«On contractual effects of procurement violations under. the amended Dir. 89/665/EEC. On forthcoming law. reform as a result of Directive 07/66/EC»

Transcription

1 «On contractual effects of procurement violations under the amended Dir. 89/665/EEC. On forthcoming law reform as a result of Directive 07/66/EC» Veileder: Professor dr. juris Kai Krüger Kandidatnr: Leveringsfrist: Til sammen ord

2 CONTENT Section: Page: 1 INTRODUCTION 1.1 Problem and content of the thesis The EU/EEA legal regime on enforcement of the correct procurement procedures A short overview 3 2 THE EU/EEA FUNDAMENTAL PRINCIPLES 2.1 General The principle of effectiveness and the principle of transparency 7 3 THE PRESENT REMEDIES FOR CONCLUDED CONTRACTS 3.1 Dir. 89/665/EEC Art. 2 (6) An obligation to terminate contracts according to The EC Treaty? The present remedies for concluded contracts in Norwegian law General Two Supreme Court Cases illustrating the present remedies for concluded contracts in Norway Rt p. 529: concluded contracts cannot be cancelled Rt p. 982 («Catch»): Only liability for costs prior to contract conclusion 16 4 THE STATE OF THE LAW FOR CONTRACTS AFTER THE AMENDMENT OF DIR. 89/665/EEC 4.1 The new Art. 2d on «ineffectiveness» Prohibitions and obligations General Prohibition against direct purchasing Permitted Direct Awards Notice of intention 20

3 4.2.5 The obligatory standstill periods The standstill period between the award decision and the conclusion of the contract Implications for Norwegian law Standstill period because of application for review Standstill period because of application for review to the contracting authority Standstill period because of pending review Insufficiencies in Norwegian law Member States freedom to decide on the length of the standstill periods Derogations from the obligations to publish contract notices and to apply the standstill periods General Extreme urgency needs Only one tenderer concerned The ineffectiveness sanction General Ineffectiveness because of failure to apply the standstill period Information requirements to the award communication Ineffectiveness because of illegal direct award Time limits The consequence of a contract becoming «ineffective» The ineffectiveness sanction in Norwegian law of contracting Overriding reasons relating to a general interest Alternative sanctions Competent review body THE IMPACT ON UNLAWFUL INDUCEMENTS CONCLUDING REMARKS LIST OF LITERATURE 8. TABLE OF ECJ JUDGMENTS

4 9. TABLE OF NORWEGIAN SUPREME COURT JUDGMENTS

5 1 Introduction 1.1 Problem and content of the thesis The main goal of the procurement regime is to secure suppliers, contractors and service providers a level playing field with equal opportunities to compete for public contracts. In order to achieve this main goal it is necessary that the economic operators are provided with remedies that ensure sufficient enforcement of the public procurement regime. The title and problem formulation of this thesis is «On contractual effects of procurement violations under the amended Dir. 89/665/EEC. On forthcoming law reform as a result of Directive 07/66/EC». The objective of this thesis is to explain ineffectiveness and other sanctions for concluded contracts in the remedies directive for the classical public sector, Dir. 89/665/EEC 1 as amended by Dir. 07/66/EC 2. The thesis will present the consequences of ineffectiveness to contracts, alternative sanctions, the requirements for contracts to become ineffective, and possible exceptions from the ineffectiveness sanction. The emphasise is on the most relevant new provisions of Dir. 89/665/EEC, and mainly the new Art. 2d. The author will present some views on the state of the law in Norway to illustrate some implications that the implementation of the new directive provisions will have for Norwegian law, by presenting insufficiencies in Norwegian law compared to the amended Dir. 89/665/EEC. 1 Council Directive of 21 December 1989 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 works contracts 2 Directive 2007/66/EC of the European Parliament and of the Council of 11 December 2007 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 1

6 This thesis is only focusing on public procurement in the classical sector (supplies, services and works contracts), however, public entities operating in the utility sector have to apply the utility sector rules. The author is of the opinion that the sanctions are best presented in a context where only one of the remedies directives is focused on. Dir. 89/665/EEC is applicable only to contracts subject to Dir. 04/18/EC 3, cf. the present and forthcoming Dir. 89/665/EEC Art The Norwegian «procurement light» regime 5 of chapter II of the Regulation on Public Procurement 6, will not be discussed because it is not within the scope of Dir. 89/665/EEC, cf. Sections 2-1 (2) and 2-2 of the Regulation. The new article 2d (1) (a) and (b), inserted by Dir. 07/66/EC Art. 1 into Dir. 89/665/EEC, obliges Member States to provide national rules on ineffectiveness to contracts concluded in breach of the new rules on standstill periods together with a violation of a procedural rule, or contracts illegally concluded without publication of a contract notice. By December Member States of the EU and countries party to the EEA Agreement (including Norway) must have implemented the amendments deriving from 3 Directive 2004/18/EC of the European Parliament and of the Council of 31 March 2004 on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts 4 Cf. also the first and second recital of the present Dir. 89/665/EEC. 5 Rules applicable to contracts under the economic threshold values of Dir. 04/18/EC. 6 Forskrift om offentlige anskaffelser, FOR nr Dir. 07/66/EC Art. 3 (1) which states that «Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this directive by 20 December 2009». 2

7 this new directive into national law. An important question in that regard, for the Norwegian legislator, is who should have the competence to make contracts ineffective. This latter question concerns the competence of the Norwegian complaints board (KOFA) 8 and the courts. The rules of the new Art. 2d (1) (c) and (5) on framework agreements and dynamic purchasing systems are, in the view of the author, of less practical interest, hence, those issues will not be addressed in this thesis. The effects that the amendment will have on corruption and other wrongful inducements in the award process, will be addressed in Section The EU/EEA legal regime on enforcement of the correct procurement procedures A short overview Enforcement of the EU procurement rules, and the parallel rules and principles of the EEA Agreement 9 and its Annex 16 (and its subsequent additions), on procurement, are regulated by, inter alia, provisions in The Treaty Establishing The European Community 8 Klagenemnden for Offentlige Anskaffelser. 9 Agreement on the European Economic Area of 1992, OJ No L 1, , p. 3 As amended by the Adjusting Protocol and subsequently by the 2004 EEA Enlargement Agreement (OJ No L 130, , p. 3 and EEA Supplement No 23, , p. 1), e.i.f , and subsequently by the 2007 EEA Enlargement Agreement (OJ No L [to be published), provisionally applicable as of , e.i.f. Pending. 3

8 (hereinafter: the EC Treaty 10 ) and the principles deriving from that treaty 11, and subsequent directive secondary legislation. The rules of the EC Treaty and the directives are to be implemented in the national law of the States party to the EEA Agreement 12, parallel to the legislative obligations of the Member States of the EC cf. the principles of the EEA Agreement Art. 1, 3 and 119, and The Surveillance and Court Agreement 13 Art The form and method of implementation is the choice of the national legislator in accordance with the dualistic principle founded in the EEA Agreement Art. 7 (b) and protocol 35. The implementation measures must be effectively secure the objectives of the directive, providing for legally enforceable rights to third parties. 15 In Norway this is achieved through legislation. Community law on procurement is often implemented by amendments and additions to the Norwegian special provisions in the procurement regime. 10 The Consolidated Version of The Treaty Establishing the European Community, Official Journal C 325, 24 December See point 2 where the fundamental principles of EC Law are discussed. 12 The EFTA States (Norway, Liechtenstein and Iceland) and the Member States of the EU are parties to the EEA Agreement. Switzerland is a party to the EFTA Agreement, but not a member of the EEA. 13 The Surveillance and Court Agreement of 1992, (OJ L 344, , p. 3). 14 Kai Krüger «Paradise Lost» p EEA Agreement Art. 3: «The Contracting Parties shall take all appropriate measures, whether general or particular, to ensure fulfilment of the obligations arising out of this Agreement. They shall abstain from any measure which could jeopardize the attainment of the objectives of this Agreement». The Surveillance and Court Agreement Art. 33: «The EFTA States concerned shall take the necessary measures to comply with the judgments of the EFTA Court». Also Sue Arrowsmith on p Sue Arrowsmith p

9 The statutory secondary enforcement legislation is found in the remedies directives, Dir. 89/665/EC and Dir. 92/13/EC 16 (now regulating postal services instead of the telecommunications sector). This text will focus on the former directive, not the latter, even though public providers may operate in the utility sector where the latter directive applies. The forthcoming Lisbon EC Treaty will not make any substantive changes to the rules following from these sources of law when it comes to public procurement contracting. 2 The EU/EEA fundamental principles 2.1 General The objective of the EC law on public procurement is to open up the sector to trade between EC Member States. 17 There is a need for a set of principles in order to achieve this objective. These principles are, in example, the principle of full market competition, equal treatment, non-discrimination based on nationality, competition, transparency, effectiveness, foreseeability, legal certainty, proportionality, the rule of law, subsidiarity and equivalence. 18 Some of these fundamental principles stemming from the EC Treaty are expressed in statutory provisions while most of them are implied through The European Court of Justice (ECJ) rulings COUNCIL DIRECTIVE 92/13/EEC of 25 February 1992 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. 17 Sue Arrowsmith p Sue Arrowsmith p. 73 and Fridtjof Frank Gundersen pp I.e «Telaustria» C-324/98, «Stadt Halle» 26/03 and «Alcatel» C-81/98. 5

10 The principle of full market competition is an overriding principle which justifies means to secure full competition between private operators when trading within the Community. It entails the exclusion of barriers and distortions to free trade between operators in different Member States 20. In order to enhance the inner Community market 21 without barriers or distortions to full market competition, there is a need for equal treatment 22 of market operators in a non-discriminatory way. 23 Free and fair competition for contracts seems to be recognised by the ECJ. 24 The principle has been used by the ECJ in various cases to justify the outcome. 25 It is stated in Art. 2 of Dir. 04/18/EC that «Contracting authorities shall treat economic operators equally and non-discriminatorily and shall act in a transparent way». This text will only elaborate on the principle of effectiveness and the principle of transparency as they are of paramount importance in order to achieve the objectives of the other principles of the EC Treaty and for the understanding of the amended Dir. 89/665/EEC. 20 Sue Arrowsmith p. 121 where such barriers are considered in conflict with «fair competition». 21 What «The internal market» comprises is given in EC Treaty Art. 14 (2). 22 Established by the ECJ as a general principle, see Sue Arrowsmith pp. 133 and Sue Arrowsmith p The principle of non-discrimination is founded in EC Treaty Art. 12, 28, 43 and Sue Arrowsmith pp For example in the «Sintesi» Case C-247/02. 6

11 2.2 The principle of effectiveness and the principle of transparency The principle of effectiveness and the principle of transparency have been recognised by the ECJ as deriving from the distinct characteristics of Community law. 26 Without effective compliance with the EC law, the objectives of the EC will not be achieved. Thus, the principle of effectiveness has been established. In the «La Scala»-case 27 it was stated in recital 55 that «[...]the assessment[...]must be made in such a way as to ensure that the Directive is not deprived of practical effect[...]». It is hard to manage efficient compliance with the EC law without openness in decisionmaking processes. Therefore contracting entities have to advertise decisions and their reasons, and contracts. It is very precise when ECJ states in C-324/98 «Telaustria», para. 62, that the «[...]obligation of transparency which is imposed on the contracting authority consists in ensuring, for the benefit of any potential tenderer, a degree of advertising sufficient to enable the services market to be opened up to competition and the impartiality of procurement procedures to be reviewed». These words of the judgment entails a duty to publish and advertise contracts to be awarded and what it takes to be awarded the contract, the decisions made between the «up front» publication and the award decision, the actual award decision and the reason(s) justifying it, the rejection(s) with reason(s) 28, the providing of time-limits enabling operators to participate in and review the award procedures «Telaustria» C-324/98, «Alcatel» C-81/98 para. 38, and «La Scala» C-399/ ECJ C-399/ On the duty to give reasons for awards and rejections, cf. dir. 04/18/EC Art. 41 no. 1 and 2, cf. Art Sue Arrowsmith p

12 The principle of transparency is important in order to achieve equal treatment and nondiscrimination effectively. 30 There is a need for effective judicial review in order to secure the EC objectives. For this reason the enforcement regime must be interpreted in the light of the very principles it is established to protect. The national courts and complaint boards must follow the ECJ's practice of interpretation. 31 The ECJ-practice illustrates that the fundamental principles are of a significantly high relevance in the process of interpreting EC Law. 32 However, it seems as if these fundamental principles have not had sufficient impact to undermine the present rule of Dir. 89/665/EEC Art. 2 (6). 3.The present remedies for concluded contracts Dir. 89/665/EEC Art. 2 (6) Dir. 89/665/EEC Art. 2 (6) 1 st subparagraph states «The effects of the exercise of the powers referred to in paragraph 1 [which provides the possible remedies] on a contract concluded subsequent to its award shall be determined by national law» (emphasis added). The wording indicates that the government has no obligation, only an opportunity, to provide for remedies after conclusion of contract. 30 Sue Arrowsmith p Sue Arrowsmith p In example «Telaustria» C-324/98 and «La Scala» C-399/ As of autumn

13 A limitation to this outset is offered in the second subparagraph of Dir. 89/665/EEC Art. 2 (6) where it is worded «Furthermore, except where a decision must be set aside prior to the award of damages, a Member State may provide that, after the conclusion of a contract following its award, the powers of the body responsible for the review procedures shall be limited to awarding damages to any person harmed by an infringement». The legal text must be construed as meaning that a Member State must make arrangements for an aggrieved party to be able to seek and to be awarded damages for damage and loss as a consequence of misconduct, prior to the conclusion of the contract, by a contracting authority in a procurement procedure. 34 The wording Art. 2 (6) 2 nd subparagraph does not imply anything more than damages for costs through participation in the award procedure. However, the principle of effectiveness leads to the rule that one can be awarded damages for loss of profits, if it is established that the provider had a substantial chance of being awarded the contract. 35 It is very hard for a potential tenderer to prove a substantial chance of being awarded the contract if an illegal direct award has been taking place. 36 The question of whether the Member State may set subjective fault as a requirement for obtaining damages was answered in C-46/93 Brasserie du Pêcheur SA v Germany para. 79 where it was stated that «[...]reparation of loss or damage cannot be made conditional upon fault (intentional or negligent) on the part of the organ of the State responsible for the breach, going beyond that of a sufficiently serious breach of Community law». 34 The «Alcatel»-Case C-81/98 paragraph For Norwegian law, see Rt p («Nucleus») on page Com 2006/0195 Final. 9

14 The paragraph of the judgment seems to imply that, apart from situations where there is a serious breach, there may be a requirement for fault to be a condition. Of course fault may also be an element in an assessment of how serious the infringement is. Fault as an additional requirement is an impediment to effective enforcement of procurement law. Especially in cases where the contract is already concluded. The conclusion is that Dir. 89/665/EEC Art. 2 (6) enables the Member States to not provide for corrective remedies after the time of conclusion of the contract, except for damages An obligation to terminate contracts according to The EC Treaty? It should be kept in mind that the directives are of lower authority than the EC Treaty. It is therefore a question whether the EC Treaty Art and/or Art , through procedures made possible by EC Treaty Art , through interpretation contains a 37 Kai Krüger in «Paradise lost» p The wording of the EC Treaty Art. 228 (1) is «If the Court of Justice finds that a Member State has failed to fulfill an obligation under this Treaty, the State shall be required to take the necessary measures to comply with the judgment of the Court of Justice». Note that the wording only indicates such a duty after a judgment from the ECJ. 39 The wording of the EC Treaty Art. 10 (1) 1. sentence is «Member States shall take all appropriate measures, whether general or particular, to ensure fulfilment of the obligations arising out of this Treaty or resulting from action taken by the institutions of the Community». 40 The wording of the EC Treaty Art. 226 is «If the Commission considers that a Member State has failed to fulfill an obligation under this Treaty, it shall deliver a reasoned opinion on the matter after giving the State concerned the opportunity to submit its observations. If the State concerned does not comply with the opinion within the period laid down by the Commission, the latter may bring the matter before the Court of Justice». 10

15 duty to provide for corrective remedies in cases of wrongfully concluded contracts in breach of the EC Treaty. 41 The interpretation that may be the case for the EC Treaty would probably be the same for the parties to the EEA Agreement, cf. the EEA Agreement Art. 3 and ODA Agreement Art An obligation to terminate a concluded contract would be in contradiction with the freedom that seems to be implicitly conferred to national legislators by Dir. 89/665/EEC Art. 2 (6). However, the notion that concluded contracts are not protected if in breach of the EC Treaty, has gained some support in judicial theory. 43 The importance of the principle of the inner market and its well-functioning at Treatylevel compared to secondary legislation such as Dir. 89/665/EEC Art. 2 (6) should be observed. The directive provision has been given to reach the objective of an inner market, thus EC Treaty Art. 226 and Art. 228 should prevail over Dir. 89/665/EEC art 2 (6) where there is a breach of the EC Treaty. In ECJ Case C-503/04 concerning a concluded contract between the City of Brunswick and Braunschweigsche Kohlebergwerke (BKB) for residual waste disposal by thermal processing for a period of 30 years from June/July 1999, the Commissions view as stated in para. 30 was confirmed by the ECJ in paragraph 42, that the breach established in the previous cases C-20/01 and C-28/01 continued as the contract was not rescinded. 41 Kai Krüger in «Paradise lost» p Also discussed by Steen Treumer in «Towards an Obligation to Terminate Contracts» pp , where he seems to be advocating for such an obligation. 42 Kai Krüger in «Paradise lost» p See i.e. Steen Treumer in his article «Towards an Obligation to Terminate Contracts». 11

16 In paragraph 33 an important point was given with regard to the impact of Dir. 89/665/EEC Art. 2 (6), by stating that «...although that provision permits the Member States to preserve the effects of contracts concluded in breach of directives relating to the award of public contracts and thus protects the legitimate expectations of the parties thereto, its effect cannot be, unless the scope of the EC Treaty provisions establishing the internal market is to be reduced, that the contracting authority s conduct vis-à-vis third parties is to be regarded as in conformity with Community law following the conclusion of such contracts» (emphasis added). The quoted statement can be interpreted as stating an obligation to terminate contracts automatically. The judgment provides no express and clear statement on this. 44 The judgment can, alternatively, be interpreted as restricting the importance of the directive provision, Art. 2 (6), when compared to former traditional understanding. Providing for termination of concluded contracts as a result of a violation of the EC Treaty and its principles, not automatically, but as a result of an individual assessment of what the correct sanction should be. 45 It must be kept in mind that EC Treaty Art. 226 and Art. 228 only regulate the relationship between a Member State and the Community, see para. 35 of the judgment. Looking at the wording of EC Treaty Art. 226 and 228 it may be argued for an obligation to terminate a contract only where Community institutions consider it necessary. This leads to the understanding that a breach of the EC Treaty makes for termination of the contract, but only after it has been assessed and decided on by an institution of the EC (or the EEA Agreement by EFTA institutions, where applicable). 44 Steen Treumer «Towards an Obligation to Terminate Contracts» p Steen Treumer «Towards an Obligation to Terminate Contracts» p , where he seems to be arguing for this approach. 12

17 Professor Steen Treumer considers this view, but concludes that it would lead to a lack of coherence in the enforcement regime The present remedies for concluded contracts in Norwegian law General The Norwegian Public Procurement Act Section 8 (1) states «No decision regarding interim measures against breaches of this Act or regulations issued pursuant thereto may be made after a contract has been entered into». 47 The legal text implies that measures intended to stop contract performance and other obligations, in accordance with the contract, cannot be provided after the contract has been entered into. In the Public Procurement Act Section 7 (2) 1. sentence it is stated that «Until conclusion of a contract, the court may set aside decisions made during a procurement procedure when the decision is in breach of provisions in this Act or regulations given pursuant thereto» (my translation). 48 This wording, viewed together with the wording of Section 8 (1), clearly indicates that it must be interpreted by antithesis to reject correctional remedies by a court as soon as a contract has been concluded and formally binding. 49 As the court can not set aside such a decision, the more it must mean that an administrative body, such as a complaints board, can not set aside such a decision when there is no provision stating otherwise, due to the principle of legality. The state of law 46 Steen Treumer «Towards an Obligation to Terminate Contracts» p Unofficial translation of Lov om Offentlige Anskaffelser, LOV (1) «Mot overtredelser av denne lov eller forskrift gitt i medhold av loven kan det ikke besluttes midlertidig forføyning etter at kontrakt er inngått». 48 The Norwegian text of the quoted provision is «Inntil kontrakt er inngått, kan retten sette til side beslutninger som er truffet under en anskaffelsesprosedyre når beslutningen er i strid med bestemmelser i denne lov eller forskrifter gitt i medhold av loven». 49 The author understands Kai Krüger to be of the same opinion in «Paradise Lost» p

18 in Norway is that a procurement breach does not impair the contract as concluded, cf. Rt p In the Public Procurement Act Section it is stated that «Any party bringing an action for breach of this Act or regulations issued pursuant thereto is entitled to compensation for any loss he has suffered as a result of the breach» (unofficial translation). 51 This must be understood as providing damages for breach of public procurement law on correct award procedures, both prior to and after contract conclusion. This provision will at the outset only make aggrieved parties entitled to damages for negative interest (costs incurred by competing for the contract), cf. Rt p. 983 («Reno Vest») paragraph 68. Damages for positive interest in the contract (loss of profits) may only be awarded if the breach is serious, and the seriousness of the breach depends on how substantial it is, the character of the breach, and the level of fault on the contracting authority, cf. Rt p («Nucleus») on page In the «Nucleus»-Case it was also stated that a substantial chance that the provider would have been awarded the contract if it had not been prevented by the serious breach of procurement law, is a requirement for damages for loss of profits A lex specialis provision for public procurement in Norwegian tort law. 51 Norwegian text of the provision: «Ved brudd på denne lov eller forskrifter gitt i medhold av loven, har saksøker krav på erstatning for det tap han har lidt som følge av bruddet». 52 Rt p («Nucleus») on page 1079, and Rt p. 983 («Reno Vest») paragraph

19 3.3.2 Two Supreme Court Cases illustrating the present remedy-situation for concluded contracts in Norway Rt p. 529 and Rt p. 982 illustrates the present state of law in Norway for contracts illegally awarded and subsequently concluded in disregard of public procurement law Rt p. 529: concluded contracts cannot be cancelled In Rt p. 529, Stiftelsen Godthaab Rehabiliteringssenter had tendered for a supply contract advertised by Helse Øst RHF, but was not awarded the contract. It applied to the Court of First Instance for an injunction to stop the contract from being entered into because it considered the reason for the award to be unlawful. This injunction to stop the contract was approved by the court. Unfortunately for the plaintiff, that ruling was reversed by the Appeal Court. The contract was subsequently concluded on the 30 th of March The Appeal Courts' ruling was appealed to the Supreme Court who dismissed the appeal by referring to The Norwegian Procurement Act Section 8 (1), cf. paragraph 12 and 13 of the judgment. The plaintiff was considered as lacking legal standing because corrective remedies could not be imposed after conclusion of the contract. The Norwegian implementation of the new Art. 2d of Dir. 89/665/EEC will provide sufficient legal standing for economic operators to challenge contract awards after conclusion of contracts. The amended Dir. 89/665/EEC will also provide a minimum standstill period of at least 10 days after appeal for review has been made either to the 15

20 contracting authority or a review body of first instance, preventing premature contract conclusion Rt p. 982 («Catch»): Only liability for costs prior to contract conclusion Rt p. 982 concerned a claim for damages for expenses for legal services to stop a contract from being entered into because of breach of the procurement rules. The municipality of Oslo had not notified in the contract notice that it also wanted services provided in addition to the delivery of computer equipment. The Supreme Court established that a serious breach of the procurement rules had been done as the contract notice was misleading, cf. the Regulation on Public Procurements 53 Section 6-2 cf. Section 6-4. The plaintiff, the service provider Catch Communications ASA, was awarded damages for the legal expenses before contract conclusion as the municipality was considered to have liability in the case, but not for costs incurred after the conclusion of the contract. The Supreme Court pointed to the Norwegian Public Procurement Act 54 Section 7, 2nd paragraph. Stating that the provision allows for set asides until contracts have been entered into. The Court also stated that the Public Procurement Act Section 8 (1) only provides for interim measures until contracts have been concluded. The Court subsequently stated that economic operators may only be awarded damages for costs 53 Forskrift om offentlige anskaffelser, FOR nr Lov om offentlige anskaffelser av 16. juli 1999 nr. 69 (ofl.). 16

21 incurred after contract conclusion in accordance with Section 10 of the Procurement Act. 55 In paragraph 51 of the judgment the Supreme Court stated that economic operators most often do not have legal standing after contract conclusion. However, the Court admitted that an operator may have legal standing after conclusion of the contract if it has incurred costs in order to stop the illegal conclusion of the contract. The Supreme Court concluded that Section 10 of the Public Procurement Act only provides for damages for costs incurred because of an illegal award procedure, but not liability for costs to establish that a breach has been made. Hence, the municipality was only liable for the legal expenses incurred prior to the contract conclusion. 56 The Norwegian implementation of the new Art. 2d will provide an opportunity to apply for ineffectiveness to concluded contracts illegally awarded directly. The bid-protester will not be awarded the contract if the claim is accepted, but may participate in the new award procedure for the same contract. Legal expenses incurred in order to establish that a breach of procurement law has been made, will be costs which the contracting authority may be liable to cover. 55 Paragraph 50 of the judgment. 56 Paragraph 55 and 56 of the judgment. 17

22 4. The state of the law for contracts after the amendment of Dir. 89/665/EEC 4.1 The new Art. 2d on «ineffectiveness» This chapter of the thesis will first discuss the prohibitions and obligations listed in the new Art. 2d of Dir. 89/665/EEC. Subsequently, the consequence of a contract becoming ineffective will be addressed. The insufficiency in the already existing Norwegian law of contract provisions in relation to the ineffectiveness obligation, will also be addressed. The exeptions and alternative sanctions will be explained. Finally, the new situation for the review body[ies] will be discussed. 4.2 Prohibitions and obligations General The amended Dir. 89/665/EEC Art. 2d is a rule on sanctions for infringements of the standstill periods regulated by Art. 1 (5), 2a and 2 (3) which Art. 2d referres to. The sanction of ineffectiveness to concluded contracts provided by Art. 2d also applies to the serious breaches of the prohibition against direct purchasing where it is not specifically allowed Prohibition against direct purchasing The new Art. 2d (1) (a) addresses the situations where «the contracting authority has awarded a contract without prior publication of a contract notice in the Official Journal of the European Union without this being permissible in accordance with Directive 2004/18/EC». This text addresses the circumstances where the least transparent procedures are used to award contracts, the direct awards without prior publication of a contract notice. 18

23 The ECJ has characterised these wrongful procedures of illegal direct awards of contracts as «the most serious breach of Community law in the field of public procurement». 57 In Recital 14 of the Preamble of Dir. 07/66/EC it is stated that «[...]Direct awards within the meaning of this Directive should include all contract awards made without prior publication of a contract notice in the Official Journal of the European Union within the meaning of Directive 2004/18/EC». The lack of publishing of a contract notice when awarding a contract, constitutes at the outset an illegal direct award of a contract. The fact that Art. 2d regulates all direct contract awards does not mean that there are no derogations from the ineffectiveness sanction for such awards. On the contrary, the new Art. 2d specifically acknowledges that derogations from the ineffectiveness may be «permissible in accordance with Directive 2004/18/EC» Permitted Direct Awards Possible justifications of direct awards may be those permitted by Dir. 04/18/EC in Art , Art. 21, Art. 31, Art. 61, Art. 68, and the ECJ interpreted lawful "in-house" contract awards, cf. Recital 15 of the Preamble of Dir. 07/66/EC. Another exception is provided by Art. 2d (4) of the amended Dir. 89/665/EEC, if a notice of intent is published. In Recital 8 of the Preamble of Dir. 07/66/EC it is stated that the «[...]minimum standstill period is not intended to apply if Directive 2004/18/EC[...]does not require 57 The ECJ «Stadt Halle»-Case C-26/03 paragraph

24 prior publication of a contract notice». Because the exceptions referred to in Dir. 04/18/EC also constitute exceptions from the standstill periods, they will be discussed after the presentation of the standstill-periods. The amended Dir. 89/665/EEC Art. 2d (4) which specifically allows for direct purchases where the contracting authority under certain conditions has given a notice of its intention to purchase directly without competition, does not regard the standstillperiods as such, and will therefore be addressed before the standstill periods Notice of intention The contracting authority should be allowed to conclude contracts in situations where the conditions for lawful direct awards are considered to be present, without risking ineffectiveness because of actions done in good faith. It is necessary to have restrictions and conditions to make sure that covert circumventions are not committed. Art. 2d (4) states that where «[...]the contracting authority considers that the award of a contract without prior publication of a contract notice in the Official Journal of the European Union is permissible in accordance with Directive 2004/18/EC» it may not publish a contract notice. This provides an exception from the ineffectiveness sanction of Art. 2d (1) (a). A condition is that «[...]the contracting authority has published in the Official Journal of the European Union a notice as described in Article 3a of this Directive expressing its intention to conclude the contract» (emphasis added). This requirement of publication 20

25 of a notice adds transparency to the direct award. Subsequently, private operators can challenge the award before the conclusion of contract. The provision further requirers that «[...]the contract has not been concluded before the expiry of a period of at least 10 calendar days with effect from the day following the date of the publication of this notice». The legal text provides for sufficient time to challenge the award effectively, preventing circumvention by the contracting authority. This exception is of practical interest where the contracting authority does not publish a contract because it is not considered necessary, but subsequently it is found to be an illegal direct award. This rule adds security to the economic operator awarded the contract, and it provides a tool for the contracting authority to safeguard the contracts it, in good faith, awards directly. This exception can make unpublished direct awards pointless, even in urgent cases. 58 The notice of intent must be formed in compliance with Art. 3a, cf. Art. 2d (4). This means that the notice must contain, «(a) the name and contact details of the contracting authority», «(b) a description of the object of the contract», «(c) a justification of the decision of the contracting authority to award the contract without prior publication of a contract notice in the Official Journal of the European Union», «(d) the name and contact details of the economic operator in favour of whom a contract award decision has been taken», and «(e) where appropriate, any other information deemed useful by the contracting authority». 58 Golding and Henty «The New Remedies Directive» p

26 4.2.5 The obligatory standstill periods The standstill period between the award decision and the conclusion of the contract The rule that there must be a standstill-period between the award decision and the conclusion of the contract was first introduced in the ECJ «Alcatel»-Case C-81/98. The ECJ «Alcatel»-Case C-81/98 concerned a contract for supply, installation and demonstration of hardware and software components of an electronic system for automatic data transmission to be installed on Austrian motorways. The problem in this case was that Austrian law did not separate the award decision and the conclusion of the contract. On this matter it was stated in paragraph 43 of the judgment that «[...]Article 2(1)(a) and (b) and the second subparagraph of Article 2(6) of Directive 89/665 are to be interpreted as meaning that the Member States are required to ensure that the contracting authority's decision prior to the conclusion of the contract as to the bidder in a tender procedure with which it will conclude the contract is in all cases open to review in a procedure whereby an applicant may have that decision set aside if the relevant conditions are met» (emphasis added). The court's statement in the «Alcatel»-Case implicitly established the rule that there must be a certain time that elapses between the award decision and the conclusion of the contract to make it possible to review the award decision before it becomes final and binding. The time that must pass from the award to the conclusion of the contract, has to be long enough to provide the aggrieved party with an opportunity to assess and make up its mind as to whether or not there might be a reason to complain about the award 22

27 procedure and to decide if it wants to avail itself of the opportunity to have a review procedure. Later, in the «Commission v. Republic of Austria»-Case C-212/02, this pause was expressly established. It was held that there is a duty to publish a sufficiently reasoned decision and a reasonable time limit for the tenderer to scrutinise and assess whether the award decision is legal. 59 The amended Dir. 89/665/EEC art.2a makes the already introduced Alcatel-standstillperiod into statutory black letter law. In line with the «Alcatel»-Case the amended Dir. 89/665/EEC Art. 2a (1) calls for «sufficient time for effective review of the contract award decisions taken by contracting authorities» and defines the minimum standstill-periods of Art. 2a (2) as «minimum conditions». The wording of the new Art. 2a (2) is «A contract may not be concluded following the decision to award a contract falling within the scope of Directive 2004/18/EC 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 59 Golding and Henty p

28 10 calendar days with effect from the day following the date of the receipt of the contract award decision». The standstill period which contracting authorities must respect by not concluding the contract will not be less than a period of 10 to 15 days from the day following the date of notification of the award decision. The length of the standstill-period depends on the means of communication used by the contracting authority. Alternatively, the standstillperiod can be 10 days from the economic operator has received the notification of the award decision The implications of amended Dir. 89/665/EEC Art. 2a for Norwegian law In Regulation on Public Procurements nr. 402 Section 22-3 (1) it is stated that «The contracting authority's award decision[...]shall be notified to all participants in reasonable time before conclusion of the contract[...]» (my translation). 60 The provision of the Regulation is in line with the «Alcatel»-standstill period. However, as the Commission argues in COM(2006) 195 Final, point 1, 1st paragraph, the guidelines on reasonable time, given in the «Alcatel»-Case, is not preventing variations to a degree which is not consistent with Community law and that sometimes the length of the standstill period is, in practice, not sufficient for the enterprise to assess whether an award decision is legitimate. The standstill-period practiced in most cases in Norway are from 10 to 15 days. Thus, making Norwegian public procurement practice presumably in compliance with the 60 The original Norwegian text of the quoted Forskrift om offentlige anskaffelser, FOR nr (1) is «Oppdragsgivers beslutning om hvem som skal tildeles kontrakt...skal meddeles til alle deltakerne i rimelig tid før kontrakt...inngås». 24

29 amended Dir. 89/665/EEC Art. 2a. However, the discretion that the contracting authorities in Norway can apply, in accordance with the requirement of reasonable time, can easily lead to premature formation of contracts. The need for a statutory rule on a sufficient standstill period of at least 10 to 15 days, depending on the means of communication used, seems to be present in order to secure effective Norwegian fulfilment of the amended Dir. 89/665/EEC Art. 2a Standstill period because of application for review A suspensive standstill period because of application to the contracting authority for review and because of pending review by a review body will be new concepts following from the new Art. 1 (5) and the new Art. 2 (3) of the amended Dir. 89/665/EEC. The implementation of these rules will be new additions to Norwegian law on public procurement. They will be additional standstill periods supplementing the first standstill period provided by Art. 2a (2), because the first standstill period may end before the review body has made a decision on review or sanction. 61 The additional standstill periods will perhaps sometimes make it unnecessary to approach the court for further interim injunctions Standstill period because of application for review to the contracting authority The wording of the new Art. 1 (5) is «Member States may require that the person concerned first seek review with the contracting authority. In that case, Member States shall ensure that the submission of 61 Golding and Henty «The New Remedies Directive» p

30 such an application for review results in immediate suspension of the possibility to conclude the contract» and in the third subparagraph «The suspension referred to in the first subparagraph shall not end before the expiry of a period of at least 10 calendar days with effect from the day following the date on which the contracting authority has sent a reply if fax or electronic means are used, or, if other means of communication are used, before the expiry of either at least 15 calendar days with effect from the day following the date on which the contracting authority has sent a reply, or at least 10 calendar days with effect from the day following the date of the receipt of a reply». This text of the amended Dir. 89/665/EEC Art. 1 (5) introduces a suspensive standstill period of 10 to 15 days from the day following the date of the reply from the contracting authority. This suspension of contract conclusion only occurs if the economic entity has seeked review with the contracting authority if the Member State has made such an application a requirement for review. The length of the standstill period depends on the communication used. It also follows from the text that the pause may be 10 days from the entity has received an answer from the contracting authority Standstill period because of pending review The wording of the new Art. 2 (3) is «When a body of first instance, which is independent of the contracting authority, reviews a contract award decision, Member States shall ensure that the contracting authority cannot conclude the contract before the review body has made a decision on the application either for interim measures or for review. The suspension shall end no 26

31 earlier than the expiry of the standstill period referred to in Article 2a(2) and Article 2d(4) and (5)». The text of this provision provides for an immediate suspensive standstill period before conclusion of the contract while the review body of first instance reviews the award decision, after a complaint made by an economic entity, until it has made a decision on sanction or review. Meaning that the review body must have made a decision on the application for interim measures or on the merits of the case, cf. Recital 12 of the Preamble of Dir. 07/66/EC. This pause cannot end earlier than the obligatory length of the standstill period according to Art. 2a (2) and 2d (4) and (5) of the amended directive, cf. Art. 2 (3) i.f Insufficiencies in Norwegian law The question is if Norwegian law provides for a sufficient standstill period because of review procedures being initiated with a review body of first instance or the contracting authority. According to the Norwegian Administrative Procedure Act 62 Section sentence «The subordinate instance[...]may decide that an administrative decision shall not be implemented until the time limit for an appeal has expired or the appeal has been decided» (unofficial translation). The legal text provides that a complaint may have a suspensive effect, but this is facultative depending on the discretion of the contracting authority, cf. also the principle in Regulation on public procurements Section 22-3 (2) Lov om behandlingsmåten i forvaltningssaker (forvaltningsloven) av 10. februar «Dersom oppdragsgiver finner at beslutningen om å tildele kontrakt ikke er i samsvar med 22-2 (kriterier for valg av tilbud) kan beslutningen annulleres frem til kontrakt er inngått». 27

32 Hence, there is a need for a provision on automatic suspensive effect of complaints to contracting authorities in Norwegian law. The Norwegian Public Procurement Act 64 Section 7 states «Civil action because of violation of this Statute or Regulations in accordance with this Staute, shall be brought before the National Court of First Instance...» (my translation). 65 Under the current Norwegian regime Klagenemnden for Offentlige Anskaffelser (KOFA) can impose a pecuniary penalty on contracting authorities in cases of illegal direct awards. 66 This leads to the understanding that the review body of first instance which will be deciding on remedies or review, in most cases will be a court. The Norwegian Administrative Procedure Act Section 42 2 nd sentence states «When a party or other person with a legal interest in an appeal [...]has taken legal action in order to have the administrative decision reviewed by a court of law, such agency as referred to above may defer the implementation until a final judgement has been delivered» (unofficial translation). This means that a civil action may have a suspensive effect, but this is facultative depending on the discretion of the contracting authority. Hence, there is a need for automatic suspensive effect of civil actions brought before courts or the review body in order for Norwegian law to be consistent with the directive amendments. 64 Lov om offentlige anskaffelser av 16. juli 1999 nr. 69 (ofl.). 65 Original Norwegian text of the provision is «Søksmål om overtredelse av denne lov eller forskrifter gitt i medhold av loven, reises for tingretten...» 66 The Norwegian Public Procurement Act Section 7b. 28

33 KOFA is an advisory board with no authority to order a suspension of a contract, cf. section 1 and 12 of the Regulation on KOFA There is no automatic suspension. The lack of a mandatory standstill period as a consequence of application to a review body or the contracting authority, and the fact that application must be made to a court of first instance in order to achieve a suspension of the contract conclusion, makes it hard for economic entities to protect their right to a fair procurement process. In certain situations it can be close to impossible to get a lawyer, assess the facts and the law, and prepare the writ and submit it to the court before the contracting authority concludes the contract. Only leaving the possibility of damages for negative or positive contract interest left for the economic entities to achieve under the present regime. 69 Standstill periods because of review procedures will be new to Norwegian national law. This introduction of a suspensive effect because of a pending review or an application for a review will undoubtedly make effective attainment of the rights of aggrieved firms and undertakings easier in Norway Member States freedom to decide on the length of the standstill periods Member States may decide on longer the standstill periods than the minimum requirements of the new directive provisions, cf. Recital 5 of the Preamble of Dir. 07/66/EC: «Member States are free to introduce or to maintain periods which exceed those minimum periods. Member States are also free to decide which period should apply, if different means of communication are used cumulatively». 67 Regulation No Kai Krüger «Paradise Lost» p Kai Krüger «Paradise Lost» p