fundamental conceptual and structural aspects of legal systems and systems of State administration, the provisions in chapter VI are of a more skeletal nature than other sections of the Model Law. As indicated in [a footnote to] the Model Law at the head of chapter VI, some States may wish to incorporate the articles on review without change or with only minimal changes, while other States might not see fit, to one degree or another, to incorporate those articles. In the latter cases, the articles on review may be used to measure the adequacy of existing review procedures.

and: [I]n order to enable the provisions to be accommodated within the widely differing conceptual and structural frameworks of legal systems throughout the world, only basic features of the right of review and its exercise are dealt with.4

The general guidance contained in the provisions and accompanying Guide to Enactment text therefore left considerable scope to the enacting State in implementing the Model Law. In order to understand the UNCITRAL treatment of the question of damages and other remedies, it is helpful to set the context of the scope of review provisions as a whole. The 1994 provisions themselves can be summarised as follows. They establish the basic right to obtain review (article 52, granted to suppliers or contractors – the term includes potential suppliers or contractors, but not the general public);5 a first-stage peer review mechanism (article 53, the purpose of which is to enable a procuring entity to correct defective acts, decisions or procedures); a 3  The breadth and depth of the discussions is reflected in the significant extent to which the topic was covered in the pre-1994 period, both in the secretariat’s Working Papers and the Reports of the Working Group on the New International Economic Order (all available on the UNCITRAL website, at www.uncitral.org/uncitral/en/commission/working_groups/5Economic_Order.html): see, eg, Working Papers A/CN.9/WG.V/WP.22, A/CN.9/WG.V/WP27, A/CN.9/WG.V/WP.33 and A/CN.9/WG.V/WP.34 for the Working Group and A/CN.9/WP.376 and A/CN.9/WP.376/Add.1 for the Commission, and Working Group reports of the 10th session (A/CN.9/315, paras 17–19, 28, 114–21); 13th session (A/CN.9/356 paras 47–49, 77–81, 148–92); 13th session (A/CN.9/356, paras 47–49, 77–81 and 148–92); 14th session (A/CN.9/359, paras.51, 78, 88, 90, 91, 116; 214–46); 15th session (A/CN.9/371, paras 30, 197–251; p99); and 16th session (A/CN.9/389, para 11). 4  Guide to Enactment, commentary to article 51, paras 5 and 6. 5   Model Law, article 2(f).

Remedies for Breaches and UNCITRAL Model Law  215 second-stage administrative review mechanism (article 54, largely for those States without a general hierarchical administrative review system); and a judicial review mechanism (article 56, which is included essentially to confirm the right to judicial review for procurement-related disputes in so far as the mechanism is generally available in the enacting State). The intervening articles address the procedures applicable to peer or administrative review including such matters as transparency and the mechanism for permitting other suppliers or contractors to join in existing complaints (article 55), and suspension of the procurement proceedings while the review is conducted (article 56). The latter provision provides for a semi-automatic suspension: a 7-day suspension is triggered by filing the complaint provided that a complaint is submitted in timely fashion and indicates circumstances that, if proven, would normally attract relief, and provided that the suspension would not cause irreparable harm to the procuring entity or other suppliers or contractors. The procuring entity may extend the suspension for up to thirty days. There is a major caveat to the 1994 provisions, namely the exemption, under article 52(2), of many procurement decisions from review. They are: (a) the selection of a method of procurement; (b) the choice of a selection procedure for award of services contracts; (c) the limitation of procurement proceedings on the basis of nationality; (d) a decision by the procuring entity to reject all tenders, proposals, offers or quotations; (e) a refusal by the procuring entity to respond to an expression of interest in participating in request for proposals proceedings; (f) an omission in the solicitation documents or their equivalent. The reason for these exceptions, it was stated at the time, was that the above decisions, which involved the use of discretion on the part of the procuring entity, would not involve different treatment of suppliers or contractors. On the other hand, decisions relating to the qualification of suppliers or contractors, or the award of a procurement contract, should be subject to review because they did involve decisions relating to each participant and might be discriminatory.6 This notion was subsequently reflected in the Guide to Enactment in the following terms: The exemption of certain acts and decisions is based on a distinction between, on the one hand, requirements and duties imposed on the procuring entity that are directed to its relationship with suppliers and contractors and that are intended to constitute legal obligations towards suppliers and contractors, and, on the other hand, other requirements that are regarded as being only ‘internal’ to the administration, that are aimed at the general public interest, or that for other reasons are not intended to constitute legal obligations of the procuring entity towards suppliers and contractors. 6  Report of the Working Group on the New International Economic Order on its 13th session (document A/CN.9/356, para 156).

216  Caroline Nicholas The right to review is generally restricted to cases where the first type of requirement is violated by the procuring entity.7

An example of the difference is provided by the application of article 30 (Submission of tenders), in which a distinction is drawn between the mandatory extension of a tender submission deadline (where there has been late issue of clarifications or modifications of the solicitation documents, or of minutes of a meeting of suppliers or contractors) which is subject to review, and a discretionary extension (for example, when one or more suppliers or contractors are unable to submit their tenders on time due to any circumstances beyond their control), which is not.8 The approach of the 1994 provisions, reflecting the debate outlined above, was therefore designed to strike a balance between the right of the supplier or contractor to have a complaint reviewed and the need of the procuring entity to conclude a contract in an economic and efficient way, without undue disruption and delay of the procurement process. An example of this approach is explained in the commentary to article 52, which operates to exclude sub-contractors from the ambit of the right to review provided for in the Model Law, providing that the ‘limitation is designed to avoid an excessive degree of disruption, which might impact negatively on the economy and efficiency of public purchasing’. In similar vein, the quasi-automatic right to a suspension of the procurement proceedings following the submission of a complaint conferred by article 55 is limited by procedural requirements, by limiting the period of the suspension and by permitting the procuring entity to avoid a suspension if urgent public interest considerations so warrant. A fundamental aspect of the approach under the Model Law remains to ensure the relatively swift resolution of disputes: the accompanying commentary in the 1994 Guide to Enactment notes that the peer review mechanism under article 53 should be designed to provide a speedy disposition of the complaint, so that if the complaint cannot be disposed of expeditiously, recourse to administrative or judicial review is not itself delayed. Consequently, if a decision by the procuring entity (or, where relevant, an approving authority) is not provided within the 30-day deadline set out in the article, the complainant can initiate administrative review or judicial review proceedings immediately without waiting further for a response from the initial body.9 The importance of this point has been stressed by the Working Group in its revisions to the Model Law.10 As a consequence, the primary remedy is considered to be correcting the decision complained of, and damages are a secondary issue.

 Guide to Enactment, commentary to article 52, para 3.  Guide to Enactment, commentary to article 30, para 2.  Guide to Enactment, commentary to article 53, para 8. 10  See the Report of Working Group I (Procurement) on its 6th session, A/CN.9 /568, paras 107 and 108, and the Report of Working Group I (Procurement) on its 14th session, A/CN.9/664, para 69. 7 8 9

Remedies for Breaches and UNCITRAL Model Law  217 The peer review mechanism can lead to the complaint being dismissed, or to corrective action. The options for relief are indicated in the Guide to Enactment: [T]he procuring entity [can] rectify the procurement proceedings so as to be in conformity with the procurement law, the procurement regulations or other applicable rule of law; if a decision has been made to accept a particular tender and it is shown that another tender should be accepted, . . . the procuring entity [can decide] not to issue the notice of acceptance to the initially chosen supplier or contractor, but instead to accept that other tender; or [to terminate] the procurement proceedings and [order] new proceedings to be commenced.11

There is no provision for financial compensation. The peer review mechanism is also limited to disputes arising before the procurement contract comes into force, because after that point, there are practically no corrective measures that the procuring entity could usefully take. The administrative review mechanism under article 54 is not so limited, in that proceedings can be instituted for a limited period after entry into force of the procurement contract, and the relief that the administrative body can provide includes: 1. A declaration of the legal rules or principles that govern the subject matter of the complaint; 2. Prohibiting of the procuring entity from acting or deciding unlawfully or from following an unlawful procedure; 3. Requiring the procuring entity that has acted or proceeded in an unlawful manner, or that has reached an unlawful decision, to act or to proceed in a lawful manner or to reach a lawful decision; 4. Annulling in whole or in part an unlawful act or decision of the procuring entity, other than any act or decision bringing the procurement contract into force; 5. Revise an unlawful decision by the procuring entity or substitute its own decision for such a decision, other than any decision bringing the procurement contract into force; 6. Require the payment of compensation for either the costs of the complaint, the costs incurred in participating in the procurement process, or loss or damage (the enacting State is invited to choose whether or not to provide for the latter); and 7. Ordering that the procurement proceedings be terminated. The exception in item 4 is worth noting: there is no provision for the annulment of a procurement contract, because, as the travaux préparatoires note, it was considered appropriate to leave the question to other branches of law (such as contract or criminal law) in the enacting State concerned.12 The Guide to Enactment also commented that:  Guide to Enactment, commentary to article 53, para 5.  See, eg, A/CN.9/356, para 174.

11 12

218  Caroline Nicholas [A]s annulment of procurement contracts may be particularly disruptive of the procurement process and might not be in the public interest, it has not been provided for in the Model Law itself. Nevertheless, the lack of provisions on annulment in the Model Law does not preclude the availability of annulment under other bodies of law. Instances in which annulment would be appropriate are likely to be adequately dealt with by the applicable contract, administrative or criminal law.13

The accompanying Guide notes that the enacting State can choose which measures to enact from among this list, and the guidance is careful to note that there is no intention of interfering in the fundamental conceptual and structural aspects of legal systems and systems of State administration that govern how disputes in general and procurement disputes in particular are addressed. The 1994 notes were accompanied by the following commentary: Differences exist among national legal systems with respect to the nature of the remedies that bodies exercising hierarchical administrative review are competent to grant . . . The paragraph should list all of the remedies that the administrative body may grant. The approach of the present article, which specifies the remedies that the hierarchical administrative body may grant, contrasts with the more flexible approach taken with respect to the corrective measures that the head of the procuring entity or of the approving authority may require (article 53(4)(b)). The policy underlying the approach in article 53(4)(b) is that the head of the procuring entity or of the approving authority should be able to take whatever steps are necessary in order to correct an irregularity committed by the procuring entity itself or approved by the approving authority. Hierarchical administrative authorities exercising review functions are, in some legal systems, subject to more formalistic and restrictive rules with respect to the remedies that they can grant, and the approach taken in article 54(3) seeks to avoid impinging on those rules.14

The two options for financial compensation envisaged in the provisions were explained in the Guide as follows: With respect to the types of losses in respect of which compensation may be required, paragraph (3)(f) sets forth two alternatives for the consideration of the enacting State. Under Option I, compensation may be required in respect of any reasonable costs incurred by the supplier or contractor submitting the complaint in connection with the procurement proceedings as a result of the unlawful act, decision or procedure. Those costs do not include profit lost because of non acceptance of a tender, proposal, offer or quotation of the supplier or contractor submitting the complaint. The types of losses that are compensable under Option II are broader than those under Option I, and might include lost profit in appropriate cases.15  Guide to Enactment, commentary to article 54, para 12.  Guide to Enactment, commentary to article 54, para 8. 15  Guide to Enactment, commentary to article 53, para 10. The options themselves read: 13 14

Option I Any reasonable costs incurred by the supplier or contractor submitting the complaint in connection with the procurement proceedings as a result of an unlawful act or decision of, or procedure followed by, the procuring entity and

Remedies for Breaches and UNCITRAL Model Law  219 The debate on this question had started as far back as the 10th session of the Working Group that drafted the 1994 Model Law. Views focused on anticipated lost profits as the main example of the damages that might be awarded, and those speaking expressed views including that compensation should be limited to the costs of the tenderer in preparing and submitting its tender; the tenderer should not be entitled to compensation for its lost profits since that would expose the procuring entity to complaints for potentially large sums;16 the interest or injury of a challenging supplier should include actual or potential loss or damage suffered when the procuring entity violated duties established in the provisions of the Model Law;17 exposing the procuring entity to liability for losses suffered, in particular lost profit, was excessive given the fact that compensation would come from the public purse; the Model Law should not add to the burdens borne by procuring entities in the developing world; but that limiting recovery merely to tender or proposal preparation costs would result in insufficient compensation.18 On a related issue, the Working Group agreed that the notion of interest or injury that the person would be required to have in order to be entitled to seek review should be linked to actual or potential loss or damage suffered when the procuring entity violated duties established in the provisions of the Model Law.19 The broad divergence of views and sensitivity of the topic probably explain why the guidance as set out above did not address these issues, nor discuss the advantages or disadvantages of either of the options outlined above. Notably, there was no discussion of how to provide an appropriate remedy where corrective action is no longer possible in systems that have adopted Option I. Finally, the guidance supporting the provisions encourages the enacting State to include in the procurement regulations detailed rules concerning the procedural requirements to be met by a supplier or contractor in order to initiate the review proceedings. For example, such regulations could clarify whether a succinct statement made by telex, with evidence to be submitted later, would be regarded as sufficient. The procurement regulations may also include detailed rules concerning the conduct of review proceedings under this article (e.g., concerning the right of suppliers or contractors participating in the procurement proceedings, other than the party submitting the complaint, to participate in the review proceedings (see article 55); the submission of evidence; the conduct of the review proceedings; and the corrective measures that the head of the procuring entity or of the approving authority may require the procuring entity to take).20 Option II Loss or injury suffered by the supplier or contractor submitting the complaint in connection with the procurement proceedings.  A/CN.9/315, para 120.  A/CN.9/356, para 156. 18  See A/CN.9/359, paras 230 and 231, reproduced in part in A/CN.9/WG.I/WP.68, para 44. See, also, A/CN.9/WG.V/WP.27, draft article 38 (2) (g), para 7 of the commentary on draft article 38, and para 3 of the commentary on draft article 37. 19  See A/CN.9/356, para 156. 20  Guide to Enactment, commentary to article 53, para 7. 16 17

220  Caroline Nicholas Commentators, when addressing these provisions, have made two general observations: first, that the provisions and guidance insofar as they address procedures are useful in promoting the efficient resolution of disputes.21 However, the scope and extent of the provisions has been subject to significant criticism: most significantly as regards the exceptions described above,22 and other matters such as that the Model Law does not address the question of the independence of the administrative review body,23 does not address the form of the relief to be given (which may include orders or recommendations), there are no provisions for a judicial or quasi-judicial proceeding, and finally that there is no provision creating a right to judicial review (as explained above, article 57 does allow enacting States that operate judicial review to include procurement review within the relevant courts’ jurisdiction).

21  There is no provision for alternative dispute resolution in the Model Law. Para 7 of the Guidance introducing the review chapter notes that this is because the use of arbitration in the context of procurement proceedings is relatively infrequent. Nevertheless, the Model Law does not intend to suggest that the procuring entity and suppliers or contractors are precluded from submitting to arbitration, in appropriate circumstances, a dispute relating to the procedures in the Model Law. When reconsidering the issue in 2004, the Working Group noted that while those procedures might be useful at the post-award stage, their utility in pre-award stages [is] doubtful. Furthermore, in some jurisdictions it [has] been found that recourse to arbitration and other extrajudicial dispute settlement methods might not always contribute to the development of the law, to the extent that in many legal systems arbitral awards of settlement agreements [are] not conducive to establishing a binding precedent. While it would be appropriate to recognize the use of alternative dispute settlement procedures in procurement proceedings, it was emphasized that the impression that those procedures could always substitute for judicial review should be avoided (A/CN.9/568, para 111). 22  See, esp, Sue Arrowsmith, ‘Public Procurement: An Appraisal of the UNCITRAL Model Law as a Global Standard’ (2004) 53 International & Comparative Law Quarterly 17, highlighting many of the points that have been addressed by the Working Group. 23  However, commentary in the Guide to Enactment regarding article 54 did note as follows: An enacting State that wishes to provide for hierarchical administrative review but that does not already have a mechanism for such review in procurement matters should vest the review function in a relevant administrative body. The function may be vested in an appropriate existing body or in a new body created by the enacting State. The body may, for example, be one that exercises overall supervision and control over procurement in the State (e.g., a central procurement board), a relevant body whose competence is not restricted to procurement matters (e.g., the body that exercises financial control and oversight over the operations of the Government and of the public administration (the scope of the review should not, however, be restricted to financial control and oversight)), or a special administrative body whose competence is exclusively to resolve disputes in procurement matters, such as a ‘procurement review board’. It is important that the body exercising the review function be independent of the procuring entity. In addition, if the administrative body is one that, under the Model Law as enacted in the State, is to approve certain actions or decisions of, or procedures followed by, the procuring entity, care should be taken to ensure that the section of the body that is to exercise the review function is independent of the section that is to exercise the approval function. (para 3).

Remedies for Breaches and UNCITRAL Model Law  221

II. Revisions to strengthen the UNCITRAL review provisions

A.  Scope of Provisions UNCITRAL has mandated one of its Working Groups to formulate revisions to the Model Law (Working Group I (Procurement)).24 The above observations, together with the requirements of the United Nations Convention Against Corruption (UNCAC) article 9 (1) (e), which requires procurement systems to include [a]n effective system of domestic review, including an effective system of appeal, to ensure legal recourse and remedies in the event that the rules or procedures established pursuant to this paragraph are not followed25

led the Working Group to reconsider both the scope and extent of the review provisions and the provisions themselves.26 Again, the approach to the question of damages needs to be considered in the context of the wholesale overhaul of the remedies system, and so that context appears before a discussion of the conclusions of the Working Group regarding financial compensation in general and damages in particular. The Working Group has noted that there remains a broad range of approaches to remedies provisions in different legal systems, in that States differ significantly in their approach to enforcement and in the extent to which they offer review at the instigation of the supplier (largely reflecting the fundamental conceptual and structural aspects of the legal system in each State). In some countries, there is a long-standing system of review before specialist authorities and courts; in others there is no general legislative provision for such review (except to the extent required by international obligations and subject to judicial review procedures); in some systems there are administrative sanctions for breaches of procurement law by organs of the State, and proceedings are brought before an 24  Relevant documents and reports, including all those United Nations documents regarding the revisions cited below (those with document symbols starting with ‘A/CN.9 . . .’, are available at www.uncitral.org/uncitral/en/commission/working_groups/1Procurement.html (accessed 25 August 2009). As set out in n 4 above, documents from the pre-1994 period are available at www.uncitral. org/uncitral/en/commission/working_groups/5Economic_Order.html (also accessed 25 August 2009). 25  The text of UNCAC is available at www.unodc.org/unodc/en/treaties/CAC/index.html (accessed 25 August 2009). UNCAC entered into force on 14 December 2005, following the ratification of its text by 30 signatories. The objectives of UNCAC are to promote, facilitate and support: (i) measures to prevent and combat corruption more efficiently and effectively, (ii) international cooperation and technical assistance in the prevention of and fight against corruption, including in asset recovery, and (iii) integrity, accountability, and proper management of public affairs and property. 26  A/CN.9/568, paras. 1–2 and 103; A/CN.9/664, paras 18 and 19. See, also, Sue Arrowsmith and Caroline Nicholas, ‘The UNCITRAL Model Law on Procurement: Past, Present and Future’, Ch 1 in S Arrowsmith (ed), Public Procurement Regulation in the 21st Century: Reform of the UNCITRAL Model Law on Procurement (London, West, 2009), which considers these reforms along with others proposed by the Working Group, as well as the background to the reform process.

222  Caroline Nicholas administrative tribunal, while in others there is a combination of administrative review, and quasi-judicial review or judicial review of procurement decisions through the ordinary courts, and special criminal proceedings for violations of procurement laws by procuring entities.27 The Working Group has taken into account the new EC ‘Remedies Directive’28 addressing review procedures in procurement, in particular providing for a ‘standstill period’, and giving national courts the ability under certain conditions to set aside a signed contract, by rendering the contract ‘ineffective’. It noted that one of the express purposes of the Directive was to combat illegal direct awards of public contracts, which the European Commission considered to be a serious infringement of EU procurement law, and that the Directive sought to strengthen remedies through damages in addition to nullifying awards. The Working Group has also noted the importance of consistency with the approach taken by the World Trade Organization in its Agreement on Government Procurement (GPA), which entered into force in 1994 (the original GPA), and draft revised WTO Agreement on Government Procurement (the revised GPA),29 and the work of other international and regional bodies engaged in procurement reform. Generally, it is considered that review mechanisms are now more generally accepted and provided for in all regions. The main issues considered by the Working Group in its review of the 1994 text are: (a) whether there should be a more articulate recommendation as to the inclusion and operation of review provisions in the national law and further guidance, including draft model provisions, in the Guide to Enactment; (b) whether the administrative review provisions should be strengthened, for example, by requiring an independent review process; (c) whether more detailed advice and guidance should be given concerning the judicial review process, including in respect of the powers of the courts and time frame for the review, the possible reversal of incorrect procurement decisions and remedies that were available; (d) whether the scope of provisions relating to exceptions to review (article 52 (2)) should be revisited; and (e) whether there should be an automatic suspension when a review application is filed.30  See A/CN.9/568, para102.  See A/CN.9/664, paras 45–56, and Directive 2007/66/EC of the European Parliament and of the Council of 11 December 2007 amending Council directive 89/665/EEC and 92/13/EEC with regard to improving the effectiveness of review procedures concerning the award of public contracts. 29  See A/CN.9/568, paras 1–7 and 109; A/CN.9/664, paras 28 and 59. The original GPA is available at www.wto.org/english/docs_e/legal_e/gpr-94_01_e.htm. The revised GPA, document GPA/W/297, dated 11 December 2006, is available at http://docsonline.wto.org/DDFDocuments/t/PLURI/GPA/ W297.doc. Further documents on the GPA are available at www.wto.org/english/tratop_e/gproc_e/ gp_gpa_e.htm (all accessed 25 August 2009). 30  A/CN.9/568, para 104. 27 28

Remedies for Breaches and UNCITRAL Model Law  223 Although there was in fact lengthy debate on the question of damages, as discussed in section V below, the topic was not identified as one of the main ones to be considered. As regards issue (a) above, doubt was expressed in the Working Group as to whether it would be feasible at all to propose a model for review and enforcement that would be universally acceptable, and so it was agreed that the provisions in the Model Law would not be amended to provide significant detail, the view being that the Guide to Enactment was better suited for explaining the various approaches and policy options (such as that review procedures would enhance oversight and would protect the rights of suppliers and contractors). As regards issue (b), there were differing views when the Working Group debated the topic. The need for an independent administrative review mechanism was stressed because it was unrealistic to expect that review by the procurement entity of its own acts and decisions would always be impartial and efficient but, on the other hand, there may be difficulties in ensuring that effective remedies could be provided through other mechanisms in some vulnerable States. As a general policy, it was suggested that the Guide to Enactment should support the establishment of an independent administrative review body (discussing its modus operandi, such as whether it should function on a permanent basis or should be established for each case). Where effective independent review was already achieved through the court system, however, there might be no advantage to introducing another layer of review. The most important aspect of the debate on this question was an agreement that the identity of the review body was less important than its independence from the procuring entity and political pressure in making decisions (as provided for in article 20 of the original GPA, for example), and its efficiency.31 Examples of powers that the Working Group considered should be available to the reviewing body in connection with these important considerations include the following: the possibility of intervention without delay; the power to suspend or cancel the procurement proceedings; the power to implement other interim measures, such as giving restraint orders and imposing financial sanctions for non-compliance; the power to award damages if intervention was too late (eg, after the contract was awarded); and the ability to proceed swiftly within a reasonably short period of time (4–5 weeks were suggested as an optimal time-frame).32 As regards issue (c), it was agreed that additional guidance would be useful especially if it would encourage the swift disposition of procurement-related  A/CN.9/664, paras 59 and 60.  The Working Group also took into account the independence and powers of regulatory bodies that had been discussed in connection with the regulatory framework for public utilities during the preparation of the UNCITRAL Legislative Guide on Privately Financed Infrastructure Projects. See, eg, the recommendations under ‘Authority to Regulate Infrastructure Services’, and the discussions in Chapter I, ‘General Legislative and Institutional Framework’, esp paras 30–53 and Section E.3 (‘Powers of Regulatory Agencies’), available at www.uncitral.org/uncitral/en/commission/working_groups/1PFIP.html (accessed 25 August 2009). 31 32

224  Caroline Nicholas disputes by administrative bodies or courts (considered to be an essential feature of an effective review mechanism, because meaningful results for aggrieved parties could only be expected if effective remedies were available at pre-award stages). It was observed, however, that in many jurisdictions court proceedings were lengthy and courts lacked procurement-related expertise. The importance of allowing for a standstill period between the award and final formation of a procurement contract to allow protests by aggrieved parties was also stressed,33 together with the need to inform courts of the possibility of suspending procurement proceedings as a worthwhile option. However, the Working Group was cognisant of the fact that advice on judicial review, which might also help to harmonise law and practice in that regard, should be addressed with caution, should respect the various legal traditions in different States and should not be overly prescriptive. The Working Group also agreed to make amendments to strengthen due process in review proceedings: regarding evidence (documentary and witness evidence),34 appropriate periods for submission of complaints and to ensure the suspension of the procurement for a period of time sufficient to enable complaints to be considered.35 Perhaps the most significant element for discussion was issue (d): the revision of the exceptions to review contained in article 52 (2)). There was broad agreement in the Working Group that the exceptions should be removed. In particular, the exception relating to the selection of the procurement method under article 52 (2)(a) had been criticised on the ground that lack of accountability in respect of the selection of procurement methods was one of the areas that had led to most abuses in practice. As a whole, the exceptions in article 52 (2) were said to undermine the integrity of the procurement system and should be deleted. The Working Group also noted that the GPA did not provide for exceptions to review. However, a note of caution was sounded: allowing review, including judicial review, of all matters mentioned in article 52 (2) might give rise to difficulties in some legal systems if, for example, the judiciary had limited powers to challenge decisions of executive bodies alleged to be taken in the public interest, or if there were issues of the standing to challenge decisions such as the selection of a procurement method, and that decisions of the procuring entity might still be susceptible in other arenas, for example where improper motive was suspected.36 Although the Working Group noted that allowing the choice of procurement techniques within procurement methods to be subject to review (such as the use of electronic reverse auctions and framework agreements to award procurement contracts) might interfere with the efficient conduct of the procurement process, it decided that these decisions would not be exempt

 As regards the introduction of a standstill period, see A/CN.9/664, paras 45–55 and 72.  A/CN.9/664, paras 59 and 60, Report of the Working Group’s 15th session A/CN.9/668, paras 76 and 77; and Report of the Working Group’s 18th session A/CN.9/690, paras 74 and 75. 35  A/CN.9/690, paras 83–86. 36  See the Report of the Working Group’s 6th session, A/CN.9/568, paras 104–10. 33 34

Remedies for Breaches and UNCITRAL Model Law  225 from review.37 The Working Group agreed, however, that the Guide to Enactment would discuss that enacting States might wish to exclude some matters from the review process, which could include some of those currently listed in that article and other matters. The Guide should indicate the rationale for such exclusions and explain their implications, notably the risk that they might preclude effective review and control of the proper management of the pro­ curement process.38 As regards issue (e), the Working Group decided that the main need to be addressed was to ensure that no procurement contract entered into force while a challenge remained outstanding. Accordingly, it decided that there should be an express provision to that effect.39 As a result, the Working Group considered that there need not be an automatic suspension: if a challenge were filed at the outset of the procurement procedure, suspension might just be a bureaucratic exercise. Clearly, if a challenge was filed shortly before the submission of tenders, a suspension would be appropriate. The application of this principle to review before the procuring entity and other bodies is considered in sub-sections C. and D. below. B.  Right to Review As regards the right to review, the Working Group decided that the 1994 footnote accompanying the review chapter (stressing its optional nature) would be deleted, so as to implement the Working Group’s decision that the Model Law should be consistent with the mandatory language of article 9 (1) (e) of UNCAC.40 The Working Group confirmed that the chapter contained a minimum set of provisions that aimed at ensuring an effective review process, and that the Guide should therefore encourage enacting States to incorporate all the provisions of the chapter to the extent that the legal system of the enacting State so permitted. Evolving practices and ongoing reforms in procurement review mechanisms aimed at ensuring effectiveness of those review mechanisms were considered important features of any modern system.41 The scope of the system will be clarified, to make it clear that not only those that were part of the procurement process would be able to submit a claim for review, but also those that could have been participants, by ensuring that suppliers or contractors would include potential parties to the procurement ‘proceedings’ and not just those that were potential parties to the procurement ‘contract’. Also, in order to avoid any technical exclusion arising from the construction of what might constitute 37  See A/CN.9/WG.I/WP.64, para 7, and the Report of the Working Group’s 14th session, A/CN.9/664, para 26. 38  A/CN.9/568, paras 102–13, and A/CN.9/664, paras 26 and 27. 39  See A/CN.9/713, paras 30, and 70–73. 40  A/CN.9/664, para 19. 41  A/CN.9/690, para 68.

226  Caroline Nicholas a ‘breach of duty’ under the 1994 provisions, the right to review will be amended to extend to non-compliance with the provisions of the Model Law.42 C.  Peer Review Mechanism As regards the peer review mechanism, the Working Group heard some dis­advantages that had been observed in the implementation and use of the mech­anism, including that where the procuring entity took no steps to address an application, further recourse to administrative or judicial review would be inevitable and the mechanism without benefit. It thus decided to make the peer review mechanism optional.43 In the light of the new provision prohibiting the entry into force of a procurement contract while a challenge remains outstanding, the Working Group decided that greater flexibility should be given to the procuring entity when considering a complaint from a supplier. It decided that there would be no automatic suspension, and the Model Law would simply permit a suspension. However, the revised Guide will note that in some systems, a more structured approach to suspension would be appropriate (using the provisions for the administrative review mechanism described in the following section).44 D.  Administrative Review Mechanism As regards the administrative review mechanism, several changes will be made. First, the deadline for a challenge to the terms of the solicitation only will be set as the deadline for submission of tenders or other offers, but the existing 20-day deadline (from when the cause of action arises) will remain unchanged for other challenges. Secondly, the possibility of annulling a contract that has been awarded will be introduced (in part to ensure consistency with the policy behind the Remedies Directive). Taking account of the financial costs and time implications of an annulment, however, the Working Group considered that steps should be taken to encourage any challenge to be made before the award of the contract. One major step in this regard was the introduction of a ‘standstill’ period, as per the EC Procurement Directives. Although some delegations considered that such a process would be undesirable, because it would impose costs on the procurement and on suppliers (on both the successful and other suppliers), would delay the start of the procurement contract concerned, and would introduce a degree of uncertainty into the procurement process (none of which was present in the private sector), it was considered that these issues were unlikely to be significant in the context of a short standstill period. The text will  A/CN.9/664, para 25.  A/CN.9/664, para 28. 44  A/CN.9/713, para 29 and paras 72–73. 42 43

Remedies for Breaches and UNCITRAL Model Law  227 therefore include provision for a short standstill period, but will allow enacting States to set the period, and will also include transparency provisions drawing on those found in the EC Procurement Directives. The standstill period is intended to promote complaints to be filed before a procurement contract comes into force. As regards suspension of the procurement during the review proceedings, the Working Group has considered various options. In its early proceedings, it emphasised the importance of providing for an automatic suspension, unless the complaint is manifestly without merit, that a suspension would cause disproportionate harm to either the procuring entity or suppliers, or there are urgent public interest reasons for proceeding with the procurement. Amendments to the provisions to ensure that a procuring entity or supplier would have to provide evidence to challenge the automatic suspension were considered import­ ant in this regard.45 Ultimately, however, it was agreed that there should be a presumptive suspension before an independent review body: that is, there would be an automatic suspension where it was needed to prevent the submission of tenders during the review period or where there had been no standstill period applied, unless the complaint was found to be manifestly without merit, or there were urgent public interest considerations that would require the proceedings to go ahead. In other cases, the suspension would be optional.46 However, all cases are subject to the overall prohibition against the contract entering into force while the challenge remains outstanding. E.  Damages and Other Relief in Review Proceedings The aim of the provisions as described above is to facilitate early resolution of disputes through corrective action, and thus reduce the need for financial compensation. The question of financial compensation as part of relief available in proceedings before an administrative body has attracted considerable debate in the Working Group. The main arguments considered were (a) that a system without provision for any financial compensation (beyond the costs of filing a complaint) would not be effective because adequate remedies would not be available in all situations (eg, where a contract had entered into force and it was not considered appropriate to interfere in the contract); and (b) preventing excess complaints that would unnecessarily disrupt the procurement process. In essence, the question was how to balance the interests of suppliers and contractors and those of procuring entities, with an additional consideration of the implications for the public interest of how the question was resolved. When considering this issue, the Working Group was advised that in some jurisdictions, no provision had been made for the award of lost profits as part of  A/CN.9/690, paras 78–81.  A/CN.9/713, paras 46–47.

45 46

228  Caroline Nicholas damages, because allowing for compensation of ‘anticipatory losses’ had proved to be highly disruptive for procurement proceedings, in that it provided additional incentives for complaints.47 The Working Group also noted that the provisions in the Remedies Directive48 were arguably more facilitative of damages awards than, for example, the GPA.49 Views differed in the Working Group as to whether the GPA provisions in fact prevented the award of damages for ‘anticipatory losses’, ie whether the costs of preparation of the tender would include a measure of opportunity cost. As regards national systems, the Working Group found that they differed greatly in their approach to such awards, noting as regards the EU that: [W]hen the legal grounds for claiming compensation of damages exist, tender costs are awarded in all member States while lost profits in some European Union member States, such as Denmark, Finland, Germany, Hungary, Latvia, Lithuania, the Netherlands, Portugal and the United Kingdom. In France, lost profits are awarded if the claimant had a serious chance of winning the contract. In most cases, courts, ordinary or administrative, have power to award compensation of damages; in Denmark, however, a specialized public procurement review body also has such power. According to commentators on the European Union procurement regulations, there are increasing examples of successful actions in some European Union member States for damages in the field of the enforcement of public procurement rules, including actions for loss of profit.50

The Working Group also recalled that corrective action was generally the primary and most desirable remedy, as reflected in the 1994 provisions (both articles 53 and 54, as noted above) and the GPA. It was also generally agreed that the issue of awarding damages in most systems is approached from the broader perspective of putting in place an effective remedies system,51 which might be compromised by providing in legal texts for remedies that are not practically available (such as by making awards of damages contingent on the  A/CN.9/668, para 72(e) and (f).  The Remedies Directive allows for interim measures including suspension of the procurement procedure, the setting aside of decisions taken unlawfully, and damages to the person harmed by the infringement concerned (article 2 (1)). However, no guidance as to the legal ground for damages or as to the calculation of damages is given. 49  The GPA provisions are that relief may comprise: (original GPA) ‘corrective action or compensation for the loss or damages suffered, which may be limited to costs for tender preparation or protest’; (revised GPA) ‘corrective action or compensation for the loss or damages suffered, which may be limited to either the costs for the preparation of the tender or the costs relating to the challenge, or both.’ 50  A/CN.9/WG.I/WP.68, para 52, referring to a series of articles on the subject in (2006) 15 Public Procurement Law Review 159–240; and citing S Treumer ‘Damages for Breach of the EC Public Procurement Rules from a Danish Perspective’ (2004) European Business Organization Law Review 563, and H Leffler, ‘Damages Liability for Breach of EC Procurement Law: Governing Principles and Practical Solutions’ (2003) 4 Public Procurement Law Review 151, 161. 51  A requirement that remedies systems be effective also underpins the provisions in the WTO instruments (article XX.2 of the WTO GPA and article XVIII of the revised WTO GPA), the United Nations Convention Against Corruption (article 9(1)(d)), and the APEC Non-Binding Principles on Government Procurement (Annex 3, at 4.1). These texts also suggest that the systems should be non-discriminatory, transparent, timely and effective. 47 48

Remedies for Breaches and UNCITRAL Model Law  229 complainant proving conclusively that it would have won the procurement contract concerned). The Working Group during many of its sessions considered that the award of anticipatory losses, including lost profits, should not be awarded. Hence it decided on a provisional basis that Model Law’s provisions would be based on option I from the 1994 text, as described above, and option II would be moved to the Guide with an explanation of the reasons for removing it.52 Those reasons were, simply put, that the Working Group considered that the potential disruption to the procurement process of increased complaints outweighed any positive impact that a greater range of remedies might provide.53 In addition, it was considered that the introduction of a standstill period in the Model Law would facilitate the review of procurement decisions before an award of a contract, so that in practical terms the need for lost profits as available relief should diminish. It was decided that the Guide to Enactment would address alternatives, including where corrective action is no longer possible; ensuring an effective system of remedies; the balance between various types of relief; the particular issues arising from setting aside concluded contracts; and the different con­ siderations that might apply to administrative rather than judicial awards of damages (including the potential risk of abuse if administrative systems concentrate decision-making power, particularly the power to award damages, in a small entity or the hands of a few individuals).54 It was also agreed that the Guide would address the quantification of costs.55 Subsequently, at its 20th session, the Working Group decided that although the issues above would mean that awards of damages would not normally be required, there might be situations in which corrective action was no longer possible. It was therefore agreed to reinstate the option to provide for damages for review before an independent review body (but not before the procuring entity). It was noted that the Guide would explain that, enacting States might wish to permit compensation for lost profits, so as to provide appropriate incentives for filing complaints and appeals (which might be particularly appropriate when the concept of an independent review was first introduced).56 The Working Group also addressed other relief that should be available, noting that in some systems, an administrative review body would not be able to substitute its opinion for that of the procuring entity, and that there may be circumstances in all systems in which this ability would be undesirable. The  A/CN.9/668, para 72(e) and (f).  The Working Group was persuaded that its solution struck the appropriate balance between ensuring the deterrent value of complaints, that there would be sufficient incentive for suppliers to lodge a complaint, even after an award of the contract concerned, and the need to deter excessive challenges. In addition, it considered that the better interpretation of the provisions of the revised WTO GPA (which do not clearly exclude lost profits) was that this remedy was no longer available, even if it had been available under the (original) GPA. 54  For a fuller discussion of these issues, see, also, A/CN.9/WGI/WP68, paras 39–54. 55  A/CN.9/690, para 71(j). 56  A/CN.9/713, para 41. 52 53

230  Caroline Nicholas Working Group agreed to rephrase the provisions to provide for appropriate flexibility, and to require the administrative review body to take action to decide the complaint. In addition, the Guide will stress that these provisions are considered to be the essential minimum measures.57 F.  Other Issues Other policy issues arising in review systems more generally, such as the government entity in which to locate the review body, the scope or jurisdiction of the review, whether persons other than suppliers or contractors should be able to initiate a review, evidence and the standard of proof, and the remedies that the review body can order will also feature in the Guide to Enactment, to assist enacting States in crafting review systems.58 In this regard, the Working Group also considered that the previous approach of silence on judicial review was no longer appropriate. It decided to include in the Model Law provisions to ensure that suppliers in those States that had a system of judicial rather than administrative review would be able to avail themselves of broadly the same procedures, safeguards and relief (including damages) as the Working Group had designed for administrative review.59 III. Conclusion

The recognition of the importance of effective review procedures, set out in the Guide to Enactment to the 1994 Model Law, is being given a stronger voice in the reforms of the Model Law under way. The revised Model Law will include a mandatory, effective and independent review system that will serve to ensure that procuring entities follow the provisions of the remainder of the Model Law, and that suppliers can enforce the respect of those provisions. Allowing limited financial compensation is a part of this approach.

 A/CN.9/690, paras 71–73.  The Working Group took account, in this regard, of a discussion of the policy choices regarding review mechanisms in DI Gordon, ‘Constructing a Bid Protest Process: The Choices That Every Procurement Challenge System Must Make’ (2006) Public Contract Law Journal 427. 59  A/CN.9/690, paras 89–93. 57 58

Index access to court see procedures and access to justice advertisement rules:    advertising future contracts, 167–68   France, 178    loss of a chance, 176–77 Allison, John, 194 annulment procedures, interim relief and damages actions, 189–90 Arrowsmith, S, 123, 140 Austria, 150 basis and conditions for a damages claim, 149–66    conditions for damages, 155–61      damages for violating free movement and general principles of law, 161      violation of the public procurement directives, 155–61    legal activism at national level based on community law, 162–65    legal basis for claim of damages for breach of EU procurement law, 150–55      introduction with focus on legal sources at supranational level, 150–52      national regulation of damages for breach of EU procurement rules, 152–55 bid and tender costs:    not awarded where lost profits compensated, 181    Utilities Remedies Directive, 156 see also under France; Germany; Italy; Netherlands; Norway; Portugal; UNCTRAL Model Law on Procurement; United Kingdom; United States Brown, A, 149 Burgi, Martin, 191, 192, 193 Caranta, Roberta, 189 causation and recoverable loss see damages: causation and recoverable loss chance, loss of see loss of a chance contributory negligence, 174    and mitigating factors and defences, 180 see also under France; Germany culpability and fault, 3–4, 25–6    breach of confidential relationships, 28    conditioning award of damages on fault unlawful, 3, 25, 44, 102, 153, 156, 159–60

     setting aside national legislation requiring proof of culpability, 2–3    culpable interference in business enterprise, 29    fault requirement in Remedies Directive, 44 see also under Germany; Italy; Portugal curricular damages, 109, 179 damages: causation and recoverable loss, 167–84    case law on effective judicial protection, 172–75   causation, 175–78   conclusions, 182–84   damages, 178–80     costs, 178     curricular damages, 179     legal expenses, 180      loss of a chance, 179–80     loss of profits, 178–79    mitigating factors and defences, 180–81      failure or delay in instituting legal proceedings, 181     performing alternative contracts, 180    the problem, 167–70      breaches of rules on advertising, 167–68      mistakes in assessing and ranking tenders, 169–70      unlawful exclusions from bidding phase in two–stage procedures, 168      unlawful exclusions of tenderers and tenders, 168    procedural issues, 182    Remedies Directives, 170–71 damages for breach of public procurement law:    annulment procedures, interim relief and damages actions, 189–90    basis and conditions for damages claim see basis and conditions for a damages claim    causation and recoverable loss see damages: causation and recoverable loss    difficulties of bringing damages actions, 58    primacy of interim relief over damages, 62    procedures and access to justice see procedures and access to justice    public law remedy or otherwise? 187–89    sufficiently serious breaches see sufficiently serious or substantial breaches see also under individual countries

232  Index Denmark, 149    burden of proof, 164, 166    complaints board, 188–89    conditions for damages, 159, 161, 165, 183    loss of profits, 163–64, 166, 184    principle of effectiveness, 162, 163–64, 166    regulation of damages for breach of EU procurement rules, 152–53 Directive 89/665/EEC see Public Sector Remedies Directive Directive 92/13/EEC see Utilities Remedies Directive Directive 2007/66/CE see Remedies Directive EEA Agreement, 149, 183 effectiveness, principle of see principle of effectiveness Eiró, Vera, 190–91, 193 England, Wales and Northern Ireland see United Kingdom equal treatment, 155, 161, 164, 172    Germany, 21, 28    Ireland, 122, 139   Italy, 89   Netherlands, 79 equivalence, principle of see principle of equivalence European Commission:    bringing infringements to attention of Member States’ authorities, 63    combating illegal direct awards, 222    concerns about ‘race to signature’, 115    difficulties of bringing damages actions, 58    frequency of claims, 193   Portugal, 45    strengthening national remedies systems, 19–20 European Court of Justice (ECJ):    approach to procurement remedies, 62    causation and damages, 174–75    conditioning award of damages on fault unlawful, 3, 25, 44, 102, 153, 156, 159–60      setting aside national legislation requiring proof of culpability, 2–3    conditions for claims, 47, 156–57     sufficiently serious breaches see sufficiently serious or substantial breaches    conditions for damages, 159–61    contracts awarded in breach of rules adversely affecting free movement, 116    contributory negligence, 174    damages as an adequate remedy, 73, 74    effective judicial protection, 172–75    gender discrimination and damages for illegality per se, 152, 156, 175

   liability of Member States for infringements of EU law, 151–52    loss of profits, 174–75    Member States to determine criteria for damages for infringements, 4     margin of discretion, 157    Netherlands’ system of legal protection and conformity with EU law, 76–77    scope of Remedies Directives, 172–73    services concessions, 161, 172    threshold values, 161, 172    time limits, 125–30     interim infringements, 129      knowledge of the applicant, 127–28, 129      requirement to bring proceedings ‘at the earliest opportunity’, 126, 128      time running from challenged act or decision, 126–27    whether any breach of procurement rules sufficient, 156, 157, 158–61, 159–61 fault see culpability and fault France, 7–17, 149    access to court: procedure and remedies, 13–16, 188, 189      damages and other remedies, 15     frequency of claims, 15     procedures, 16     relationship between annulment procedures and damages actions, 13–14      remedies and substantive law, 194–95      standing and who can bring a claim, 15      time limit for bringing claims, 14–15, 190–91    advertisement rules, 178    basis and conditions for a damages claim, 7–8, 153, 154, 183     basis of claim, 7–8      bidders which should have been disqualified, 181     lengthy procedure, 154      sufficiency of any violation of procurement rules leading to loss, 158   bid/tender costs:      compensation for the loss of bid costs, 9–10, 14, 178, 181     loss and quantum, 13   causation, 177–78    contributory negligence, 12      compensation for the loss of bid costs, 9–10, 14      compensation for loss of potential profits, 10–12, 14      issues of causation, 9–12, 16–17    frequency of claims, 192    loss of a chance, 9–12, 16–17, 184     absence of compensation, 12

Index  233      compensation based on ‘serious chance’ or a ‘very serious chance’, 10     contributory negligence, 12      effect of bid being the lowest, 11      not having been devoid of a chance, 9–10      tendering procedure not advertised, 12     unsuitable bids, 12      when will claimant be considered as having had a serious chance? 10–11    loss and quantum, 12–13     bid costs, 13, 14      loss of profits, 12–13, 14    profits, loss of, 178, 181      compensation for loss of potential profits, 10–12, 14     loss and quantum, 12–13     net profits, 12–13     performing subsequent contracts, 13, 17   référé précontractuel, 8, 14, 191   standing, 191 frequency of claims, 192–93 Gabayet, N, 153 Germany, 19–40, 150    access to court: procedures and remedies, 36–39, 188, 189      competence and time limits for bringing a claim, 36, 191      damages and other remedies, 39     frequency of claims, 38–39      primary legal protection and secondary legal remedies relationship, 37–38     procedure, 39      risk of negative consequences by proceedings, 39      who can present a claim? 36    basis and conditions for a damages claim, 19–30, 36, 154–55, 183     annulment procedure and damages remedies, 19–20, 37–38      classification of a German damages claim, 20–21      compliance with EU law, 21–22      GWB § 126 (Act against Restraints of Competition), 20, 22–27      lack of clarity in regime, 154      other important basis of claim, 27–30    bid /tender costs, 23, 27, 33–34, 35      any infringement of rules sufficient if chance to win exists, 158     contributory negligence, 26, 34     fault, 158      loss and quantum: recoverability, 32–33    burden of proof, 34    causation and recoverable heads of loss: culpa in contrahendo, 34–35, 175     assessment of damages, 35

    causation, 34–35      recoverable heads of loss, 35    classification of a German damages claim, 20–21      character of the law and other bases for claim, 20–21      three different types of relief, 20    contributory negligence, 26, 34, 37     exculpation and contributory negligence, 28    culpa in contrahendo, 21, 22, 23, 27–9, 158, 188      causation and recoverable heads of loss, 34–35     compensation, 33–34, 36      conditions of a claim based on culpa in contrahendo, 28, 36, 158–59     confidential relationship, 28, 36      culpable infringement of duties of care, 28, 158     exculpation and contributory negligence, 28      legal consequences: heads of loss recoverable, 29      not seen as tort law, 29    frequency of claims, 192–93    GWB § 126 (Act against Restraints of Competition), 20, 22–27, 39      awards above the threshold, 23     contributory negligence, 26     fault? 25–26, 158     general information, 22–23     genuine chance, 23, 24      impairment of the chance (s), 24–25      infringement of a ‘protective law’, 24, 29–30, 36     loss and quantum, 27      participation in an award procedure, 23–24     requirements (conditions), 23–26    issues of causation, 31–35      assessment of damages: bid costs, 33–34      calculation and burden of proof, 34      causation and recoverable heads of loss: culpa in contrahendo, 34–35      loss of a chance, 31–32      loss and quantum: recoverability, 32–33     relevant test, 31    interim relief, 192–93    loss and quantum, 27      assessment of damages, 27, 33–34     loss of profits, 32–33      recoverability, 27, 29, 32–33, 35    loss of a chance, 23     burden of proof, 25     causation, 31–32      damages not a real compensation for lost chances, 38–39

234  Index Germany (cont):    loss of a chance (cont):      genuine chance, 23, 24, 31–32, 36, 176, 192      impairment of the chance (s), 24–5     loss and quantum, 27      lowest bid, 24, 32, 36      no participation in an award procedure, 23     preparations costs, 23, 27     tender costs, 23, 27    other important basis of claim, 27–30     competition law: cartels, 30     culpa in contrahendo, 21, 22, 23, 27–29     tort law, 29–30    profits, loss of, 32–33, 35, 184     anticipatory profits, 33, 38     difficulty of obtaining, 38–39   standing, 192    tort law, 29–30      § 823 I BGB, 29      § 823 II BGB, 29–30     § 826 BGB, 30 Golden, Michael, 186, 187 Gordon, Dan, 186, 187 Hebly, Jan M, 191 Iceland, 150 interim relief, 182, 184, 187    and relationship between annulment procedures and damages actions, 189–90   standing, 191–92    UNICTRAL Model Law suspension of procurement, 216, 227 see also under Germany; Netherlands; United Kingdom; United States Ireland, 113–45    burden of proof, 134    case law focus on procedural access to remedies, 113   ineffectiveness, 141–44     application, 141–42     consequences, 143      ineffectiveness in the Irish context, 144     operation, 142–43      time limits: remedy of ineffectiveness, 132–33    judicial remedies, 134–44, 188     damages, 139–41     ineffectiveness, 141–44     interim relief, 137–39     ‘manifest error’, 135     overview of remedies, 135–37     proof, 134     standard of review, 134–35    legislative framework, 114–16    loss of a chance, 140–41

   pre–judicial remedial protection, 116–20     standstill, 116–19     standstill letter, 119–20    procedures governing access to judicial remedies, 120–34      absence of leave requirement, 121     judicial review, 121     notification requirement, 120–21     security for costs, 133–34     standing, 121–24     time limits, 124–33    profits, loss of, 140   standing, 121–24     ‘eligible person’ test, 122–24     sufficient interest test, 121–22   standstill, 116–19     derogations from standstill, 118     length of standstill, 116–18     reasons, 119–20      scope of protection of the standstill, 118–19     standstill letter, 119–20    time limits, 124–33      applying the time limit to improprieties before the award decision, 126–27     general judicial policy, 124–25      new order 84A: justifying an extension of time, 130–32      obligation to bring proceedings ‘at the earliest opportunity’, 125–26, 144      summary of the impact of Uniplex and Ireland, 128–30      time limits: remedy of ineffectiveness, 132–33      triggering the time limit, 127–28 Italy, 89–112    access to courts: heads of damages and quantum, 102–10, 181, 183, 188, 189     curricular damage, 109, 179     damages, 104–9      loss of other business opportunities, 106, 109–10, 111     standstill clauses, 103–4    bid/tender costs, 106, 110    burden of proof, 100      substantial inversion of, 100, 102   causation, 177    contributory negligence, 109–10    evolution of concept of state liability in public procurement procedures, 89–92      definition of elements of pre–contractual liability, 92–93     history, 90–91      unlawful administrative acts and unfair behaviour, 91    frequency of claims, 192    illegality and fault of the public administration, 92, 98–102

Index  235      circumstances where fault found, 100–101      difficulty in defining element of fault, 100     excusable mistake, 101–2      lessened burden of proof, 100     presumption of fault, 100    loss of a chance, 106–7, 110    need for uniform criteria for awarding damages, 111–12    negotiated settlements, 182    pre-contractual liability of the state, 92–98     actions for illegality, 94–95     actions for liability, 95–98     ascertaining existence of fault/unfairness, 92, 98      breach of legitimate expectations, 98      hypotheses for liability in award of public contracts, 92–93      illegality as legitimate interest and infringing subjective rights, 94, 99      lack of funding to cover the contract, 96–97     reasons, 98     self–annulment, 95–98      withdrawal from negotiations, 96, 97    profits, loss of, 106–10, 179 Krüger, K, 153, 157 legal expenses, 180, 186, 201 Lichère, Professor François, 13, 153, 154 Lithuania, 150    conditions for damages, 159, 161, 165    regulation of damages for breach of EU procurement rules, 152 loss of a chance:    and advertisement rules, 176–77    margin of discretion of courts, 177    and quantum of damages, 179–80 see also under France; Germany; Italy; Ireland; Netherlands; Portugal; United Kingdom loss of profits, 174–75    claims for lost profit unclear, 151    measuring lost profits, 179 see also under France; Denmark; Germany; Ireland; Italy; Norway; Portugal; Sweden;    United Kingdom; United States Mealha, Esperança, 190–91, 193 mistakes in assessing and ranking tenders, 169–70 mitigating factors and defences, 180–81 negative interest see bid and tender costs Netherlands, 75–88, 150    access to the court, 83–86, 188, 189      damages claims not dependent on award decisions being cancelled, 85

    non–cash damages, 86     sufficient interest, 83–84     time limits, 84–85, 191    basis and conditions for damages, 77–78    bid/tender costs, 82–83    causation, 78–80, 88, 177      addressed in the main action, 81      criterion as to award of damages dependent on circumstances, 78     invalidity of tenders, 79–80      loss of a chance, 80    claims for damages in Dutch legal practice, 86–88, 153      bidders which should have been disqualified, 181      damages claims infrequent, 75, 86–87, 88      difficulties in pursuing damages claims, 87, 88      fear of disturbing relationship with contracting party, 87–88    curricular damages, 179   damages, 80–83      acceptance of alternative contracts, 82     bid/tender costs, 82–83      determined in follow–up proceedings or main action, 81     items qualifying for compensation, 81–83      loss of profits, 81–82, 83      opportunity to be awarded the contract, 83    frequency of claims, 192    general framework, 76–77      procurement law as private law, 76    interim relief, 75, 76, 85, 86–87      cancelling concluded contracts, 88, 186     speed of proceedings, 87–88    loss of a chance, 80, 83    profits, loss of, 81–82, 83 Nicholas, Caroline, 187 non–discrimination, 168, 172, 174    gender discrimination, 152, 156, 158, 175   Germany, 21   Italy, 89    UNICTRAL Model Law, 215–16 Norway, 149    bid/tender costs, 159, 162    burden of proof, 166    conditions for damages, 159, 161, 165, 183    loss of profits, 152, 159, 162–63, 166, 184    principle of effectiveness, 162–63, 166    regulation of damages for breach of EU procurement rules, 152 Ponzio, Sylvia, 188 Portugal, 41–59    access to court, 54–59, 188, 189     damages, 55–56

236  Index Portugal (cont):    access to court (cont):     expedited setting–aside procedures and damages actions relationship, 54–55     frequency of claims, 58–59      standing and who can bring a claim, 57      time limits for bringing claims, 57–58, 190–91    bid/tender costs, 50, 51–52      bid costs as a tender risk, 52      compliant bids and recovery of bid costs, 53–54    causation, 48–51, 52, 54      in the pipeline, recent trends and loss of a chance doctrine, 49–51     traditional approach, 48–49    conditions for a damages claim, 46–54, 153     conditions, 47–54      damages subject to special legal framework, 46, 51     damages without fault, 48     Francovich, Art 230 of TFEU or Remedies Directive? 47       issues of causation, 48–51      special cases of damages under PCC, 53–54     types of loss, 51–53     unlawful act, 47   damages, 55–56     common procedure (acção administrativa comum), 54, 55     enforcement procedure, 56     expedited setting–aside procedure (contencioso pré-contratual urgent), 56      multiple claims in an expedited procedure, 55    legal framework, 41–46, 153     enactment governing administrative contracts, 41–42      remedies based on damages, 44–46      remedies based on setting aside and interim relief procedures, 42–43    loss of a chance, 49–51, 52, 54      negotiated settlements, 182    profits, loss of, 50, 51–53     difficulty of obtaining, 52   standing, 191    time limits for bringing claims, 57–58     common procedure (acção administrativa comum), 57–58      setting–aside application in an urgent special procedure (contencioso précontratual urgent), 58 pre–conditions of successful claim, 8 principle of effectiveness, 3, 5, 72    conditions for damages, 157, 159–60, 165–66

   and German procurement law, 21–22, 24, 26, 33, 37    and legal basis for claim of damages for breach of EU procurement law, 150–51, 155    in national jurisdictions, 162–5    and reducing adequacy of damages remedy, 74 principle of equivalence, 4, 21–22, 24    conditions for damages, 157, 165    and legal basis for claim of damages for breach of EU procurement law, 150    and reducing adequacy of damages remedy, 74 principle of procedural autonomy, 4, 21, 162    conditions for damages, 160, 165    and legal basis for damages claims for breach of procurement law 150, 152, 154–55 principle of subsidiarity, 1, 30    conditions for damages, 157 procedural autonomy, principle of see principle of procedural autonomy procedures and access to justice, 185–95    access to court see under France; Germany; Ireland; Italy; Portugal; Netherlands;     United Kingdom    annulment procedures, interim relief and damages actions relationships, 189–90    damages for procurement breaches: public law remedy or otherwise? 187–89    frequency of claims, 192–93    remedies and substantive law, 194–95    time limits for bringing claims and standing for actions, 190–92    whether damages should be available for procurement breaches, 185–87 profits, loss of see loss of profits public procurement:    damages for breach see damages for breach of public procurement law   Directives see Public Sector Remedies Directive; Remedies Directive; Utilities     Remedies Directive    EU law’s impact on national rules, 21    EU rules as fundamental rules, 21    evolution of concept of state liability in public procurement procedures, 89    principles of public procurement see equal treatment; non–discrimination;     transparency    procedures and access to justice see procedures and access to justice    representing more than 15% GDP in EU, 1, 39 Public Sector Remedies Directive, 20    advertising future contracts, 167–68    causation and damages, 170–71    legal basis for claim of damages, 151–52

Index  237    France, 8, 14, 191    Ireland, 113, 117–19, 136, 142   Italy, 91    Member States providing for damages for infringements, 1    option to require notification, 120    primacy of interim relief over damages, 62    purpose of, 62    rapidity of proceedings, 133   reasons, 119–20    remedial priorities as expressed in Directive, 62–63, 66    review procedures, 1   scope, 172–73    setting aside the contract, 136, 139    United Kingdom, 61, 66 recoverable loss see damages: causation and recoverable loss remedies:   Directives see Public Sector Remedies Directive; Remedies Directive; Utilities     Remedies Directive    and substantive law, 194–95    systematic requirement of culpability not compatible with effective remedies, 3 see also UNCITRAL Model Law on Procurement Remedies Directive, 20    cancellation of contracts, 85–86, 88    corrections to be made as soon as possible, 38, 102, 103   damages, 228     and causation, 170–71    difficulties of bringing damages actions, 58   fault see culpability and fault   France:      limited impact on award of damages, 8, 14, 153     référé contractual, 8, 14, 191   Germany, 20, 21–22      implementation of Directive not triggered need for reform, 22     secondary remedies system and conformity with EU law, 22, 40    impact assessment report preceding adoption, 2     objectives, 3    ineffectiveness, 104, 116, 132–33, 141–43, 184     consequences, 143–44, 222    interim relief, 137    Ireland, 113–16, 132, 136–37, 139, 142–44    Italy, 93–94, 103    legal basis for claim of damages, 151–52   Member States:     availability, 22     compensation criteria, 22, 33      difficulty of proving serious chance of

being awarded contract, 115–16      Directive leading to changes in national legislation, 102, 115–16, 184      effectiveness and rapidity of remedies, 22, 124–25, 129, 132–33     heterogeneous national review procedures, 115      margin of manoeuvre, 21, 38      obligation to award damages for infringements, 155–56      option to require notification, 120      principle of procedural autonomy, 4, 21–22      principles of effectiveness and equivalence, 21–22, 33      proof of serious chance, 115–16     ‘race to signature’, 115     scope, 172–73      setting aside decisions, 139, 144      structure of damages remedy left to Member States, 2, 39–40    Netherlands, 77, 85–86    primacy of interim relief over damages, 62   purposes, 222    remedial priorities as expressed in Directive, 62–63    review procedures, 1–2    standstill, 116–20, 222, 226      derogations from the standstill, 118      length of standstill period, 116–18     reasons, 118–19      scope of protection of the standstill, 118–19     standstill letter, 119–20    United Kingdom, 62, 158 see also individual countries Spijker, 3, 4, 159–60 standing, 191–92 standstill see under Ireland; Italy; Remedies Directive; UNCITRAL Model Law of Procurement Strabag, 3–4, 159–60 state liability in public procurement in Italy see Italy subsidiarity, principle of see principle of subsidiarity sufficiently serious or substantial breaches:    fault not a necessary requirement, 3–4    national regulation and case law, 158–61    sufficiently serious standard, 3–4, 47, 156–57, 159–60, 165    no systematic requirement of culpability, 3    whether mere breach of provisions sufficient, 3–4, 47, 157, 159–61, 165 Sweden, 150    burden of proof, 164–65, 166

238  Index Sweden (cont):    conditions for damages, 159, 161, 165, 183    loss of profits, 151, 159, 164–65, 166, 179, 184    principle of effectiveness, 162, 164–65, 166    regulation of damages for breach of EU procurement rules, 152 tender costs see bid and tender costs time limits, 190–92 see also under European Court of Justice (ECJ); France; Germany; Ireland; Netherlands;   Portugal transparency, 155, 161, 164, 172    Germany, 21, 24    Ireland, 131, 134    Italy, 89, 93    UNCITRAL Model Law, 215, 227    United Kingdom, 69, 72    United States, 203, 211 Treumer, S, 3, 188 UNICTRAL Model Law on Procurement, 187, 199, 213–30   background, 213–20      balance between right of supplier and needs of procuring entity, 216     bid costs, 74, 219      correcting decision complained of, 216, 217–18, 219     damages, 183, 216      exemption of procurement decisions from review, 215–16     financial compensation, 217, 218–19     lost profits, 218–19     peer review mechanism, 216–17      scope to enacting State in implementing Model Law, 214      scope of review provisions, 214–16    revisions to strengthen UNCITRAL review provisions, 221–30     administrative review mechanism, 226–27      corrective action as aim, 227–28      damages and other relief in review proceedings, 227–30     financial compensation, 227–29      judicial and administrative review, 230     lost profits, 227–29     main issues reviewed, 222–24     other issues, 230     peer review mechanism, 226     right to review, 225–26     scope of provisions, 221–25     standstill, 222, 226–27     suspension of procurement, 227     transparency provisions, 227

United Kingdom, 61–74, 150    approach of ECJ to procurement remedies, 62    approach of the English and Northern Irish courts, 63–72, 188      damages principles in applications for interim relief in England, 64, 65–68      diversity of judicial approach, 73     grounds for damages, 64      recent Northern Irish cases, 69–72     whether correction of infringements should be the starting point, 73–74    bid/tender costs, 64, 162      whether damages remedy should be limited to recovery of, 74    breach of procurement law as tortious breach of statutory duty, 61–62    burden of proof, 166   causation, 175–76    conditions for damages, 158    frequency of claims, 192    interim relief, 137, 189–90    loss of a chance:      difficulties of valuating a lost chance, 68, 70     of earning profit, 61      real and substantial chance, 64, 140, 176    negotiated settlements, 182    principle of effectiveness, 162, 166, 190    profits, loss of, 162, 166, 178–79     anticipatory compensation, 61      loss of net profit and contribution to overheads, 64    punitive damages, 179    regulation of damages for breach of EU procurement rules, 152    remedial priorities as expressed in Remedies Directives, 62–63    remedies and substantive law, 194–95 United Nations Convention against Corruption, 221 United States, 199–212    bid protest system, development of, 199    contracting agencies, 206–7     costs, 207   damages, 183      no payment for lost profits, 185–87, 202–3, 204      recovery of bid costs, 74, 178, 186, 201–2      why not reimburse lost profits, 207–12    Federal Courts, 203–6     bid costs, 204     lost profits, 204–5     no automatic stay, 206     standing, 203–4, 205    Government Accountability Office, 200–203     automatic interim relief, 201

Index  239     costs, 201–2    development of role, 200    rejection of monetary damages/lost profits, 202–3   remedies, 201–3 interim relief, 201, 206, 212 why not reimburse lost profits, 207–12    calculating lost profits, 209–10    practical considerations, 208–10    protection of procurement system and taxpayers, 210–12    winning a challenge providing further opportunity to compete, 186, 209 unlawful exclusions:    from bidding phase in two–stage procedures, 168    of tenderers and tenders, 168 Utilities Remedies Directive, 20

   causation and damages, 170–71    Ireland, 113, 117–19, 142   Italy, 91    legal basis for claim of damages, 151–52      conditions for claiming damages for bid costs, 156    loss of a chance, 177    option to require notification, 120   reasons, 119    review procedures, 1   scope, 172–73    setting aside decisions, 139 Voluntary Ex Ante Transparency Notice (VEAT Notice), 133 Wilman, Folkert G, 191 World Trade Organization, 222