Challenging Public Procurement Contracts - International Law Office

International Law Office

Projects & Procurement - France

Challenging Public Procurement Contracts

October 02 2007

Background
Decision
Comment


Background

There are only two ways for third parties to challenge a public procurement contract, including public-private partnerships. The first method is for a concurrent to file an application for an injunction to restart the tender procedure on the grounds that there were errors in the tender process. 'Concurrents' are persons who either submitted a tender or were eligible to submit a tender for a public procurement contract. An application of this type is pre-contractual; in other words, it is available only prior to the execution of the contract.

Once a contract has been signed aggrieved third parties must resort to a more indirect approach. Applicants may challenge only 'acts distinct from the contract as a whole', including the decision of the parties to sign the contract. The applicant must convince the court to cancel the acts in question and to rule that, as a consequence, the parties should terminate the contract as a whole. This is somewhat a legal fiction since the second method may achieve the same outcome as the first method (though much later, post-execution). Applications for suspension of the challenged acts maybe made under a fast-track procedure and damages mayalso be claimed, depending on the case.

The legal position in relation to third-party challenges - long debated academically - has been motivated by the need to give precedence to legal certainty over other considerations, to the benefit of the public authorities.

With its recent decision in the Société Tropic Case (July 16 2007, Société Tropic Travaux Signalisations 291545), the Administrative Supreme Court opened the doors to a change in law in respect of the post-execution challenge procedure, in effect dropping the legal fiction in relation to 'acts distinct from the contract as a whole'. The effect of the decision is to allow competitors (as distinct from other third parties) to challenge the contract directly for up to two months after a public announcement that the contract has been signed. The powers of the courts in such cases have also been expressly laid out and broadened.

Decision

The case arose out of an ordinary public procurement contract tender for marking runways and roads in the Pointe-à-Pitre airport in Guadeloupe. Société Tropic made a two-pronged application to the administrative tribunal in Basse-Terre under Article L521-1 of the Administrative Justice Code, against the Chamber of Commerce and Industry of Pointe-à-Pitre. The application was denied and the company referred the decision of the tribunal to the Supreme Court.

The first aspect of the challenge was a standard post-execution application for an interim injunction based on acts distinct from the contract as a whole. The second was an application against the contract directly, even though it had already been executed. Significantly, the court ruled that the application by Société Tropic relating to the contract directly was admissible, despite it not being a party to the contract.

In an effort to strike a balance between legal certainty, freedom of contract and the interests of tendering parties, there are strict conditions to be met before a challenge can be heard.

Firstly, only interested parties may apply - that is, applicants must have made an unsuccessful tender. Interested parties that did not submit a tender must go through the pre-contractual or traditional post-execution methods.

Secondly, there is a time limit on applicants of two months from the date on which the conclusion of the contract is announced, although precisely what publicity measures satisfy this criterion remain ill-defined.

Several courses of action are available to a judge faced with a third-party application. A judge may pronounce the contract to be terminated or may call only for the modification of certain clauses of the contract. It is also open to a judge to uphold the contract with new conditions attached or even to uphold the contract but award indemnities in favour of the applicant. If it is not contrary to the general public interest and not too injurious to the interests of the contracting parties, a judge may void the contract partially or in its entirety, from the beginning or with delayed effect.

Perhaps the most powerful of these options from the perspective of an aggrieved third party is that its application may be accompanied by a request for an order to suspend the contract as an interim remedy. Applicants may use this analogous procedure to halt a project underway in an effort to give it an opportunity to secure an interest in the project. The risk to all contracting parties, notably the public authority that issued the tender in response to an 'urgent' public need, is obvious.

Since this ruling pertains to a change in jurisprudence relating to legal procedure, in this instance the court deviated from normal legal principles whereby new case law is retroactive. As a result, the only applications affected by the ruling are applications in relation to contracts for which the tender process will have been launched subsequent to the introduction of the new rules.

Comment

Several problems are immediately apparent in relation to the decision.

Firstly, it is open to any party thatsubmitted an unsuccessful tender to challenge the validity of the contract, but it is unclear whether parties that failed or voluntarily renounced from completing a bid will also be regarded as interested parties, as the notion may also encompass parties that never submitted a tender but that may justify their standing on the basis that they could have done so (eg, they would have completed a bid had a flaw in the tender notice not deterred them from doing so). With respect to pre-contractual challenges, administrative courts tend to take the latter broad view, but the consideration for legal certainty may prevent them from doing so post-execution. Although the decision is far from explicit in this respect, it is not inconceivable that post-contractual challenges will become available to a wider range of third parties, making the number and source of potential challenges less predictable.

Before this decision, the strict rules relating to tender notices were the pivotal administrative burden of the tender process. There were no penalties for failing to announce the outcome and as a result it was rarely given much priority. Since Société Tropic, however, an additional burden exists in relation to publicizing the conclusion of a tender process, as it triggers the time limit for an application against the contract directly. Even for small contracts where no announcement was obligatory, this is now a crucial aspect of the tender process. Precisely what constitutes satisfactory publicity is not explicit, although it is likely that an announcement should be printed in all journals and industry newspapers in which the tender notice appeared (if any). It falls to the public authority to implement the necessary publicity measures and, in any case, private contractors will seek to shift the burden onto public authorities to do so. In effect, both parties risk the cancellation or avoidance of a contract if the publicity requirement is not satisfied.

Additionally, since the two-month time limit is triggered by the contractual announcement, it is likely that the initial stages of a project will be underway when an application is submitted to the court. In order to avoid challenges arising late in the project and the consequential increased risks and costs, it will be in the interest of the contracting parties to generate publicity as soon as possible. In practice, parties realized the risk of legal challenges even before this ruling, but the facility with which third-party claims can now be heard may amplify this risk.

The wide range of discretionary powers available to judges may offer some comfort to contractors. A judge need not void or suspend a contract, but may tailor rulings to be proportionate to the nature of an application so that even a successful challenge may not necessarily invalidate or destroy a contract altogether. Moreover, the power to uphold the contract but to order the amendment of only certain clauses may be advantageous to public authorities, for which it is crucial to ensure the continuity of public services. By contrast, a challenge based on a shortcoming in the conduct of the tender process, which is the main legal ground in these matters, will normally be regarded as impacting on the contract as a whole. As further reassurance to all parties involved, the powers with which a judge is endowed under this ruling are discretionary. Consequently, a judge will be fully competent to leave the contract intact if it is in the overriding general interest to do so.

The new framework introduced by the Supreme Court is an important milestone in a decades-long debate in public law over the academic grounds for administrative courts to deny third parties to challenge public contracts. Some 13 years after the court made a first step in holding that a challenge against a related act could indirectly result in an injunction to seek the termination of the contract itself, the situation has been clarified, for both scholars and practitioners.

Significantly, the traditional case law has not been reversed altogether and the recent ruling will only benefit competitors in the awarding of public contracts. The aim of the court seems to be to avoid any future criticism based on the fact that the traditional rule was impeding full enforcement of EU public procurement regulations which tend to favour penalizing shortcomings in the tender process over contractual legal certainty, with competition taking precedence over other considerations. The decision of the court anticipated by only two days a decision of the European Court of Justice in Case C-503/04, Commission v Germany, whereby it stated as a rule that contracts entered into after a flawed tender procedure should be terminated. However, the trend in this direction, at least in France, may stay confined to the current limits of this ruling.

For practitioners, the question now at stake is whether the time needed to have a case decided by an administrative court (generally well over a year, depending on the complexity of the case, speaking only of the first instance hearing) will make this new simplified challenge worthwhile if no suspension is granted.


For more information on this topic please contact Peter Rosher or David Epaud at Clifford Chance Europe LLP by telephone (+33 1 44 05 52 52) or by fax (+33 1 44 05 52 00) or by email (peter.rosher@cliffordchance.com or david.epaud@cliffordchance.com).



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