European Commission rebuked over 'maladministration' in procurement handling

Out-Law News | 31 Jan 2014 | 4:09 pm | 3 min. read

The European Commission's has received a public censure from a watchdog after it refused to act on a recommendation the watchdog made to compensate an unsuccessful bidder for a contract it had tendered and which the watchdog had said was awarded unfairly.

The European Ombudsman Emma O'Reilly said the Commission had failed to follow "good practice" and had engaged in "maladministration" when it awarded a contract to a supplier to provide technical assistance and training to the Albanian Ministry of Agriculture and National Food Authority. This is because an employee for the winning bidder had had some involvement in drafting the 'terms of reference' for the procurement, creating an "apparent conflict of interest", she said.

"It is good administrative practice to avoid actual, potential and apparent conflicts of interest in the context of tender procedures," O'Reilly said. "In the present case, the Commission allowed an expert of the successful tenderer to participate in the drafting of the terms of reference, which gave rise to at least an apparent conflict of interest. This constitutes an instance of maladministration."

Procurement law expert Kathrine Eddon of Pinsent Masons, the law firm behind Out-Law.com, said that new EU procurement rules finalised earlier this month contain "specific provisions" on conflicts of interests.

"When conflict of interest issues crop up, they can be tricky to deal with if they either have not been disclosed or the procuring authority and the contractor involved in the preparatory stage of the procurement have not given proper thought to whether there is an actual or potential conflict, and if so how they are to deal with it," Eddon said. "If another bidder feels that prior involvement is not fair, they may feel justified in raising it as an issue, which at least can cause disruption to the timetable while everyone tries to resolve the issue, or at worst they feel the competition is sufficiently unfair, and the steps taken to resolve that unfairness inadequate, and take steps to protect their position."

"Under the existing rules, there’s nothing specific in the regulations on conflicts of interest, but there is a fair amount of case law. When the new Public Procurement Directive is implemented into national law, probably in autumn or winter this year, we will have for the first time specific provisions in the procurement legislation that deals with conflicts of interest. The regulations will expressly require an authority to take appropriate measures to ensure that the competition remains fair if one of the bidders had been involved in the preparatory stage of the process," she said.

Eddon said that the new rules will also require authorities to take appropriate measures to effectively prevent, identify and remedy conflicts of interest.

"In particular, the EU wants the definition of conflicts of interest to catch situations where a member of the authority’s staff, or an adviser, who are either involved in running the tender process or who may influence the outcome of the competition, and who have a direct or indirect financial, economic or other personal interest which might be perceived to compromise their impartiality and independence," the expert said.

"The emphasis is currently more on whether there is an actual or potential conflict of interest, but the Directive is also arguably putting an emphasis on preventing and remedying perceived conflicts as well, which is arguably one step further, if it is the perception of third parties that counts," she added.

The European Ombudsman investigates complaints and maladministration by EU bodies and institutions but its decisions are not legally binding. The watchdog has no power to issue sanctions but instead offers an alternative dispute resolution process to court proceedings to those seeking redress and seeks to deliver that through compromise.

In 2012 the European Ombudsman issued a draft recommendation which called on the Commission to make a payment to an unsuccessful bidder for the Albanian contract. The payment was to address the "apparent conflict of interest" that had resulted from the involvement of the successful bidder's employee in drafting the terms of reference for the Commission's procurement.

In its draft decision the Ombudsman said that neither the successful bidder nor the individual employee had "provided sufficient evidence to show that the latter's involvement did not give rise to unfair competition" and that therefore the Commission had failed to follow EU rules.

Under those rules "any firm or expert participating in the drafting of the terms of reference must, in principle, be excluded from participating in the tender in question, unless they can prove to the institution that their involvement in previous stages of the project does not constitute unfair competition," the Ombudsman said in its original ruling.

The watchdog said that the Commission should make a payment to the unsuccessful bidder that had complained "in order to try and offset the negative consequences resulting from the maladministration that has occurred". The Ombudsman had said that the legal costs incurred by the unsuccessful bidder in trying to assert its rights were among the negative consequences it had experienced.

However, the Commission claimed that the unsuccessful bidder had not suffered any "negative consequences" as a result of its procurement handling and refused to make a payment to the company. It also said that it would have been "disproportionate" for it to have cancelled the procurement process at the time it received the original complaint.

The Ombudsman said that it regretted the actions of the Commission and that it had ignored its recommendation to compensate the unsuccessful bidder.