Compensation for Unlawful Exclusion from a Public Procurement Procedure: When, From Whom, and How Much Can I Claim?

Keywords: public procurement, compensation, illegally conducted public procurement procedure, lost profit, contractual interest.

Public procurement in the Republic of Slovenia constitutes a significant portion of economic activity. In 2022, over one million public contracts were awarded, with a total value exceeding eight billion euros, which accounted for 58.7 % of the state's budget expenditures. This highlights the crucial role of public procurement in the economy and the necessity of adhering to legal frameworks to ensure fair competition. Tenderers play a vital role in upholding these standards by proactively acting.

Recent EU Court Ruling on Public Procurement (Judgment in Case INGSTEEL C-547/22 dated June 6, 2024)

A recent judgment by the European Court of Justice (ECJ) underscored the rights of tenderers who are unlawfully excluded from public procurement procedures, allowing for a broad scope of damages that these tenderers can claim as a result of an unlawful decision. The ECJ ruled that under Article 2(1)(c) of Directive 89/665/EEC, compensation can include damages for the loss of an opportunity, ensuring full redress for tenderers affected by violations of public procurement rules.

Compensation in Illegally Conducted Public Procurement Procedures under Slovenian Law

Slovenian law provides several mechanisms for claiming compensation due to unlawful decisions in public procurement procedures. This article outlines when such compensation can be claimed, from whom, and how much.

When is a Public Procurement Procedure Unlawfully Conducted?

Before discussing the ways to claim damages and their extent, it is important to understand when a public procurement procedure is considered unlawful.

In the INGSTEEL case, the tenderer argued that the Slovak contracting authority's actions were unlawful because they required the submission of a certificate regarding economic and financial standing that the tenderer could not obtain for objective reasons. Specifically, the tenderer was required to secure a loan of EUR 3,000,000.00 which the bank would only confirm after the contract was concluded, as evidenced by a bank statement. The tenderer submitted an alternative certificate issued by the bank, committing to grant the loan in the specified amount and ensuring its availability throughout the execution of the public works contract. This submission effectively achieved the same result as the condition set forth by the contracting authority in the procurement documentation. Consequently, the excluded tenderer claimed that the public procurement procedure was conducted unlawfully because they were excluded for not providing the required loan certificate.

Based on our experience, in Slovenia, procedural irregularities in public procurement most often occur when setting the tender conditions within the tender documentation (e.g., the disproportion of required references with the subject of public procurement). Notably, fewer irregularities are found in procedures involving EU funds. In review procedures, applicants succeed in approximately 50% of cases.

To learn more about violations in public procurement procedures, visit the JNP website, where we regularly publish summaries of decisions by the National Review Commission for reviewing public procurement award procedures ("DKOM") and the European Court of Justice ("ECJ"). We will soon publish summaries of misdemeanor decisions in public procurement procedures, which will be available to our members.

It is crucial to recognize that the diversity of life and legal transactions presents a wide range of possible violations, making it important for tenderers to engage legal representatives who understand the legal positions and the subject matter of procurement. Tenderers must proactively raise these violations during both the pre-review and review stages.

In 2022, contracting authorities in Slovenia most commonly procured goods (66.52 %), followed by services (23.29 %) and construction (10.19 %). Our law firm has extensive experience in these areas. It is important to timely identify and appropriately address potential irregularities in the public procurement process (during the pre-review and review stages). This is not always easy in borderline cases and requires experience and ongoing involvement in public procurement practices. A thorough understanding of the tenderer's business position is also essential.

For more detailed legal advice tailored to your specific circumstances, we invite you to contact our law firm. Our team is here to help you navigate complex public procurement procedures and protect your rights.

Who is Responsible for Damages if Irregularities in the Public Procurement Procedure Are Not Rectified?

Liability of the Contracting Authority and the State

Slovenian law provides several bases for establishing liability, including Article 49 of the Act on Legal Protection in Public Procurement Procedures (ZPVPJN), Article 26 of the Constitution of the Republic of Slovenia, and the liability of Member States for compliance with EU law. In this context, a non-selected tenderer, who should have been awarded the public contract but was not, can claim compensation.

In addition to the contracting authority (when it is not the state), which is liable to tenderers for damages due to its violations under Article 49 of the ZPVPJN, the state can also be liable for damages caused by violations of the National Review Commission (DKOM) based on Article 26 of the Constitution of the Republic of Slovenia. DKOM is responsible for ensuring the legality of public procurement procedures, so state liability can also be justified on this basis.

Public procurement law is largely regulated by EU law, so state liability is also possible for damages caused to individuals due to non-compliance with EU law. In these cases, it involves a vertical relationship, allowing individuals to directly invoke EU law provisions, even if they have not been transposed into Slovenian law or have been incorrectly transposed.

Compensation Lawsuit

The previous stance of Slovenian case law was that, in cases of violations during public procurement procedures, compensation was limited to the costs of preparing the bid (negative contractual interest). However, according to more recent case law, supported by the aforementioned ECJ ruling, this view is considered too narrow. Compensation for damages due to the failure to conclude a contract after a public procurement procedure with the non-selected tenderer can now also include lost profits. Consequently, parties may file a claim for damages against the contracting authority and, if applicable, against the state (if it is not the contracting authority) in a civil court if they believe they have been harmed by illegal actions during the public procurement process.

In compensation lawsuits arising from violations of public procurement rules, it is essential to understand the nature of contract formation under public procurement. This differs from typical situations where parties enter into contracts solely for private interests. In public procurement, the contracting authority, as a public law entity, is bound by the terms of the published tender and cannot act freely in fulfilling its function. A thorough understanding of this is crucial for the claimant to demonstrate to the court the violation of public procurement rules and to establish a causal link between the violation and the damage incurred, which is often the most challenging aspect to substantiate. Moreover, the claimant must correctly assess and claim the various forms and amounts of damages incurred. Furthermore, the aforementioned ECJ ruling has significantly broadened the scope for potential compensation claims based on European law, an area with which our courts have limited experience (the so-called loss of opportunity).

What Else Can I Do If I Am Not the Selected Tenderer?

Challenging the Contract and Claiming Damages

If the contracting authority did not properly conduct the public procurement procedure, a person with legal standing may file a lawsuit to annul the contract in accordance with Article 42 of the ZPVPJN. They can also claim compensation for damages resulting from the annulment of the contract.

Administrative Dispute

Since 2021, administrative disputes are permitted against DKOM decisions. If the plaintiff claims damages in such an administrative dispute, the court does not rule on this claim but directs the plaintiff to assert their claim in a civil suit in accordance with Article 49 of the ZPVPJN. It is important to note that initiating an administrative dispute is also crucial in the context of assessing state liability, making it a key step in planning a dispute resolution strategy. However, this is a relatively new area with limited case law, as only 13 lawsuits have been filed in the last three years.

Therefore, representation by an experienced attorney, who can also help the court navigate new legal territory, is especially important. Our law firm offers the expertise and experience necessary to handle both new and complex legal issues. Trust us to protect your interests and rights in administrative disputes.

Conclusion

The recent ECJ ruling confirms the availability of a wide range of compensation options in cases of illegally conducted public procurement procedures, thus enhancing transparency in public procurement processes. The proactivity of tenderers will continue to be crucial in the future. For detailed legal advice tailored to your specific circumstances, our law firm offers extensive expertise in public procurement, construction, and environmental law. Contact us through our website or by sending an inquiry to [email protected] .

Article was written by Pia Ravter from Law Firm Neffat and partners.