Bids for public contracts can be made by an individual firm, or by two or more unaffiliated entities.

There are various reasons why operators decide to form a consortium. Consortium bids are common in large public contracts, when small and medium sized enterprises (SMEs) do not have the individual financial or technical capacity to undertake such projects.  In order to meet the minimum turnover requirement or the necessary experience required by the contracting authority in the tender, a consortium is formed for the purposes of submitting a joint bid. Consortium bidding permits the participation of entities that would otherwise have been excluded from public procurement. Furthermore, tenderers may join forces to achieve economies of scale or combine expertise to  make a bid more attractive.

Consortium bids raise many complex issues. The operators that join forces for a public tender may be actual or potential competitors. Joint bidding may, in this respect, breach competition law but may, in other cases, have pro-competitive advantages in the form of efficiency gains from which consumers will benefit. Besides competition matters, consortium bidding can raise legal difficulties. To avoid these, joint operators normally regulate their relationship, their roles and their obligations towards the public entity in detailed agreements before submitting bids for public contracts.

Nonetheless, unexpected events do occur during a procurement process. A consortium bid may be seriously prejudiced if one of the operators in a consortium goes bust or drops out of the procurement process. This was the scenario put forward to the Court of Justice of the European Union (CJEU). The Court was requested by the Danish courts to provide a preliminary ruling relating to the insolvency of a bidding entity and whether the remaining companies forming part of the consortium were allowed to continue in the tender process.

Some years ago, the railway infrastructure operator in Denmark launched a negotiated procedure for the award of a public contract for the construction of a new railway line between two important cities in the country. One of the pre-qualified consortia consisted of two entities, Aarsleff and Pihl.

The latter became insolvent during the bidding process.  The remaining consortium member, Aarsleff, continued in the procurement process by itself, as the Danish contracting authority had declared that Aarsleff satisfied the tender conditions to take part on its own. Following the evaluation in which Aarsleff was declared to have offered the best economically advantageous offer, it was eventually awarded the contract.

One of the unsuccessful consortia participating in the bidding process challenged this award on the basis that the contracting authority had breached the equal-treatment and transparency principles of the EU utilities directive. The Public Procurement Complaints Board in Denmark referred the matter to the CJEU for a preliminary ruling on whether the principle of equal treatment enshrined in the EU directive excludes an authority from awarding a contract to a tenderer pre-selected as part of a consortium.

Under EU law, public entities are legally required to observe principles of equal treatment, non-discrimination and transparency in procurement processes. Furthermore, the directive obliges contracting authorities to select tenderers in accordance with rules and criteria set out in a tender document and exclude those that are not in compliance with such rules. However, there are no specific rules applicable to alterations to the composition of consortia during the course of a tender process under EU law and therefore, the CJEU was called upon to fill the gap with its judicial interpretation of the principle of equality.

In its judgment, the Luxembourg Court laid down that the principles of equality and transparency mean that all tenderers must be in an equal position – both when submitting tenders and when such tenders are evaluated. It ruled that a contracting authority was not in breach of the principle of equal treatment by awarding a contract to one of two tenderers who previously formed a consortium where one of the tenderers was declared insolvent. This was qualified by the Court when it stated that the remaining entities of the consortium must, by themselves, meet the requirements set out in the tender process, and additionally that the participation of the surviving entity must not place the other competing tenderers at a competitive disadvantage.

Since Aarsleff in the present case would have been successfully pre-selected under its own steam, and there was nothing showing that the other tenderers were disadvantaged by allowing it to bid on its own, the principle of equality did not prohibit the surviving entity from replacing the original consortium and continuing the road of the bidding process on its own.

Although the utilities directive has now been replaced, the relevant legal principles are still found in the 2014 Public Sector Directive, and so this ruling is of continuing relevance.

jgrech@demarcoassociates.com

Josette Grech is adviser on EU law at Guido de Marco & Associates.