Landmark decision: Contracting authority obliged to allow replacement of supporting entity, which did not meet minimum requirement

In a decision of 18 January 2019, the Complaints Board for Public Procurement has established that it was in breach of the public procurement rules that DSB declined Alstom Transport Denmark A/S' request to replace one of the entities, which Alstom had relied on in order to meet the minimum requirements for economic and financial standing. It is a landmark decision as it determines the scope of a provision in the Danish Public Procurement Act and in the EU Public Procurement Directives, which deviates significantly from previous rules and case law.

Background

On 22 June 2018, DSB announced a public tender for the acquisition of "New Trains – Supply and Maintenance of Electronic Trainsets" having an estimated contract value of DKK 50 billion. The tender was conducted as a negotiated procedure pursuant to Article 47 of the Utilities Directive.

On the expiration of the deadline for applying for prequalification on 10 September 2018, seven companies, including Alstom Transport Denmark A/S ("Alstom") had applied for prequalification. In its application for prequalification, Alstom had stated that it relied on four entities, including Alstom Transport Holdings BV ("AT Netherlands"), in order to meet the minimum requirements for economic and financial standing.

As part of its application for prequalification, Alstom had provided DSB with the relevant financial information about each of the four entities, which Alstom had relied on. It was, inter alia, a minimum requirement that the applicant together with the supporting entities (if any) should have a combined average debt ratio in the last three financial years below 4.

On 24 October 2018, DSB informed Alstom that Alstom was one of the four applicants having been prequalified to participate in the tender process and requested Alstom to submit documentation of Alstom's compliance with the minimum requirements for economic and financial standing.

In this connection, Alstom discovered that the ESPD for AT Netherlands included a debt ratio of 0 due to the fact that a group internal current account liability on behalf of AT Netherlands was not included in the debt ratio calculation. If the group internal current account liability was included, the combined average debt ratio in the last three financial years of Alstom and the supporting entities would exceed the maximum of 4.

With reference to Article 72(2) of the Utilities Directive, Alstom requested that AT Netherlands was replaced by Alstom Holdings S.A. ("AT Holdings"). By replacing AT Netherlands with AT Holdings the minimum requirement as to debt ratio would be met. The four other financial minimum requirements would - as they were before the replacement - continue to be met after the replacement of AT Netherlands with AT Holdings. However, DSB declined the replacement, as DSB did not find such a replacement possible under the applicable legal framework.

The Complaints Board's decision

In its decision of 18 January 2019, the Complaints Board has established that DSB has breached article 79(2) of the Utilities Directive and/or the principle of equal treatment in Article 36(1) by having declined Alstom's request for replacement of AT Netherlands, which Alstom had relied on in order to meet the minimum requirements for economic and financial standing, with AT Holdings with reference to the fact that such a replacement is not possible under the applicable legal framework.

Article 79(2) of the Unities Directive contains the following provision: "The contracting entity shall require that the economic operator replaces an entity which does not meet a relevant selection criterion, or in respect of which there are compulsory grounds for exclusion to which the contracting entity has referred."

A similar provision is found in Article 63(1) of the Public Procurement Directive, which has been incorporated into Danish law in Section 144(5) of the Danish Public Procurement Act. The provisions are new compared to the old directives.

The Complaints Board firstly considers whether Article 79(2) of the Utilities Directive applies in the present situation, i.e. in a situation where Alstom as the applicant has relied on several entities in order to meet the minimum requirements for economic and financial standing, but in the ESPD for one of the entities has included incorrect information, which entails that Alstom when applying for prequalification did not meet the minimum requirements.

The Complaints Board finds that Article 79(2) applies in the present situation stating the following:

  • The wording of Article 79(2) is not quite clear. However, there is no support in the wording for DSB's understanding that it only applies when a contracting authority has listed specific minimum requirements to the supporting entities. Thus, according to the Complaints Board, the provision applies when the minimum requirements concern the applicant, but a supporting entity referred to in order to meet a specific requirement does not meet this.
  • There is no basis for assuming that Article 79(2) should only apply, when each supporting entity, which the applicant has relied on, individually meets the minimum requirements. The function of supporting entities are to contribute to the applicant's fulfilment of the minimum requirement and not (necessarily) to meet the requirements themselves.
  • There is no basis for assuming that the fact that the information in the ESPD for a supporting entity was incorrect means that Article 79(2) does not apply. Thus, the provision does not contain an express requirement that it only applies to changes which occur after having submitted the ESPD.
  • DSB has stated that Article 79(2) presupposes that it is possible for DSB as the contracting authority to point out a specific supporting entity which does not meet a minimum requirement such that it is not left to DSB to choose the supporting entity to be replaced. In this case, it is, however, possible to point out AT Netherlands as being the cause of failure to meet the debt ratio requirement and consequently, the entity which DSB must request to be replaced.

Based on the above, the Complaints Board concludes that Article 79(2) applies in the present situation and that DSB has been obliged to request Alstom to replace AT Netherlands as supporting entity.

However, as a second step, the Complaints Board considers whether a replacement of AT Netherlands in the present situation can take place within the scope of the principle of equal treatment.

The Complaints Board finds that this is the case for the following reasons:

  • It must be assumed that the mere fact that an applicant/tenderer, which has relied on supporting entities in order to meet the minimum requirements, is allowed to replace a supporting entity by complying with a request from the authority, cf. Article 79(2), implies that a replacement is not in itself contrary to the principle of equal treatment.
  • There is no additional requirements for the application of Article 79(2) to be in line with the principle of equal treatment.
  • DSB cannot restrict its obligations pursuant to the directive in its tender conditions, i.e. by adding a requirement that a replacement is only allowed if it is caused by circumstances outside of the control by the applicant/tender.
  • Letting Alstom continue in the tender process with AT Holdings as supporting entity instead of AT Netherlands will not affect the other applicants' position for the following reasons:
     
    • All applicants have had the opportunity to take Article 79(2) into consideration when applying for prequalification. Also, potential applicants have had the opportunity to take the provision into consideration when determining whether to apply for prequalification or not. 
    • It is undisputed that Alstom would have been prequalified had AT Holdings from the beginning been part of the group of supporting entities instead of AT Netherlands.
      o There are no other grounds for assuming that Alstom will be given a competitive advantage compared to the other tenderers by letting Alstom continue with AT Holdings as supporting entity instead of AT Netherlands.
    • Thus, based on the above, the Complaints Board concludes that the replacement of AT Netherlands with AT Holdings can take place within the scope of the principle of equal treatment, and, consequently, that DSB has breached Article 79(2) and/or the principle of equal treatment in Article 36(1) by having declined Alstom's request for a replacement.

     

Thus, based on the above, the Complaints Board concludes that the replacement of AT Netherlands with AT Holdings can take place within the scope of the principle of equal treatment, and, consequently, that DSB has breached Article 79(2) and/or the principle of equal treatment in Article 36(1) by having declined Alstom's request for a replacement.

Plesner's comments

It is a landmark decision as it determines the scope of a provision in the Utilities Directive, which deviates significant from previous rules and case law. Moreover, the decision is not only of importance for tenders pursuant to the Utilities Directive. Thus, as mentioned above, a provision similar to Article 79(2) is found in Article 63(1) of the Public Procurement Directive, which has been incorporated into Danish law in Section 144(5) of the Danish Public Procurement Act.

Plesner (attorney-at-law, partner Gitte Holtsø and attorney-at-law Lise Aaby Nielsen) has assisted Alstom in the case.

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