Public procurement case law: Rejection decisions must be justified

What level of reasoning is required when rejecting a tender in a public procurement procedure?

In a judgment of 23 March 2023 (docket no. 48300C), the Luxembourg Administrative Court considered an appeal lodged by the State against a judgment of 14 November 2022 (docket no. 45470) which had annulled the award of a contract on the grounds of a failure to state reasons.

1. Factual background

The dispute under review relates to a call for tenders aimed at entrusting a service provider with a surveillance and guarding mission for the “Green Finch” and “Green Square” buildings of the Luxembourg Ministry of Health, a public procurement procedure for which the claimant company had been informed in the following manner:

Your tender was not deemed to be the most economically advantageous in the light of all the criteria set out in the special specifications. In fact, your bid was evaluated at 86.51 points, whereas the winning bidder’s score was 93.94 points.

2. Preliminary observations

As a preliminary point, it should be noted that this letter was based on Article 97 of the Grand Ducal Regulation of 8 April 2018 implementing the Law of 8 April 2018 on public contracts, as amended (hereinafter “RMP“), which provides – after the obligation to inform the successful tenderer – as follows:

(2) Similarly, the contracting authority shall inform the other competitors in writing as soon as possible that it is not making use of their tender, stating the reasons for not taking it into consideration. The samples, drafts and other documents which accompanied their tender shall be returned to them.

This article appears in Book I of the RMP, which applies to all public contracts, unless different rules appear in Book II, which applies to large-scale contracts exceeding the thresholds set at European level.

3. Solution at first instance

Among the pleas put forward at first instance, the applicant company’s lawyer argued that the information provided – namely only an indication of the number of points awarded and the absence of any indication as to the identity of the successful tenderer – was not sufficient to comply with the obligation to give reasons for a decision to reject a tender in a public procurement procedure.

Defending that the content of the rejection letter was sufficient to understand the decision to award the public contract, the contracting authority had also submitted – in the course of the procedure – a report analysing the tenders carried out by a third party to supplement its statement of reasons, a procedure that is usually accepted by the administrative courts in order to save a decision that is correct in substance, but may be insufficiently reasoned.

Relying on a number of decisions of the Court of Justice of the European Union (in particular the judgment of 7 September 2021, Klaipèdos Regiono Atliku Tvarkymo Centras, C-927/19, which does, however, deal with the statement of reasons for refusing to provide additional reasons at the request of an operator), the first judges nevertheless held that :

It follows from these developments that the statement of reasons for the award decision is of fundamental importance to unsuccessful tenderers and that the purpose of Article 55 of Directive 2014/24/EU is to enable unsuccessful competitors to understand why their tender was not selected and consequently to bring an action against that decision in full knowledge of the facts. The mainspring of the obligation to state reasons in formal terms is therefore to inform the addressee of an administrative act of the reasons that led its author to adopt it so that he can assess the appropriateness and, where appropriate, the manner of exercising the remedies available to him. The contracting authority must therefore give precise reasons, based on the selection criteria set out in the contract notice and the supporting documents relating to the grounds for exclusion requested.

This information should therefore include the name of the successful tenderer and the legal and factual grounds for the relevant decisions, including the characteristics and relative advantages of the successful tender, so as to enable a tenderer who has submitted a valid tender but has not been selected to understand the contracting authority’s decision.

Rejecting the possibility of admitting a summary statement of reasons, and considering that this failure to state reasons had consequences that went beyond the mere possibility of suspending the time limits (the usual sanction in this case), the administrative court therefore annulled the decision to award the public contract, justifying its decision in the following terms:

It follows from all the foregoing that insofar as the obligation to state reasons in the context of public procurement is of particular importance, given that it is the corollary of the obligation of transparency, the purpose of which is to guarantee the absence of any risk of favouritism or arbitrariness on the part of the contracting authority, the fact of simply giving a rating to the elements contained in the tender is not sufficient, in itself, to justify or objectify it.

4. Solution in appeal

On appeal, the State argued principally that the first judges should have analysed the pleas in law not from the angle of Article 97 of the RMP but :

• Article 193 of the RMP (found in Book II of the RMP for contracts exceeding the European thresholds):

Art. 193.

(1) The contracting authorities shall inform each candidate and each tenderer as soon as possible of the decisions taken concerning (…) the award of the contract (…)

(2) At the request of the candidate or tenderer concerned, the contracting authorities shall, as soon as possible and at the latest within fifteen days of receipt of a written request, communicate:

(..)

b) to any unsuccessful tenderer, the reasons for the rejection of his tender, (…)

c) to any tenderer who has made an admissible tender, the characteristics and relative advantages of the tender selected and the name of the holder or parties to the framework agreement;

and Article 7 of the Law of 10 November 2010 on review procedures relating to public contracts and the award of concession contracts, which is also applicable to Book II public contracts:

Art. 7.

The award decision is communicated to each tenderer and candidate concerned, together with:

– a summary of the relevant reasons to be communicated by the contracting authority at the request of the party concerned, as provided for by Grand Ducal regulation, subject to the exceptions provided for therein, (…)

– a precise indication of the exact duration of the applicable suspension period.

The combination of these provisions may be perplexing given that the system set out in article 193 of the RMP provides for a system whereby a summary statement of reasons may be given at the time of the decision to reject a tender, although it may be supplemented at a later date and at the express request of the rejected tenderer.

The Law of 10 November 2010 also provides for the communication of a summary of the relevant reasons, but specifies “at the request of the party concerned“, which could lead one to believe that this is once again a supplementary statement of reasons not initially required.

In any event, the judges of the Administrative Court emphasised that the debate had been placed by the first judges on the provisions of article 97 of the RMP, not on their own initiative but because this was the legal basis appearing on the letter sent to the company excluded from the public procurement procedure.

Following this reframing, the Administrative Court highlighted the lack of communication of both the award decision (or at least the name of the company that had won the contract) and the mention of the appeal procedures that would be relevant to a procedure initiated under the rules relating to Book II:

In the light of those obvious considerations, without prejudice to a number of others which might emerge from the circumstances of the case, the Court is therefore led to find that the failings identified above in relation to the obligations to provide information, in particular in terms of communication of the award decision, especially the identity of the successful tenderer, and the requirements to state reasons mean that, in the present case, the right of an unsuccessful competitor, the company (AB), to understand why its tender was not selected and that of one of its competitors preferred, as well as its rights of defence, in terms of assessing, in full knowledge of the facts, the advisability of taking legal action and assessing the related chances of success, but also in terms of assessing and choosing the manner of exercising the legal remedies available to it, have not only been fundamentally disregarded, but the company (AB) has even been misled.

Considering the decision to set aside as not complying with the legal requirements, the Administrative Court incidentally concluded that the period of suspension of signature had never begun to run and that the conclusion of the contract had consequently taken place irregularly and must be annulled for this reason alone.

Without explicitly ruling on the obligation ab initio to give full reasons for the decision to reject a tender in the context of contracts exceeding the major thresholds, the Administrative Court nevertheless raises as a criticism the failure to inform the rejected tenderer that he “was entitled to request a ‘summary’ statement of the relevant reasons (…)” that led the contracting authority to reject the tender. ) “which led the contracting authority not to award the contract to him and to give preference to the successful tenderer” and this “in particular with regard to the enhanced requirements for a statement of reasons with regard to procedures subject to Book II of the laws and regulations of 8 April 2018, to be seen in the light of the case law of the Court of Justice of the European Union“.

Even if this extension of the degree of information is in line with a previous ruling of the Court which related to a sanction imposed by the CSSF (see ruling of 3 May 2022, no. 46817C), this criticism based on the spontaneous provision of information on the rights of a constituent is not without being a source of legal uncertainty, even though in principle this is not information that must be provided by law.

Taking into account the two decisions, this solution also seems to lead to the conclusion that the awarding of public contracts under Book I – and therefore on a smaller scale than those under Book II – would be subject to extensive obligations to give reasons as soon as the rejection letter is sent, whereas reasons could be given in two stages for European contracts.

In any event, it will be up to contracting authorities and contracting entities to take account of these developments in case law, which argue in favour of greater transparency and a “strengthened” obligation to give reasons for rejection decisions taken during public procurement procedures.

For more information on the obligation to provide motives in public procurement, please contact our law firm.