Insolvent bidding partner: new ECJ ruling provides comfort

United Kingdom

This article was produced by Nabarro LLP, which joined CMS on 1 May 2017.

Summary and implications

A sponsor or developer can invest a lot of time developing relationships, joint ventures and bidding consortia. After you form your consortia and submit a PQQ, what happens if your carefully selected partner goes bust? Must you lose your hard fought place in the procurement? Not necessarily so, after a notable ruling by the ECJ.

An Insolvent Bidding Entity

The ECJ has ruled that an authority was not in breach of the principle of equal treatment by awarding a contract to a single tenderer in a pre-qualified consortia comprising two entities where the second had been declared insolvent.

In January 2013 Banedanmark, the railway infrastructure operator in Denmark, launched a negotiated procedure for the award of a public contract for the construction of the "Urban Tunnels" project (a new railway line between Copenhagen and Ringsted).

One of the pre-qualified consortia bidding for the contract consisted of two entities, Per Aarsleff and E. Pihl og Søn A.S. (Aarsleff and Pihl Group). On 26 August 2013 E.Pihl og Søn was declared insolvent. The Aarsleff and Pihl Group submitted a first tender signed by the two companies the following day. Banedanmark later announced that it would allow Per Aarsleff to continue in the procedure as it satisfied the conditions to take part on its own. Per Aarsleff then submitted a second tender, solely in their name, as the successor to the Aarsleff and Pihl Group.

The procuring authority decided that Per Aarsleff's tender offered the best value for money and it was awarded the contract on 20 December 2013. The losing entities, MT Højgaard and Züblin, launched legal proceedings, claiming that the authority was in breach of the principles of equal treatment set out in Article 10 of Directive 2004/17 and as such the contract should not have been awarded to Per Aarsleff.

Breach of Equal Treatment Principle?

The Public Procurement Complaints Board in Denmark referred the matter to the ECJ for a preliminary ruling. The ECJ took into consideration Article 10 of the Utilities Directive, which requires contracting entities to treat economic operators equally, without discrimination and in a transparent way and Article 51 which sets out that tenderers should be selected in accordance with rules and criteria and be excluded where they do not comply with these rules.

The ECJ held that these articles should be interpreted as meaning that a contracting authority is not in breach of the principle of equal treatment in a situation where a contract is awarded to one of two economic operators who previously formed part of a group, where the surviving entity takes part in the procedure for the award of a public contract. However there are two caveats to this: 

  1. the remaining entity must, by itself, meet the requirements laid down by the contracting authority; and
  2. the participation of the surviving entity must not mean that other tenderers are placed at a competitive disadvantage.

This decision gives comfort to bidders that even where an insolvency occurs in the bidding group, it is not necessarily "game over" for the surviving partner. This case serves to highlight the importance of clearing the PQQ hurdle for each consortium member and assess each other's strengths and weaknesses realistically.

An increasing number of projects are deploying a "super-PQQ" to narrow down the bidders in their process.

If you would like to discuss the implications of this case, or any other aspect of bidding for an infrastructure project, please contact us.